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Why AMC Stock Surged 25% Today

By Joe Tenebruso – Apr 29, 2020 at 4:24PM

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The movie chain is playing hardball with an important partner.

What happened

Shares of AMC Entertainment (AMC 3.29%) jumped more than 20% on Wednesday after the movie theater chain said it would stop showing movies from Comcast's (CMCSA -1.74%) Universal Studios. 

So what

AMC's announcement came after NBCUniversal CEO Jeff Shell made comments suggesting that Comcast would seek to use a direct-to-consumer delivery model for its films more often. "The results for 'Trolls World Tour' have exceeded our expectations and demonstrated the viability of PVOD," Shell told The Wall Street Journal on Tuesday. "As soon as theaters reopen, we expect to release movies on both formats."

Those comments apparently didn't sit well with AMC CEO Adam Aron. "This radical change by Universal to the business model that currently exists between our two companies represents nothing but downside for us and is categorically unacceptable to AMC Entertainment, the world's largest collection of movie theatres," Aron said in a press release. 

In turn, Aron said AMC would no longer show any Universal movies in its theaters.

Empty seats in a movie theater

Fewer "only in theater" movies could make it more difficult for AMC to fill its seats. Image source: Getty Images.

Now what

If other movie studios were to follow Universal's lead and begin to release their best films directly to consumers, AMC and other theater chains would undoubtedly suffer. If people choose to watch new movies at home, they'll be less likely to visit theaters, which were already suffering from declining traffic even before the coronavirus pandemic struck. So, it's understandable that investors would applaud Aron's decision to challenge Universal's plan to release more of its movies via streaming platforms.

However, Comcast, Disney, and other content owners are in a much stronger negotiating position than AMC, which might find it challenging to keep its theaters open if more movie studios choose the direct-to-consumer route. Thus, the current rally in AMC's shares could prove short-lived if investors come to see that the struggling movie chain is starting a war it can't win.

Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Walt Disney. The Motley Fool recommends Comcast and recommends the following options: long January 2021 $60 calls on Walt Disney and short July 2020 $115 calls on Walt Disney. The Motley Fool has a disclosure policy.

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Stocks Mentioned

AMC Entertainment Holdings, Inc. Stock Quote
AMC Entertainment Holdings, Inc.
AMC
$7.05 (3.29%) $0.23
Comcast Corporation Stock Quote
Comcast Corporation
CMCSA
$30.35 (-1.74%) $0.54

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