Movie theater owners got just the kind of event they wanted — but not the one they needed — last week at CinemaCon. Exhibitors should have used the four-day event in Las Vegas to share thoughts about the serious problems they collectively face as both attendance falls and Hollywood studios begin to slash their output of big-budget movies. Instead the execs largely ignored controversy. Attendees high-fived each other on the soaring box office sales in early 2012, assessed new technologies designed to make movies look and sound more realistic, and tried to make sense out of the studios’ slick sales pitches for their upcoming slates. Here are a few thoughts about what event leaders could have done to make the event more useful:
– Talk frankly about industry problems. From the sound of things at CinemaCon, exhibition is in great shape — and reporters or Wall Street analysts who say otherwise are overly excitable or don’t see the big picture. But the numbers tell a different story. Admissions and admissions per capita have fallen over the last 10 years, and hit new lows in 2011. While there are several reasons, one of them is that lots of people no longer see the movies as a bargain. Theaters have compensated for the declining admissions by raising prices for tickets and concessions. Both have outpaced inflation for most of the decade. Yet the strategy appears to have run out of gas. Continued price hikes will backfire as consumers remain uneasy about the economy — and revel in the less expensive entertainment alternatives they have at home on their HDTVs and computers.
I appreciate the fear that many execs have that any comments they make about pricing at an event like CinemaCon might be interpreted as an antitrust violation, a form of signalling for price fixing. But there’d be no harm in listening to independent economists or Wall Street analysts discuss the industry’s strategic problems. Experts also could have explored the likely consolidation wave that’s about to hit exhibition: A lot of owners of Mom and Pop theaters and small chains that couldn’t afford to invest in digital projection may not be back next year. They’ll have to sell out to large chains such as AMC, Cinemark, or Regal as studios prepare to just distribute movies via hard drive or satellite.
– Discuss strategies to fill seats during the day and on slow nights. Some 93% of seats go unsold, which means movie theaters have “the largest amount of excess capacity of any industry we could find in the free world,” Bernstein Research analyst Todd Juenger says. Owners have said for years that they’ll change that by scheduling alternative content — including concerts and sports events. Yet they’re still mostly just experimenting. That effort should benefit from the announcement by the Digital Cinema Distribution Coalition that it will use Deluxe-EchoStar satellites to distribute content to theaters; all AMC, Cinemark and Regal venues should have the system in place by the end of next year.
But theaters don’t have to wait. If they want to start filling more seats, they could start by deeply discounting tickets for existing movies at different times to match supply with demand. Another possibility: Align with services such as Tugg.com, which enables users to schedule movies or other events once a certain number of people commit with their credit cards to attend.
– Open up about concession prices. The floor of the trade show was filled with vendors selling different kinds of pop corn, hot dogs, candy, and sugar drinks. But you’d be surprised to know from convention agenda that concessions account for more than 25% of theater owners’ revenue — and, with their estimated 86% profit margins, a far bigger percentage of the industry’s total earnings. You’d also never know, aside from a few comments in general conversations about industry matters, how much consumers — especially cash-strapped teens and young adults — resent being hosed at the counter. In some venues a soda and pop corn can set you back $12.
Theater owners need to start thinking seriously about how they can hit the brakes without sacrificing earnings. About 40% of ticket buyers go to the concession stand. Would price cuts lead more people to buy food, or to go to the movies more frequently? Or perhaps it’s time to give consumers a break, and cut the above-market dividends that the major chains pay their shareholders. Yields on dividends from Cinemark, Regal, and Carmike have averaged 5.8% over the last six years while 10-year Treasury bills paid 3.6%, and “the gap has started to widen” Nomura analyst Robert Fishman says.
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