Amazon.com, Inc. (AMZN), never one not to drop billions of dollars into some new business, has made a massive commitment to its movie studio.
It appears Amazon movies and its TV business will be funded to the tune of $3 billion just this year alone.
The questions are what will this studio be about, and how might it affect AMZN stock?
Amazon Movies in the Spotlight
Clearly, Amazon sees some kind of investment in movies (and TV) as being beneficial to its long-term plan. We’ve already seen several terrific TV series come out of the company. Now, Jeff Bezos has hired Ted Hope to run the studio.
Hope has terrific taste in films. He’s got dozens of producer credits on primarily arthouse films. Some of his credits include the outstanding two-hander “What Happened Was…”, the award-winning “The Ice Storm”, the ultimate indie flick “The Myth of Fingerprints” and the gripping thriller “In the Bedroom”. He was also a co-founder of Good Machine, which helped produce the glorious “Crouching Tiger, Hidden Dragon”.
What’s interesting is that Bezos didn’t select a typical Hollywood guy to run this show. Hope is from the independent world. That might imply that Amazon Movies will be films that are responsibly funded, aiming at niche and arthouse audiences, that will hopefully turn modest profits. Perhaps there will be the occasional breakthrough like “Crouching Tiger” that makes a ton of coin.
The plan appears to be to release 10 to 12 films annually at a cost of $5 million – $40 million each. Indie films are not known for hitting it big, so AMZN shareholders are hoping those numbers stay on the lower side. A $40 million film is going to be a near-total write-off unless it contains enough popular elements to draw a sizable audience.
Of course, to date, Bezos doesn’t seem to care if AMZN makes a profit, so whether or not Amazon movies make money probably won’t matter either. That’s great for Hope and all the filmmakers who get to make movies at a studio without an onerous bureaucracy.
For AMZN stock, however, there are broader questions. At the moment, investors have bid the stock up to insane levels, totally unsupported on a valuation basis. Amazon movies that don’t make a lot of money aren’t going to help that bottom line. Thus, the ongoing tension between art and commerce will play out here … it’s just that artists are going to get the better deal.
I’m not complaining. I was in TV and films for 12 years and can only dream of that kind of situation.
Bottom Line for Amazon Stock
Were I an Amazon stockholder, however, the notion that Amazon movies are likely to have a modest return on investment (at best) would annoy me. I love the artist-friendly approach, but there’s also something to be said for producing content that has a shot at a larger ROI.
The problem, then, is what it has always been for AMZN stock. Amazon movies aren’t going to be a big cash flow driver and probably won’t contribute much to the bottom line.
How long is Bezos going to drive the company not caring about profits? It seems like this could go on for some time. Hey, more power to him.
I just worry what happens when the music stops and the projector stops flickering.
As of this writing, Lawrence Meyers had no position in AMZN stock.
