As the biggest movie theater operator in the world, AMC Entertainment Holdings (AMC -5.46%) has the most to gain (or lose) in the changing scenery of film-viewing habits. It also has the most leverage to influence the space. Recently, it announced a partnership with entertainment giant Walt Disney (DIS -0.13%) that brings it more firmly in sync with the new age of streaming. This partnership benefits both companies. Let's take a closer look at how and why it should prove fruitful for each.
What's the deal?
Earlier this week, AMC CEO Adam Aron tweeted an image of Disney+ perks that include special screenings at AMC theaters. The two entertainment companies have a solid relationship based on decades of Disney movies showing in AMC theaters. AMC also operates theaters at Disney Springs, a resort area that's part of Disney World.
That announcement coincided with Disney+ Day, an event running from Sept. 8 through Sept. 19 in which Disney said it would be showing screenings of Disney favorites at a group of AMC theaters. These are open to any viewer for $5 per ticket, with a special concessions offer for Disney+ subscribers.
Both of these companies are figuring out how to navigate the new normal as they recover from pandemic declines. So although the companies appear to have competing agendas, they have discovered they can complement each other and both benefit.
The benefits for AMC
AMC needs to get people back into theaters. Shutting down during the pandemic was bad enough, but recovery efforts have been stymied by the success of the streaming industry. After raising billions of dollars to keep going, the company was able to stay solvent as movie-goers began to come back.
Now, although revenue is still suppressed compared to pre-pandemic levels, it's slowly rising. Net loss has improved as well, from $344 million last year to $121.6 million this year.
AMC Revenue (Quarterly) data by YCharts
The summer movie season was close to pre-pandemic levels, with Paramount's Top Gun: Maverick pulling in nearly $1.5 billion in ticket sales, and two other films closing on the $1 billion mark. People look to be eager to get back to theaters. As streaming companies struggle with saturation and competition, AMC looks well positioned to make a real comeback.
Partnering with Disney is another way to get people into theaters. It's also another way to get more films into theaters in the short term. The film slate for many studios is light, as film production has been backed up by pandemic closures and supply chain problems. Aron has said he anticipates a weak third quarter due to a slow film season. The deal with Disney helps fill in some of the gaps, for now. Longer term, film studios have a strong pipeline up of films waiting to be released.
The benefits for Disney
As part of announcement, Disney said it would be distributing a Disney+ poster for each attendee to the AMC screenings, while supplies last. There's a clear marketing effort here, and management looks like it's hoping to hook in some box office fans to become Disney+ subscribers.
On top of that, it's another way to distinguish itself from the pack of competitors who are all going after much of the same subscriber base. Disney took over the lead of the industry as Netflix has been losing subscribers, and it needs to maintain its subscriber count. These perks, including the AMC deal, aren't easily matched. The theater perk in particular is something Netflix, which infrequently releases some of its films in theaters, can't match -- right now.
Although Netflix has tapped into the movie theater space before, it has never made a hard push like that of the Disney, let alone managed to match the synergistic perks from the AMC partnership. But it's possible that as it continues to struggle to compete in streaming, it will adjust its strategy with theater releases. In fact, according to IndieWire, it plans to release 30 of its films in theaters for a short period this year, many of which are being considered for awards in cinema.
Regardless of this possibility, there's reason to believe that Disney will hold strong, especially with the AMC deal in the mix. Ticket sales are an important part of the Disney model, which uses its content to generate revenue in media, products, and experiences. Extra screenings of hits that have already generated millions or billions of dollars in profits, without heavy added expenses, is a no-brainer. These can be easily funneled back into the model to cover investments in streaming as well. If Netflix begins to use the film release model, it could go a long way to covering costs as well. But Disney still has other advantages in its multi-revenue-generating model; furthermore, its strong line of established franchises to tap into should help give it a long-lasting advantage.
The effect on AMC and Disney stock
The current screenings related to Disney+ Day and special concessions for Disney+ subscribers are a short-term action, but there could be a long-term impact from Disney's partnership with AMC. This could lead to future events that may involve other limited releases, or straight-to-streaming releases also showing at AMC theaters. As streaming becomes a greater part of how people enjoy films, it makes sense that there would be more options for viewers to consume content.
This is a short-term fix for AMC, and if nothing else, could get applause from its large fan base of retail investors. AMC stock gained 15% after the initial Disney announcement. However, between continued losses, fewer films, and changing viewer habits, this mother of all meme stocks remains risky as an investment.
Disney stock, on the other hand, has more to gain from this kind of arrangement, as it feeds into its entertainment cycle. Disney has exceeded its pre-pandemic revenue, and it's poised to continue growing.
