AMC Takes a Page out of the Airline Industry Playbook

Anyone who has ever tried to book a familiar route over the week of Christmas knows just how much airfare can skyrocket during the holidays...                   Airlines run the most sophisticated dynamic variable pricing models in the world. It's no surprise that flights can be three or four times as expensive during peak times... anyone […] Not rendering correctly? View this e-mail as a web page [here](. [Empire Financial Daily] AMC Takes a Page out of the Airline Industry Playbook By Berna Barshay Anyone who has ever tried to book a familiar route over the week of Christmas knows just how much airfare can skyrocket during the holidays...                   Airlines run the most sophisticated dynamic variable pricing models in the world. It's no surprise that flights can be three or four times as expensive during peak times... anyone who has tried to fly to Florida at Christmas, Europe in July, or the Caribbean during Spring Break can tell you that. Even within the same day, flights to and from identical locations can vary wildly depending on the time of day, how many seats in a given class have been booked already, how much time is left before the flight, historical last-minute booking demand, and other factors. Airlines use these models to maximize revenue per available seat mile, a key factor in squeezing profits out of a very high fixed cost business. Other industries employ similar variable pricing models, also with dynamic real-time updates, such as hotels, cruise lines, and notoriously, ride-hailing app Uber (UBER). Then there are other businesses that employ non-dynamic variable pricing at low times... most typically in the form of discounts during slower periods. Think the early bird special at a local restaurant – you get a great deal if you're willing to eat dinner at 4:30 in the afternoon. Or you might get your manicure cheaper on Monday, after the weekend is over, instead of ahead of it. Movie theaters have always had some form of variable pricing when it comes to filling slow periods. Often the first show on a weekday is half-price or otherwise heavily discounted, because most would-be buyers are at work or school. Sometimes theaters will offer discounts on Tuesdays, when demand tends to be low. But historically, there has been no variable pricing for peak periods when demand is high. Friday and Saturday night for a popular movie is the equivalent of that flight to Florida at the beginning of Christmas week, but historically movie theaters have had their revenue upside from surges in demand capped. Not anymore... Movie theater chain and meme stock extraordinaire AMC Entertainment (AMC) made a splash a couple of weeks ago when it charged consumers $1 to $2 more to see The Batman... This is equivalent to an 11% to 21% price hike since the average movie ticket in the U.S. clocked in at $9.37 last year. However, I haven't seen a $9 movie ticket since high school... because movie tickets in New York, Los Angeles, and other major cities can be closer to $20, or even more. If you're already paying $20 for a ticket, an extra buck or two feels far less egregious than if you are paying $9! AMC didn't disclose full details about whether the price hike was uniform across markets. But what's clear is that the move didn't hurt The Batman's performance at the box office... The film raked in $129 million domestically during its opening weekend and was the second biggest film debut since the pandemic started. While AMC made a big splash with its announcement of variable upside pricing, rivals Cinemark (CNK) and Cineworld's (CINE.L) Regal Cinemas had already quietly experimented with raising prices on Spider-Man: No Way Home back in December. Higher prices didn't take a bite out of the performance of that blockbuster either... The film is already the third-highest grossing of all-time, despite being released when the omicron wave was raging. --------------------------------------------------------------- Recommended Links: [Have you seen Steve Jobs' 'Final Prophecy'?]( Steve Jobs' ability to predict the future was remarkable – now his "Final Prophecy" is coming to life, with huge implications for you and your money. And that's exactly why investing legend Joel Litman has just prepared the most fascinating and useful analysis I've seen in many years... [Click here to view](. --------------------------------------------------------------- [Elon Musk's secret fuel?]( In addition to leading the charge for batteries, electric vehicles, and solar-powered homes, the Tesla founder is quietly working on a new type of fuel to power his SpaceX rockets. McKinsey, a leading consultancy, claims this technology will change our lives forever and create a $4 trillion industry. And one little-known company at the forefront of this industry has the potential to become "America's Next Big Monopoly." If you missed out investing in Tesla, Apple, Amazon, Google, or Netflix early on... this could be your second chance. [Get the details here](. --------------------------------------------------------------- So far, consumers haven't balked at the surge pricing... We can see clearly that both superhero flicks did just fine during these experiments in surge pricing... The price elasticity of demand was extremely low for these films – making them more expensive did not dissuade many people from purchasing a ticket. That price inelasticity could be because of the movie product on offer... or it could reflect the times we live in... or maybe it's a little of both. These were both movies that a lot of people were actively waiting for – many wanted to see them quickly so they wouldn't get spoiled on plot points and others just didn't want to be left out of the proverbial watercooler conversations. So to a large extent, this pricing power derives from the appeal of these particular films. I would argue that some of the pricing power also comes from the times we are living in. After a year or two of deprivation, we're seeing pent-up demand for experiences – going to the movies is one of them. We've seen this kind of pricing power at resort hotels, for popular route airfare, and on restaurant menus. People may know that they are paying more, but after a tough couple of years, there's a bit of [a "you only live once" aka "YOLO" attitude toward spending]( and treating yourself. And if people aren't going to balk at paying $350 for a hotel room that used to be $250, are they really going to complain about an extra buck for The Batman? Probably not, especially if you only buy a few tickets a year or haven't bought a ticket in two years. Also, people are well aware that inflation is raging and businesses are not immune. Many consumers are also sensitive to how much money certain businesses, like movie theaters, lost during the pandemic shutdowns and restrictions and are willing to cut them some slack. Corporations are hardly charities, which is why I have been shocked by the high number of people defending very large price increases invoked by companies that were especially heavily hit. As an example, I can't tell you how many times I have seen people on message boards for Disney's (DIS) theme parks defending what have effectively been 15% to 25% de facto admission price increases with the explanation being the company needs to make back all the money it lost during COVID-19 (this of course ignoring the [record profits that Disney had in its Parks division]( in the December quarter... because of those price increases!). But it's nice that consumers are feeling so charitable toward corporations... The ability to charge more for tickets during peak times is great for the industry, but the chains would be best not to try and push this too hard... Raising prices has actually been the primary source of revenue growth for theaters over the past couple of decades, as attendance has slowly but steadily eroded. Movie theater attendance peaked in the U.S. in 2002, and had been in a downtrend since then... Source: Wolfstreet.com Of course, U.S. box office receipts continued to be much more stable (until the pandemic), thanks to continued ticket price inflation... Source: Statista Sometimes, price increases were justified by premiumization of the experience – stadium seating, recliner seats, and IMAX or other large format screens. Other times, they were just price hikes with no added service, but every company was doing it, so the chains could get away with it. It seems like picking pennies off the floor to charge more for the most popular film product, but the larger issue remains: Theaters need to get more people going to the cinema regularly. Getting an extra $2 out of someone doesn't help much if they used to come four times a year but now only come once. Rents make the movie theater exhibition business a high fixed cost one... so keeping capacity utilization up is important. Also, you may be able to double the ticket price for a blockbuster... but that doesn't mean attendees will eat and drink twice as much once they're at the theater. Movie theaters typically turn over 50% to 60% of box office receipts to the movie studios. On concessions however, they keep about $0.90 of every $1 after food costs. Another reason that attendance matters... a lot. The potential to suppress attendance would be the main argument against even more dramatic surge pricing... Sure, you might get someone to pay an extra $5 or $10 for The Batman or Spider-Man: No Way Home, but if you do extract that from them, when it comes to that indie film, they may just wait for it to get to streaming. Or if something is a premium streaming title, they might shell over the $30 to see it early at home, packing as many people into their living room as possible. Film research company Quorum published a study in November that showed 49% of pre-pandemic moviegoers had not at that point yet returned to cinemas. Eight percent of respondents indicated that they had no intention of ever returning. The survey noted factors including rising prices, diminished customer experience, run-down malls housing theaters, and increasing interest in streaming, video games, and "smartphone-based entertainment." While surge pricing for films is great for the troubled industry – and you should expect to pay it if you plan to see the sequels to Thor, Spider-Man, and Black Panther later this year – it's a drop in the bucket when it comes to addressing the industry's challenges. Earlier this month, AMC reported mostly in-line results for the fourth quarter... Revenue was in-line with consensus estimates of $1.17 billion and AMC's net loss of $0.11 per share was a hair better than expectations of a $0.14 loss. AMC initially rallied a bit in the wake of the results, but the rally was short-lived, and the stock is now down 26% since the report and 50% so far this year... Despite the drop, I remain extremely negative on AMC shares because the company trades at twice the enterprise value ("EV") it had at the end of 2019, despite having lost so much of the movie-going audience during the pandemic, for the reasons cited in the Quorum poll. Meanwhile, the insider sales keep adding up at AMC, including the latest, which features the company's general counsel dumping almost all his shares... Source: Twitter/@SpecialSitsNews It's hard not to believe there is information in the constant barrage of insider sales here. Avoid AMC shares. In the mailbag, more on Russia-Ukraine, plus how people are preparing for uncertain times, inflation, and an end to Russian imports... How much of a premium would you pay to see a movie in which you were really interested? $1... $2... $5? How much is too much? Also, do you pay attention to insider buys and sells? Have they ever led you astray in your investing? Share your throughs in an e-mail by clicking [here](mailto:feedback@empirefinancialresearch.com?subject=Feedback%20for%20Berna). "One of your readers made the comment that bitcoin fell, and gold rose as this story unfolded. Maybe in the first couple of days, but not now. Bitcoin hit a low on February 23 of $34K; today it is at almost $44K. Bitcoin is one of the few currencies that can still be used in Russia; some people there are paying premiums of $20,000 per coin, just so they have something that can be used today. They can't get rubles, and the value of the ruble has collapsed." – Paul G. Berna comment: Bitcoin is back around $38,800 today... It has been bouncing around in the $37,500 to $44,000 range since this conflict started. Depending on the start date you pick, it's up 5% to 8%. Gold is up around 7% to 9% over the same time frame. Gold is slightly outperforming bitcoin... I think lots of people hoped or expected this geopolitical moment would be more of a breakout one for bitcoin. "I don't think China has any love for Russia and is playing Putin in order to weaken both Russia and us (the U.S.). I hope our plan is to allow Russia to spend itself down, and if we fix the energy problem (drill-drill-drill), we bust Putin. Doesn't China have energy problems?" – Bravobill "I just ordered a backup generator for home. I am worried about cyberattacks, etc. Also going to increase pantry stocks of the foods we eat. Oh, yeah – a couple more cans of gas. Not going crazy, just insurance." – Kent M. "New Hampshire, USA has state-controlled liquor stores that generate a lot of revenue for the state. All Russian liquor has been pulled from the shelves, 79 stores in total. "There is always France for your vodka~" – Harold P. Berna comment: Not going to say no to that Grey Goose French vodka! 😊 Regards, Berna Barshay March 14, 2022 If someone forwarded you this e-mail and you would like to be added to my e-mail list to receive e-mails like this every weekday, simply [sign up here](. © 2022 Empire Financial Research. All rights reserved. Any reproduction, copying, or redistribution, in whole or in part, is prohibited without written permission from Empire Financial Research, 601 Lexington Ave., 20th Floor, New York, NY 10022 [www.empirefinancialresearch.com.]( You received this e-mail because you are subscribed to Empire Financial Daily. [Unsubscribe from all future e-mails](