Dividend Stocks

What Amazon’s $1 Billion Theatrical Plan Means for AMC Stock

AMC theater in Glendale, Arizona. AMC stock.

Source: JJava Designs / Shutterstock

Last week, Amazon (NASDAQ:AMZN) announced that it would spend $1 billion per year on theatrical movie releases, sending movie theater names like AMC Entertainment (NYSE:AMC) stock higher. This news comes as the industry attempts to return to pre-pandemic levels of theatrical releases.

This year, there were about “one-third fewer wide releases” when compared to 2019 due to production pipeline issues. Wide releases are classified as movies that show in at least 2,000 theaters.

Shawn Robbins, Chief Analyst at Box Office Pro, explained the following:

“Now that streaming has begun to mature, the pendulum is certainly swinging back toward a balance as these distributors see the kind of success they’ve been leaving on the table with an all-in approach to streaming […] Theatrical remains a very lucrative business model, and [Amazon’s] news underscores that yet again.”

Analysts and experts have provided mix opinions on what this news means for AMC stock. Let’s get into the details.

How Does Amazon’s Investment Affect AMC Stock?

According to the Nashville Film Institute, the average feature film requires expenses of between $100 million and $150 million. On the low end, that’s equivalent to about 10 films per year for Amazon. On the higher end, the upcoming Avatar sequel reportedly had a budget of between $350 million and $400 million.

Still, Amazon’s planned investment represents the “largest commitment to cinemas from an internet company.” Bloomberg Intelligence analyst Geetha Rangathan believes that the investment could “easily boost theatrical receipts by 15% to 20% given Universal and Warner have roughly similar budgets.”

Meanwhile, CNBC characterizes the investment as on the “lower end” when compared to major Hollywood studios. However, the news outlet ultimately believes that the investment is a positive for movie-theater companies across the board.

Others believe that Amazon’s commitment sends a strong message that streaming and theatrical viewing can live side by side. That was echoed by IMAX (NYSE:IMAX) CEO Richard Gelfond, who pointed out that Disney’s (NYSE:DIS) streaming service has suffered significant direct-to-consumer losses. Gelfond added:

“The argument that you can skip a theatrical window and make up for it on streaming just isn’t true. The theatrical window is more essential than ever to get the streaming revenue.”

Experts predict that 2023 will be a strong year for the domestic box office due to a steady return in production normalcy this year. Both that and Amazon’s investment bode well for AMC stock.

On the date of publication, Eddie Pan held a long position in AMZN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Eddie Pan specializes in institutional investments and insider activity. He writes for InvestorPlace’s Today’s Market team, which centers on the latest news involving popular stocks.

Newsletter