Remember when some party poopers were laughing at AMC Entertainment Holdings (NYSE:AMC) for offering free popcorn to "shareholders" signing up for its Investor Connect Program? They failed to see the move as a smart and cheap way to expand the marketing list for its business.
Well, now the country's leading multiplex operator is using the same hook -- free in-theater concessions -- to prop up its fledgling on-demand streaming video business in the eyes of its best customers. AMC is offering members of its AMC Stubs loyalty club a free soft drink if they make a purchase through AMC On Demand this month. The math behind the move may not make sense at first, but once again we see the company making the most of its meme stock popularity to fortify its future potential.
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The disrupted is disrupting
A movie theater chain operating a streaming service may seem ill-advised at first. Does AMC really want people to get more comfortable streaming from home? The answer is irrelevant. Folks are going to be streaming movies at home whether AMC is an active player in that niche or not. It may as well try to cash in on its biggest threat.
Having even marginal success in streaming could also help investing. The market valuations are naturally much higher for streaming entertainment companies than old-school exhibitors. If AMC On Demand becomes popular -- and that's what may happen if people kick the tires of the streaming service as the means to a free popular in-theater concessions item -- it could justify the stock's seemingly overextended valuation.
The free popcorn promo for shareholders (or anyone clicking the box claiming to be an AMC investor) is getting many of them to return the product to claim the free snack. This promo could be even better if it gets AMC Stubs members to try AMC On Demand this month and then go back to the movies to claim the free beverage.
The math is bananas on the surface. You can pay $5.99 to stream a first-run movie at home through AMC On Demand. Scour long enough through the bargain bin of digital titles and you'll even find options as low as $0.99. Eventually you're going to have to go to your local AMC theater to claim your free drink.
Customers will feel good. Even if they paid $5.99 for an AMC On Demand streaming rental, that's still less than the price of a regular Freestyle fountain cup. AMC will feel even better. Soda syrup and carbonated water are cheap. It's the highest-margin product in AMC's heavily marked-up concessions stand arsenal. Many of these moviegoers will probably also pay full price for something to use the complimentary soft drink to wash down.
It's a smart move. Boosting its standing in streaming will expand market valuation multiples, making it a more diversified entertainment stock. AMC has been ramping up the cadence of promos this summer to get AMC Stubs members back to its theaters, this one stands out in its ability to improve both of its distribution platforms. Market skeptics don't expect meme stocks to have the last laugh, but here's one that's made the most of the opportunity. AMC is already gaining market share in the multiplex space. If it can make its streaming video service a legitimate contender for home-anchored viewers, it could be a game changer that raises the ceiling higher than those at one of its theaters.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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