Alibaba Acquires a Stake in the Leading U.S. Theater Chain

The next movie theater you enter is likely to be co-owned by Alibaba (NYSE: BABA). The Chinese e-commerce king has taken a 7.7% ownership stake in Wanda Film Holding, the movie unit of Dalian Wanda Group. Wanda owns top U.S. movie theater chain AMC Entertainment (NYSE: AMC) with over 1,000 theaters and 11,000 screens across the globe.

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Becoming a marquee name

This isn’t Alibaba’s first foray into the movie business. In 2014, it bought a 64% stake in ChinaVision for $1.3 billion and renamed it Alibaba Pictures. That company, which still trades separately on the Hong Kong Stock Exchange, makes movie and TV content, invests in various film projects outside of China, and operates the second-largest online movie ticketing platform in China, selling tickets to 97% of the country’s theaters. Alibaba has since sold some shares in Alibaba Pictures, cutting its stake to 49.5%.

Alibaba Pictures also purchased a minority ownership stake in Amblin Partners, Steven Spielberg’s production company, in 2016. The first film the two collaborated on for marketing and distribution was The BFG.

Going on a forced diet

Dalian Wanda is a Chinese multinational conglomerate, which in addition to its movie business, is also the world’s biggest private property developer and is involved in both internet technology and finance.

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Yet over the past two years, a global slowdown in commercial property has hit its revenue and earnings, sending its commercial property credit rating to junk status. That elicited a pledge from management to reduce its debt load, and last month, it sold a 14% stake in its commercial management division to a consortium of buyers led by Tencent, the internet and digital payments group.

Dalian Wanda has also been under pressure from the Chinese government to scale back its business. In addition to the Alibaba deal, it sold a 5.1% position in Wanda Film to Beijing Cultural Investment Holdings, a state-owned enterprise.

In the director’s chair

It’s worth noting that these investments look less about Alibaba getting a foothold in the U.S. movie theater market and more about giving it a greater role in China’s own burgeoning movie industry, which analysts anticipate will surpass the U.S. as the world’s largest in 2020.

Wanda Film owns 516 theaters featuring 4,571 screens, controlling about 14% of China’s box office. It generated revenue of $2.1 billion last year from its chain of theaters, film distribution and advertising businesses, its movie critique and ticket websites, and its gaming businesses. However, it has been struggling, and shares of the Chinese film unit have been suspended on the Hong Kong exchange since last summer as it awaits a restructuring. Alibaba’s own movie unit has also failed to impress, and since 2015, Alibaba Pictures shares have lost some 75% of their value on the Hong Kong bourse.

But while Alibaba may have a more provincial focus at the moment, it is Dalian Wanda’s second largest investor, which does make it a part-owner of AMC Entertainment, too.

Of the 11 largest theater operators in the U.S., which among them control over 42,000 screens, AMC is the biggest with a 25% share. It also has a 51% share of the IMAX theater market. In 2016, it completed its acquisition of Carmike Cinemas after a protracted battle.

Taking this stake isn’t going to move the needle for Alibaba, its movie unit, or the U.S. theater chain, but it does widen the online retailer’s influence in the industry. Perhaps it will even lead to access to Wanda’s other production units, such as Hollywood movie studio Legendary Entertainment. If so, at some point, both the movie you’re watching and the theater you’re sitting in may be experiences brought to you in part by Alibaba.

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Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Tencent Holdings. The Motley Fool has a disclosure policy.

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