Amazon (NASDAQ:AMZN) is reportedly in the running to acquire Landmark Theatres, a 50-theater chain that specializes in independent and foreign films.
The move is a slight departure from the company's previous brick-and-mortar plays, such as Whole Foods, which were still focused on its core retail business. The theater chain would be a natural place to showcase Amazon's growing slate of original films and could present yet another opportunity to add benefits for Prime members.
How Amazon could shake up movie theaters
Physical theaters present a number of opportunities for Amazon.
First and foremost, they give the company a place to screen its original films. Unlike Netflix (NASDAQ:NFLX), Amazon has given theaters a first-run window for its original films before they appear on its Prime streaming service. Still, many theaters prefer to show big studio blockbusters than the smaller films Amazon produces. Landmark is the perfect setting for its films, ensuring they reach as wide an audience as possible. As more people become aware of Prime's offerings, that opens the door for more people to become Prime members.
For a similar reason, Netflix is also considering a bid for Landmark. Netflix still wants to release its films to theaters on the same day that it releases them on its streaming service, but Landmark could give Netflix the ability to make more of its films Oscar eligible. Films must appear in theaters for a certain amount of time to be eligible for Academy Awards, and an Oscar could increase awareness of Netflix's originals.
Beyond having a place to showcase original films, Amazon could inject Prime membership perks into the movie theater experience. For example, Amazon could introduce Prime benefits for ticket pricing, an area that's already facing disruption.
Subscription ticketing services have forced AMC (NYSE:AMC) to introduce Stubs A-List, a $20 per month subscription that allows customers to see up to three movies per week at any AMC theater. The service has been a hit, attracting more than 180,000 subscribers in just over a month. Amazon could introduce free or heavily discounted tickets for Prime members to compete with AMC or create a subscription package of its own.
Amazon could also give steep discounts on concessions for Prime members. Concession sales are a huge moneymaker for theater chains. AMC sold $446 million in food and beverages last quarter at a cost of only $72 million. Amazon could cut those prices in half and still produce gross margins well above what investors are used to.
Landmark already offers higher-end concessions at some of its theaters -- an area where AMC is also investing. Amazon could expand on Landmark's existing offerings with products from Whole Foods, creating a differentiated experience at theaters.
Driving Prime subscribers
The company's push into the brick-and-mortar world has been largely focused on increasing Prime subscribers. It's made several moves with Whole Foods to encourage shoppers to sign up for Prime, like discounts, free delivery, and free grocery pickup at select locations. Landmark presents a similar opportunity to drive Prime membership.
Prime is one of the pillars of Amazon's business. Its members are more loyal when it comes to online shopping, and the program allows Amazon to post industry-leading conversion rates from product search to checkout.
Amazon increased the price of Prime recently, and purchasing a movie theater might present an opportunity to justify the price hike by expanding member benefits. If AMC can attract 180,000 customers in just over a month with a $20 monthly movie subscription, Amazon should be able to drive quite a few new Prime members with movie theater perks.
There are still several hurdles to overcome for Amazon to capture Landmark. Amazon is not the only bidder and there are long-standing regulations that could prevent the company, as a movie studio, from owning a theater. Still, the acquisition could be the next step toward an even bigger Amazon Prime empire.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Adam Levy owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon and Netflix. The Motley Fool has a disclosure policy.