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Case Teaching Note – The Movie Exhibition Industry: 2011 / 1
REVIVE THE EXPERIENCE – GENERAL
currently illegal under US federal law).
Resolves the strategic issue? Partly – may reduce bad behavior and interruptions
(reduces reason people stay away), but doesn’t give them a new reason to go to
the theater.
Resolves the strategic issue? Unlikely - may create a whole new reason for
audiences to stay away – think sports flick!
business.
Resolves the strategic issue? Partly – some will find value in this. Reduces reason
why some people stay away), but really seem to give them a new reason to go to
the theater.
1. The VIP Room - Individual theaters within a complex are designated as VIP
areas, accessible only with a premium priced ticket. From plush, assigned
level. A $16 ticket includes parking, popcorn, bar and lounge access and
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model within their locations.
2. The VIP Theater - Solely upscale location. Gold Class Cinemas is seeking
to establish 50 high end only theaters across U.S. within 5 years. The LA
Times
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quotes Gold Class chairman Robert Kirby, “We're redefining our
business as a hospitality business.” One the menu, “seasonal menu choices
such as lobster spring rolls, duck tacos, Wagyu beef burgers and crème
brûlée.” Kirby explained the appeal: “We can all get from A to B, but people
like to drive a BMW. You can stay at a motel or enjoy the luxury of a Four
Seasons Hotel.”
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The concept has reportedly met with success in
Case Teaching Note – The Movie Exhibition Industry: 2011 / 2
international markets.
Upside – re-differentiates the industry (at least for some). Follows the club VIP
model (but that’s on the wane).
Downside – what to offer and how to do it in an economically viable way.
Reconstructing theaters can be very expensive. Is this about the movie at all?
Some in the industry are skeptical of the all luxury concept. Michael Whalen,
president of the firm that operates the Oaks 14 multiplex, says “The idea of an
all-premium concept strikes me as a recipe for disaster.”
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Resolves the strategic issue? Likely for those who seek differentiation. Adds a
whole new level of “experience” to the theater experience. Most viable in upscale
markets – Regal and AMC.
ENHANCE REVENUE & PROFITS FROM EXISTING ELEMENTS
There is potential for increasing all existing revenues streams.
Increase Box Office – Revenue Management Approach
Movie ticket pricing follows a simplified structure, with prices differentiated only by
evening and matinee. This is highly uncommon in the larger entertainment industry
acceptance?). May increase overall traffic.
Downside – contracts for exhibition are usually fixed per theater, per screening, per
viewers.
Resolves the strategic issue? This isn’t a new draw, but seeks to rationalize revenue
collection. Some may love it – image a $0.99 matinee – while others will pay more (value
airlines and customers hate that.
Expand Revenue – Advertising
Sure moviegoers hate ads, but they are one of the few sources of profits for theaters. Why
Case Teaching Note – The Movie Exhibition Industry: 2011 / 3
joysticks’ that control the game. Working as a team, they direct the onscreen action using
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Brandweek reported impressive results on a UK test of one form of the technology. Over
interactive as video games.
Resolves the strategic issue? Maybe. It really overcomes the negative of an existing evil.
Possibly charge more for advertising or have more of it. If you can incorporate the same
Expand Revenue - Concessions
There’s not much room to just raise food prices. But customers will pay more for better
food (same margin on more expensive food = more profits). Most theater chains have
upgrade their food offerings at the counter. This includes both the breadth of the
while others are undertaking the task internally. While margins on these items can be
considerable, it is hard to beat the 75 percent on the staple popcorn. Increased food
service also involves considerable additional overhead costs. The food service business
remains near the top of the list in number of firm failures.
theater.
REVIVE THE UNIQUENESS OF THE EXPERIENCE - VIEWING TECHNOLOGY
Full Digital Convert theaters fully to digital to maximize the quality of the image. A
digital theater image at a resolution of 4096×2160 offers far greater clarity than even the
best high definition TV sets.
alternative programming).
Case Teaching Note – The Movie Exhibition Industry: 2011 / 4
Resolves the strategic issue? Not really by itself. Cell phone interruptions while watching
HD.
1995 film Apollo 13, the firm has had the ability to transform any standard title into
IMAX® format. No longer restricted to documentary and thrill features (think NASCAR
3-D), IMAX® now works in conjunction with studios to offer concurrent releases such as
The Day the Earth Stood Still (December 2008) and the fourth installment of Shrek which
In 2008, IMAX® entered into a joint venture with Regal Cinemas to install 31 IMAX®
Digital projection systems at Regal locations in 20 major U.S. markets. The deal expands
their existing relationship, bring Regal’s total number of IMAX® theatres to 52 by the
end of 2010.
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Downside - Not as much appear for a drama. Very high costs.
Resolves the strategic issue? Yes, but likely not on the scale needed. How many movies
will you go to for $15 a ticket? Most appropriate for Regal and AMC in the larger cities –
need large population base to justify.
Earth”, and “Hannah Montana” were released in standard and 3-D versions. It is expected
that over 3,000 theaters will be equipped with 3-D projection equipment for the 2009
release of the film Monsters vs. Aliens.
Case Teaching Note – The Movie Exhibition Industry: 2011 / 5
Resolves the strategic issue? Maybe. Key question is can it become part of the whole
experience and could you experience this at home?
REVIVE THE UNIQUENESS OF THE EXPERIENCE – CONTENT
interruptions, as well as social ones such as most theaters lacking permits to serve beer.
Some sports broadcasts have been offered in 3-D, such as this year’s BCS
Championship game in January, 2009.
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Ticket prices average $20 for the event,
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Upside – largely untapped revenues. May bring in non-peak audiences (Sunday
afternoon, Monday night).
Resolves the strategic issue? Real possibility to do so.
5. Has their situation improved by 2010?
Sadly, it’s difficult to answer “yes” to this. Consider:
1. Gross margins do not appear to be improving. Quarter 2 2009 versus Q2 2010 (why this
period? Most 3D price increases went into effect in Q2 2010 so this should give a strong
comparison).
Q2 2010
Q2 2009
Regal
Exhibition costs as % of revenue
53.3%
54.2%
Operating Profits as % of revenue
9.0%
12.2%
Carmike
Exhibition costs as % of revenue
56.8%
57.6%
Other theater operating costs as % revenue
(unknown if this directly relates to digital or
3D)
62.9%
59.6%
Operating Profits as % of Revenues
4.1%
8.8%
Case Teaching Note – The Movie Exhibition Industry: 2011 / 6
2. Studios are seeking to recover revenues and profits from declining DVD sales through (1)
increased Pay Per View, shortened release window, and making films for international audiences.
Mostly, nothing has changed. Sure, 3D revenues are up, but theaters do not appear to be profiting
6. What alternatives can exhibitors take in 2011 and beyond to improve their situation?
Alternative content – should lower supplier power and result in lower costs. Simulcast of concerts
Continued experience enhancements – food, beverage, upscale environments, etc.
International expansion – of the four major exhibitors, only Cinemark has materially expanded
outside of the U.S. The exhibitors face many of the same supplier power issues, but there is
growth in these markets.
12/31/2009 12/31/2005
Theaters Screens % Theaters Screens %
USA & Canada 294 3,830 78% 200 2,417 73%
US & Canada Attendance 165,112 70% 105,573 64%
Avg Attendance per 562 43 528 44
International Locations
Total
Screens 419 4,896 308 3,329
Case Teaching Note – The Movie Exhibition Industry: 2011 / 7
1
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Josh Friedman, Upscale chain aims to be the BMW of movie theaters, Los Angeles Times, Sunday, September 07,
2008.
3
Josh Friedman, Upscale chain aims to be the BMW of movie theaters, Los Angeles Times, Sunday, September 07,
2008.
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2008.
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Josh Friedman, Upscale chain aims to be the BMW of movie theaters, Los Angeles Times, Sunday, September 07,
2008.
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Source: http://www.imax.com/corporate/pdfs/Corporate_Profile_March_2008.pdf, accessed 2009/01/06
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Source: Joseph De Avila, For Football Fans, Seeing TDs in 3-D, The Wall Street Journal, January 7, 2009, D1
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