In this Market Foolery segment, host Chris Hill and Motley Fool Funds' Bill Barker discuss the somewhat conflicting data about the U.S. movie industry. AMC Entertainment Holdings (NYSE: AMC) hasn't released earnings yet but pre-announced that U.S. box office was down 4.4% last quarter, which sent its shares into a tailspin. It's just one more indication that in the era of streaming media, $12 movie tickets and $7 popcorn keep getting less and less appealing compared with people's other entertainment options.
A full transcript follows the video.
Continue Reading Below
10 stocks we like better than AMC Entertainment HoldingsWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and AMC Entertainment Holdings wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of August 1, 2017
This podcast was recorded on Aug. 2, 2017.
Chris Hill: AMC Entertainment. Holy cow, what a Dumpster fire that thing is today. A warning on their second-quarter results, and the stock is down 24%, and this is absolutely one of those cases where they're dragging other stocks down with them. This is the movie-theater company, AMC. You look at Regal Cinemas today, you look at NCMI today, both those stocks being dragged down by a horrible warning by AMC. And if you're just looking at box-office numbers, this is a little bit of a surprise. In terms of how the box office is doing in 2017, overall, it's doing fine. If you look at what AMC is reporting about the state of their business, things are not well.
Bill Barker: You say the U.S. box office is doing just fine. AMC said in its report that the U.S. box office declined 4.4% in the second quarter. That's not 26%, which is what the stock has declined by. It's yet another data point in the bear case that people are not going to theaters anymore. They're still getting in $1.2 billion a year for the quarter, but it's just getting too expensive to go to the theater. And what do you get in return for it compared to what you get at home? It's the same thing that's going on, to a lesser extent, in restaurants versus home meals, whether it's delivery or just preparation. The gap between the price of doing something at home and the price of going out to do it is growing, and it's not growing in a way that helps AMC, and they're not adding enough services, try as they might to have more restaurant options, food in the theaters, or drink, or more reclining chairs. All of this is costing them, and it's not adding up to an experience that people are taking them up on.
Hill: They also, locally here in the D.C. area, had a little bit of a PR snafu. You said there's no such thing as bad press, but AMC got some bad press here in D.C., because there's an iconic movie theater in Northwest Washington, D.C., The Uptown. It has this fabulous marquee, a gorgeous old theater. I've only been to a few movies in my lifetime in that theater, but it's a truly grand theater to go see a movie in. And AMC bought it and announced they were going to be taking down the iconic marquee and putting up their own name, which is certainly their right, because they want to get the AMC brand out there. And there was just utter outrage from people in D.C. And they quickly and wisely reversed course on that decision.
Barker: Yeah, they didn't quite understand that it was not just an iconic place to go, but an iconic sign to be seen, driving up and down the Connecticut Street in traffic. You see it for a long time at times, as the traffic doesn't move very quickly.
Hill: [laughs] Right, depending on the time of day.
Barker: I'm looking at the local AMC theater, giving them a little publicity, Hoffman Center 22. You can go to 22 different screens there.
Hill: It's just a few blocks from our office.
Barker: They're playing Fast Times at Ridgemont High for some reason.
Barker: Yeah. You can pay, I don't know, $10.50 to go see Fast Times at Ridgemont High on the screen, for some reason. And where else are you going to find $8 popcorn? So I guess it makes sense. You're not going to be able to do that at home.
Hill: I'm a fan of that movie, but there's nothing about that movie that screams, "Boy, you have to see this on the big screen," whereas when Gene Wilder died last year and there were AMC movie theaters, including the one close to Fool HQ, that showed Blazing Saddles and Young Frankenstein for a weekend, I did pay money to go see Blazing Saddles because I love that movie and I had never seen it on the big screen. I applaud the move to show older movies to try to bring in different clientele. But, yeah, you have to give me a good reason to see it on the big screen. Like, Lawrence of Arabia? That's a movie you have to see on the big screen.
Barker: Yeah. You never think that with Fast Times. It seems perfectly appropriate to watch that at home, and a bit easier to drink, I think, while you're watching it.
Barker: To go into some actual business discussion of AMC, here's their solution they're going to implement. Cost-saving and revenue-enhancing measures, including promotional offers, strategic pricing, and a reduction in operating hours and staffing. So they're going to show fewer movies, and I don't know, that's going to save them some money.
Hill: Showing fewer movies?
Barker: Yeah. If they're operating fewer hours. Maybe that means that, on a Wednesday on November, there's no reason to show something at 12 in the afternoon for two people.
Hill: OK, I could see that.
Barker: But it's going to be a reduction, I think, in services, and more promotional pricing. Now, promotional pricing might just be, get three large popcorns and two drinks for $35 instead of $39.
Hill: That sounds like a deal that you would be all over.
Barker: [laughs] That might be a promotion. I don't know. I'm sure that I've got some levers they can work with there. But it's a long-term problem, that the viewing options, as screens at home get better and better, and everybody gets more access to larger databases from Netflix and Amazon Prime and everything else, the theaters are continuing to suffer. If you start compounding a 4% decline year over year, you get to the danger zone very quickly.
Hill: Murder on the Orient Express, that's what I'm crossing my fingers for. I'm hopeful that the reviews, when it comes out this fall, are positive. When I saw a movie recently and that was one of the previews, I thought, I really hope that's good, because a really good Agatha Christie murder mystery, come on!