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Are movie theaters doomed? Do exhibitors see the big picture as theaters lose their competitive advantage?

Jon Silver and John McDonnell,
School of Advertising, Marketing, & Public Relations, Queensland University of Technology, Brisbane, Queensland, Australia

Available online 9 October 2007.

Abstract

After three straight years of decline, movie theaters in the US may have recently ended a period of crisis with an increase in annual admissions (+ 3%) in 2006. This article argues, however, that major problems are not over for the industry. Most movie theaters in the multiplex era have adopted a remarkably similar strategy, one which is also very vulnerable to recent trends such as the explosion of home cinema, pay TV, video-on-demand (VOD), discounting by mass merchandisers of DVDs, computer games, and the collapse of video windows. Just as technological convergence has created a challenge for movie theaters, as it has in the past, so too can new technologies and creative use of assets (combined with multiple target marketing) offer a counter measure for at least some movie theaters; at least, until the next challenge arises. What is unlikely to succeed is the status quo, especially when so many multiplexes offer the same format as their competitors, appear to adopt a narrow definition of what business they are in, and manifest a ‘one-size-should-fit-all’ approach to customers. The industry has employed differentiation and niche marketing much less than other industries. As the extensive variety of necessary strategies cannot comprehensively be explored herein, this article focuses on two new technologies from the IMAX Corporation, DMX and MPX, as an example of how a theater operator might counter audience declines.

Keywords: Cinema; Movie theaters; Strategy; IMAX; Home entertainment

Corresponding author.

Business Horizons
Volume 50, Issue 6, November-December 2007, Pages 491-501

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quote:

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this article focuses on two new technologies from the IMAX Corporation, DMX and MPX, as an example of how a theater operator might counter audience declines.

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quote: Thomas Pitt

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I do foresee that in the not too distant future, second-run and third-run houses will see a decline in the number of visitors. More and more people are getting HD-TV systems and the movies these theaters show are often available on DVD already

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quote: Monte L Fullmer

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No, I don't think that the discount world will ever fade away simply it's a great avenue to go down on to see the movie on the big screen for little cost involved from the patron.

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quote: Mike Blakesley

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The window is decreasing mostly with flop films.

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Transformers - 4 months
Santa Clause 3 - 1 year and counting


 

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Posted by Christopher Crouch (Member # 3784) on 11-14-2007, 05:08 AM:
 

quote: Scott McGuire

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When you mention discount house what are your ticket prices and what a the large plexes charging in comparison.

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quote: Frank Dubrois

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Transformers - 4 months
Santa Clause 3 - 1 year and counting

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quote: Martin Brooks

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I think eventually the movie studios are going to have to buy back the theater chains so they can guarantee theatrical distribution for their product and we'll return somewhat to the days before the consent decree.

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quote: Sam D. Chavez

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Further, an all digital release with no film will allow the studios to release day and date everywhere and it will prove to be an irresistible temptation. My opinion only of course.

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Such a move will kill off the movie theater business. The only way I can see the movie theater business managing to survive in a day and date situation is if the movie distributors gain ownership of the theaters (and don't move to close them). Movie theater chains separated from movie studio income would not make it for all the lost customers. Too many people would just save money and stay home to watch the show. The studios would have to absorb the financial losses as a fee for making a movie legitimate by having it play in actual movie theaters.
 

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Posted by Jonathan M. Crist (Member # 413) on 12-02-2007, 02:10 PM:
 
The October 2007 issue of Conde Nast Portfolio echoes many of the ideas in the article posted by Jeffry L. Johnston:

http://www.portfolio.com/culture-lifestyle/culture-inc/arts/2007/09/17/Movie-Theaters

The text of this article appears below:

Precisely what caused the rift between Sumner Redstone and his daughter, Shari, may never be known, despite vague suggestions of disagreements over “corporate governance.” But one major source of friction between the 84-year-old chairman of National Amusements, the company that controls Viacom and CBS, and his 53-year-old daughter is clear: She’s sanguine about the movie-theater business, while he thinks it’s on its last reel.

Amid the glamour of assets like Paramount and MTV, it’s easy to forget that privately held National Amusements, started back in 1936 by Sumner’s father, remains an important player in the theater business, with about 1,500 screens around the world. Shari, who owns 20 percent of the company (her father controls the remaining 80 percent), has run the theater unit since 1999 and is relentlessly upbeat about it, even as insiders speculate that Sumner would rather sell the whole thing off. Does Shari know something about the popcorn economy that her father doesn’t?

By most measures, the long view looks dreary. Except for the occasional bump after a season of blockbusters (receipts are up 7 percent so far this year, for example), annual sales have stalled at around 1.4 billion tickets a year since the late 1990s. The major theater companies have scratched out profits over the years by raising ticket prices and selling onscreen ads. In pursuit of more eyeballs to satisfy those advertisers, they also added several hundred thousand seats, which resulted in about half the major chains filing for Chapter 11 by 2001. (National Amusements was not one of them.)

Meanwhile, the industry has allowed the theater experience to deteriorate. Nowhere is the clash of generations more evident these days than at the multiplex, where teenagers yak on their phones as middle-aged couples fork over $8 for a bag of Twizzlers and a Coke and snarl at the endless advertising. “Theater owners definitely shoot themselves in the foot by putting 40 minutes of commercials in there,” says Bob Shaye, co-chairman of New Line Cinema, the studio behind the Lord of the Rings and Rush Hour franchises. “If it’s no longer a pleasant environment and you add that on, at some point audiences revolt.”

But for the most part, the leading theater chains aren’t worried—at least not enough to change things. Headquartered in places such as Plano, Texas (Cinemark), Kansas City, Missouri (AMC), and Knoxville, Tennessee (Regal, half owned by Philip Anschutz), they push for blockbuster “event” movies and lobby to maintain the traditional window between theatrical and home-video release dates. Studios, which split box-office receipts evenly with the theaters, have advocated collapsing that window, as they’d rather sell higher-margin DVDs or downloads. Some studio heads have even fantasized about charging a premium above theater prices for a movie piped directly to the home on the same day it opens at the multiplex. The theater chains, which earn about 75 percent of their profits from concession sales, see this as Armageddon. When Disney C.E.O. Robert Iger came out in favor of collapsing the window two years ago, the president of the National Association of Theater Owners called it a “death threat to our industry.”

Shari Redstone was among those who protested loudest. Then again, she has also been the most experimental major operator. Since 2001, she has opened dozens of Cinema de Lux megaplexes in places like Los Angeles and Westchester County, New York, that offer amenities such as guest lounges, reserved seating, and a casual restaurant called Chatters. Today, half of National Amusements’ theaters are branded as Cinema de Lux, up from 10 percent only seven years ago, and the company says that 95 percent of its recent expansion has been in the upscale category. Such theaters have thinner margins than pure popcorn venues, but despite the fact that tickets cost a dollar or two more than the local average, they appear to foster loyalty. Cinema de Lux patrons make as many as eight visits a year, the company says, versus the industry average of five, and spend more on concessions when they’re there.

Redstone has also bet heavily on developing markets, especially in Russia, where she and local partners have opened high-end multiplexes in Moscow and St. Petersburg suburbs. In 2000, there were only 105 modern movie screens in the whole country; last year, the number hit 1,100. At Redstone’s upscale Russian venues, martini-sipping patrons don the kind of finery that most American moviegoers haven’t favored since the 1940s.

Back in the U.S., the smaller chains are doing most of the innovating. Muvico, for example, has 259 screens at 14 locations in Florida, Maryland, and Tennessee. Most of its venues are themed (Egyptian, ’50s drive-in, Xanadu), and many are subdivided into areas designed to appeal to different age groups. “Premier” adult levels offer a full restaurant and bar, and babysitting is available at all locations. (Parents are given a vibrating pager at no extra charge.) The company declined to disclose revenue or profitability figures but claims per-customer spending on food concessions at its theaters is 25 percent higher than the national average of about $3.50. At Alamo Drafthouse, an 11-year-old Austin-based chain with seven locations, every other row of seats has been replaced with café tables, and customers can write orders for pizza and microbrews on slips that are silently picked up by black-clad waiters. The company is in negotiations to open theaters in large markets like New York and Los Angeles by late next year, with the goal of having 200 screens by 2012. C.E.O. John Martin says the average concession tab is nearly $14.

But don’t expect your multiplex to get the religion anytime soon. Offering a more layered experience may sound obvious, considering the writing on the screen about competing technologies, but the low-maintenance, popcorn-and-candy ethos will continue to reign, at least for now. With box-office receipts strong (for the moment), studios are under less pressure to collapse the distribution window, which prolongs the status quo for theater owners. “Our members say that what most people want is candy, popcorn, and soda,” says Patrick Corcoran of N.A.T.O. “Banana-nut muffins sound nice, but they don’t move.” A bag of popcorn nets a 95 percent profit, he points out, which would be tough for any other snack to match.

“It’s hard for the big chains to change their mind-set,” says Chuck DeWitt, Muvico’s vice president of operations, who spent 20 years at AMC. “They don’t think about how to create a new generation of moviegoers, how to make the theaters somewhere the whole family can have an evening. They think only about cutting costs. National Amusements is really the only major one who is willing to go for it.”

So even if it means forever losing the loyalty of her own King Lear, Shari Redstone is hanging tough. Maybe, like many of us, she just wants to see how the picture turns out.
 

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Posted by Floyd Justin Newton (Member # 1316) on 12-02-2007, 07:33 PM:
 
Sorry guys....I have to agree with Louis on page one of this
thread. If the insane greed doesn't slow down, or stop, we may
as well kiss this biz goodbye. There's going to be a lot of
used equipment on the market in the near future!
 

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Posted by Lyle Romer (Member # 1266) on 12-02-2007, 11:34 PM:
 

quote:

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And we can't blame D-Cinema as an excuse for those theaters not "strong enouugh" to buy/lease one system... we can only blame the owners of those theaters for not having enough forsight to become financially strong enough. Too many theater operators STILL bilk every last penny out of the buisness for themselves! Those are the operators that will fail!

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quote: Mark Gulbrandsen

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And we can't blame D-Cinema as an excuse for those theaters not "strong enouugh" to buy/lease one system

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quote: Lyle Romer

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Besides the 50%+ film cost how about all the rent that is being paid while screens are empty mon-fri afternoon.

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You wouldn't believe how much money I spend on office (and manufacturing) space for my employees that goes unused Mon-Fri evenings/nights and *all day* Sat-Sun (and holidays). If only I had it as good as movie theatres when it comes to maximizing time utilization of rented space!
 

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Posted by Frank Angel (Member # 248) on 12-03-2007, 04:14 AM:
 

quote: Lyle Romer

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Besides the 50%+ film cost how about all the rent that is being paid while screens are empty mon-fri afternoon

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Oh come on guys, everyone knows that DCinema is going to change all that and eliminated all those wasted, non-income generating schedule holes. DCinema, we are told (many times over), will fill those empty seats on weekday afternoons with its unique ability to show ALTERNATIVE programming! You know, during that lonely, one-in-the-afternoon hour when not even the biggest blockbusters can draw patrons, DCinema will fill those seats by showing the same stuff that hardly anyone one watches on PBS during prime time. People evidently are just waiting to flock to see that PBS fare....in a movie theatre....on video....on a Monday afternoon.
 

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Posted by Cameron Glendinning (Member # 3516) on 12-03-2007, 04:48 AM:
 

quote: Frank Angel

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Oh come on guys, everyone knows that DCinema is going to change all that and eliminated all those wasted, non-income generating schedule holes.

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I wonder what titles will be avaliable for the potentually lucrative "midnight to dawn" marketplace that perhaps Phil Hill productions could potentially exploit?

I too have to agree with Louis, but somehow I can not ever picture the distributors agreeing to lower the rates, even if it was in their best long term interests!
 

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Posted by Mike Blakesley (Member # 26) on 12-03-2007, 09:17 AM:
 

quote: Lyle Romer

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An owner is supposed to have the foresight that they will be forced to spend over $60,000 per screen for no reason other than to save the distributors money?

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quote: Monte L Fullmer

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"White Chicks" came out. DIED in the first run houses. Yet, we held on to that crazy movie for a record 17 weeks.

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This is the MOST amazing fact that I got from this thread so far.
 

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Posted by Daryl C. W. O'Shea (Member # 1303) on 12-03-2007, 11:14 AM:
 
Monte, are you sure you guys weren't being paid by the studio to run it that long?
 

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Posted by Per Hauberg (Member # 529) on 12-03-2007, 02:17 PM:
 
You can have an example from the most humble site in business:
My place is one of the smallest in the country: screen 1 seats 88, screen 2 just 39 visitors. 5.000 inhabitants in the village, 2-3 miles to the competition - 3 modern houses with 5-8 screens, max 550 seats.
I run about 80-100 titles a year, and will sell about 27.000 tickets in 2007. -Just 5 years ago, it was a stable 35.000 a year. 10-12 first-runs every year, the rest coming within 2-3 months from opening. Biggest hit: "Titanic" 10.200 tickets !!Ticket price must be 60 DKK - about 10 $, or I will have no films before the video-release. That means, box-office makes about 1,6 million DKK = 162.000 US$, and no: The danes do not buy concessions as an american audience: I'm lucky, when they spend 1,5 buck a head ! A 2K installation will cost about 125.000 $ per screen right now - And no ! I don't think it is a matter of me, not having looked foreward in time, because I haven't got those 250 grants lying there. I had to buy me a Kinton FP30D three years ago for Screen2 for about 23 K$ - thats acceptable (and a fine peace for the money), even for those 39 seats, but 125K...?? My two vintage 1960 DP70 are still running fine, and could do so until my retirement, so why spend that much money for . I don't think, many in the audience will stand up and shout about pictures being better than before.
When (if... ) the digital picture becomes a must, half the danish cinemas will be closing, and I am afraid, I'll be among the minus part.
The video window is very firm in Denmark: Foreign film comes on DVD 4 months, danish productions 6 months from cinema premiere, video distributors still pressing to get an even shorter window.
Mosts DVDs selling at 30-35 $, Disney a bit more, and to compare, 1 litre of 95 octane unleaded is today 10,21 DKK = 1,70 US$ (3,785 litre = 1 US gallon).
But I'm still here - running World Premiere friday on "Golden Compass" - Advance sale: 2 tickets

And that, Gentlemen - is the situation as today, december, the 3rd, 2007 in Malling, Denmark !

P.s.: Monte: Did You find the key again for Your MakeUp Table, so life can go on ?
 

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Posted by Ron Curran (Member # 3631) on 12-04-2007, 12:48 AM:
 
We bleed all the cinema’s riches. After, that is, the install of 4 track mag, then Xenon, platter, automation, Dolby SVA, then DTS, then Dolby Digital, then ES, then …

Of course, to show certain features before video release we had to invest in a server and digital projector, followed by a 2K upgrade and an up-spec projector.

Along with this, we lost many weeks of income to alter for disability facilities, followed by the same authorities closing us down again to alter the access again due to a change of policy that resulted in a 20% loss of capacity.

Yes, it’s all cream to us independents.
 

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Posted by Phil Blake (Member # 2012) on 12-05-2007, 08:07 AM:
 
I see the future of our cinemas is in the hands of the makers.

I todays fast disposable society we don't screen a hit that will hang on for 7 8 or 10 months straight. Those days are gone , we simply entertain or rather entice people to our houses with something that is popular or in the younger ones terms "Cool".

I don't see any type of TV ,DVD ,Cable etc as a direct threat to our patronage. We are offering a night out , if people choose to stay at home we are not in the race to compete. However If they choose to go out , then we are competing against restaurants , hotels, clubs, casinos etc.

As for the technology , 100' screens 10k xenons 8 tier platters and sound systems that are from another world may very well impress all us operators , but frankly most say 14 to 29 year old patron could not give a rats ass about it all.

They are indeed going out to see a "cool" show together with their partners for a night out.Or if the show that that great it is just simply cool to be seen there. Alot just go for that reason. I guess this makes up for the majority, then we do have the respectable citizens that do wander in for entertainment and escapism from the house and the lonely who gather for friendship , they are the best type , not mess and not ripped up seats but sadly not enough of em.

When I look back over the past five years and all the marketing tricks I have tried , our takings have been up and down with only one common factor present. If we have a film that is hot and the town is talking about it , they will pour in the door.

No matter how bad or good it is, if it captures the audience and it is "Cool" it will work, word will spread and it happens automatically.

The problem is that the gap between these types of films is getting larger, we are being sold too much Crap , Movies have lost their dynamic stand alone greatness, They are churned out by the dozens and maybe one out of every 30 is the one that they want. Trouble being we have suffered the 29 failures in between.

I also believe price is also a major factor , 10 years ago we ran movies in the local hall , $5 for kids , we would get over a 150 kids in on a Saturday afternoon for a 6 month old sub run.

Now we are running new releases in a dedicated cinema and charging $11 for kids we get about 15 to 20 kids in on a Saturday afternoon.

As long as we have the right "item" on our shelves at the right price , we will always have bums on seats.

The problem of selecting the "Right Item" is the hard part.

Even looking back trough attendance at the Drive in on the 1960s before the town had TV this trend was still the same , it the movie was not something that was talked about , it would draw only a few cars.

Distributor promotions is one last point that does make a difference.

I have found heavy advertising by distributors makes a huge difference to attendances.

My last days at the Drive in in 1986 we ran a triple feature of a home movie/ documentary films by an Aussie adventure Alby Mangles , mentioning that name will make a few in the industry cringe! , However the marketing those films received from the distributor was an absolute saturation. In 1986 we were battling TV and video and we were just about buggered. The three nights we ran those features we got more cars in than the drive In had ever got in its 20 year history.

It is also amusing to look at the reactions . people seem to appreciate watching a heavily advertised crappy show and walk away happy. But If they walk up and watch an unknown crappy film they will walk out very unhappy.

I guess the moral is you cant polish a turd but if you sell it well people will buy it.
 

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Posted by Brad Allen (Member # 470) on 12-07-2007, 05:21 PM:
 
Very well said Phil.
 

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Posted by Monte L Fullmer (Member # 2797) on 12-07-2007, 06:50 PM:
 

quote: Phil Blake

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I guess the moral is you cant polish a turd but if you sell it well people will buy it.

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quote: Daryl C. W. O'Shea

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are you sure you guys weren't being paid by the studio to run it that long?

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quote: Mike Blakesley

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McDonalds' success has everything to do with three things:

1. Being reliably fast
2. Being attractive to kids
3. Being consistent from location to location

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quote: Mike Blakesley

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The food has next to nothing to do with it. (Well, maybe the fries a little.)

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quote: Frank Angel

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Mike, here I disagree....the reason that burger is a winner is because it appeals to the broadest range of taste buds

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quote: Mike Blakesley

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The food has next to nothing to do with it. (Well, maybe the fries a little.)

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quote: Phil Blake

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As for the technology , 100' screens 10k xenons 8 tier platters and sound systems that are from another world may very well impress all us operators , but frankly most say 14 to 29 year old patron could not give a rats ass about it all.

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quote: Cameron Glendinning

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The other obvious issue is that people today do not go out to a cinema if they have already seen the bootleg DVD at home.

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