AMC is a major player in the American movie market, but the company has not managed to crack into the lucrative Saudi Arabian film industry. AMC faces stiff competition from multiplexes like Odeon and CineStar.
AMC is currently losing money and has been struggling to stay profitable. The company has not yet announced any plans to sell or close down, but it will be interesting to see how the company fares in Saudi Arabia’s competitive cinema market.
Four years later, the American film industry behemoth remains behind local competitors.
The market in Saudi Arabia is proving difficult for the world’s largest theater chain, which was supposed to dominate a sector with no significant worldwide contenders.
Even with the country’s attempts to entice foreign industry with legal and social improvements, AMC’s experience demonstrates how tough it is for Western corporations to conduct business in Saudi Arabia.
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AMC said last year that it will build up to 20 theaters by the end of the year, but it presently operates 10, with around 65 screens. Despite gaining permits to operate after AMC and without the direct government assistance that AMC has, its two main rivals, Saudi brand Muvi and Dubai-based Vox Cinemas, both have over 150 screens. According to investment bank Saudi Fransi Capital, three other companies are developing theaters, and three more have gained permits, making Saudi Arabia a competitive industry.
According to persons familiar with the developments, AMC’s Saudi business dismissed its chief executive, John Iozzi, and put a former executive from Vox’s parent company as temporary CEO earlier this year.
According to those familiar with the collaboration, the Saudi government is seizing more control over its joint venture with AMC, and the two sides want to renegotiate the terms of their contract. According to these persons, AMC now owns 10% of the joint venture with Saudi Entertainment Ventures, a subsidiary of the country’s sovereign wealth fund, and earns royalties for licensing its brand and managing the collaboration.
According to a source involved with the talks, a new agreement would likely entail a simpler arrangement in which Saudi Entertainment Ventures, commonly known as Seven, pays a fee to license AMC’s name but operates the business.
The pandemic, according to AMC Chief Executive Adam Aron, hampered the pace of theater openings.
For the first time in decades, movie theaters reopened in Saudi Arabia in April 2018.
Ahmed Yosri/Zuma Press photo
Mr. Aron expressed his “highest appreciation, greatest regard, and true fondness” for his Saudi government partners, saying, “AMC is totally satisfied and content with our growth into the Kingdom of Saudi Arabia.”
According to a source acquainted with the specifics and public pronouncements, AMC has put at least $10 million into its collaboration with Seven, or around $1 million per theater. Seven’s representative did not reply to a request for comment.
According to John Sullivan, head of the Big Picture, a cinema-development consulting business that advised on Muvi’s formation, Seven teamed with AMC in the hopes that the world’s largest operator would provide experience in building theaters. However, he claims that the American company’s growth has been mostly due to purchases of rivals rather than expertise in new growing countries. He went on to say that size didn’t ensure as much success as it originally looked.
According to those acquainted with the rollout, AMC entered the kingdom believing that its brand was well-known worldwide, and that landlords would demand AMC screens in commercial areas. However, unlike Muvi and Vox, which are subsidiaries of major retail and shopping-mall conglomerates in the Gulf, the US business lacked local contacts, according to the sources.
“The ordinary Saudi citizen just knew AMC when [AMC] arrived on the market,” said Haitham al-Shammari, CEO of Gulf Hub, a Riyadh-based executive-search consulting business and former Seven advisor. “The Saudis are extremely familiar with Vox.”
Kansas-based When Crown Prince Mohammed bin Salman announced the reopening of cinemas in the country in 2017, AMC praised the chance. Saudi Arabia outlawed theaters in the 1980s, as its authorities sought to strengthen conservative clerics in the face of rising Islamic sentiment throughout the Middle East.
According to a source familiar with the situation, AMC started talking to Saudi authorities about establishing a presence in the country in November 2017, when Mr. Aron visited a conference in the Saudi capital of Riyadh. On the same day the monarchy declared the end of the theater prohibition, the two parties signed a memorandum of agreement to establish theaters.
The move was part of a larger Saudi Arabian shake-up. Prince Mohammed also made history by allowing women to drive for the first time, banning religious police, and encouraging sexes to mix in public, which had previously been forbidden.
AMC, like many of its rivals, has been racing to construct multiplexes in the United States and expand into other markets in recent decades. Saudi Arabia was one of the few industrialized countries that had yet to increase its exhibitor base. Within five years, AMC plans to add 50 theaters, with as many as 100 by 2030.
In an earnings call in April 2018, Mr. Aron noted, “We believe this to be a highly profitable potential for AMC.”
According to persons familiar with the situation, AMC and the Saudi government launched a temporary theater in an abandoned Riyadh symphony hall that month, even before finalizing the terms of a joint venture. That same month, AMC hosted the first film to be played in Saudi Arabia since the 1980s, Walt Disney Co.’s smash “Black Panther,” a significant launch since it recounted the narrative of a young prince attempting to modernize his kingdom.
However, following the murder of writer Jamal Khashoggi in October 2018, which the CIA found was likely ordered by Prince Mohammed, international investor interest in the kingdom waned. The crown prince was not involved, according to the monarchy.
Mr. Aron publicly said that AMC will continue to operate in Saudi Arabia despite other CEOs pulling out following Mr. Khashoggi’s killing, citing the best interests of Saudi Arabia’s 35 million people.
Nearly 18 months after the first, AMC launched its second theater in December 2019. According to persons familiar with the situation, AMC collaborated with Seven on a market strategy that included AMC building 20 standalone theaters and another 30 as part of entertainment facilities to be built by Seven around the nation. Seven has yet to open any entertainment hubs.
Mr. Aron predicted that once additional theaters are built and Seven’s entertainment clusters open, the company’s competitive position in Saudi Arabia “would be tremendously powerful.” Saudi customers, he observed, “appear to be tremendously interested in going to the movies.”
AMC’s stock has been on a roll in recent months, fuelled by demand from individual investors who have rushed into it and other meme companies throughout the world. AMC has bought more than half a dozen additional sites in the United States using money obtained by these hundreds of stockholders, a 180-degree turn from little than a year ago, when Covid-19 placed the firm on the verge of bankruptcy.
Almost all of the firm’s facilities throughout the globe have reopened, although attendance numbers are still below pre-pandemic levels, according to the company.
—This essay was co-written by Stephen Kalin and Erich Schwartzel.
Rory Jones can be reached at [email protected]
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