Four years later, the American cinema giant is lagging behind its local rivals.
The Saudi kingdom’s market is proving delicate for the world’s largest cinema chain, which was supposed to dominate an area without any other major global player.
AMC’s experience illustrates how Saudi Arabia remains a difficult place for Western companies to do business, even with the country’s efforts to court international business with legal and social changes.
AMC has announced that it will open up to 20 theaters by the end of last year, but currently operates 10, with around 65 screens. Its two biggest competitors, Saudi brand Muvi and Dubai-based Vox Cinemas, operate around 150 screens each, despite obtaining licenses to operate after AMC and without the direct government support AMC has. Three more companies are building cinemas and three more have been granted licenses, according to investment bank Saudi Fransi Capital, making Saudi Arabia a competitive market.
Earlier this year, AMC’s Saudi operation replaced its chief executive, John Iozzi, and installed a former director of Vox’s parent company as interim CEO, according to people familiar with the changes.
Now the Saudi government is taking more control of its joint venture with AMC, and the two sides plan to renegotiate the terms of their contract, according to people familiar with the partnership. AMC currently owns 10% of the joint venture with Saudi Entertainment Ventures, a subsidiary of the country’s sovereign wealth fund, and the U.S. company receives fees for licensing its brand and for managing the partnership, the people said.
A new partnership will likely involve a simpler relationship in which Saudi Entertainment Ventures, also known as Seven, pays a fee for licensing the AMC brand but manages the operation, according to a person familiar with the discussions.
In a statement, AMC chief executive Adam Aron said the pandemic had slowed the pace of its theaters’ openings.
“AMC is perfectly happy and satisfied with our expansion into the Kingdom of Saudi Arabia,” Mr. Aron said, adding that he had “the highest praise, deepest respect and genuine affection” for his government partners. Saudi.
AMC has invested at least $ 10 million, or about $ 1 million per theater, in its partnership with Seven, according to a person familiar with the details and public statements. A spokesperson for Seven did not respond to requests for comment.
Seven partnered with AMC with the belief that the world’s largest operator would bring its expertise in movie theater development, said John Sullivan, director of Big Picture, a movie development consultancy that advised on the creation of Muvi. But the size of the American company is largely due to acquisitions of competitors, rather than experience in new emerging markets, he said. This size did not guarantee as much success as it seems at first glance, he added.
AMC entered the kingdom believing its brand was recognized internationally, and therefore owners would want AMC displays in shopping malls, people familiar with the rollout said. But the American company did not have local connections like Muvi and Vox, which are subsidiaries of retail conglomerates and malls established in the Gulf, the people added.
“The average Saudi national only knew about AMC when [AMC] has arrived in the market, ”said Haitham al-Shammari, CEO of Gulf Hub, a Riyadh-based executive search consultancy, and former advisor to Seven. “Vox is very well known to the Saudis.
Kansas-based AMC hailed the opportunity in the kingdom when Crown Prince Mohammed bin Salman in 2017 announced theaters were reopening. Saudi Arabia banned cinemas in the 1980s because its rulers, faced with growing Islamic sentiment across the Middle East, allowed conservative clerics to have greater influence.
AMC began talking to Saudi officials about a presence in the kingdom in November 2017, when Mr. Aron attended a conference in the capital Riyadh, according to a person involved. In December, the two sides unveiled a memorandum of understanding to build cinemas, the same day the kingdom announced it was ending the ban on theaters.
The move was part of a larger Saudi Arabian reshuffle. Prince Mohammed also allowed women to drive for the first time, banned religious police and encouraged genders to mingle in public, which was previously taboo.
Like many competitors, AMC had rushed to build multiplexes in the United States over the past decades and expanded into international markets. Saudi Arabia was one of the few developed countries where exhibitors had yet to expand. AMC has committed to opening up to 50 theaters within five years and up to 100 by 2030.
“We expect this to be a very lucrative opportunity for AMC,” Mr. Aron said on a earnings conference call in April 2018.
That month, AMC and the Saudi government opened an unused Riyadh symphony hall as a makeshift cinema, even before settling details of a joint venture, according to those involved. That month, AMC hosted the first film released in Saudi Arabia since the 1980s, Walt Disney Co.
The blockbuster of “Black Panther”, a first album considered symbolic because it told the story of a young prince trying to modernize his country.
But after the October 2018 murder of journalist Jamal Khashoggi – an operation the Central Intelligence Agency concluded Prince Mohammed likely ordered – interest in foreign investment in the country has cooled. The kingdom has denied any involvement of the crown prince.
Even though other leaders made deals after Mr. Khashoggi’s death, Mr. Aron has publicly stated that AMC will continue to work in the kingdom, citing the best interests of Saudi Arabia’s 35 million people.
AMC opened its second cinema in December 2019, almost 18 months after the first. AMC worked with Seven on a market plan outlining the opening by AMC of 20 stand-alone theaters and 30 more as part of entertainment venues to be built by Seven across the country, according to those involved. Seven has yet to open any entertainment clusters.
Mr Aron said the company’s competitive position in Saudi Arabia “will ultimately be incredibly strong” once it rolls out more theaters and Seven’s entertainment clusters open. He said Saudi consumers “seemed to be keenly interested in cinema.”
Globally, AMC’s stock price has fallen in recent months, fueled by interest from individual investors who have invested it and other memes stocks. Using the cash raised by these thousands of shareholders, AMC has acquired more than half a dozen new locations in the United States, a rebound from over a year ago, when Covid-19 put the company on the verge of bankruptcy.
The company said almost all of its sites around the world have reopened, but attendance levels remain below pre-pandemic levels.
—Stephen Kalin and Erich Schwartzel contributed to this article.
Write to Rory Jones at [email protected]
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