Hollywood’s fortunes may rest on the big screen, but one movie theater chain is making an important move to diversify.

AMC Entertainment (NYSE: AMC) is launching a brand new service that will stream video right to your mobile phone or living room. It will be the first movie exhibitor in the U.S. to offer such a platform. 

Members of AMC’s premium Stubs loyalty program — 21+ million strong — will soon have the option to rent or buy more than 2,000 feature films and view them on any internet-connected TV or mobile device.

The company has already secured licensing agreements with every major Hollywood studio. They’ll even stream new releases once they are out of theaters.

Why Move Into Streaming?

You may be wondering why a movie theater chain like AMC would make such a move. This article in The New York Times summarizes the problem thusly:

The movie theater industry has long been at odds with online video. Why trek to theaters if thousands of movies are available at the click of a button at home or on your phone? Sure, new films do not arrive on V.O.D. until they have played in theaters for an exclusive period of about 90 days. But that “windowing” practice, many analysts believe, will become untenable as streaming services like Netflix gain clout.

Some believe the move into streaming is a bit of a gamble. That’s because bears see movie streaming as a threat. They question why AMC would deliberately give movie buffs another reason to stay home rather than visit their local multiplex.

I think the threat is overblown.

#-ad_banner-#As I outlined in my recent article here, studies show a positive (not inverse) correlation between video streaming and moviegoing. Among the most active moviegoers (nine or more annually), a plurality spends 15+ hours per week streaming videos on their phone or computer. In other words, watching movies at home and in the theater are not mutually exclusive.

Many (like me) choose to do both. I spend a fair amount of time streaming old films, but that won’t stop me from standing in line to see the latest installments of Terminator and Star Wars when they hit theaters in a few months.

In any case, U.S. theaters welcomed 1.30 billion visitors last year. That’s a healthy 5% increase. And with ticket prices inching upward (the average ticket price was $9.11), box office revenues climbed 7% to $11.9 billion. This set a new record for the third time in the last four years.

As I said in my piece a couple weeks ago, that’s a lot of record-breaking for a “dying” industry.

Action to Take 

Video streaming is a crowded market. Apple (Nasdaq: AAPL), Disney (NYSE: DIS), and HBO are just three of the newest entrants trying to chip away at Netflix’s (Nasdaq: NFLX) dominant share. But AMC is primed to capture a sizeable share of this lucrative niche. With 20 million subscribers (and hundreds of millions of annual visits to its app and website), it will be a formidable competitor.

I think this new service will engender more brand loyalty and be additive to cash flows. And there are other growth catalysts in the works, such as plans to show pro sporting events in theaters. The market greeted the news warmly, sending the stock up 5% over the next two sessions.

If you’re thinking buying shares, I encourage investigating the name further. As the New York Times article points out, AMC has been on a shopping spree in recent years, buying up smaller chains. That’s been good for industry consolidation, but the debt load now sits at roughly $4.7 billion, up from $1.8 billion in 2014.

But with a dividend yield near 9%, AMC is a “buy” for risk-tolerant income investors.

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