AMC Entertainment Inc. Case Study Solution
Introduction:
The following memo provides brief detail regarding the cinema industry in the US, the cinema industry in the US is declining but it can be said that there are many prospects which depicts the favorable performance of the cinemas in the future. The memo also provides history of AMC Entertainment Inc. and it also discusses the main adverse issues which is facing by the AMC and its management. The memo includes the SWOT analysis of AMC along with the assessment of recent financial performance of the company. Lastly, it provides the recommendation which can be used to overcome the issues presented in the memo.
Industry Information
North America Industry Classification System (NAICS) was created statistical agencies ran by the Federal government for the purpose of collecting, and analyzing statistical data[1]. This data is published and used as a tool to view the US business economy.
The movie theater industry, NAICS code 512131 was adeclining industry but is slowly gaining the charm which have been lost in the recent years.(Flannery, 2017)Over the last 6 years the movie the aters have struggled to maintain profitability. There had been decreased admission sales due to economy and slow economic growth as well as new options to view first run movies. First run movies generally generate the highest sales during the first few weeks after its release.
As of 2015, the industry reported revenues exceeding $16 billion(Rossolillo, 2016). Major players in this industry are AMC Entertainment, Regal Entertainment, Cinemark Entertainment and Carmike Cinemas.Gradual economic growth has provided some positive outlooks and theaters are making very attempt to enhance and upgrade it amenities. However this can be difficult without the admission sales to fund such upgrades. August 17, 2011, Governor Cuomo of New York signed a bill allowing movie theaters to serve alcoholic beverages which can be consider as one of the biggest revolution in the industry.(PWC, 2016)
In the recent past the cinema industry in the US has seen some rapid acquisitions, one of the most prominent acquisition in the recent times in the cinema industry is of AMC by Wang’s Wanda. It is also anticipated that the billionaire group will also acquire another US cinema giant Cinemark Entertainment in the near future.(Morel, 2016)(Robehmed, 2016)
Company Background/History (1 page)
AMC, originally named, Regent Theater was founded almost 100 years ago in 1920 by Barney, Edward and Maurice Dubinsky. The name was changed to American Multi-Cinema in 1920 by its then CEO Stanley Durwood. They became an industry leader in the creation and operating multi-screen cinemas. In 1963, it introduced its first multiplex. Gradually they became a leading innovator; introducing cup holder arm rests in the early 80’s and opening the first megaplex in the 90’s. (Vault.com, 2016)
Since its acquisition the management was keen to expand the operations of the company, the management pursue both the strategies of growth i.e. organic and inorganic growth. AMC acquires many other companies under its brand name which can be consider as one of the main reason for the success of the company. The main subseries of the AMC are Odeon Cinemas, Carmike Cinemas,(Leawood, 2016) Kerasotes Theaters and Star Theaters.
May 2016, Dalian Wanda invested 2.6 billion to purchase AMC. Since, they have increased screen count, improved food offerings and updated it operations via sound and digital-projection upgrades.(Forbes, 2015)
Issues
Movie Theater depends heavily on motion picture production and performance; AMC is no exception. The performance of the theaters [2]largely depends on the quality of the movies which are releasing in the market if the quality of the movies deteriorates, it is highly likely that the performance of the AMC Theater will deteriorate.
In the recent years the debt burden on the AMC Theater is increased drastically, this issues can have very adverse consequences on the future financial performance of the AMC. Substantial increase cost will have to be incurred by the management and several covenants can also be placed on the AMC by the loan provider which can reduce the pace of growth.
AMC Entertainment Inc. Harvard Case Solution & Analysis
Furthermore, there had been high employee turnover in the AMC which can be very dangerous for the company, the main reason for this high worker turnover can be due to the poor profitability performance and many employees were thinking regarding the potential bankruptcy of the company. And the recent acquisition of the AMC is also one of the main reason for this increased employee turnover.
SWOT Analysis:
Strength:
The main strength of the company can be said its management and association with the large multinational group. The senior and lower management is very committed and keen to expand the operations this commitment and enthusiasm can be one of the biggest strength of any company. Furthermore, the AMC has been acquired by a billionaire group which would allow the company to raise finance from the parent company and AMC can also raise finance easily from outside sources because of this association.(www.researchandmarkets.com, 2016)
[1][1]NAICS is the government organization responsible for classifying various industries and as per NAICS the theater industry is declining industry. Although there is an increase in the recent profit figures but the industry is still in not growing at a considerable rate.
[2] Usually the subsidiaries of multinational and billionaire investors gets finance from the group management or from the parent investor and these subsidiaries also get finance from outside sources easily because the risk of the investors is usually low in these investments......................
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