2016 Remembered For Its A&M

If 2016 were to be remembered for its achievements in cinema, it would be for its A&M activity (acquisitions and mergers). Wanda/AMC and Samsung each took major leaps. Tessera and QSC also engaged in takeover activity. And then Razer, a successful gaming company, made a side step towards cinema with its acquisition of THX.

AMC, owned by Dalian Wanda Group, made more than a splash by acquiring both UK-based Odeon & UCI and US-based Carmike in near-simultaneous deals, creating the world’s largest cinema operator with 10,540 screens in eight countries. When adding Wanda’s China holdings, the number grows to 12,200 screens, over 8% of worldwide screens (worldwide screen count estimated at 145,000 at end of 2016). Cinemas are only one leg of Wanda’s strategy with Hollywood. Wanda also acquired Dick Clark Productions, owner of the Golden Globe Awards, and announced its desire to acquire a Hollywood studio. In lieu of buying a studio, the company is making significant investments in Hollywood movie productions. All of this alongside its massive project back home with the US$8B Wanda Studios in Qingdao.

Samsung’s acquisition of Harman pales to Wanda’s open ambition, but interesting nonetheless. The prize plucked by Samsung is Harman’s automotive electronics business. But Harman also brings several quality brands to Samsung’s lineup, including JBL and its professional cinema group. It would be wishful to say that cinema is on Samsung’s mind. But here’s food for thought. Samsung is South Korea’s largest company. South Korea is also home to CJ CGV, a world-class exhibitor whose empire-building ambitions in screen count rivals only that of Wanda, if not in deed then at least in intent. Then there’s Samsung’s shun of Dolby Vision, and its desire to establish a Dolby-less HDR format.  Which ultimately leads to Hollywood, next-door to Harman’s Los Angeles base. A convenient intersection of these thoughts is cinema, where Samsung could join up with CJ CGV to develop a cinema model that competes with Dolby Cinema, driving a new HDR brand. Fanciful thinking, but let that rattle around a bit.

Tessera’s goals with DTS are unlikely to have much to do with cinema. More likely, Tessera will leverage DTS’ sound expertise to compliment its facial recognition technology. DTS, however, continues to press on with immersive cinema sound. DTS, to be sure, is not alone. But the value of such efforts can be illusive. Dolby, the leader in immersive sound, has been pushing Atmos in cinemas for 4 1/2 years, garnering only 1.4% of world screens. That could be significant if Atmos was the primary brand associated with these locations, but that is not the case.

There is the popular belief that a standard immersive sound distribution deliverable will drive sales. But that would be so only if there’s demand, and demand has a lot of moving parts. A distribution standard won’t create a uniform mixing environment. Exhibitors might be attracted to immersive sound if the sound difference is noticeable to the audience. But that requires sound mixes which provide a unique audience experience over the 5.1 format, spotlighting, again, the mixing environment. Then there’s the challenge of rolling out a distribution standard to replace an incumbent technology (Atmos), which feels a lot like replacing incumbent Interop DCP with its standardized form, SMPTE DCP. (And, yes, leading into 2017, the talk of rolling out SMPTE DCP continues to speak louder than actions.) Rather than enage in battles which one has little control over, those seeking to build brand through cinema would be better off studying IMAX and Dolby Cinema.

So why would a successful gaming company like Razer be interested in THX? THX, which I fondly describe as “the brand with no clothes,” still has a presence in Chinese cinema, at least according to THX. But Razer may be less interested in the brand than the service structure that THX has built over the years. THX has a somewhat unique position of interfacing with multiple manufacturers to manage quality control. Razer, a hardware and software company moving into cloud gaming with its own ecosystem, could leverage THX’s capabilities to drive growth as it develops new platforms. It would seem cinema is furthest from its mind.

No need to spend words on QSC’s acquisition of USL in this report. Those interested in my thoughts can read this.

Of the M&A discussed, the noteworthy actions are those of Dalian Wanda and Samsung. Wanda’s ambitions are as transparent as they are aggressive, providing a rare and fascinating study in long range vision and methodical execution. Samsung, on the other hand, could have tremendous potential with its acquisition of Harman.  Or it could just revert to its behemoth self in search of a steering wheel.