Industry nervous of Chinese investor links to US movie theaters

We still hold the acquisition of a major stake in US and European cinemas as little more than an error of judgement and that the 2012 purchase of the bulk of the shares in AMC Entertainment by Dalian Wanda of China, was an arrogant misstep. The logic is simple – in China we are growing more and more multiplexes of Cinemas, whereas in the US and Europe many cinema chains are up for sales or closing down. One conclusion is that the Chinese know better how to run them. Our own conclusion was that Dalian Wanda has just refused to accept that the golden age of the cinema is over. At the same time, China wants to create its own Hollywood, and if films made in China cannot gain an airing overseas, then how can that be achieved? So it has cynically ensured US distribution for Chinese made films.

This week however, AMC Entertainment Holdings felt forced to comment on recent media reports which suggested that it was its parent and Chinese nationally owned banks, which has been funding subsequent cinema chain purchases. The company insists that payments have all come from revenue from operations or commercial US loans.

It went further to say that AMC does not rely upon and is not expecting to receive any future financing from Dalian Wanda and there are no inter-company loans outstanding. There were some already declared payments of $10 million to AMC for one-time payments to key officer, directors, and other personnel services associated with M&A. It looks like the Chinese company made bonus payments, but nothing more.

The deals which it is talking about have since 2015 made AMC the largest cinema operative in the US, and possibly the world, buying up Starplex in December 2015; Odeon Cinemas in Europe in November 2016; Carmike in December 2016, and Nordic in Stockholm in March 2017.

All of these were funded by cash and US based borrowings and did not involve money from its parent company, the statement said.

It added that Wanda has no special claim to monies generated through AMC’s operations and can only take dividends when offered

AMC does make payments for movies and some of these are from Legendary Entertainment, another Wanda affiliate, when AMC’s shows its films. This is supposedly an arms-length relationship, although we made that point when the company was acquired in 2012, that this was the only real motivation, to drive showings of the nascent Chinese movie industry abroad, and we’re sure some shareholder pressure is brought to bear to show Legendary films.

If not then as the industry continues to fall into cobweb laden obscurity, the investment in AMC should be seen as totally misguided.

AMC has actually grown under the ownership of Dalian Wanda, to be the biggest US cinema group overtaking the Regal Entertainment Group, which itself has spent long periods in Chapter XI. AMC has 8,200 screens in around 661 theaters in the US, and Regal around 7,307 screens in 564 theaters. That means they have around 15,500 screens out of 38,000 in the US.

The statement came a day after a document emerged suggesting that Chinese regulators had ordered the country’s banks to stop lending money to Wanda to finance the conglomerate’s foreign acquisitions – including Wanda’s $3.5-billion purchase of Legendary Entertainment.

Despite what both companies say, the state of US cinema is nothing like it is in China right now. In China it is on the way up, in the US, on the way down. The AMC founder was attributed with the idea of Multiplexes, based on the thought that the same number of staff could support up to ten separate screens, if the programs start at different times. But the US has long gone past the days where it has built new multiplexes at the expense of theater conversions into single screen cinemas, while in China and other parts of Asia, the cinema and the introduction of multiplexes are a recent phenomenon and still many people have yet to experience a visit to the cinema.

Last week there was a surprise announcement by Wanda that it was selling its theme parks and 70 of its hotels to property developer Sunac China for $9.3 billion. Wanda chairman Wang Jianlin told a Chinese financial journal that “the proceeds from the sale will be used to pay off all bank loans by the end of the year. If that’s the case, then perhaps AMC will be back on the market in a short time frame.

News has begun to emerge this week that this year’s crop of Blockbusters in the US are down some 10% on this time last year, mostly due to many movie franchises – Spiderman, Transformers, Pirates of the Caribbean, and Alien – being on their last legs, in some cases their 5th movie with the same characters. Whether these movies do better outside the US or not is irrelevant – Hollywood is increasingly letting down the US Cinema industry and getting its profits from outside the US.