Variety returns in-person for its annual Entertainment & Technology Summit, presented by City National Bank. This one-day event will explore advancing technology’s impact on TV, film, gaming, music, digital media and consumer brands.
Category
✨
PeopleTranscript
00:00Adam, I want to start by saying that, obviously, at this point in the calendar, I've had a
00:05really, really great past couple of months at the box office with Inside Out 2, the Deadpool
00:08and Wolverine.
00:09So I feel like we say this every year, but rumors of theatrical moviegoing's death are
00:14greatly exaggerated once again.
00:15Would you agree?
00:18So much that I agree that I just want to take everybody back in time.
00:24Some existential force out in the universe thought it would be a nice joke on humankind
00:32if we had to relive the Spanish flu epidemic of 1918.
00:38And COVID was not kind to our industry.
00:41Yeah, people have been predicting the demise of the movie theater industry since the 1930s.
00:47We all know that radio and TV and VCRs and DVDs and streamers are all going to put us
00:53out of business all the time.
00:56And in the year prior to COVID, 2019, a billion movie theater tickets were sold at U.S. and
01:04Canadian movie theaters, the so-called domestic box office, a billion.
01:10Just to put that number in perspective, if you take the entire attendance of every major
01:20league baseball team, all 30-something teams, all 162 games, all season long, take the attendance
01:29in the stadium for all those games for major league baseball, and you add to that the attendance
01:35of all the NFL games, every single one, all 30-something teams, all 17 games now, all
01:42season long, add to that the attendance of the entire NBA and the entire NHL and the
01:48entirety of major league soccer, the movie theater industry in the U.S. and Canada sold
01:54seven times the number of tickets of all professional sports combined.
01:59But so that is a reminder that all the people who said we couldn't exist with streaming
02:07or we couldn't exist with VCRs or DVDs or TV or radio, like, no, Variety was founded
02:14in 1905.
02:16We were founded in 1920.
02:19People have been predicting our demise forever and ever.
02:22And there is something about going into a theater and watching a movie that's a wonderful,
02:31wonderful communal experience.
02:33And if many of you live in really nice houses or really nice apartments, not everybody,
02:39but I bet most of you in this room, you know, and if COVID taught us anything when we were
02:46imprisoned in our houses and apartments for a year and a half, we want to get out of the
02:52house.
02:53We want to go somewhere.
02:55We want to see people.
02:56I remember sometime in 2020, late in 2020, I went to a Home Depot.
03:04It was I was there for three hours.
03:06It was like the most exciting thing I'd done in six months.
03:11And the point is, then COVID came and it obliterated our industry.
03:19The domestic box office, which is the basic unit, I'm sorry for going on long, but the
03:24box office being back is a really important question.
03:28The domestic box office, which is a basic placeholder for the size of this industry,
03:34it had been over $10 billion, 11 years in a row pre-COVID.
03:41It was over $11 billion, five years in a row, the last five years of the 11 pre-COVID, and
03:48then COVID comes and it was $2 billion in 2020.
03:51From $11.4 to $2 billion.
03:55That's a big problem.
03:56It's not great.
03:56And then it started to grow, four and a half billion the next year, seven and a half billion
04:00the next year, nine billion the next year.
04:04Then in this town, we're not from here, we're from Kansas City, home of Patrick Mahomes,
04:13and Travis Kelce, and Mrs. Travis Kelce, maybe, you know, we're here.
04:18Unconfirmed.
04:19The mayor of Kansas City is rooting for Mrs. Travis Kelce.
04:24Someone out here decided to have five months of actors and writers strikes, which interrupted
04:29the flow of this rising box office coming back to where it was pre-COVID, which takes
04:38us to now.
04:39So, so much for ancient history.
04:42The writers and actor strikes really put this industry right on the carpet.
04:47And the box office in the first five months of this year was bleak.
04:57And it was, in the five months January and May, the domestic box office was $1.5 billion
05:01in five months, 1.5.
05:05And you all, not you personally, but many in your industry, were writing again about
05:10the demise of movie industry and the movie theater industry, and AMC was going to die.
05:16And I went to CinemaCon, was interviewed, and I kept on saying, it is inconceivable
05:22to me, as someone who's on the inside and knows what's going on, that AMC is going to
05:27have financial collapse.
05:28Inconceivable.
05:29And I made a public prediction at CinemaCon at a panel that the industry was going to
05:36come roaring back.
05:37Finally.
05:38It's been a long wait.
05:39It's come back.
05:40And here, unfortunately for us, it happened.
05:44The prediction turned out to be true.
05:46And here's just two numbers, and they're really important, and you write this one down
05:54because this explains everything.
05:57The domestic box office in the first five months of this year was $1.5 billion.
06:04And that was all strike-impacted from production delays caused by the five months of strikes
06:09in 23.
06:12In the last four months, June to September, the four-month box office, remember, five
06:18months was $1.5 billion in the first five months of this year.
06:23The domestic box office, June to September, is going to be around $3.5 billion.
06:28From $1.5 billion in five months to $3.5 billion in four months.
06:33And when we look at the slate of movies that's coming out over the next remaining months
06:38in 24, and the incredible slate that's coming out in 25, and the incredible slate that's
06:43coming out in 26, this industry is back.
06:48And all of the doom and gloom stuff, those are people who are looking in the rearview
06:55mirror, but if you're looking out the windshield to the front, finally it's been a four-and-a-half
07:01year long slog from COVID and from strikes.
07:06But this industry has a very bright future again.
07:09It's good to hear.
07:11I definitely want to move on and ask about all the ways that technology is improving,
07:17or at least in your business, or attracting more people to movie theaters, which is probably
07:21the most important thing I can do.
07:23Before we do move on, though, I just want to say, in addition to the overall health
07:27of the business being in question, I know there was a lot of speculation about AMC potentially
07:31entering bankruptcy, but you did resolve a debt extension this summer, so you have five
07:35years now to repay down your balance sheet.
07:38How do you feel about your current capitalization and your profitability forecast for the next
07:41five years?
07:42I'm a relieved human being, because we had, as I told my own board of directors, if early
07:54at the end of 23 that we needed to refinance our debt, because our debt was coming due
08:00in the middle of 2026, which sounds like it's far away from 2023, but it's right around
08:08the corner.
08:10And in July, we were able to announce that we'd worked agreements with 150 different
08:18lending institutions, that we were going to refinance all of our – not all, but most
08:22of our long-term debt, and push the maturities out from 2026 to 2029 and 2030, which is a
08:31five years from now.
08:32I mean, no public – we're a big public company on the New York Stock Exchange.
08:37When public companies renegotiate their debt, nobody is able to push it out more than three
08:42or four or five years.
08:43Like, that's normal.
08:45And we got a normal recapitalization done.
08:49It was complicated, but we got it done, and it's an enormous accomplishment for our company,
08:56because it means we have a couple hundred million dollars of debt that's due in 2025
09:00and 2026, but the billions of our long-term debt – it's five years now.
09:04It's like 20 lifetimes from now, and it's normal.
09:08I mean, no one's ever going to refinance your debt out two decades, but one of the
09:15most important things that we did in this refinancing is not only did we push our debt
09:20– we pushed out $2.5 billion of debt maturities out of 3 billion from 2026 to 2029 and 2030,
09:31but we also embedded in that – those new debt instruments a convertible debt – like,
09:38this is inside baseball.
09:39I apologize.
09:40But it was, like, really important for my company, because it means that Variety can't
09:44write articles.
09:45It's not like we're dead anymore.
09:46So one of the key things – we did a $400 million convertible debt instrument, which
09:53if our stock hits $5.66 a share – and we're within a buck of that right now – $400 million
10:00of our debt automatically converts to equity, which lowers our interest expense and lowers
10:05our debt ratio by close to a half a billion dollars.
10:09So that was one – the first big accomplishment was stretching out the maturity.
10:14The second biggest was getting a convertible debt part of it.
10:19But the third, and maybe the most important, is that we negotiated hard with our lenders
10:25that in 2026, which is only two years now – originally when the debt was due – that
10:31if the circumstances are right, we could refinance all this debt yet again, pushing it out further
10:39than 2030.
10:40And the reason that's so important is in 2024, we're still bearing the slings and
10:46arrows of the strikes and COVID.
10:49By 2026, the box office is going to be like this.
10:52Our EBITDA is going to be like this.
10:54We will be a much better credit risk in 2026 than we are in 2024, which means that the
11:00interest rates that we will get are going to be several hundred basis points lower.
11:07As you saw, the Fed cut interest rates a half a point.
11:10We did see that.
11:12And that's the first of several.
11:17I think interest rates will probably come down – well, let's call it between one
11:21and two and a half points in total from where they were three weeks ago.
11:25So the combined effect of lowered interest rates generally and us being a much better
11:31credit risk, when we go to refinance our debt in 2026, again, we'll do so at much
11:38cheaper rates.
11:39So a close friend of mine is Rich Gelfand, the CEO of IMEX.
11:45We're half of the IMEX locations in North America at AMC.
11:51And he used to joke that we lie when we say who's in our management team because he's
11:56sure that Harry Houdini still works at AMC.
12:00But surviving COVID required us to thread the needle well, and there were many out there
12:08who questioned whether we'd be able to thread the needle.
12:12But we did, and I can tell you with such confidence that the combination of resolving our balance
12:20sheet with a rising box office, which means rising profitability, we get to play on offense again.
12:28Our industry has been playing on defense for four and a half years.
12:31It's all changed.
12:33And if you want to circle a date in your calendars, circle June 14, 2024.
12:41Inside Out 2 opened, and it's not just been Inside Out 2 and Deadpool and Wolverine.
12:46It's been movie after movie after movie after movie has worked and has been a big success.
12:53And as I said, the box office has gone from a billion and a half in five months to three
12:57and a half billion in four.
12:59It is a totally different industry.
13:01We've made it.
13:02Absolutely.
13:03Congratulations.
13:04Still some way to go.
13:06I want to talk about, so obviously in terms of the technology as it applies to something
13:11like AMC Theaters, I think that what your company's been investing in are formats that
13:15people used to see as premium, but increasingly are coming to expect as standard.
13:20Laser projection, Dolby Sound.
13:22If you could explain to the people what a PLF is.
13:26And again, I really do think that those used to be super additive and almost like for the
13:31cinephiles or people looking for upgraded experiences, but it's becoming standard in
13:35every AMC screening room.
13:37So we're a big believer, obviously from what you've heard, that the future of movies going
13:45in theaters is a bright future.
13:47A little shaky recent past, but a very bright future finally.
13:54And the way to get moviegoers to continue to go to theaters is to make the experience
14:02in theaters so wonderful that they have to get off their couches and come to a theater.
14:10And they're allowed to watch movies at home.
14:13It's okay.
14:14You ever heard of a movie called Avengers, something, whatever, one of the Avengers movies
14:17that grossed $2 billion.
14:19I checked.
14:20Netflix was in business that same weekend that Avengers opened for $2 billion.
14:25When Avatar 2 came out with its $2 billion, Netflix was in business.
14:29The industry is big enough that streaming and theaters can exist harmoniously.
14:35But if we want to capture our fair share, that share of the consumer viewing habits
14:42that we're entitled to, we've got to make going to a theater a great experience.
14:47And technology's been a big part of it.
14:49So very quietly, we made a decision two, three years ago that we were basically going
14:56to turn all of AMC, all 8,000 of our 7,500 of our US screens to laser projection.
15:03And we've already, that would be a half a billion dollar investment to switch from old
15:11xenon bulbs to laser projection.
15:15And we've already, it's middle of 24, we've already got a quarter of all of our screens
15:20in the US are now laser projection.
15:22And what laser projection does is it increases the light levels on screen by 50 to 100% depending
15:28upon the system it replaced, which means that the image on screen is brighter and sharper
15:35and better.
15:37We've upgraded sound systems all over the place.
15:38Getting a new iPhone.
15:39And in terms of PLFs, premium large format screens, as I said, we're half of all the
15:45IMAX cinemas, IMAX auditoriums in the US and Canada.
15:50We are 100% of the Dolby cinemas in North America.
15:56When I joined AMC in, it seems like yesterday, but it was nine years ago, we had three Dolby
16:04cinemas.
16:05We have 164 today.
16:08We have 31 of our own house brand primes.
16:10We have 423 PLFs at AMC in the United States.
16:17And if I have my druthers, 36 months from now, we'll have 700.
16:22So we're, and again, why?
16:24It's a bigger picture.
16:27It's a better sound system.
16:29It's better technology in the projection booth.
16:33It's the best way to watch a movie in theater.
16:38And by the way, they cost a fortune.
16:39It's like $2 million a screen to put in a PLF.
16:42But we're a big believer that if we make movie going better at theaters, more people are
16:50going to come to theaters.
16:52There have been a lot of people, it's interestingly from the talent representation business that
16:57have said that your real competitor for the next five years is The Sphere.
17:01Is what?
17:02The Sphere in Las Vegas.
17:03Would you agree that that's what you're up against?
17:06No.
17:08Which is not to say that The Sphere isn't wonderful.
17:12It is.
17:16Our real competitor is distraction.
17:21If you ask people at 2 o'clock on a Saturday night, sorry, 2 o'clock on a Saturday afternoon,
17:30are they going to go see a movie tonight in a theater?
17:35And some number of people say, yes, that's what I'm going to do.
17:39Forty percent of them don't go to a movie in a theater that same day because something
17:46came up.
17:48The phone rang, a kid walked in, dog got sick, car won't start, it's raining, doesn't matter.
17:57Something distracted them away from doing what they were planning to do five hours earlier.
18:05So going back to The Sphere, as I've said about Netflix, the consumer's appetite for
18:14content and to be entertained and to be amused is so limitless.
18:23The world is big enough for all of us to do just fine, but we have to remember to get
18:30the consumer to actually follow through and do what they want to do, which is go out and
18:34have a good time.
18:35Absolutely.
18:36I know we don't have a ton of time, but I wanted to sort of end on, we wrote a story
18:40about four weeks ago, which I think a lot of people actually wrote and had a very interesting
18:45life online after it was published.
18:47The headline was Theater Owners Plan to Spend $2.2 Billion to Modernize and Upgrade Moviegoing
18:52Experience.
18:53And by the time I think maybe X and Instagram had chewed on it, it was like zip lines, sound
18:59baths, axe throwing, and then maybe a couple of movie screens.
19:05So what is your insight on...
19:07So your industry, right?
19:09No, no, your industry, you got half the story right.
19:13Which by the way, that's not to be, I'm not trying to be difficult either.
19:17Like how half the box offices come back.
19:18Babe Ruth only hit 300.
19:20So if you get half the story right, you're doing better than Babe Ruth.
19:23And he was the greatest baseball player of all time.
19:28Yes, the industry is going to spend at least $2.2 billion over the next three years, reinvesting
19:36back in the theatrical business.
19:38But I actually think much more exciting for the consumer, the money is not going to go
19:45into zip lines and punching bags.
19:48Sound baths, axe throwing.
19:51The money is going to go to, as I said before, making the movie going experience in theaters
20:01just spectacular and captivating.
20:05And so we're going to be investing in more PLFs.
20:10We're going to be investing in more laser projection.
20:13We're going to be investing in better seats.
20:16We just, for any of you who live out here, we just put new seats in Burbank 16 after
20:21God knows how many years, and they're wonderful.
20:24And the same Burbank seat, 20% wider, padded, rocks.
20:33It's going into Lincoln Square in New York right now.
20:35It's going into Empire in New York City right now.
20:39At Lincoln Square, we're adding 10 inches of legroom to every row of seats in a theater.
20:47And that may not sound like much, but I'm an old airline guy, so I know seat pitch.
20:52If you take the chair that's right in front of you right there, and you push it forward
20:5810 inches from where it is now, where do you see how much more legroom you actually have?
21:04And so we're investing in the equipment that makes food and drink out in our lobbies.
21:13Very quietly, if you can believe this number, AMC invested $100 million in putting Coke
21:20Freestyle machines in all of our theaters.
21:22Why?
21:23Because they have 140 flavors.
21:25And that beats having eight flavor choices, 140 being more than eight, I checked, yeah.
21:33Bigger, better.
21:34And more calories.
21:35No, not if you have the diet stuff, there are a lot of diet flavors up there.
21:42Try Barks Diet Root Beer Vanilla flavor, it's really good.
21:44But coming back to the 2.2 billion, the fact that our industry is willing to invest or
21:52reinvest over $2 billion back into making the movie theater experience superb, I think
22:00shows the bullishness that finally exists in our community that wasn't there two years
22:06ago or four years ago.
22:08And if anything, you make a little news today, I think the $2.2 billion figure is understated,
22:15not overstated.
22:16And I'll give you a case in point.
22:18I know what number we gave NATO that they added up to 2.2 billion.
22:25And we gave them a number of $500 million.
22:28And I actually know for a fact it's going to be $600 million.
22:32And I'd like it to be $750 million.
22:34So already I think the $2.2 billion figure is understated by at least $100 million and
22:41possibly by a quarter of a billion dollars just from AMC alone.
22:45So as I said, the whole takeaway, I guess, from our conversation so far, I think is very
22:53simple.
22:54It was easy to get down in the dumps in the last four years given all the challenges that
23:08the world faced.
23:10And the world is still a mess, right?
23:12There's war in the Middle East.
23:13There's war in Europe.
23:14And we have a big election going on in case any of you didn't notice.
23:19We do.
23:21But fast forward with what's changed, with the box office going from a billion and a
23:29half to three and a half billion in the span of like four months.
23:35It's a very different industry today than it was yesterday.
23:40And we've seen the movies that are coming out.
23:42It is going to be one hit.
23:44There will be a flop every once in a while, but it's going to be one hit after hit after
23:49hit after hit.
23:52This is going to be such a successful industry again, profitable, healthy, investing, playing
23:59on offense.
24:00And those are the articles that are going to appear in Variety about AMC going forward,
24:04not how are they going to pay off their debt, which is what it's been for the last four
24:11years.
24:12Well, thank you for being such a fierce advocate for a medium that we all very much love.
24:15Adam Aaron, everybody.