AMC Overreaction To Universal Pictures Will Hasten Theaters Irrelevance

AMC Overreaction To Universal Pictures Will Hasten Theaters Irrelevance

So one of the long term impacts of the COVID19 economic shutdown has been the on the movie theater industry. While Netflix and streaming have taken off, the American tradition of going to the cinema on a Friday night is becoming more and more of a memory. This is why the actions taken by AMC (AMC Entertainment Holdings (NYSE:AMC) is quite perplexing. 

Who really Got Trolled?

This all started with the release of the seminal classic Trolls World Tour (TWT), which was suppose to release in theaters before the shutdown took place. Once NBCUniversal was denied that opportunity to have their film distributed in the traditional model, they decided to release the film to PVOD (Premium Video On Demand). Now TWT was not expected to be a smash hit, so when NBCUniversal CEO Jeff Shell to tell The Wall Street Journal earlier this month:

The results for Trolls World Tour have exceeded our expectations and demonstrated the viability of PVOD [premium video on demand].”

From the numbers that The Motley Fool is coming up with; at $19.99 At $19.99 for two days’ worth of access, the movie has grossed around $100 million, breaking records in the process. By any measure this would be considered a success. 

AMC’s reaction can be categorized as extreme

This announcement prompted  AMC’s CEO, Adam Aron, officially responded on Tuesday, explaining in a press release: “Effectively immediately AMC will no longer play any Universal movies in any of our theaters in the United States, Europe or the Middle East.” He continued:

This policy affects any and all Universal movies per se, goes into effect today and as our theatres reopen, and is not some hollow or ill-considered threat. Incidentally, this policy is not aimed solely at Universal out of pique or to be punitive in any way, it also extends to any movie maker who unilaterally abandons current windowing practices absent good faith negotiations between us, so that they as distributor and we as exhibitor both benefit and neither are hurt from such changes.

What is the long-term impact of this

The movie theater industry has been quietly declining for years. The only reason people don’t notice is the inflated ticket prices to cover the declining attendance. Once again from The Motley Fool:

Regardless of the reason, it’s movie theaters ultimately on the defensive, here. The six biggest studios, which include Universal, Walt Disney, AT&T‘s WarnerMedia, and others, are making more money while making fewer films thanks to the myriad ways to monetize that content outside of theaters. Netflix is one of them, of course, but not the only one. Thanks to the relative success of Trolls 2: World Tour, studios can have even more confidence that bypassing theaters and going straight to consumers with the product is a viable strategy.

The problem remains, though: Theaters need studios more and more, while studios need theaters less and less. The parties on both sides of the table are starting to see that more clearly now.

Movie theaters can only offer one thing, a avenue of distribution for the product of movie studios. The problem with picking this fight with Universal is that over the course of the prior four years, it’s made more films than any other major name. I expect this fight to end well before the billion dollar juggernaut F9rolls into theaters  in April of next year. AMC cannot afford it.

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