AMC recently announced that it would seek to acquire the European theater chain Odeon-UCI. Even without the currency benefit that followed the Brexit vote, AMC will be buying into one of the most attractive theater markets outside the U.S.
The four major U.S. movie theater chains account for 50% of a fairly stagnant market in terms of attendance. With domestic competition fierce and little underlying growth, U.S. chains are looking for growth overseas.
AMC’s competitor Cinemark has focused its international business on Latin America. Cinemark’s average domestic ticket price is $7-$8; for international, that number is less than $4, and per-customer concession revenue is about half what it is in the U.S.
By contrast, the European business AMC is looking to acquire is in line with domestic performance, especially in the biggest market, the U.K. In its presentation to investors, AMC pointed out that Odeon-UCI’s average ticket price over the last year was $8.55 — higher than both Cinemark and Carmike’s U.S. averages. So AMC will not only have almost twice as many international theaters as Cinemark, but they’ll generate much more revenue.
A combined AMC/Odeon-UCI would have 7,616 screens, leapfrogging Regal and Cinemark and making AMC the largest global chain in the U.S. (AMC on July 25 also agreed to acquire Carmike, a move that will add 3,000 more screens to its holdings.)
But cross-border scale isn’t the most significant element of financial performance for movie theaters; in fact, AMC projects just $10 million in cost synergies. Where real benefits could come is in applying AMC’s U.S. theater-upgrade strategy — adding recliner seats, IMAX and Dolby, and, most important, dine-in-theater options — to its European business. Attracting more patrons to upgraded theaters and charging higher prices will help, but the biggest opportunity for growth is in concession spending.
If AMC could raise European per-patron concession revenue from $3 to the company’s U.S. average of $7, that would translate to additional annual revenue of $300 million to $400 million; even a $1-$2 increase per patron would mean a rapid payback on the acquisition. And food and beverage revenue has far higher margins than ticket spending. Odeon-UCI is already experimenting with new concession models, including franchise agreements with coffee chains and Ben & Jerry’s ice cream, so AMC’s moves would build on existing strategies.
Higher concession spending will mean significantly higher profits and margins. That’s really the big bet AMC is making here — and it’s one with decent odds of paying off.
Jan Dawson is the founder and chief analyst at Jackdaw Research, an advisory firm for the consumer technology market.