It's only a rumor at this point, so take the headline with a grain of salt. But given its history and the current circumstances, Amazon (AMZN +0.53%) may truly be interested in acquiring struggling movie theater chain AMC Entertainment Holdings (AMC +3.46%).
The U.K.'s Daily Mail first floated the possibility this past weekend. Only citing unnamed sources, the news venue suggested, "The duo are thought to have held talks about a potential takeover of AMC by Amazon," but qualifying that "it is not clear if the discussions are still active or if they will lead to a deal." Translation: Anything's actually still possible from here, including nothing happening to the existing status quo.
There's a bit of credibility to the claim, however. Not only was Amazon reportedly interested in acquiring Landmark Theaters back in 2018, but last year, it was also said to be interested in an investment in Hollywood's Egyptian Theatre.
In other words, the premise is far from unprecedented. There would be three huge benefits, in fact, for Amazon if it were to make the rumors true.
Image source: Getty Images.
1. A distribution channel for Amazon Studios originals
Most consumers know Amazon makes some of its own shows and movies available via Amazon Prime. What most consumers may not fully appreciate is how many original films it's now making on a regular basis.
Depending on the year, it's around a dozen. That's in addition to a much larger number of television series it produces. All told, Amazon offered a total of 70 new titles via Prime in 2019, according to data collected by Omdia.
That still pales in comparison to the amount of original content being cranked out by rival streaming giant Netflix. But considering that more traditional movie studios like Walt Disney and ViacomCBS-owned Paramount Pictures are making roughly the same number of films per year as Amazon, it would be naive to suggest Amazon isn't already a player.
Being able to ensure wide placement of Amazon's own films in its own movie houses not only poses a threat to the rest of the film industry, it also might encourage Amazon to make more and splashier titles that could prove a draw outside of consumers' homes.
For perspective, movie business blog The Numbers says U.S. box offices collect around $12 billion worth of movie ticket sales per year.
2. Less-contested eligibility for awards
Fans of the film industry likely know Amazon has already received awards for some of its flicks, but it's not been easy. Some of the Hollywood-centered industry's elites have pushed back, suggesting the e-commerce behemoth shouldn't be eligible for such awards since it sidesteps many of the industry's norms. By merely meeting the Academy of Motion Picture Arts and Sciences' minimum requirement of a seven-day theatrical run in at least one Los Angeles theater, Amazon-produced films have been eligible for -- and won -- a small handful of Oscars.
Being seen in the bulk of AMC's more than 380 theaters in the United States alone would more than undercut the argument that Amazon's movies shouldn't be eligible for awards due to their minimal availability to film fans.
Awards may not directly pay Amazon's bills, but they certainly make Amazon Prime a much more marketable product.
3. Another way to draw people into a subscription ecosystem
Kudos to AMC for embracing the idea of subscription-based access to movies rather than trying to circumvent it. Members of AMC Stubs A-List can view a whopping three movies per week at a modest monthly price of $19.99. That's the way consumers plug into Amazon Prime and Netflix, and like it or not, subscriptions are quickly becoming the norm in many other facets of life.
In some regards though, such an approach makes the already-troubled math of AMC's movie business even worse. Per-title entry prices can be dramatically lowered under this model, and while members certainly appreciate amenities like discounted snacks and drinks, this ultimately cuts into the company's already-thin margins without necessarily adding foot traffic. Perhaps most concerning, some Stubs A-List members may struggle to continually see the value of a service that annually costs $240 when there's a universe of cheaper video entertainment available at home. The average person living in the U.S. only watches about four theatrically released films per year, at a typical ticket price of less than $10.
If AMC's Stubs A-List was somehow melded into Amazon Prime, however, it could serve as a win-win for both organizations. Not only would the e-commerce giant then get a grip on consumers' movie-going habits, those A-List members would effectively become Prime members who are known to spend more at Amazon.com than non-Prime members.
Bottom line
Neither AMC nor Amazon has confirmed or denied the Daily Mail's suggestion. It's anything but an outrageous idea, though. Indeed, the idea is quickly making progress toward becoming an outright good one.
The rumor has materialized at a time when a long-standing amicable relationship between theaters and studios is already crumbling. Comcast's Universal Studios blew off the 90-day exclusivity convention Hollywood had offered theaters by deciding last month to offer Trolls World Tour directly to consumers as a streaming video. NBCUniversal CEO Jeff Shell then poured a little salt in the wound by touting to the Wall Street Journal, "The results for Trolls World Tour have exceeded our expectations and demonstrated the viability of PVOD [premium video on demand]."
Shell intimated a few days later during Comcast's Q1 conference call that in the future, the "majority of our movies, whether we like it or not, are being consumed at home. It's not realistic to assume that we're not going to change." The Department of Justice also decided late last year that rules preventing the co-ownership of studios and theaters were no longer necessary, pointing to a telling change in the legal argument against the idea.
Given the disruption that somehow now seems inevitable, it's difficult to find compelling reasons Amazon wouldn't want to get into the movie-theater business.
Even the timing is ideal. AMC shares are still down more than 80% from their 2017 peak despite the 30% gain they logged on Monday in the wake of the rumor, translating into a market cap of less than $600 million. Amazon could pay cash for the COVID-troubled theater chain and not bat an eye, instantly securing the three aforementioned benefits that are arguably worth much more than $600 million.
