The Lex Newsletter: AMC’s ‘Barbenheimer’ blockbuster dreamland

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Dear reader,

Millions of Americans cannot wait for this Friday when two very big motion pictures, Barbie and Oppenheimer, make their highly anticipated debuts on the big screen.

Some cinemagoers are even planning “Barbenheimer” double features to successively watch both Greta Gerwig’s breezy take on the California doll and Christopher Nolan’s intense biopic on the father of the atomic bomb. A debate has ensued about the appropriate order in which to consume the pair, along with accompanying social media memes. 

Amid the two releases, another cliffhanger remains. The US cinema chain AMC Entertainment is fighting hard to stave off bankruptcy, a fate that has felled rivals including Cineworld. AMC became a meme stock during the pandemic. Over time, it was able to sell $2bn of stock to the Robinhood crowd, with the chain’s chief executive Adam Aron leaning into the role of circus ringmaster.

But consider two new plot twists. Some shareholders have revolted against AMC’s increasingly convoluted efforts to keep selling the equity needed to raise cash and fund continuing operating deficits. Meanwhile, a serious work stoppage among Hollywood talent could derail the 2024 and 2025 film productions that would bring the masses back to cinemas.

Last summer, AMC had its own special effects thriller. The company exhausted its authority to issue new common shares. Existing shareholders would not give permission to the company to sell more stock. 

Aron then conjured a preferred stock that resembled common equity, calling the security an “APE”. This was a nod to the label that meme stock investors had given themselves. APEs were supposed to eventually swap into common stock and, until then, were to trade at or near the same price. 

But a gap emerged in the trading prices and the company was unable to convince shareholders to allow it to issue more common stock. AMC eventually found a hedge fund with which it entered into a complex trade to give tens of millions of dollars in effectively free gains in exchange for securing help finally winning the critical vote over the ability to issue more shares.

Retail shareholders did not like what they perceived to be a double-cross from Aron. Eventually, they wrangled a $129mn settlement from the company, which is now awaiting expected approval from a Delaware court.

But will all the financial engineering even matter? Cash burn in the most recent quarter was more than $100mn and the company carries $10bn of leases and debt, the latter of which is trading at stressed levels. AMC shares are down to under $5 each after trading at $20 last summer. 

Annual US box receipts had been steady at $11bn before the pandemic. This year, Aron says, was expected to produce $9bn. The risk is that blockbusters such as the latest instalments of the Indiana Jones and Mission: Impossible franchises are not as popular as hoped. Studios have been releasing fewer films. Combined with the structural shift to streaming distribution, a doom loop may be forming.

Streaming and its economics are also looming large in the twin strikes starring Hollywood’s Writers Guild of America and the Screen Actors Guild/American Federation of Television and Radio Artists.

Talent in front of the camera and behind the scenes believe they are being marginalised by an inferior economic model and rapacious company suits. AMC had hoped that by 2024 and 2025, box office receipts would finally return to nominal 2019 levels. There is cause to think that an extended work stoppage could not only delay new films already approved but radically alter the business of making and releasing movies.

This weekend, AMC will welcome in a host of film enthusiasts while quietly wondering if its own ending will be a doll fantasyland or nuclear annihilation.

Enjoy the rest of your week,

Sujeet Indap
Wall Street editor

Lexfeedback@ft.com