Why Amazon Would Even Bother to Buy Into Exhibition Biz

Variety Intelligence Platform

Amazon’s name is being thrown around as a potential movie theater owner again.

The Daily Mail over the weekend reported that AMC Entertainment, the largest U.S. exhibition chain, could be an acquisition target for Amazon. 

But be careful in placing too much weight on the report. Neither companies have confirmed the report, and Deadline has reported that there are no AMC-Amazon talks. 

Still, investors rallied behind the idea. Shares of AMC shot up about 45% in early trading, topping out at more than $5.80.

Any of this sound vaguely familiar? Refresher: Amazon was in the running to acquire Landmark Theaters in August 2018. Landmark eventually sold to billionaire Charles S. Cohen. Cinema chain stocks, like AMC’s, initially dipped but closed slightly up on the day of that news. 

So why do some investors seem to keep getting excited about reports, that they must know at the time may not eventually materialize, on Amazon owning movie theaters? 

The answer is simple in both cases: It makes sense for both parties. 

In this most recent case on the AMC side, Amazon would give the cash-strapped theater chain (it was predicted to file for bankruptcy by the summer before its plan to raise $500M in debt) the financial backing it needs to weather the coronavirus storm. Amazon could as well certainly contribute to significant AMC theater renovations moving forward. 

At the end of Q1 ‘20, Amazon had $27.2 billion in cash and cash equivalents, for example. AMC had just about $300 million in cash at the end of March.

The Amazon-AMC deal would also be a plus for other theater chains, because Amazon purchasing a theater biz the size of AMC’s (which operates 11,000 screens in the U.S., compared to Landmark’s 252) would signal that the e-commerce giant had a fundamental interest in investing in the theater business, rather than just having an avenue to screen its Prime movies or sell more goods.

This fundamental interest in the future of the theater biz could manifest itself by way of Amazon Studios scooping up more films specifically intended for release in theaters, including those not owned by AMC. 

On the Amazon side, the company would most importantly gain a go-to mainstream avenue for screening its awards contenders, without having to pay big fees. Previously, Amazon has paid indie theater chains to screen its awards hopefuls like “The Report,” which only had a theatrical window of two weeks. 

Amazon could also offer a discounted monthly price to AMC Stubs (AMC’s version of Moviepass) as a Prime membership benefit, which could benefit Amazon’s e-comm business and AMC’s theatrical revenues. 

Such a Prime-AMC Stubs deal would also allow Amazon access to a wealth of consumer data it could use to bolster its ads and Prime Video business. Assuming Amazon did roll out a program that had consumers link their Prime accounts to their AMC Stubs accounts, Amazon would gain more insights on what types of food, snacks, and theatrical movies its customers are interested in. This could be used to more highly target the ads Amazon serves on its e-comm platform, and the recommendations it gives on Prime Video.

Amazon reported roughly $3.9 billion in “other” revenue (which is primarily ad sales) in Q1 ‘20, while 150 million Prime members currently have access to Prime Video.

With all this being said, remember that Amazon would be playing a long game in purchasing AMC any time soon. With movie theaters across the country subject to different re-opening timelines, and consumers split on whether or not they will even return when theaters open, AMC won’t be able to bring in meaningful revenue for the foreseeable future.

On one hand this seriously injured state that AMC is currently in puts a price tag on it that may not get any better than it is right now for a potential acquirer like Amazon.

But given the fact that Amazon has many other high-priorities to worry about at the moment (Jeff Bezos has been called to testify before Congress as part of an antitrust probe; the company has also face a litany of issues stemming from its warehouse conditions), don’t be surprised if you get deja vu after reading another “maybe” Amazon-movie theater acquisition in another couple of years.