Is This the End of the Movie Theater?


On Monday, May 20, 2012 a Chinese conglomerate announced it will buy major U.S. cinema chain, AMC Entertainment Holdings, for $2.6 billion in China’s biggest takeover of an American company to date. Dalian Wanda Group Co.’s purchase will create the world’s biggest movie theater operator. The Beijing-based company said it will invest an additional $500 million to fund AMC’s development. AMC operates 346 cinemas, mostly in the United States and Canada, and says it has 23 of the 50 highest-grossing U.S. outlets.

 “We support AMC becoming bigger, not only in the United States but in the global market,” said Wanda chairman Wang Jianlin at a signing ceremony for the acquisition. Wanda said AMC’s American management will remain in place and the headquarters will stay in the Kansas City area. It said staff numbers were not expected to be affected. The company employs some 18,500 people. AMC has reported losses for the past three years.

Back in 1959, Mary Pickford, who was a Hollywood star and also cofounded studio giant United Artists and the Academy of Motion Picture Arts and Science), claimed that cable TV would kill theaters. Then, of course, Jack Valenti famously said the VCR would be the “Boston strangler” to the movie business.

Yet, now, with home theaters, video on demand, streaming services and infringement, the theaters are once again insisting that this time theaters are really in trouble.

In the US – since a peak in 2002 when 1.58 billion tickets were sold – numbers have fallen to a projected 1.22 billion for 2011, a drop of more than 20% according to market analyst The Numbers. Hollywood’s survival in recent years has been the DVD. Avatar alone sold four million DVDs in the first four days of its release. Before the digital transition, VHS provided healthy incomes, but streaming services seem to be changing everything.

Retailer Pixmania placed DVD players at the top of its “2010’s most endangered technologies” list, ahead of fax machines and analogue TV. In the first quarter of 2011, physical sales in the DVD market dropped by 19%, and rentals fell by 36% year-on-year. Meanwhile, the price of online content has fallen dramatically for the consumer, with a Netflix subscription allowing unlimited streaming for $7.99 a month. At the same time, the size of the theatrical window (the time movies are released to theaters versus availability in other venues) has shrunk from 27 weeks in 1999 to 17 weeks. Users in the US can pay a premium per film in exchange for watching the film only eight weeks after cinematic release.

The shorter the theatrical window becomes and the lower the cost of home entertainment options, the greater the danger the movie theater will not survive.

 Can a Beijing buyer help save Hollywood? It seems unlikely.

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