Why Are Tech Companies Ramping Up Investment in Cinemas?

A person stands near the ticket booth at AMC Theatres are shown on March 17, 2021 in Burbank, California.

Kevin Winter / Getty Images

Key Takeaways

  • Amazon and Apple are reportedly expanding operations into the movie theater space, either through funding films for theatrical release or purchasing movie theater chains.
  • Tech companies' interest in movie theater chains could be a bid to promote their own content, drive membership growth in their streaming platforms, or cross-sell other services and products.
  • The movie theater industry continues to struggle after cratering early in the pandemic, with attendance levels remaining well below pre-COVID levels.

Amazon.com Inc. (AMZN) is reportedly in talks to purchase ailing movie theater chain AMC Entertainment Holdings (AMC), as the technology company looks to keep up with competitors that are expanding into the world of in-person cinema.

AMC shares spiked 21% on the news of a potential purchase by Amazon in late March. Amazon's interest in AMC is the latest of several moves among tech giants toward the movie space.

In November 2022, Amazon said it would spend $1 billion annually to make up to 15 films for theatrical release. It completed an $8.5-billion acquisition of MGM Studios earlier that year. Meanwhile, Apple Inc. (AAPL) said this month that it will also boost spending on movies for theatrical release.

A report from The Intersect said Amazon founder Jeff Bezos is weighing the purchase of over 600 movie theaters in a bid to promote Amazon Prime movies and to cross-sell services including grocery delivery.

Buying up movie theaters and funding theatrical releases could also drive up interest in streaming subscription services like Amazon's Prime Video and Apple TV+. Both companies already spend billions annually on producing content for these platforms.

Some analysts are skeptical of the value of big tech companies buying up movie theater chains.

"Amazon has no interest in being in the theatrical exhibition space to make money. Strategically, they may want a place to exhibit their own films," wrote Wedbush analysts Alicia Reese and Michael Pachter in a report.

They said the tech giant would be better off buying up British movie theater chain Cineworld Group PLC. Cineworld filed for bankruptcy last September, which would allow Amazon to "cherry-pick screens" at a much lower value.

"So Bezos' investment advisers couldn't possibly say “buy AMC for $8 billion” when he can buy selected screens for $200 million or less. It is a lower risk strategy and gets them the same thing," the Wedbush analysts wrote.

AMC, one of the infamous Reddit "meme stocks" of recent years, has $4.6 billion in debt. Along with other movie theater chains, it has not yet returned to pre-pandemic attendance levels amid high inflation and a weak economy.

Article Sources
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  1. Reuters. "AMC Entertainment shares jump on report Amazon exploring a deal."

  2. CNBC. "Movie theater stocks pop after report says Amazon plans to spend $1 billion on releases."

  3. The Intercept. "Amazon May Buy Distressed AMC Theater Chain in Seismic Hollywood Streaming Shift."

  4. Bloomberg. "Apple to Spend $1 Billion a Year on Films to Break Into Cinemas."

  5. Yahoo! Finance. "Amazon buying AMC 'doesn't make sense': Analyst."

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