There's little hope that AMC Entertainment (AMC -0.25%) is able to survive long term. A dearth of blockbuster movies, theater attendance is well below pre-pandemic levels, and the theater operator has a mountain of debt it somehow needs to get out from under.
But little hope is not no hope, and Warner Bros Discovery (WBD 0.66%) recently hinted at why meme stock investors continue clinging to the idea AMC may one day bounce back.
Image source: Getty Images.
On the cutting room floor
Warner Bros recently released third quarter results that missed analyst expectations for third quarter revenue, earnings, and direct to consumer subscriptions by a wide margin as restructuring costs from its merger with Discovery weighed heavily on its performance.
Despite a massively successful launch of the Game of Thrones spinoff House of the Dragon on HBO Max, Warner Bros added just 2.8 million new subscribers for the quarter compared to Wall Street's expectations of 3.27 million giving it 94.9 million global subscribers. It pushes the studio's goal of 130 million subscribers further down the road.
Warner Bros is still intent on making HBO Max a viable competitor to Netflix (NFLX -0.86%) and Disney (DIS -0.01%), but it is focusing only on projects that can be profitable. As a result, the studio has been gutting programs that have failed to attract an audience including or had little chance of getting one. Notably the Batgirl movie was apparently so bad it was scrapped even though it was almost completed as Warner Bros didn't want to waste money marketing something that wouldn't make it back.
Yet in the process it has discovered some things that do work, and that's where the hope for AMC comes in as other studios could have similar revelations.
Movies do better in theaters
During Warner Bros Discovery's third quarter conference call with analysts CEO David Zaslov said the studio had two realizations: franchises make a lot of money, so it's going to lean into those it has the rights to -- Game of Thrones, Harry Potter, Lord of the Rings -- and showing movies exclusively in theaters before offering them to streaming is much more successful.
"The movies that we launch in the theater do significantly better and launching a two-hour or an hour and 40 minute movie direct to streaming has done almost nothing for HBO Max in terms of viewership, retention or love of the service."
Taking movies that they've spent a billion dollars on and making them direct-to-streaming is a losing proposition, one that Warner Bros can't afford anymore. It lost $2.3 billion in the third quarter after having lost $3.4 billion in the second.
AMC, as the largest movie theater chain, will be the beneficiary of Warner Bros and possibly other movie studios continuing to supply the theaters with a steady diet of films. And because they will be exclusive runs and not same-day releases, AMC and other theaters will reap larger financial rewards.
A glimmer of hope
We just saw Netflix also recognizing the value theaters still hold. It recently said that its Glass Onion: A Knives Out Mystery sequel to the surprise hit Knives Out original would debut in movie theaters for one week before the film appears on the streaming platform.
While not a full theatrical release (it will only be in about 600 theaters), it is still a realization that theaters have an important role to play and that consumers really do still desire the big screen experience.
The hurdle of viability may still be too much for AMC Entertainment to get over and CEO Adam Aron's hoped for vehicle of diluting his preferred stock to raise cash might have crashed and burned before it even got going. Yet if there is going to be hope the theater operator survives, it will be in studios feeding films into cinema and not from pursuing fever dreams in defunct gold miners or the other fanciful ideas AMC keeps tacking on.
