We’re into Day 2 of our DeadlineNow video news service, in which Deadline’s journalists offer instant analysis and commentary on the news as it happens. Check back throughout the day for more reports.
Many investors appear to think so today after domestic box office sales for X-Men: Days Of Future Past, Captain America: The Winter Soldier, and Godzilla beat some forecasts — and B. Riley’s Eric Wold upgraded the industry. AMC Entertainment shares are +3.2% in early trading, and Cinemark is +2.4%, after Wold changed his recommendation for both to “buy” from “neutral.” He also raised price targets for Regal, Carmike, and 3D technology company RealD. Although the summer pop corn movie season has only just begun, Wold says that the early results were good enough for him to change his forecast for Q2 and Q3 to flat box office revenues vs the strong sales from the period last year, as opposed to a low-single digit decline. He’s especially impressed with premium ticket sales for 3D and IMAX venues, which collectively accounted for 51% of the opening weekend sales for Godzilla. Last year’s Gravity “introduced more movie-goers to the benefits of seeing a movie in 3D,” he says. In addition, studios are picking better films to offer in 3D while theaters schedule them to become “more of the default choice as opposed to an upgrade decision.” Once investors move past their concerns about the summer 2014 box office, he says, they’ll focus on 2015 could set a record with sequels for hits including the Avengers, the Hunger Games, Mission: Impossible, Fast And Furious, and …
Wall Street usually shows little love for the movie business with its typically low, and unpredictable, profit margins. But in a combined look at the studio and exhibition businesses this morning, MoffettNathanson Research’s Michael Nathanson and Robert Fishman tell investors that it’s time to take a fresh look — as long as they proceed with caution. They lowered profit estimates for major exhibition chains Regal and Cinemark, citing expectations for weaker domestic summer box office results vs 2013. They project a full-year decline of 1.6% to $10.7B followed by a 5% jump in 2015 to $11.3B and then a drop of 2.6% in 2016 to $11.0B. The analysts appeared more upbeat about the studios. “After several terrible years post the popping of the DVD bubble, we believe the film industry is showing signs of health,” they say. “The combination of fewer releases, greater international focus and lower overhead expenses are all driving studio margins ahead of pre-recession levels. These results show that a good crisis wasn’t wasted in Hollywood.” Revenues fell over the last few years at the big four film studios (Warner Bros, Disney, Fox, and Paramount) as they reduced their output. Yet cash flow margins improved to a little under 12% which is “a tribute to their ability to curb bloated studio expenses.”
They can, but managers have to be careful, a panel at the industry’s CinemaCon confab in Las Vegas told exhibition execs this morning. Companies are intrigued as they experiment with restaurant and fast-food offerings. “Everyone’s doing a dining concept,” says Carmike Cinemas VP Rob Lehman. As a result, “we’re in the beer and wine business.” But he warned colleagues to be careful when they go for liquor licenses. “It’s a long process but we work very closely with the police. Everyone has this perception that kids are going to get drunk at the back of the auditorium. We don’t want that.” Emagine Entertainment’s Gary Butske urged managers to train staff so they can deal with problem customers. His venues try to avoid trouble by strictly carding and giving wristbands to those old enough to buy. He has a two-drink maximum (strong drinks such as a Long Island Iced Tea are classified as doubles), uses clear plastic cups for booze, and has video cameras that monitor the audience so managers can see whether a buyer passes a drink along to an underaged friend. “We reserve the right to refuse service to anybody.” But he says theaters could see a payoff, especially if they become creative about their bar offerings. He’s had success with craft beers, as well as drink specials for PG-13- and R-rated films including the Hangover trilogy, Sex And The City, and Magic Mike. His theaters also had a vodka drink for The Avengers and Looper.
Exhibition industry investors are raising the question today after the No. 1 chain whiffed in its Q4 earnings report last night. Revenues and earnings fell short of expectations. But many are particularly concerned about the disclosure that attendance per screen fell 7.8% in Q4 to 7,336. (Revenues still increased, helped by a 4.7% jump in the average outlay for a ticket — to $9.28 — mostly from people willing to pay extra to see Gravity in 3D.) The report chilled some investors: Exhibition stocks are lagging the overall market, which is up, with Regal -1.5% in afternoon trading. The weak attendance number feeds into the concern that 2014 will be a blah year at the box office. Although Q1 results are tracking ahead of expectations “we are projecting a modest 1% decline for the year with an especially difficult summer comparison,” MKM Partners’ Eric Handler says. Short interest — the number of investors betting that a stock will go down — “has increased to 16.7M shares, representing 19 days of average volume,” Benchmark Co analyst Mike Hickey notes. But Janney Capital Markets’ Tony Wible says things may be better than Regal’s Q4 numbers suggest. The year end results “may have been skewed” by the launch of Sony’s PlayStation 4 and Microsoft’s XBox One game consoles. They “sold more units in their first day …
The latest battle in the theater etiquette wars went down Monday in Toronto — of all places, in a Press & Industry screening that pitted press vs. the fest and ended in a call to 911. Shortly after the P&I screening of Ti West’s new thriller The Sacrament began, FirstShowing.net blogger Alex Billington made numerous complaints to festival reps that a patron in the first row was holding a cell phone up towards the screen. When officials refused to take action, Billington called 911 to report a crime of piracy in progress; the 911 dispatcher laughed at Billington’s complaint and the blogger admits now it was a “mistake” to call emergency services instead of a non-emergency number.
The flap is making headlines for Billington’s 911 call, but it revives the hot-button debate over movie theater talking and texting. Sanctioned cell phone use in movies sparked controversy last year at CinemaCon when theater chain owners floated the idea of letting patrons text during screenings. And another journalist in attendance Monday said it appeared the offender was taking pictures of the screen. But Billington says he was told by festival reps that it’s an “unwritten policy” to allow use of any and all devices in P&I screenings. This despite TIFF’s warning ahead of both P&I screenings and public screenings that forbids cell phone use during films.
The premium seating business has boomed in the last few years by as much as 60-70%, vendors tell me. That’s thanks to the new industry emphasis on high end moviegoing and the fact that the costly conversion from 35mm to digital projection is nearly complete across the industry. Per unit prices offered by a half-dozen companies at CinemaCon this year range from $500 to $5,000. Upgrade costs range depending on theater sizing and seating choices but one firm told me their clients’ average spend on seating alone is $200K per theater. Exhibitors of all sizes and regions are taking out standard 18- to 19-inch seats in favor of upgrades as wide as 25 inches or more, even if that means fewer seats in theaters. The polite reason is that “people are getting bigger” and will pay for comfort. (Could candy, food, and supersized soda sales have something to do with that?)
Alamo Drafthouse Cinema’s Tim Reed made the observation this morning at the most refreshingly frank panel about the problems theaters face that I’ve seen so far at the industry event. He says that execs have ”done a horrible job building a fan base for the movie business over the last two decades.” That’s a problem because “we’re in a battle now…We’re brick and mortar. We’ve see a lot of brick and mortar businesses go down. We have to be nimble and find content that will sell to our base” — including young people to “make them movie-going fans.” He and others on the International Cinema Technology Association’s panel agreed that theaters need to become more aggressive about introducing alternative content including live sports and concerts. “This is the year for satellite (distribution) and that whole conversation,” Walt Disney Studios Motion Pictures VP for Strategic Planning Paul Holliman says. But movie distributors have to help by relaxing their terms. For example, Warner Bros International Cinemas President Millard Ochs says studios could just require that a film be shown six nights a week instead of seven after it’s been out three weeks. “We have to change. Everything is changing around us.” Still, Reed warns that alternative content can be expensive and execs don’t know yet what material will pay off. “What we have found is that it’s more market driven on a psychographic level,” he says.
Sparks flew last year at CinemaCon when Regal CEO Amy Miles and IMAX’s Greg Foster floated the idea of allowing texting in theaters. So how fast will audiences reject in-theater gaming? Disney’s Second Screen Live program, introduced this week at CinemaCon, encourages moviegoers to play interactive games on their iPads while watching a film in a theater. A home video version for select Disney Blu-Ray titles launched in 2011. “Of course you hear a lot from exhibition, ‘we don’t allow cell phones’”, Disney Exhibitor Relations VP Nancy Klueter said this morning at a CinemaCon panel on theater showmanship. “This screening would be inviting those people to bring their technology so you wouldn’t be offending them”. Disney and their exhibition partners hope the ploy will bring younger audiences back to theaters. When the program tested with The Nightmare Before Christmas, “50 percent of the audience had an iPad”, Klueter said. The initiative is still young. Theaters will have to install wifi or some way for users to connect to the Second Screen experience. Disney hasn’t announced which of their films will get the live interactive treatment but Disney classics are strong contenders with the company’s older-skewing superhero slate potentially to follow, Klueter told me: “Marvel will probably fit in there at some time”.
Related: Is It Time To Let Moviegoers Send Texts During A Film?
Related: Will Social Media …
The Affordable Care Act — also known as ObamaCare – is designed to help provide health insurance coverage for those who are least able to pay. But exhibition execs attending CinemaCon this week are quietly planning to minimize the law’s impact on them when it takes full effect in 2014, even if it means penalizing part time employees who might stand to benefit. Theaters are most concerned about a provision that requires companies to provide coverage for those working at least 30 hours a week, not just full-time employees who work at least 40 hours. So, guess what? Theaters are beginning to reduce part timers’ to less than 30 hours a week. “All of [the major theater companies] are making adjustments in the workforce,” Stephen Gooding, President of Reynolds & Reynolds — an insurance firm that specializes in exhibition concerns — tells me. When it comes to preparing for the changes “the very large circuits are ahead of the curve, but the smaller and midsized ones are just realizing and going ‘Oh, my’.” For example, Regal Entertainment has begun to cut part-timers” hours, and told managers to pin the blame on ObamaCare, according to a memo obtained by Fox News. Progressive activist group Think Progress pointedly …
NYC exhibitors escaped Mayor Bloomberg’s attempted soda ban last month. But potential future government regulation of revenue-boosting concessions still has theater owners and operators concerned. And frustrated. “[These] taxations are truly money grabs by the government”, Cinemark Food & Beverage VP Bob Shimmin said at a CinemaCon panel this morning. “They’re not trying to make people healthier, they’re trying to balance their budgets”. Bloomberg’s rule would have limited sales of sugary soft drinks to 16 oz.-sized cups — the smallest portion most theaters even offer. Pushing smaller cup sizes to adults would actually backfire, spins NATO’s Deputy Director of Government Affairs Todd Halstead, because it would lead to more purchasing of refills leading to larger in-theater consumption after all. He insists the NYC soda ban was just the tip of the iceberg: “What better way is there to institute a tax then to connect it to health?”
The upstart exhibitor has expanded its reach since launching in 1997, going from a single theater in Austin, Texas to a mini indie empire with 10 locations in Texas and additional outposts in Winchester, VA, Kansas City, MO, and Littleton, CO. But despite recent moves into San Francisco, Kalamazoo, the Washington DC area and New York, where three new locations are planned for Manhattan, Yonkers, and Brooklyn, Los Angeles has proven a tricky market for Drafthouse to break into. Today LA developer Saeed Farkhondehpour said that Drafthouse is this close to bringing a 30,000-square-foot eight-screen theater downtown where a parking lot currently sits. But reps for the exhibitor caution that ink hasn’t yet been put to paper on a deal. “We have had discussions but no formalized agreement”, an Alamo Drafthouse spokesperson told Deadline.
Bond analysis firm Fitch Ratings offers its bracing analysis of the movie exhibition industry a week ahead of theater owners’ annual CinemaCon trade show in Las Vegas. The company forecasts a “modest” decline in 2013 ticket sales and long-term challenges that should “cause concern” for lenders. Studios will find it “difficult to replicate” the success they had last year with hits including The Avengers and The Dark Knight Rises, analysts Shawn Gannon, Rolando Larrondo and Mike Simonton conclude. In addition the 3D market is “starting to mature.” Consumers “are focused again on the overall quality of the film and are weighing the cost of a premium ticket versus a base 2D ticket.” A drop in 3D sales might offset an expected low-single-digit increase in ticket prices. Fitch also expects concession revenues to be flat, with the drop in attendance wiping out price increases, although ad sales should improve. Long term, the analysts say that they’re concerned about improvements in home video and increased piracy, as well as rising ticket prices. Over the next several years “patrons may become more selective in the films they view at the theaters versus those they are willing to view at home.” Any drop in revenues could hurt because “many operators maintain high debt levels, combined with fairly high levels of capital expenditures” to keep their equipment and facilities up to date.
Theater owners don’t want to keep adjusting prices for tickets and concessions based on the movie or time of day, but they also don’t like seeing 88% of their seats left unfilled. That may create an opening for Dealflicks, a Priceline-like service that enables exhibitors to offer discounts tailored to their needs. CEO Sean Wycliffe tells CNBC today that Dealflicks just introduced an iPhone app, and is signing up theaters at the rate of about 2 a day.
UPDATE, 3:18 PM: The National Association of Theater Owners says it’s “elated” by the decision. “This issue was never about obesity, nor about soda,” the group says. “This was all about power.” Indeed, the group refers to Mayor Michael Bloomberg’s anti-obesity initiative as “an arbitrary and porous Mayoral fiat.” NATO adds that education and “collaboration with all stakeholders” would be more effective than an “unpopular and unfair executive decree.”
PREVIOUS, 12:31 PM: Movie theater owners in the Big Apple won’t have to limit themselves to serving small sodas. New York Supreme Court Judge Milton Tingling enjoined the city on Monday from implementing the law that was due to take effect tomorrow that would bar food sellers regulated by the Board of Health from selling sugared drinks in portions larger than 16 ounces.The rule would apply to restaurants, theaters, and workplace cafeterias, but not supermarkets and convenience stores. It also exempts diet sodas, alcohol, and fruit juices. The regulations are “fraught with arbitrary and capricious consequences,” the judge said, according to a Wall Street Journal report. He cited provisions that could lead to “uneven enforcement even within a particular city block, much less the city as a whole.” Mayor Michael Bloomberg favored the rule as part of his effort to fight obesity. His office says that it will appeal …
It may be time for studios and theaters to worry a little less about attracting young people to the movies, and a little more about appealing to people with some gray in their hair. Among those who saw at least one movie over the course of the year, overall attendance to new releases fell slightly to 6.8 movies per person in 2012 vs. 6.9 in 2011, according to the latest American Moviegoing report out today from Nielsen’s National Research Group. But the composition of the audience saw a notable change: People between ages 25 and 54 accounted for 52% of the sales, down from 56% in 2011, and 57% in 2010. By contrast, young audiences (between 12 and 24) represented 30% of last year’s sales, up from 29% in 2011 and 27% in 2010. Older moviegoers (from 55 to 74) bought 18% of the tickets, up from 15% in each of the two previous years. The report also confirmed a trend that the MPAA noted in 2011: the growing enthusiasm for movies among Hispanics. They accounted for 25% of all movies seen, even though they represent 18% of the moviegoing population. They also were the only group that saw more movies in 2012 (9.5 per person on average) than in 2011 (8.5). The data come from online, phone and in-person surveys in August and September of more than 3,000 people who attended at least …
Theater owners and investors won’t find much encouraging news in the latest overview of the exhibition industry by Moody’s Investors Service. “Despite an increase of about 6% in US and Canadian movie theater admissions in 2012, the overall trend is negative,” the debt-rating firm’s Assistant VP Karen Berckmann says this morning. Last year’s increase shows that “appealing product will still draw people to theaters.” But attendance remains 15% lower than it was in 2002 when it came close to 1.6B. “Given alternatives for consumers’ leisure time — from video games to Netflix to web surfing — we do not expect a rebound in movie attendance,” she says. Exhibition chains also have discovered that if they continue to raise ticket prices then “they risk turning off customers and reducing attendance.” What to do? Theaters have fattened their bottom lines by improving concession offerings, selling more on-screen ads, showing alternative content (such as concerts and sports events) on slow nights, and generally cutting costs. The premium-priced tickets for 3D movies are probably a wash since they also come with higher licensing costs, but could provide some modest help as studios and theaters experiment with the format.
Did a New Orleans theater owner bribe the city’s former Mayor Ray Nagin by paying for a vacation in New York, including private jet and limo service, in return for loan and tax waivers? That’s one of the charges in a 21-count indictment against Nagin handed down by a federal grand jury last week. While the indictment refers to the bribe giver as “Businessman A,” local TV station WWL reports that it’s one of the owners of Grand of the East, a movie theater that has been abandoned for years. It owes New Orleans $6M from an unpaid Housing and Urban Development loan. The station reports that it tried to find out what’s going on from T. George Solomon Jr., who’s listed as the theater developer and operator and owns a local movie chain, Southern Theatres. “We went to Solomon’s mansion Uptown and were turned away at the gate,” the station says on its web site. “We also left a message for him at Southern Theatres that was not returned.” The city’s current Mayor Mitch Landrieu is trying to collect on the unpaid loan.
WESTFIELD, N.J. & VISTA, Calif.– Digital Cinema Destinations Corp. (NasdaqCM: DCIN), a fast-growing motion picture exhibitor dedicated to transforming movie theaters into digital entertainment centers, together with its new joint venture partner, Start Media, LLC, today announced the closing of the purchase of seven theaters with an aggregate of 74 fully digital screens from UltraStar Cinemas.
The acquisition includes six theaters located in the Southern California/San Diego market and a seventh theater based near Phoenix, AZ. Digiplex now operates 16 theaters with 159 screens located in CA, PA, CT, NJ and AZ.