The following article is not intended to offer any financial advice. Seek assistance from your financial advisors and planners for those sorts of decisions.
The Reddit Wall Street Bets story has captivated the news, social media, and Wall Street itself with a tale about little guys banding together to take down billions of dollars held by hedge funds betting on the failures of companies. For the most part, the media has been focused on two narratives: first, the meteoric rise of Gamestop stock, and second, the false narrative that Wall Street Bets was pushing for an increase in Silver purchases. Lost in the maelstrom was the fact that Reddit had essentially saved the movie theater business… for now.
AMC is the theater chain with the largest market share in North America, and thus the best leverage in a post-pandemic world. Early on in the downfall of the movie industry, the long-running theater chain was able to negotiate with Universal to keep a fairly strong position once the pandemic was over. Yes, Universal was able to release movies to the home market sooner than in the past, but overall the cinema king kept its position as the first stop for major releases. This negotiating power then led to a trickle-down effect in which other theaters essentially held the same sway via their top dog, AMC.
However, after years of losses from major theater investments, AMC was unable to maintain any semblance of their ROI profits in 2020, and so was placed at a major disadvantage as the lockdowns continued. Multiple times throughout the prior year, AMC was faced with the prospect of bankruptcy – a situation that all but guaranteed studios would have tremendous power over any theaters that survived into the next phase of the industry. But then something unexpected happened: a Reddit subgroup banded together and started buying stock of AMC at remarkable levels, buying against the hedge fund bets that the company would fail.
At one point, AMC stock rose more than 800% from its low. While not as prolific as the Gamestop stock, the situation with AMC allowed the company to raise more than $300 million dollars to keep afloat for the remainder of 2021, even if lockdowns continue globally. While this is no guarantee that AMC will make it to the other side, it’s certainly a shot in the arm, and a good one at that. If movies can begin pulling in audiences by late 2021, AMC should make it another decade with good management. It’s not a certainty that lockdowns will, in fact, be lifted for movie theaters, but now there’s a lane for which AMC can not only get through this enormously hard time, but in fact capitalize on all their investments made in the years prior. For as much as AMC had taken losses in years prior, those losses had occurred as the company purchased expensive new seating, sound systems, and more… all with the hope that moviegoers would flock to their theaters in mass in 2020. Of course, nobody knew that would be the year a disease would change the entire world.
But what does AMC’s survival do for the studios?
For companies like Universal and Disney, this is a mixed bag that is mostly negative. Even though the markets were interested in AMC failing, many people would think that it would be terrible for big media companies if cinemas failed. However, those physical structures and equipment would have remained, even if AMC and other theater companies had went under. Then, whoever bought those venues would have had significantly less influence, capital, and leverage in comparison with the potency prior companies held within the industry. The studios would have been in a position to call the shots, free from the burdens of contracts they hold with AMC.
Big studios need big theaters for big blockbusters. There’s simply no way to replicate the billion+ dollars a studio like Disney can make with a Marvel movie releasing in theaters. Sure, Disney can put it on Disney+, but thus far there’s no way to monetize that at the same level. And while short series with theatrical release level production values are generating high adoption rates of streaming services, we’ve also seen that movies like Wonder Woman 1984 and Mulan can fail harder on streaming than they probably would in a theater. There’s far less anticipation for movies released on home screens than on big screens, and there’s not been a company yet that has shown a way to break that marketing psychology. Yet the amount of money companies made off of blockbusters was held back by that pesky AMC and its contracts with the studios.
So for companies like Disney, Universal, Warner Brothers etc, Reddit has defeated not only the hedge funds, but also the movie execs who had planned to hold all the cards once the big theater companies folded. How will this affect the level of churn companies can pump out now that there’s a chance they’re contractually obligated to follow the agreed upon models of yesteryear for big releases? Netflix certainly isn’t affected, which is why they’re laughing all the way to the bank. But don’t be surprised if major corporations, and those with whom they hold sway, continue to push for AMC’s failure. For now, it looks like they’ll have to get through a group of small investors posting about diamond hands on a Reddit page first.
All of this means that the waters are choppy for movie studios on the other side of the pandemic. Not only do they have to juggle an arms race for streaming superiority (or even just a slice of the pie a la HBO Max), but now they’ll have to do it while negotiating with a cash-influxed theater company. Only time (and the pandemic) will tell how that all plays out.
Pirates & Princesses (PNP) is an independent, opinionated fan-powered blog that objectively covers Disney and Universal Theme Parks, Themed Entertainment and related Pop Culture from a consumer's point of view. Opinions expressed by our contributors do not necessarily reflect the views of PNP, its editors, affiliates, sponsors or advertisers. PNP is an unofficial news source and has no connection to The Walt Disney Company, NBCUniversal or any other company that we may cover.