Four years later, the giant of American cinema lags behind domestic competitors.
The Saudi Arabian market is proving difficult for the world’s largest cinema chain, which was expected to dominate a field where there are no other major global players.
AMC’s experience shows how Saudi Arabia remains a difficult place for Western companies to do business, even with the country’s efforts to attract international business through legal and social changes.
AMC said it will open up to 20 movie theaters by the end of last year but is currently operating 10, with about 65 screens. Its biggest competitors, Saudi brand Muvi and Dubai-based Vox Cinemas, operate approximately 150 screens each, despite winning licenses to operate after AMC and without AMC’s direct government support. Three other companies are building movie theaters, and three other companies have obtained licenses, according to Saudi Fransi Investment Bank, making Saudi Arabia a competitive market.
Earlier this year, AMC’s Saudi operation replaced its chief executive, John Ayuzzi, and appointed a former executive at Vox’s parent company as interim CEO, according to people familiar with the changes.
Now, the Saudi government has more control over its joint venture with AMC, and the two sides plan to renegotiate the terms of their contract, according to people familiar with the partnership. Those people said that AMC currently owns 10% of the joint venture with Saudi Entertainment Ventures, a subsidiary of the country’s sovereign wealth fund, and the US company receives fees to license its brand and manage the partnership.
The new partnership is likely to include a simpler relationship in which Saudi Entertainment Ventures, also known as Seven, pays a fee to license the AMC brand but manages the process, according to a person familiar with the discussions.
In a statement, AMC CEO Adam Aaron said the pandemic has slowed the pace of theater openings.
“AMC is completely happy and satisfied with our expansion in Saudi Arabia,” said Mr. Aron, adding that he had enjoyed “the highest praise, the deepest respect and true affection” for his partners in the Saudi government.
AMC has invested at least $10 million, or nearly $1 million per theater, in its partnership with Seven, according to a person familiar with the details and public data. A spokesperson for Seven did not respond to requests for comment.
John Sullivan, director of The Big Picture, a cinema development consultancy advising on the creation of Muvi, said Seven has partnered with AMC believing that the world’s largest operator will bring expertise in cinema development. But the US company’s size came largely from acquisitions of competitors, rather than experience in new emerging markets, he said. He added that this size does not guarantee a huge success as it first appeared.
AMC entered the kingdom believing that its brand was internationally recognized, so property owners want AMC screens in malls, people familiar with all said. People added that the US company did not have local connections like Muvi and Vox, which are subsidiaries of retail and mall conglomerates in the Gulf.
“The average Saudi citizen, they knew AMC only when [AMC] said Haitham Al-Shamry, CEO of Gulf Hub, a Riyadh-based executive search consultancy, and a former consultant to Seven. “Fox is very well known to the Saudis.”
Kansas-based AMC applauded the opportunity in the kingdom when, in 2017, Crown Prince Mohammed bin Salman announced the reopening of theaters. Saudi Arabia banned cinemas in the 1980s as its rulers, facing growing Islamist sentiment across the Middle East, allowed conservative clerics to gain greater influence.
AMC first began speaking to Saudi officials about its presence in the kingdom in November 2017 when Mr. Aron attended a conference in the capital, Riyadh, according to a person involved. In December of that year, the two sides revealed a memorandum of understanding to build cinemas, on the same day the kingdom announced it would end the theater ban.
The move was part of a broader changeover for Saudi Arabia. Prince Muhammad also allowed women to drive for the first time, banned the Commission for the Promotion of Virtue and the Prevention of Vice, and encouraged the sexes to mix in public places – something that was previously taboo.
Like many competitors, AMC has raced to build multiple machines in the United States in recent decades and has expanded into international markets. Saudi Arabia was one of the few developed countries where exhibitors had not yet expanded. AMC has pledged to open up to 50 theaters within five years, and up to 100 theaters by 2030.
“We expect this to be a very lucrative opportunity for AMC,” Mr. Aaron said on an earnings call in April 2018.
That month, AMC and the Saudi government opened an unused symphony hall in Riyadh as a temporary cinema, even before details of a joint venture were settled, according to the people involved. That month, AMC hosted the first film shown in Saudi Arabia since the 1980s, Walt Disney company
The blockbuster “Black Panther” for the first time is emblematic because it tells the story of a young prince trying to modernize his country.
But after the murder of journalist Jamal Khashoggi in October 2018 — an operation the CIA concluded was likely ordered by Prince Mohammed — foreign investment in the country waned. The kingdom denied any involvement by the crown prince.
Even as other executives cut deals after Khashoggi’s death, Mr. Aron said publicly that AMC would continue to operate in the kingdom, citing the best interests of the 35 million people in Saudi Arabia.
AMC opened its second theater in December 2019, nearly 18 months after the first. AMC worked with Seven on a market plan that outlined AMC’s opening of 20 independent movie theaters and another 30 as part of entertainment venues to be created by Seven across the country, according to the people involved. Seven hasn’t opened any entertainment groups yet.
Mr. Aaron said the company’s competitive position in Saudi Arabia “will eventually be incredibly strong” once more theaters are rolled out and Seven’s entertainment complexes open. He said Saudi consumers “appear to be very interested in seeing cinema”.
Globally, AMC’s stock price has been on a tear in recent months, spurred by the interest of individual investors that has accumulated in it and other MIM stocks. Using the cash raised by those thousands of shareholders, AMC acquired more than six new locations in the United States, a development more than a year ago, when Covid-19 brought the company to the brink of bankruptcy.
The company said that essentially all of its locations around the world have reopened, but attendance levels remain below pre-pandemic levels.
Stephen Kalin and Eric Schwarzel contributed to this article.
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