Wanda’s New Summer Slate for AMC Theatres


Image

by Robert Cain for China Film Biz

June 15, 2012

While waiting and wondering what changes the new Chinese owner Wanda Group might bring to AMC Theatres, I’ve been imagining a future news story that might go something like this:

With its acquisition of the AMC movie theater chain well underway, Wanda Group on Thursday revealed its new plans for the giant American cinema circuit. Contrary to its earlier assurances, Wanda’s senior management outlined several major modifications it has planned for the 5,048 screen chain’s management and operations. Key changes include:

Staffing

Effective as of today, all 21,000 AMC employees will be replaced with lower-cost Chinese substitute workers. Taking advantage of President Obama’s new EB-50 immigration program which allows for bulk purchasing of Green Card work visas for $50.00 each, Wanda has arranged for the immediate relocation of 21,000 displaced cement factory workers to staff AMC’s 350 cinema locations. Because none of the new workers speak English, cinema patrons will be asked to converse in Mandarin, Cantonese, Hokkien, and 16 other Chinese dialects when purchasing tickets and concessions, when asking for directions to bathrooms, or when otherwise interacting with AMC employees.

Concessions

Cinema-goers will be relieved to know that the popcorn, Butterfinger bars and Jolly Rancher candies at AMC’s concession stands will not be replaced with rice balls, dim sum, and other Chinese snacks. Instead, under the direction of China’s Ministry of Agriculture, and to help relieve pricing pressures due to this year’s surplus Chinese soybean crop, concessions will be stocked entirely with soy-based candies and food products. Delicious new items will include buttered or unbuttered soycorn (popped soybean kernels, delicious when dipped in soy sauce!), Soy Duds candies, Soynut M&Ms, and Reese’s Soy Butter Cups. Depending on the results of this coming autumn’s crop, additional millet and turnip-based snacks may also be added to concession menus.

Programming

AMC’s patrons will still be able to look forward to the usual mix of action, comedy and fantasy fare that typically fill movie screens in summer, but this year there will be a slight twist. Having anticipated the AMC acquisition for the past two years, Wanda Group has been hard at work producing its own slate of summer blockbusters, which it will begin to roll out in the coming weeks. Here’s a sampling of films coming soon to a theater near you:

“Titanic 2” – In this $1.2 billion budgeted sequel to the beloved 1997 film, a team of Chinese scientists sets out to prove that the Titanic could—and should—have survived its ill-fated crossing, if only it had been designed and captained by Chinese experts. To achieve total authenticity, writer-director James Cameron raised the original Titanic from the ocean floor and had it rebuilt in the Guangzhou shipyard according to exacting Chinese specifications. The film features Kate Winslet playing Rose II, the morally correct granddaughter of her Titanic I character; the modern-day Rose II would never dream of exposing her breasts to a strange man. This time it is the iceberg that sinks to the bottom of the Atlantic, and Rose II passes up on the chance to cavort with a poor young ne’er-do-well, saving her virginity instead for a rich man who drives a BMW.

“Bo Xilai: Hero of the People” – This epic tale of selfless heroism tells the real, true story of Bo Xilai, friend, patron and benefactor of Wanda-AMC chairman Wang Jianlin. Bo, played by martial arts master Jet Li, is portrayed as the great communist hero he really is, selflessly fighting for the great Chinese proletariat through his daring acts of generosity and sacrifice. Actress and businesswoman Zhang Ziyi plays herself as the brilliant, $1 million per night financial adviser who engineered China’s economic miracle. Once you’ve seen this movie you’ll leave the theater convinced that any reports you may have heard of murder, corruption, blackmail, prostitution, or perjured testimony were all just a really, really big misunderstanding.

“Red, Red Dawn” – China and North Korea unite in a military rescue mission to emancipate America from the evils of capitalism. The heroic armies of the PRC and the PRK overwhelm the puny defenses of the American one percent, and liberate the enslaved American workers who welcome their rescuers with tears of elation and spontaneous singing of “The Internationale.” Then everyone joyously joins hands and marches to the farms of Iowa for collective re-education.

“Screw You, Richard Gere” – A scintillating series of academic discussions–set to a Philip Glass score and background images shot at Guantanamo–exposes the fallacious theories of such CIA-backed “activists” as Richard Gere, Christian Bale, and Sharon Stone, and their absurd notions about “human rights.”

To allay any potential concerns AMC moviegoers may harbor regarding these changes, new AMC Theatres CEO 姚明 offered the following reassurance: “不用担心, 只是享受电影 和 基于大豆的小吃.”

Robert Cain is a producer and entertainment industry consultant who has been doing business in China since 1987. He can be reached at rob@pacificbridgepics.com and at www.pacificbridgepics.com.

Advertisements

Wanda’s Real Reasons For Acquiring AMC Theatres


 

ImageImage

by Robert Cain for China Film Biz

May 23, 2012

Dalian Wanda, the $16 billion private Chinese conglomerate that operates in the commercial real estate, culture & entertainment, and retail industries, announced on Sunday that it has signed an agreement to purchase AMC Entertainment and its 5,048 screen North American theater chain for the sum of $2.6 billion. Wanda has indicated that it will also spend an additional $500 million on theater renovations and technology upgrades.

Last week I laid out a detailed argument that the acquisition doesn’t appear to make much sense for Wanda. Now that a deal has been announced I still don’t see any compelling business reasons for it. The rationales offered by Wanda’s billionaire chairman Wang Jianlin have so far been unconvincing, the following being representative of his statements:

  • “We want to be a big company, not just in China but in the world.”
  • “This transaction will help make Wanda a truly global cinema owner”

If there were competitive advantages to becoming a very big global player in the cinema business, someone would have done it before. Size alone, and global reach, offer no discernible strategic advantages in a business whose customers’ movie-going choices are purely local ones. There may be some scale economies such as increased bargaining leverage in dealing with suppliers of films, equipment, and popcorn, but these hardly justify paying a peak market price for an aging cinema chain with limited growth prospects and low profitability.

The opportunity costs for Wanda are huge. The $3.1 billion they’re spending on AMC could instead have acquired or built thousands of Chinese and Asian cinemas. Wanda could have chosen to amass a huge market share in a very fast-growing, profitable territory. But they didn’t.

So what, then, are Wanda’s true motivations for buying AMC? How does Wang Jianlin benefit? Herewith, a few theories.

Currency exchange

The AMC purchase might simply be a vehicle for Wanda to move a large sum of money from “soft” Chinese currency into hard American greenbacks. Theaters are a cash business, and Wanda could eventually take AMC public, which would be a nifty way for the company to shift a chunk of its asset base and grow it in the relatively safe haven of the U.S.

Window dressing
Wanda Group is widely expected to go public with its own IPO in China later this year. The AMC acquisition gives Wanda a bit of international sex appeal by instantly making it a global ‘Hollywood’ company, and provides fodder for its road show pitch to prospective IPO investors.

Location, location, location

Dalian Wanda, the parent company of Wanda Cinema Line, is mainly in the business of commercial real estate in China. And commercial real estate in China hasn’t been a very appealing business lately, with government regulation, tight debt policies, and a slowing economy all contributing to a downturn in the sector. So Wanda may see the U.S. as a better bet than China for its real estate development business, with AMC serving as a beachhead to help it launch new hotels, offices, and entertainment properties. We’ve already seen one hobbled Chinese real estate company, Paul Y Engineering, attempt, unsuccessfully, to invest in a U.S. media company as a way of shifting its business and geographic focus. But unlike Paul Y, Wanda already has a presence in the movie business.

Political troubles at home

At least part of Wang Jianlin’s business rise can be attributed to his close dealings with disgraced politician Bo Xilai, who was once the party chief of Dalian, where Wanda is based. Although Wang denies he is being investigated, he must be thinking about the possibility of future political fallout from the Bo scandal. AMC will give him a nice business escape hatch if he needs it.

Vertical integration

AMC could serve as the first element of a vertical integration strategy under which Wanda would get into financing, production and distribution of Hollywood style films for the global market. Wanda has already begun to develop and produce films in China, and an understanding of how both the U.S. and Chinese markets work will become increasingly valuable, as the two film markets combined will likely account for about 40 to 45 percent of total world box office receipts by 2020. 

Soft power

I may be going out on a limb here, but the fact that Wanda will now have a major beachhead in the world’s most important media market could greatly enhance Wang Jianlin’s standing with the Communist Party. The party leadership has repeatedly emphasized the critical importance of soft power initiatives, especially in the west, and with AMC Wang will now have China’s largest mouthpiece in the U.S. It’s unlikely that AMC theaters will be running the Chinese national anthem before screenings of Communist Revolution-set propaganda dramas any time soon, but Wanda can now credibly proclaim that it’s leading the charge in spreading Chinese values to the west.

Of course, Wang’s motives might be much simpler than all of this. As James Marsh, an entertainment industry analyst at Piper Jaffray & Co. put it, “I think this is more of a vanity purchase than anything else.” And he may be right.

Wang has granted an interview to at least one major U.S. newspaper this week, so we may learn more about his thinking in the coming days. 

Robert Cain is a producer and entertainment industry consultant who has been doing business in China since 1987. He can be reached at rob@pacificbridgepics.com and at www.pacificbridgepics.com.

If you’re looking to build your business in China, Pacific Bridge can help. We have more than 50 years of combined experience in developing, financing, and producing films in China and Hollywood, and a uniquely valuable set of relationships and skills to help entertainment and media companies formulate their strategies and achieve their goals in China.

Does Chinese Exhibitor Wanda’s Acquisition of AMC Theaters Make Sense?


by Robert Cain for China Film Biz
May 13, 2012

Another major announcement from China got Hollywood talking last week when Dalian–based Wanda Cinema Line revealed that it has initiated discussions to acquire the 5,048 screen U.S. cinema circuit AMC Entertainment.

The notion of a Chinese company controlling America’s second largest theater chain took many by surprise, and raised lots of questions. But before we speculate too much about what changes a Chinese operator would bring to U.S. movie theaters, a more immediate question comes to mind: does this deal even make sense? Would Wanda truly benefit from owning AMC, or is this merely another example of Chinese chest-thumping that will ultimately amount to nothing?

Let’s look at the following facts:

1. AMC will be costly. U.S. cinema stocks have been on the rise this year, with all three of the publicly listed national theater chains trading at or near their 52 week highs.

It has been widely suggested that AMC’s valuation is $1.5 billion, but that figure would put the company at a value of less than $300,000 per screen, far below the level of the two other large, publicly traded national chains, Cinemark ($711,000 per screen) and Regal ($595,000). Even though AMC was unprofitable last year, losing $83 million on revenue of $1.93 billion in the 39 weeks ending December 29, 2011, its profits have likely bounced back with the strengthening of the U.S. box office in 2012. Given recent market trends, Wanda would likely have to pay top dollar for AMC.

2. Acquiring AMC would be dilutive. Wanda is a market leader in one of the fastest growing, and for the foreseeable future, one of the most profitable cinema markets in the world. China has been growing at an average rate of 35 percent annually, and with 200 million more people forecast to join its upper-middle and affluent classes in the next five years, it will continue to grow rapidly. Ticket prices in China are high, labor and operating costs are low. Government regulations protect exhibitor margins, and keep foreign players out.

The U.S., on the other hand is a completely saturated, highly competitive, slow- to no-growth market, with average profit margins in the low single digits. The future upside for AMC is marginal, with few organic growth prospects and only a few interesting acquisition opportunities available. Given the ability to easily expand and perhaps dominate in a sizzling hot territory like China, why would Wanda invest at least $1.5 billion in the stagnant U.S. market?

3. AMC would not be strategic. One of Wanda’s stated justifications for the AMC acquisition is that it would guarantee the company U.S. exhibition for the movies that it produces.

This is just plain silly. First of all, while Wanda does have a film production division, it has yet to produce a single film. Secondly, unless they also plan on buying Lionsgate or Paramount, there is no way they’re going to be able to consistently make movies that anyone in America will pay to see. To pay $1.5 billion or more to have a U.S. outlet for a fledgling Chinese movie division makes about as much sense as it would to buy an entire parking lot just to be sure you’d have a place to park your horse and buggy.

Another presumptive rationale for the deal would be the potential gain in negotiating leverage Wanda would accrue from owning so many theaters. But the terms for acquisition, import and distribution of foreign films are already set by the Chinese government and they are highly favorable for domestic companies. Wanda wouldn’t gain anything here. It might gain a bit of leverage vis a vis equipment vendors, but as China’s largest player in a market that foreigners are eager to serve, Wanda already has a substantial negotiating position. Again, this looks like a specious justification for acquiring AMC.

4. The deal would be complicated. AMC is privately held, with four large private equity players—Apollo, Bain Capital, Carlyle Group and JPMorgan—among its largest shareholders. Getting these diverse investors to work in concert and agree on terms will likely be a long and complicated process, unless Wanda consents to significantly overpay for the acquisition.

5. The deal could get political. With Wanda’s billionaire Chairman Wang Jianlin already in the media spotlight due to his close dealings with disgraced politician and Politburo member Bo Xilai, a major investment in America’s cultural industry could bring Wang additional unwanted press scrutiny, and possibly attention from the Securities and Exchange Commission as well. Although there are no legal prohibitions against foreign ownership of a theater chain, American lawmakers and moviegoers might not be happy to see a Chinese company establish a dominant position in such a symbolically important business as the movie industry.

With no apparent strategic upside and so much potential financial and political downside, it’s hard to see why Wanda would want to pursue this acquisition. The deal would make infinitely more sense if it were going the other way, with AMC buying Wanda. But given AMC’s already heavy debt load and an imposing set of Chinese regulatory hurdles, that’s not likely to happen any time soon.

Robert Cain is a producer and entertainment industry consultant who has been doing business in China since 1987. He can be reached at rob@pacificbridgepics.com and at www.pacificbridgepics.com.