AMC shares surge on reports that Amazon has expressed buyout interest

AMC Entertainment shares skyrocket on reports that Amazon will buyout the movie theater chain. Yahoo Finance’s Dan Roberts weighs in.

Video Transcript

ADAM SHAPIRO: Dan, let's shift to AMC and Amazon. There was the report that Amazon might be looking to acquire AMC Entertainment. But this just coming from Citi, they say that a potential acquisition of AMC is unlikely. Why would Amazon want a movie chain? It's almost like Mario Andretti buying a Model T.

DAN ROBERTS: Well, that's interesting you say that. I see a lot of benefits for Amazon. But let me caveat, I don't think this will happen. I mean, this is a business in trouble, and movie theaters have high overhead. Right now, they're already trending down. And I say all this with some sadness because I'm a huge movie theater guy. I'm devastated by what's happening in movie theaters. I hope they end up OK.

But in terms of just looking at it as a smart business play for Amazon, I don't see it. Now, that said, there are some reasons why it makes sense that Amazon would at least consider it, would look at buying AMC. We know that Amazon Studios has done a lot of purchasing of movies, both finished movies and early projects. You can imagine a scenario where, you know, movies play in theaters that are owned by Amazon for a shorter time and then they hit Amazon Prime sooner than they would have. Amazon gets to juice Amazon Prime subscriptions that way.

By the way, a lot of Amazon does with streaming, live sports, and with movies, it's all still about getting more subscribers on Prime. So in that regard, it might make sense. And we know that Jeff Bezos loves being a player in Hollywood. He loves going to the awards shows and doing the circuit. We know that Amazon loves to tout when Amazon original shows win Emmys or when Amazon Studios films win Oscars. So [INAUDIBLE] --and movie theater chains are in big trouble.

And some analysts think that even once coronavirus is over, this could be really the lethal hit. I hope that's not the case. But because of all the expectations there and because of the already, you know, declining revenue of a lot of big movie theater chains, I just don't see it as a smart play financially for Bezos.

JULIE HYMAN: Well, Dan, just quickly, speaking of the-- what's going on with a lot of the movie chains here, I mean, what are their economics like at the best of times, right? I mean, isn't the business model mostly to sell popcorn and stuff like that in order to actually make a profit? And so obviously, they're not selling anything right now.

DAN ROBERTS: Right, well first of all, the movie theaters get a nice cut for the movies they show. You know, the revenue split is close to 50-50 sometimes with the studios, whereas as we know from "Trolls World Tour," the recent that was so great for Universal, when they went straight to rental, it was more like getting 80% for Universal. So they do get a nice cut.

But you're right, I mean, as I mentioned, movie theater chains, high overhead. The profit really comes when there is nice profit, and it's been declining, from concessions and from jacking up those ticket prices and then from 3D, when they show 3D or when they show IMAX theaters and you're paying even more for the ticket price.

Now, that said, even though the movie theater business and box office has declined in the past few years overall, in terms of total number of ticket sales every year, that's not to say there can't be huge blockbusters, as we know. I mean, Disney had I think like seven $1 billion box office movies in 2019, breaking its own record from the year before. So it is still a place where some movies can make a killing.

So I think it's a little exaggeration for people who think movie theaters are dead. That said, I think the writing's on the wall, that three years from now, there will be a significantly smaller number of movie theaters in the US than there are right now. And coronavirus has probably hastened that trend.

ADAM SHAPIRO: Dan Roberts, we appreciate your insight. And just want to let everyone know, in the next hour here "On The Move," we're going to be talking more about Amazon and some of the political and legal hurdles they face on Capitol Hill. We're going to be speaking to a congressman about that.