Case 23

The Movie Exhibition Industry 2013

Brett P. Matherne
Georgia State University

Steve Gove, David Thornblad

Virginia Tech

It is apt that 2012’s top grossing film was The Avengers for to digital projection since 2005 (Exhibit 4). The main
movie studios and exhibitors sought to avenge a dismal promises of digital projection are decreased distribu-
prior year at the box office. Domestic box office receipts tion costs, 3D capability, and the potential to show
climbed 6% from 2011 to a record setting $10.8 billion.1 alternative content. Despite the sizable investment,
Three films, The Avengers, The Dark Knight Rises, and financial benefits have yet to materialize for exhibitors.
Skyfall grossed more than $1 billion each in global ticket Attendance decreased in 5 of the 8 years since conver-
sales (Exhibit 1). Behind the scenes, the success, even the sion began.
fundamental health of the exhibition industry, is far less Which represents the current and future state of the
clear. Consider these contradictions: movie exhibition industry: The bright lights of a red car-
pet Hollywood premiere or a dimly lit marquee?
■■ Domestic ticket revenues grew 6% in 2012, but that
volume ranks just 13th since 1980. The 1.364  billion
tickets sold is down 13% from the most recent high
in 2002 of 1.575 (Exhibit 2).
The Motion Picture Value Chain
■■ 2012’s record revenues resulted from ticket price The motion picture industry value chain consists of
increases, not more attendees. At $7.94, the average three stages: studio production, distribution, and exhi-
ticket price has risen 24% since 2005. But over the bition – the theaters that show the films. All stages are
long term, prices keep pace with inflation, raising undergoing consolidation and technological changes,
questions about the creation of differentiated value but the basic three-phase structure is largely unchanged
(Exhibit 3). since the 1920s.
■■ The long-term per-capita trend is negative. In 2012,
the average number of films seen per capita was
Studio Production
3.9.2 In 1946, the peak of moviegoing in America,
The studios produce the life blood of the industry: they
the industry sold 4  billion tickets and the typical
create motion picture content. Content drives attendance
American went to 28 films per year at the theater.
and studios are highly concentrated. The top six studios in
■■ Movies are more widely available than ever, creating
© Vividfour / Shutterstock.com

2012 created 17% of the films for the year, but these films
new substitutes for where, when, and how to view
accounted for 76% of the box office gross (Exhibit 5).
movies.
The top 10  studios constitute over 90  percent of box
Exhibitors are especially anxious for moviegoers office receipts. This concentration, coupled with highly
to return to the theater as the industry has invested differentiated content, gives the studios considerable
an estimated $1.6 billion to convert theaters from film negotiating and pricing power.

295

CHE-HITT11E-13-0403-CaseStudy23.indd 295 10/22/13 3:12 PM

 Exhibit 1  Top 25 Releases of 2012 296

Domestic International Total

Movie 3D 3D Studio Genre MPAA Prod. Budget Gross % Rank Gross (mil.) % Rank Gross Rank
% Rating (mil.) (mil.) (mil.)
The Avengers Yes 52% Buena Vista Act Adv. PG-13 $220.0 $623.4 41% 1 $888.4 59% 1 $1,511.8 1
The Dark Knight Warner Bros. Act Thrl PG-13 250.0 448.1 41% 2 632.9 59% 4 1,081.0 2
The Hunger Games LGF Act Adv. PG-13 78.0 408.0 59% 3 278.5 41% 12 686.5 9

CHE-HITT11E-13-0403-CaseStudy23.indd 296
Skyfall Sony Act PG-13 200.0 300.9 29% 4 737.6 71% 2 1,038.5 3
Twilight: Brk. Dawn 2 Summit Rom PG-13 120.0 290.8 35% 5 532.5 65% 6 823.3 6
The Hobbit Yes 49% Warner Bros. Fant PG-13 175.0 288.7 31% 6 632.2 69% 5 920.9 4
Amazing Spider-Man Yes 44% Sony Act Adv. PG-13 230.0 262.0 35% 7 490.2 65% 8 752.2 7
Brave Yes 32% Buena Vista Anim PG 185.0 237.3 44% 8 298.1 56% 10 535.4 11
Ted Universal Comedy R 50.0 218.8 43% 9 289.4 57% 11 508.2 12
Madagascar 3 Yes 45% Para. - DrmWrks Anim PG 145.0 216.4 29% 10 525.7 71% 7 742.1 8
Dr. Seuss - Lorax Yes 50% Universal Anim PG 70.0 214.0 61% 11 134.8 39% 19 348.8 17
Wreck-It Ralph Yes 38% Buena Vista Anim PG 165.0 181.4 51% 12 173.4 49% 17 354.8 16
Men in Black 3 Yes Sony Sci-F Com PG-13 225.0 179.0 29% 13 445.0 71% 9 624.0 10
Lincoln Buena Vista Hist. Drama PG-13 65.0 161.9 98% 14 3.3 2% 25 165.2 25
Ice Age: Cont. Drift Yes 35% Fox Anim PG 95.0 161.2 18% 15 714.0 82% 3 875.3 5
Snow White & the Universal Adv PG-13 170.0 155.3 39% 16 241.3 61% 14 396.6 14
Huntsman
Hotel Transylvania Yes ? Sony Anim PG 85.0 146.6 46% 17 173.8 54% 16 320.4 18
Taken 2 Fox Act PG-13 45.0 139.5 38% 18 232.0 62% 15 371.6 15
Django Unchained Weinstein West R 100.0 139.4 74% 19 48.4 26% 24 187.8 23
21 Jump Street Sony Act Com. R 42.0 138.4 69% 20 63.1 31% 23 201.6 21
Les Miserables Universal Musc PG-13 61.0 131.8 47% 21 150.5 53% 18 282.3 19
Prometheus Yes 25% Fox Sci-Fi Act R 130.0 126.5 31% 22 276.9 69% 13 403.4 13
Safe House Universal Act Thrl R 85.0 126.4 61% 23 81.7 39% 20 208.1 20
The Vow Sony / Sc. Gems Drama PG-13 30.0 125.0 64% 24 71.1 36% 21 196.1 22
Argo Warner Bros. Drama Thrl R 45.0 115.3 62% 25 69.3 38% 22 184.5 24
  Total for Top 25 $2,891.0 $5,536.3 $8,184.1 $13,720.4
  Average for Top 25 41% $115.6 $221.5 47% $327.4 53% $548.8

Notes: Data from Boxofficemojo.com, MPAA, NATO, and author estimates. 3D revenues is based on opening weekend. Genres as follows: Act = Action; Adv. = Adventure; Anim = Animation; Com = Comedy; Drama = Drama;
Fant = Fantasy; Hist = Historical; Musc – Musical; Rom = Romance; Sci-F = Sci-Fi; Thrl = Thriller; West = Western. Some production budgets estimated.
Part 4: Cases

10/22/13 3:12 PM
 Case 23: The Movie Exhibition Industry 2013 297

Exhibit 2  Domestic Box Office Receipts & Ticket Sales, 1980-2012

$11,000 1,600
$10,000

Gross Revenues (mil. $)

1,400
$9,000

# Tickets Sold (mil.)

$8,000 1,200
$7,000 1,000
$6,000
800
$5,000
$4,000 600
$3,000 400
$2,000
$1,000 200
$0 0
1980 1990 2000 2010 2012
3D Tickets Sold (est.) - right axis 2D Tickets Sold (est.) - right axis
Gross Revenues (left axis)

Data Source: Boxofficemojo.com and author estimates. 3D ticket volume estimated based on reported 3D revenues with ticket prices estimated as 30% premium over 2D.
Portion of 2012 3D revenue and ticket volume is estimated.

Exhibit 3  Ticket Prices 1980 - 2012

$9.00 $8.63
$8.00 $7.94
$7.00
$6.00
$5.00
$4.00
$3.00
$2.00
$1.00
$0.00
90

00

10

12
80

19

20

20

20
19

Average Ticket Price Inflation Adjusted Ticket Prices (base year = 1980)

Studios are increasingly managed as profit centers are unfavorable. While the U.S. population will increase
in large corporations. Management is risk averse, as 42% by 2050, this core audience will increase just 35%
investments are large and a formula for success elusive. (19 million) or 475 per existing screen (Exhibit 6).
Consider the fate of two films inspired by comic books in The risks for studios are significant as production
2011. Warner Bros.’s Green Lantern was considered a flop, costs are considerable (see Exhibit 1). Studios invested
grossing $219  million ($116  million domestic, $103 inter- $1.6 billion for the 10 films which ranked among 2012’s
nationally) and ending plans for a series. That same year highest grossing ($165  million per film). Costs have
Paramount’s Thor grossed $449 million ($181 domestically, increased faster than inflation. In 1980, the produc-
$268 internationally), giving the green light to a sequel. tion budget for the highest grossing films averaged just
Studios focus on 14- to 24-year-olds, consistently $11  million. In the 1990s, films turned to special effects
the largest audience for movies. At just 15% of the U.S. and costs reached $102 million (up 827%). Today, special
population, this group purchases 21% of all tickets. More effects alone can top $100 million for a major production.
narrowly, 10% of the population are “frequent” moviego- These investments are considerable, yet no guarantee for
ers who attend more than one movie per month and are success: Green Lantern, the flop, was made for $200 mil-
responsible for half of all ticket sales.3 Studios target this lion while the successful Thor cost $150 million.
audience with PG and PG-13 fare including 19 of 2012’s Domestic exhibitors were once the sole distribution
top 25  releases. However, domestic demographic trends channel for films. This has changed dramatically. Films

CHE-HITT11E-13-0403-CaseStudy23.indd 297 10/22/13 3:12 PM

 298

CHE-HITT11E-13-0403-CaseStudy23.indd 298
Exhibit 4  U.S. Theater Screens 2000-2011
Analog Screens Digital Screens D Digital 3D
Year Total Change # Change As % of # Change As % of Est. # Change As % of As % of Est. 3D
Screens from from Total from Total Digital from Total Digital Invest.
Prior Prior Screens Prior Screen Invest. Prior Screens (mil.)
Year Year Year (mil.) Year
2000 37,396 37,396 100.0%
2001 36,764 −1.7% 36,764 −1.7% 100.0%
2002 35,280 −4.0% 35,280 −4.0% 100.0%
2003 36,146 2.5% 36,146 2.5% 100.0%
2004 36,594 1.2% 36,594 1.2% 100.0%
2005 38,852 6.2% 38,862 6.2% 100.0% 200 0.5% $10
2006 38,415 −1.1% 36,412 −6.3% 94.8% 2,003 901.5% 5.2% $100
2007 38,974 1.5% 34,342 −5.7% 88.1% 4,632 131.3% 11.9% $256 986 2.5% 21.3% $74
2008 38,843 −0.3% 33,319 −3.0% 85.8% 5,515 19.1% 14.2% $311 1,427 44.7% 3.7% 25.9% $107
2009 39,233 1.0% 31,815 −4.5% 81.1% 7,418 34.5% 18.9% $453 3,269 129.1% 8.3% 44.1% $245
2010 39,547 0.8% 23,773 −25.3% 60.1% 15,774 112.6% 39.9% $985 7,837 139.7% 19.8% 49.7% $588
2011 39,641 0.2% 14,020 −41.0% 35.4% 25,621 62.4% 64.6% $1,606 13,001 65.9% 32.8% 50.7% $975

Notes: Based on author estimates and MPAA reports on # screens. Estimated investments (cumulative) based on estimated cost of digital screen ($50,000 per installation) and digital 3D ($75,000 per installation). Digital
screen counts include digital 3D.
Part 4: Cases

10/22/13 3:12 PM
 Case 23: The Movie Exhibition Industry 2013 299

Exhibit 5  Top 6 Studios / Distributors 2012

2012 2000 % Change 2000-2012
Studio / Rank $ Share Total # Films Rank $ Share Total # Films Total # Films
Distributor Gross Gross Gross
Sony / Columbia 1 16.6% $1,792 25 7 9.0% $682 29 163% −14%
Warner Bros. 2 15.4% $1,665 36 3 11.9% $905 22 84% 64%
Buena Vista 3 14.3% $1,551 18 1 15.5% $1,176 21 32% −14%
Universal 4 12.2% $1,324 17 2 14.1% $1,069 13 24% 31%
20th Century Fox 5 9.5% $1,025 19 6 9.5% $723 13 42% 46%
Paramount / 6 8.5% $914 21 4 10.4% $791 12 16% 75%
Dream Works
  Total for Top 6 $8,273 136 $4,664 81 77% 68%
  Industry Total $10,835 795 $7,661 478 41.4% 66.3%
 Top 6 as % of 76.3% 17.1% 61.4% 16.9% 24.3% 1.0%
Industry

Source: Author calculations based on data from boxofficemojocom.

Exhibit 6  U.S. Demographic Trends

Segment % of Movie Tickets # in 2010 % of Population # in 2050 % of Population # Increase % Change
Purchased (2011) (mil.) (2010) (mil.) (2050)
Under 5 years 21.1 7% 28.1 6% 7.0 33%
  5 to 13 yrs 15% 37.1 12% 50.7 12% 13.6 37%
  14 to 17 yrs 9% 17.0 5% 22.7 5% 5.7 34%
  18 to 24 yrs 12% 30.7 10% 39.5 9% 8.8 29%
  25 to 44 yrs 28% 83.1 27% 110.9 25% 27.8 33%
  45 to 64 yrs 24% 81.0 26% 98.5 22% 17.5 22%
  65 yrs+ 11% 40.2 13% 88.5 20% 48.3 120%
Total (mil.) 310.2 439.0 128.8 42%

Source: Data: US Census (2008), Table 2. Projections of the Population by Selected Age Groups and Sex for the United States: 2010 to 2050 (NP2008-T2), MPAA Theatrical
Statistics, and author estimates.

must increasingly cross cultural and language boundaries of Ted cost less to produce, they are risky in international
and appeal to the global market. Over 70% of U.S. studio markets. Franchise films, with known characters, made
revenues are now international (Exhibit 7). Studios see in 3D and laden with special effects, present the least
this as the primary opportunity for growth. While domes- content risk internationally. Yet these films carry their
tic receipts increase on flat ticket sales, both ticket sales own risk due to large budgets. The special effects alone
and dollar volume are rising rapidly internationally. From for a major film may exceed $100 million. The Avengers,
2000 to 2012, domestic receipts grew at an average of just The Dark Knight Rises, and Skyfall all rank in the top
3% while international growth averaged 13% annually. 10 for worldwide gross. Combined, they constitute an
The studios are also changing their perspective on ticket investment of $670 million in production costs.
prices in large population markets. In India, for example, As studios shift their focus to the international mar-
attendees paid an average of just $0.50.4 However, Indian ket they are less dependent on domestic exhibitors. This
exhibitors sold 3.3  billion tickets in 2008. At current increases the threat of disintermediation through alter-
growth rates, the attendance volume increase each year in native distribution channels. Studios increase revenues
India alone equals total current U.S. annual admissions.5 through product licensing, DVD sales, and international
This trend of content internationalization shows no expansion; at the same time exhibitors – movie theaters –
signs of abating. While the drama of Argo and the humor have seen their business decline.

CHE-HITT11E-13-0403-CaseStudy23.indd 299 10/22/13 3:12 PM

 300 Part 4: Cases

Exhibit 7  Domestic & International Box Office Receipts ($ bil.)

$35 80%
$30
$25 60%
$20
40%
$15
$10 20%
$5
$0 0%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Domestic ($ Bil. Left axis) International ($ Bil. Right axis)

% Domestic (right axis) % Global (right axis)

Distribution of “alternative content” – images other than motion pic-

Distributors are the intermediaries between the studios tures that are obtained outside of the studio system.
and exhibitors. Distribution entails all steps following The transition to digital projection involves consid-
a film’s artistic completion including marketing, logis- erable capital investment. Each digital projection system
tics, and administration. Distributors either negotiate can serve a single screen and costs $50,000 to $75,000,
a percentage of the gross from the studio for distribu- including the projector, computers and hardware, and
tion services or purchase rights to films, profiting the a specialized screen. To encourage the transition, dis-
box office directly. Distributors select and market films tributors offered rebates in the form of virtual print fees
to exhibitors’ booking agents. They handle collections, (VPSs) for each film received digitally. These fees, as
audits of attendees, and other administrative tasks. There much as 17% of rental costs, will expire in 2013.
are over 300 active distributors, but most is done by a few
majors, commonly a division of a studio. Disney Pixar, Exhibition
for example, produced Brave while distribution was done Exhibitors offer a location where audiences can view
by Disney’s Buena Vista. a motion picture. The basic business model of exhibi-
Until 2005, the distribution of all motion pictures in tors (using movies as the draw and selling concessions
the U.S. entailed the physical shipment of reels of 35mm to make a profit) has changed little since the time of
film, a process little changed from the 1940s. Each theater touring motion picture shows that would set up in town
would receive a shipment of physical canisters contain- halls and churches. As the popularity of motion pictures
ing a “release print” of a film. These prints cost $20,000 – expanded, permanent local theaters were established.
$30,000 in up-front costs and $1,000 – $1,500 for each Studios soon recognized the potential profit in exhibi-
print. Print costs for a modern major picture opening on tion and vertically integrated, allowing control over
3,500 screens costs $3.50 – $5.25 million. This is borne by audiences and capturing these downstream profits. This
the studios and exhibitors, but paid for by movie attendees. practice ended in 1948 with the Supreme Court’s ruling
Beginning in 2006, distributors and studios encour- against the studios in United States v. Paramount Pictures.
aged exhibitors to transition to digital projection technol- Theaters were divested by studios, leaving the two to
ogy. The technology works by using high powered LCD negotiate film access and rental fees. Single theater and
projectors to cast the movie onto a specialized screen. In single screen firms’ exhibitors fared poorly as studios
lieu of film, the movies are delivered on reusable hard retained the upper hand in setting rental rates. Exhibitors
drives or via satellite or high speed internet. The threat of sought to increase bargaining power and economies by
piracy is a major concern for the industry so all files are consolidating, multiplying the bargaining power of indi-
encrypted. The cost savings of digital distribution over film vidual theaters by the number of screens managed.
are considerable: The cost of each hard drive is $150, just This reached its zenith in the 1980s with the mass
10% of the cost of physical film. Additionally, digital pro- rollout of the multiplex concept. Maximizing both bar-
jection allows for consistently high quality images as there gaining power based on multiple screens while mini-
is no physical wear to the film, and enables the exhibition mizing labor and facility costs, exhibitors constructed

CHE-HITT11E-13-0403-CaseStudy23.indd 300 10/22/13 3:12 PM

 Case 23: The Movie Exhibition Industry 2013 301

large entertainment complexes, sometimes with two of the circuit and the time and seat commitment made to
dozen or more screens. Most of the original local single a film. The revenues retained by the theater increase with
screen theaters that survived were doomed as they were each week following an opening. On opening weekend
unable to compete on cost or viewing experience and an exhibitor may pay the distributor 80–90% of the box
were unable to gain access to the capital needed to con- office gross, retaining only 10–20%. In subsequent weeks
struct multi-screen locations. Today, the typical exhibi- the exhibitor’s portion increases. The record-setting rev-
tor location has 7–12 screens and is likely to be operated enues at the box office have been the result of increases
by Regal, AMC, Cinemark, or Carmike. These four oper- in ticket prices, the majority of which has flowed back
ate 1,061 theaters in the U.S. (just 19%), but control 45% to the studios.
of the screens (Exhibit 8). This market concentration The complexity of booking is increasing. The major-
provides exhibitors with negotiating power for access to ity of revenues historically comes from opening week-
films, prices for films, prices for concessions, and greater end. In industry terminology the “multiple” (the per-
access to revenues from national advertisers. However, centage coming after opening weekend) has been declin-
the real power continues to remain with the studios due ing steadily, falling 25% since 2002,6 putting exhibitors at
to differentiated content, the ability to play rival exhibi- increasing risk. While exhibition used to be a question
tors against each other, and the increasing potential for of which movie to show, it now also involves decisions as
disintermediation. to how many theaters to allocate to analog versus digital
and 2D versus 3D. All these factors plus the “make or
break” nature of opening weekend complicate the exhibi-
The Business of Exhibition tor’s operations.
Exhibitors have three main revenue sources: box office
receipts, concessions, and advertising (Exhibit 9). Concessions
Managers have low discretion; their ability to influence Moviegoers frequently lament the high prices for con-
revenues and expenses is limited. Operating margins cessions. Concessions average near 30% of revenues.
average a slim 15 percent; net income may fluctuate wildly Direct costs of just 15% make concessions the largest and
based on the tax benefits of prior losses. Overall, the busi- sometimes sole source of exhibitor profit. These profits
ness of exhibitors is best described as loss leadership on are influenced by three factors: attendance, pricing, and
movies: the firms make money selling concessions and material costs. The most important is attendance: more
showing ads to patrons who are drawn by the movie. attendees = more concession sales. Per-patron sales are
influenced by prices – a common moviegoer complaint is
Box Office Revenues high concession prices. The $4.50 and $8.00 price points
Ticket sales constitute two-thirds of exhibition business for the large soda and popcorn are not accidental, but the
revenues. The return, however, is quite small due to the result of market research and profit maximization calcula-
power of the studios. For large exhibitors, film costs tion. Costs are influenced by purchase volume with larger
average 53% of box office receipts. For smaller circuits, chains able to negotiate better prices on everything from
average costs are higher. Rental fees are based on the size popcorn and soda pop to cups and napkins.

Exhibit 8  Leading U.S. Circuits 2012

Circuit Total Total Screens / Analog (% Digital (% Digital 3D
Screens Theaters Theater Screens) of Screens) (%Screens)
AMC (AMC, Loews) 5,128 346 14.5 55.1% 44.9% 31.3%
Carmike (Carmike) 2,254 237 9.5 5.6% 94.4% 33.0%
Cinemark (Cinemark, Century) 3,878 297 13.1 0.0% 100.0% 48.0%
Regal (Regal, United Artists, Edwards) 6,614 527 12.6 28.6% 71.4% 42.1%
  Total for 4 Largest Circuits 17,874 1,061 12.4 27.1% 72.9% 39.1%
  4 Largest Circuits as % of Industry Total 45.1% 18.6%
  Industry Total 39,641 5,697 6.9 35.4% 64.6% 32.8%

Notes: Data from SEC filings, MPAA, NATO, and author estimates, based on screens entering fiscal 2012.

CHE-HITT11E-13-0403-CaseStudy23.indd 301 10/22/13 3:12 PM

 302 Part 4: Cases

Exhibit 9  Typical Revenue & Expenses Per Screen at an 8-Screen revenue with no direct monetary costs) and growing.
Theater Advertising revenues for exhibitors averaged $16,245
REVENUES per screen.8 Audiences, however, express dislike for
 Box office ($285,650/$7.94 = $ 285,650 65% advertising at the theater. Balancing the revenues from
35,975 admissions; 691/week/ ads with audience tolerance is an ongoing struggle for
screen) exhibitors (Exhibit 10).
 Concessions (135,250/35,975 $ 135,250 31%
admissions = $3.75/admission)
 Advertising ($21,500/35,975 $ 21,500 5%
The Major Exhibitor Circuits
admissions = $0.60/admission) Four “circuits” dominate the domestic exhibition market,
 Total Revenues $ 442,400 100% serving different geographic markets in different ways.9
($12.29/admission) Regal, which operates its namesake Regal Theaters as well
EXPENSES as United Artists and Edwards theaters, is the largest with
 Fixed 6,614 screens in 527 domestic theaters. Regal focuses on
 Facility $ 50,000 11%
mid-size markets using multiplex and megaplexes that
average 12  screens per location, with an average ticket
 Labor $ 40,000 9%
price of $8.90. AMC, operating as AMC and Loews chains,
 Utilities $ 50,000 11% is the second largest domestic exhibitor with 5,128 screens
  Other SG&A $ 60,000 14% in 346 theaters. Averaging nearly 15 screens per location,
   Total Fixed Costs $ 200,000 45% AMC leads the industry in the operation of large mul-
 Variable tiplexes. They do so by concentrating on urban areas
  Film Rental $ 155,000 54%
near large population centers such as those in California,
Florida, and Texas. By focusing on 3D, IMAX, and other
  Concession Supplies $ 21,650 16%
premium viewing experiences, AMC achieves the highest
   Total Variable Costs $ 176,650 40% ticket prices, averaging $9.04. Cinemark is the third larg-
  Total Expenses $ 376,650 85% est player with 3,878 screens in nearly 300 domestic loca-
OPERATING INCOME $ 65,750 15% tions under Cinemark and Century brands. Cinemark
serves smaller markets, operating as the sole theater in
over 80 percent of its markets. Their average ticket price
Advertising of $6.72 in 2012 was the lowest of the major chains.
The low margins derived from ticket sales cause exhibi- Carmike concentrates on small to mid-sized markets,
tors to focus on other sources of revenue. The highest targeting populations of less than 100,000 that have few
margin, therefore the most attractive, is advertising. alternative entertainment options. They do so with fewer
Since 2002, advertising revenues, and the time devoted screens at each location. With 237 theaters, they have just
to them at the start of every feature, has increased 2,254  screens, an average of 9.5 per location. Carmike’s
dramatically, climbing from $186 to $644  million.7 ticket price averaged just $6.85 (Exhibit 11).
Exhibitors also generate revenue through pre-show and While ticket prices vary considerably, differences
lobby advertising. Though this constitutes just 5  per- in net profit margins are due mostly to differences in
cent of exhibitor revenues, it is highly profitable (i.e., utilization and the costs of facilities, labor, and utilities.

Exhibit 10  Exhibitor Advertising Revenue ($ mil.)

$800 $658 $644

$540 $571 $584
$600 $456
$367 $395
$400 $273
$186
$200

$0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Source: NATO press releases 2005-2012.

CHE-HITT11E-13-0403-CaseStudy23.indd 302 10/22/13 3:12 PM

 Case 23: The Movie Exhibition Industry 2013 303

Exhibit 11  Select 2012 Carmike, Cinemark & Regal Financials

Carmike Cinemark ** Regal
Theater and Attendance Information
Screens (U.S. only) 2,502 3,916 6,880
Theaters (U.S. only) 249 298 540
Screens per Theater (U.S. only) 10 13 13
Total U.S. Attendance (in thousands) 50,357 163,639 216,400
  Avg Ticket Price $ 6.85 $ 6.72 $ 8.90
  Avg Concessions $ 3.10 $ 3.34 $ 3.46
  Avg Attendance per Screen 20,127 41,787 31,453
  Avg Admission Revenue per Screen $ 137,130 $ 280,797 $ 279,811
Income Statement ($ mil.)
Revenues
Admissions $ 343.10 $ 1,099.60 $ 1,925.10
Concessions* $ 172.58 $ 546.20 $ 748.40
Other Income *
$ 23.62 $ 50.10 $ 150.70
Total Revenues $ 539.30 $ 1,695.90 $ 2,824.20
  Admissions as % of Revenues 64% 65% 68%
  Concessions as % of Revenues 32% 32% 26%
  Other as % of Revenues 4% 3% 5%
Expenses
Exhibition $ 186.00 $ 610.50 $ 1,000.50
Concessions $ 23.20 $ 71.10 $ 101.10
Building, Wages, Utilities & Other Operating Costs $ 211.70 $ 548.20 $ 1,120.30
Total Cost of Operation $ 484.60 $ 1,229.80 $ 2,490.00
Operating Income $ 54.70 $ 466.10 $ 334.20
  Operating per admission $1.08 $ 2.85 1.54
  Operating Income as % total revenue 10% 27% 12%
  Exhibition Costs as % of Admission Revenues 54% 56% $52%
  Concessions Costs as % of Concession Revenues 13% 13% 14%
  Buildings, wages, utilities & other costs as % of Total Revenues 39% 32% 40%
  Buildings, wages, utilities & other costs per attendee $ 4.20 $ 3.35 $ 5.18
Net Income*** $ 96.30 $ 171.42 $ 144.80
Net Profit Margin 18% 10% 5%
Balance Sheet (dollars in millions)
Total Assets $ 712.70 $ 3,862.41 $ 2,209.50
Total Debt $ 434.70 $ 1,914.18 $ 1,995.20
Debt : Assets Ratio 0.61 0.50 0.90

Notes: Data source: SEC filings & author estimates

*
Carmike reports aggregated concession and advertising revenues. Amounts are estimated.
**
Theater, screen and revenue, expense data for Carmike’s U.S. operations. Net income, assets and debt figures are consolidated (dom. and intl.).
***
Net income may include carryover of substantial tax benefits from losses.

CHE-HITT11E-13-0403-CaseStudy23.indd 303 10/22/13 3:12 PM

 304 Part 4: Cases

Despite considerable size differences, the actual cost of Digital distribution is expected to save $1 billion annually
content for these circuits varies little among the major on print costs and distribution. Yet there is little evidence
circuits. Regal’s is lowest at 52% of admission revenues, to date that these savings will accrue to the exhibitors. Film
followed by AMC (53%), Carmike (54%), and Cinemark rental fees, which include distribution costs, have held steady
(56%). While the rental costs for these circuits is similar, despite the transition to digital. On the revenue side, exhibi-
it is lower than for smaller circuits. tors have seen significant additional per-ticket revenues
The circuits’ ability to efficiently utilize their facilities from surcharges for enhanced viewing experiences, primar-
varies considerably. Cinemark’s average of 41,787 attend- ily 3D. 3D content requires the cooperation of studios and
ees per screen is nearly double Carmike’s 22,032 per screen. exhibitors. For studios, 3D adds 15–20% to the cost of pro-
The differences in utilization combined with differences in duction. For exhibitors, 3D requires conversion to digital
the underlying costs of facilities, wages and other expenses projection and the added costs for 3D-capable equipment.
result in high variability in their costs on a per-ticket basis. Among domestic digital projection systems about half are
At $5.18, Regal’s cost per attendee is the highest, followed 3D capable. The planned 2009 release of Avatar was used
by Carmike ($4.20), and Cinemark ($3.35). to spur digital installations. The film grossed $750 million
Despite the trend toward internationalization by domestically, with an estimated 82% from 3D viewings. The
studios, exhibitors have until recently been exclusively film was a critical and box office success, introducing audi-
domestic firms. Cinemark has had the largest inter- ences to a new age of 3D movies and projection. Avatar’s
national presence with 167  theaters (1,324  screens) in success led to an increase, perhaps excess, of 3D releases.
Mexico and seven Central and South American coun- The portion of opening weekend receipts from 3D
tries. In 2012, AMC was acquired by the Chinese con- movies averaged 63% from 2009 to 2011 (Exhibit 12).
glomerate Dalian Wanda Group Corp. for a reported Today the 3D portion of major releases shows a worri-
$2.6  billion.10 Wanda, with interests in property, enter- some trend. In 2011, only 45% of Kung Fu Panda 2’s box
tainment, and tourism owns and operates 730 screens in office gross came from 3D and Disney’s Pirates of the
China, responsible for 15% of the Chinese box office with Caribbean had just 47%.11 In 2012, the average across all
plans to expand to 2,000  screens. The deal will make 3D films released declined to 45%. 3D may be an aspect
AMC the largest global exhibition company. of the theater experience which audiences are only occa-
Overall, while the major circuits focus on different sionally willing to pay for. Some industry observers cau-
geographic locations, there is little differentiation in tion that the future opportunity to capitalize on 3D-driven
the offerings of exhibitors within individual markets. revenues may be limited. “Certain movies are doing well
Prices differ little, the same movies are shown at the in 3D and others failing terribly,” Bob Greenfield said.
same times, and the food and services choices are nearly “People are getting a lot choosier. I would be surprised if
identical. Competition between theaters within markets in 2013 and 2014 we didn’t see a more reduced slate that
often comes down to distance from home, convenience focuses on the films that deserve it.”
of parking, and proximity to restaurants. Declining 3D attendance is a serious concern for
exhibitors. With an average investment of $75,000, the
payback period for 3D may be more than 3  years. The
Challenges for Exhibitors extent to which the conversion to digital will benefit
Exhibitors are faced with an increasing number of chal- exhibitors through cost reductions and revenue enhance-
lenges in their operating environment. ment will be determined in the coming years as rental
costs and 3D viewership rates are better established.
Benefitting from Digital Investments
Exhibitors have made considerable investments in Countering the Declining Allure
digital projection technology. At the start of 2012, of the Theater
two-thirds of the 39,641  screens in the U.S. had been Traditionally, the draw of the theater may have been far
converted to digital with the remainder expected to more important than what film was showing. Moviegoers
be converted by 2014. The total investment by exhibi- describe attending the theater as an experience, with the
tors is $1.6  billion. The benefits of this conversion appeal based on:12
should manifest themselves in lower exhibitor costs
and increased revenues. To date, these do not appear ■■ the giant theater screen
to have accrued to exhibitors. ■■ the opportunity to be out of the house
On the cost side, digital distribution dramatically ■■ not having to wait to see a particular movie on home
reduces distribution costs when compared to physical film. video

CHE-HITT11E-13-0403-CaseStudy23.indd 304 10/22/13 3:12 PM

 Case 23: The Movie Exhibition Industry 2013 305

Exhibit 12  3D as Percentage of a Film’s Opening Weekend Receipts

100%
90%
80%
70%
Max
60%
50% + 1 sd

40% Avg. 3D Opening

30% Weekend
-1 sd
20%
10%
0%
2005 (6) 2006 (8) 2007 (6) 2008 (8) 2009 (20) 2010 (25) 2011 (45) 2012 (41)

Notes: Based on news reports and author estimates. Numbers in parentheses are the number of 3D releases in a year.

■■ the experience of watching the movies with a theatri- New Line Cinema’s head of production, faced a not-so-
cal sound system common choice: attending opening night in a theater
■■ the theater as a location option for a date or in a screening room at actor Jim Carrey’s house. Said
Emmerich in an LA Times article “I love seeing a movie
The ability of theaters to provide these above what with a big crowd, but I had no idea how many obnoxious
audiences can achieve at home appears to be diminish- ads I’d have to endure – it really drove me crazy. After
ing. Of the reasons why people go to the movies, only sitting through about 15 minutes of ads, I turned to my
the place aspects — the theater as a place to be out of wife and said, ‘Maybe we should’ve gone to Jim Carrey’s
the house and as a place for dating — seem immune to house after all.’”16
substitution. Few teenagers want a movie and popcorn
with their date at home with mom and dad.
The overall “experience” currently offered by the- The Home Viewing Substitution
aters falls short for many. Marketing research firm For many, home viewing is growing as a viable substi-
Mintel reports the reasons for not attending the theater tute to theater attendance due to rapid improvements
more frequently are largely the result of the declining and cost reductions in home viewing technology and
experience. Specific factors include: the overall cost, at- the widespread availability of timely and inexpen-
home viewing options, interruptions such as cell phones sive content. The unique value proposition offered by
in the theater, rude patrons, the overall hassle, and ads movie theaters’ large screens, the long wait for DVD
prior to the show.13 A recent Wall Street Journal article release, and advantages of theatrical sound systems are
reported on interruptions ranging from the intrusion also fading.
of soundtracks in adjacent theaters to cell phones. “The
interruptions capped a night of moviegoing already Home Viewing Technology
marred by out-of-order ticketing kiosks and a parade The average home television set is increasingly a large,
of preshow ads so long that, upon seeing the Coca-Cola high-definition set coupled with an inexpensive yet
polar bears on screen, one customer grumbled: ‘This is impressive audio system. Compared to home equip-
obscene.’”14 Recounting bad experiences is a lively topic ment options of the past, at-home technology increas-
for bloggers. A typical comment: “I say it has gotten ingly represents a significant substitute for moviegoing.
worse. I hate paying $9.00 for a ticket and the movie is Prior to 2009, television transmissions were formatted
90–100 minutes long, people are talking on cell phones, as 480 interlaced vertical lines (480i) of resolution, the
the people who work at the theaters look like they are standard since the 1950s. FCC-ordered changes resulted
bored, and when you ask them a question, the answer in all broadcasters converting digital broadcasts by
is very rude.”15 February 2009, setting the stage for high definition
The time allocated to pre-show ads can be eye (HD) digital broadcasts providing up to 1080 vertical
opening, even for industry insiders. Toby Emmerich, lines of resolution (1080p).17 This transition started a

CHE-HITT11E-13-0403-CaseStudy23.indd 305 10/22/13 3:12 PM

 306 Part 4: Cases

consumer movement to upgrade televisions. The tran- are widely available, but are now exceeded by digital
sition also reduced the difference between home tech- purchases (e.g., Apple’s iTunes and Amazon). To spur
nology and the giant theater screen and sound system sales, studios have been consistently reducing the time
offered by theaters. period between the theatrical and the DVD release. This
The average size of TVs has increased dramatically: “release window” declined from 166  days in 2000 to
from 23  inches in 1997 to 36.8  inches in 2012. As LCD 120  days in 2012. Exhibitors express concern that these
technology became the standard for both computer declines cannibalize theater sales. Studios, meanwhile,
and television screens, manufacturing costs declined. continue to seek ways to stem declining DVD sales and
Wholesale prices for televisions fell 65 percent from the increase their return on each film. Decreased sales also
late 1990s to 2007.18 Between 2011 and 2012 alone, the result in lower prices for content. DVDs average $25 with
average retail price of a 32-inch TV declined from $546 upgrades to Blu-ray HD adding $5, and 3D and a digital
to $435.19 Consumers, however, spend more on every copy for tablet or PC viewing adding another $3 each.
television, consistently electing to purchase larger and Each sale nets the studio $12 to $15.26
more advanced sets. In 2012 the average TV sold for Both studios and exhibitors are facing pressure
$1200.20 Features such as 3D, internet connectivity, and from streaming and rental services. Once dominated
applications for Netflix, Hulu and others are becoming by physical stores, movie rentals expanded into physi-
common and add little to retail prices. Sharp, a lead- cal DVD channels with subscription (e.g., Netflix and
ing TV manufacturer, predicts that by 2015 the average Blockbuster) and one-up (e.g., Redbox and Blockbuster)
screen will reach 60 inches.21 Home viewing technology options as well as subscription streaming (e.g., Netflix
may be reaching its apex. While technologically image and Hulu). These offer very attractive prices for consum-
size and quality can continue to increase, they are limited ers, but have been identified by studios as a contributing
by practical realities. The ideal distance for viewing a 42˝ factor for declining DVD sales. Studios net about $1.25
TV is 5ʹ3˝. A 70˝ screen should be viewed from 8ʹ9˝. The per DVD sold to a rental company.27 This allows Netflix
adoption and benefit of 80˝+ sets will require a viewing to offer a physical DVD subscription service of 2 DVDs
distance that exceeds the size of most living rooms they out at a time for under $15 per month. RedBox’s kiosk-
would be installed in. based rentals are attractive to occasional viewers, costing
Large screen televisions, low cost high-definition as little at $1.25 per night.
DVD players, and audio and speaker components are Content-streaming services grew from $992 million
commonly packaged as low cost home theaters. The in 2011 to $2  billion in 2012.28 Streaming is among the
average Bluray DVD player now costs under $125 and most cost effective for viewers and providers. Estimates
3D players under $150. Bundled home theater systems put Netflix’s average streaming cost at $0.51 per viewing.
offer a movie experience that rivals many theaters, all for This is offset by fewer content options. Apple’s iTunes
under $1,500. Mike Gabriel, Sharp’s head of marketing provides perhaps the greatest selection, but with rent-
and communications, stated, “People can now expect als at $4 to $6 per viewing, emphasizes selection and
a home cinema experience from their TV. Technology HD quality over Netflix’s low cost. Streaming suffi-
that was once associated with the rich and famous is ciently cannibalized DVD sales to the point that studios
now accessible to homes across the country.”22 imposed a 28-day delay from DVD sales to the avail-
ability of streaming. Exhibitors expressed strong encour-
Content Availability & Timing agement when several studios expressed a desire for a
The best hardware offers little value without content. 56-day delay to increase DVD sales.
Channels for renting or purchasing movies are increas- Studios are seeking to increase their share of the
ing. “We’re seeing a cultural shift occurring where peo- rental market, putting them increasingly in direct com-
ple are consuming their entertainment from Netflix, petition with exhibitors. For the studios, each current
the iPad, Hulu,” said Paul Dergarabedian, president of video on demand (VOD) showing contributes $3.50 in
Hollywood.com’s box-office division. “There’s more revenue, far less revenue than DVD sales.29 Studios con-
competition for the eyeballs of consumers.”23 tinue to develop premium VOD as an alternative. The
Since the 1980s, studios have relied on VHS, then main feature of Premium VOD (P-VOD) is a decreased
DVD sales to fuel profits. DVD sales peaked at $13.7 bil- release window, including simultaneous release on films
lion in 2006.24 This revenue stream fueled studio profits, in theaters and through P-VOD. Exhibitors threatened a
but are in decline. In 2011, studio revenues from physi- boycott due to Universal’s plan for a P-VOD release of
cal and digital sales totaled $9.5 billion.25 Physical DVDs Tower Heist just three weeks after it opened in theaters.

CHE-HITT11E-13-0403-CaseStudy23.indd 306 10/22/13 3:12 PM

 Case 23: The Movie Exhibition Industry 2013 307

The plan was scrapped due to the threats. While exhibi- technology. The increased frame rate results in an espe-
tors won the battle, the potential revenues from the cially crisp image with no blurring that, while jarring to
planned $59.99 premium VOD will remain attractive some, is said to create a sense of being part of live action.
to the studios. Several circuits offer extra-large scale screens as
Premium cable networks (e.g., HBO, Starz, etc.) offer a feature.31 Traditionally located only in specially con-
both a programmed line-up of movies, albeit at sched- structed dome-shaped theaters in science museums, the
uled times and with monthly subscriptions, but at low original IMAX format utilized film that was 10 times the
per-viewing rates. All major cable and satellite providers size of that used in standard 35mm projectors. IMAX
offer VOD services and carry multiple channels focusing now operates more than 600 screens. These circuit-based
on films. Overall, the availability of content and the visual IMAX digital screens are far smaller than the original
and audio experience available in the home is rapidly IMAX screens, but can be much larger than the typi-
converging with the offerings available at a movie theater. cal theater screen. Located within Regal or AMC theater
As a blogger on the movie fan site Big Picture posted: complexes, the screens are often booked and operated by
IMAX. Action films, usually in 3D, are a staple. To cap-
I used to go to the movies all the time – even my blog is ture more of this differentiated revenue, several circuits
called the Big Picture. Then I started going less – and then have begun creating their own super-size screens.
less still and now – hardly at all. My screen at home is Sound systems are also being upgraded. In the 1980s,
better, the sound system is better, the picture is in focus, theaters impressed viewers with 7.1 sound systems – two
the floors aren’t sticky and the movies start on time. My rear channels (left and right), two channels mid-screen,
seat is clean. And there’s no idiot chattering away 2 rows two near the screen, one under the screen, and a sub-
behind me, and (this is my favorite) THERE’S NO CELL woofer channel for bass. Such systems have long been
PHONES RINGING. EVER.30 available for homes. To keep theater sound as a differen-
tiator, Dolby® Laboratories has created Atmos™32, a full
surround system with up to 64 individual channels for
Recent Exhibitor Initiatives speakers in a theater, including multiple ceiling speakers
Exhibitors are well aware of the increasing number of that can truly immerse the audience in sound. Given the
ways in which to view motion pictures. They have a long number of speakers involved, this may be a technology
tradition of adopting innovations that increase atten- that is viable in very few homes. For those seeking still
dance or reduce costs. Exhibitors were among the first more, there is motion seat technology.33 The heavy foot-
commercial adopters of air conditioning, which perhaps steps of a dinosaur, for example, are simultaneously seen
drew in as many customers as a refuge from summer on the screen, heard through the sound system, and felt
heat as for entertainment. Advanced projection sys- through a motion seat that rumbles as if being shaken by
tems, screens, and sound systems have been continu- the footsteps. Both IMAX and motion seats are offered as
ously adopted to improve the viewing experience. Other upgrades, commonly at premiums of $3 to $7 per ticket.
innovations increase experience quality while also low-
ering costs. Stadium-style seating, now ubiquitous, was Alternative Content
originally viewed as an experience differentiator, but Exhibitors’ transition to digital projection is an enabling
equally beneficial is a reduction in the square footage technology for alternative content, which consists of vir-
needed per seat. This reduces the size and cost of facili- tually any content that is not a motion picture. Revenues
ties. Exhibitors continue to pursue a number of strategic for this totaled $112 million in 201034. Some estimate this
initiatives aimed at increasing attendance, increasing the will reach $1 billion annually – 10% of current box office.
viewer’s willingness to pay, and lowering costs. Events have included concerts, live concerts and the-
ater, sporting events, television series premiers and fina-
Technological Innovations les, even virtual art gallery tours such as 2012’s Leonardo
The conversion to digital projection and roll-out of 3D are Live35 that was broadcast one night only in 500 U.S. movie
not the only projection innovations being pursued. Some theaters.36 The Metropolitan Opera is the most successful
directors are opting to increase image quality by dou- alternative content. Now in its seventh season, the series
bling the number of frames per second (fps) of film from features 12 live events on Saturday afternoons, broadcast
the long established standard of 24 to 48. Peter Jackson’s to nearly 700 domestic theaters. A distribution network
2012 The Hobbit was shown in the 48  fps format on a for alternative content has emerged with companies such
limited number of screens with the required projection as National Cinemedia providing a single contract point

CHE-HITT11E-13-0403-CaseStudy23.indd 307 10/22/13 3:12 PM

 308 Part 4: Cases

for a variety of music, sports, television, and other alter- a primary profit center is often the bar, some theaters
native content. Having a large scale intermediary for a now configure the lobby around a bar, with expanded
distributor is essential for exhibitors, as the cost of pur- and upscale fare, beer, and alcohol service.
suing and licensing content is cost prohibitive for all but
the largest exhibitor circuits. In-Theater Dining. Many theaters have adopted an
Most exhibitors seek to incorporate alternative con- in-theater dining format where orders are placed from
tent in ways that attract new attendees during off-peak the seat in the theater by a wait staff. Chunky’s Cinema
times, particularly Monday through Thursday when Pub, with three New England locations, locates theaters
only 5% of theater seats are occupied.37 Bud Mayo, CEO in lower cost, underutilized former retail locations. The
of Digiplex Digital Cinema Destinations, describes the format combines burger, salad, and sandwich options
approach: “What happens with those [alternative con- with beverages, including beer. The format is flat the-
tent] performances is that a single event will outgross cer- ater with banquet style tables. The seating is unique: old
tainly the lowest-grossing movie playing that theater that car seats on casters that allow for easy cleaning. Alamo
day. The relationship has averaged more than 10  times Drafthouse Cinemas takes a similar approach using a
the lowest-grossing movie for the entire day.”38 In mar- stadium seating configuration. A single bar-style table in
ginal dollar terms, alternative content can be a boon on front of each row of seats serves as a table for customers’
otherwise slow nights. A recent Wednesday showing of orders. In comparison to traditional theaters, these for-
Broadway’s West Side Story at a Digitech theater had an mats see significant increases in food and beverage sales.
average ticket price of $12.50 and grossed $2,425. In com-
parison, screens showing films that night grossed just $56 Upscale Within-Theater Dining. Several circuits
to $73. The alternative content also brought in nearly 200 are targeting the high end of the theater market, focusing
additional potential customers for concessions.39 on the experience of the theater with luxurious settings
and upscale food. In addition to its standard theaters,
Dynamic Pricing AMC has developed Dine-In Theaters with two theater
Movie theaters are among the minority of entertainment configurations. Its Fork & Screen theaters are much like
outlets that have not incorporated differentials based on the Alamo Drafthouse Cinema with enhanced stadium
content, schedule, and seating options. Most events have theater seats and in-theater wait service on an expanded
multiple pricing levels based on seating, night versus day, menu. Its Cinema Suite theaters make the experience
and weekday versus weekend. Movie theaters, partly due more intimate. Customers, only 21 and older, purchase
to existing exhibition contracts, commonly have limited tickets for specific seats in smaller theaters with reclining
flexibility. Matinee and youth and senior discounts are lounge chairs with footrests and in-theater wait service.
the primary pricing tiers. Ticketmaster, a leader in event Theater chain iPic offers perhaps the most luxurious
ticket sales, is developing a “dynamic pricing” system theater experience available outside of a private screen-
that incorporates demand into pricing models.40 This ing room, complete with reclining leather chairs, pil-
could mean radical changes with lower ticket prices lows, and blankets. Lobbies resemble stylish high-end
for off-time and poorly attended movies and increased hotels and feature a cocktail lounge and full restaurants.
prices for prime seats at peak times on opening weekend. Complete with a membership program, the theaters
Thus far, no studio or exhibitor will acknowledge inves- operate more like social clubs than traditional theaters.
tigating the technology.41 Tickets, $16–$27 per seat, are purchased not from a ticket
booth but from a concierge.
Concession Initiatives
Expanding beyond the standard concession stand offers Advertising Initiatives
exhibitors opportunities to capture new revenue streams. Exhibitors are keen to expand advertising revenues, but
Three main formats for concessions have emerged. must do so in ways that do not diminish the theater
experience. Revenues are generated from advertise-
Expanded In-Lobby. Many theaters have expanded ments both on- and off-screen. Off-screen advertising
the concession counter beyond candy, popcorn and soda. such as promotional videos, lobby events, and spon-
This expanded in-lobby dining causes many theater lob- sored concession promotions are 9% of revenues. The
bies to resemble mall food courts. In- and off-lobby res- majority, 91%, comes from on-screen ads for upcoming
taurants operated or licensed by the exhibitor allow for releases, companies, and products that play before the
pre-theater dining. Taking a page from restaurants where feature presentation. Both exhibitors and advertisers

CHE-HITT11E-13-0403-CaseStudy23.indd 308 10/22/13 3:12 PM

 Case 23: The Movie Exhibition Industry 2013 309

seek ways to make on-screen ads more palatable to More interactive approaches are on their way: fans at
audiences. Many ads are produced in 3D with produc- a Formula One race in Singapore played the videogame
tion quality rivaling a studio release. Theaters are also Angry Birds, controlling in-game slingshots used to
incorporating innovative technologies such as crowd fling birds at the rivals, pigs based on voice volume. The
gaming into ads where the movement or sound of louder the crowd, the further the birds were launched.43
the audience controls on-screen actions. In October Making ads enjoyable, rather than loathed, may create
of 2008, audiences in the U.K. attending Disney’s an opportunity to increase this small but high-margin
Ratatouille “drove” an on-screen Volvo XC70 through component of exhibitor revenues.
an obstacle-laden course, waving their arms while scor-
ing points for avoiding obstacles. Results were ranked in
real-time to audiences in other theaters.42 What equip-
Bright Lights and Red Carpet or
ment was required? A wireless video camera placed
Dimly Lit Marquee?
above the screen, a web-enabled laptop containing the Are these initiatives enough to return people to the local
game linked to the developer’s website, and specialized movie house? Is the future of the movie exhibition indus-
motion-sensing technology. These were linked to the try a return to red carpet glamor? Or will the lights on
theater’s digital projector. the marquee dim?

Works Referenced
1. All ticket sales and box office data in this 17. DuBravac, S. (2007) Connecting tomorrow’s 31. Dodes, R. (2012, April 19, 2012). IMAX Strikes
section is from: www.boxofficemojo.com. consumer: Consumer technology trends to Back, Wall Street Journal. Retrieved from
2. MPAA 2011 Theatrical Statistics. watch, presentation at Fleck Connection http://online.wsj.com/article/SB1000142405
3. MPAA 2011 Theatrical Statistics. Conference, http://www.fleckresearch.com/ 2702304299304577347940832511540.html?KE
4. Thakur, A. (2009, July 29, 2009). India fcc2007. YWORDS=IMAX+strikes+back.
dominates world of films. The Times of 18. Ibid. 32. Dolby Laboratories. (2013) Dolby Atmos:
India. Retrieved from Factiva. 19. Tuttle, B. (2012). TV prices shrink — Yet Hear The Whole Picture. http://www.dolby.
5. Ibid. average TV purchase costs more. Time com/us/en/professional/technology/
6. Fritz, B., & Kaufman, A. (2011, December Magazine. cinema/dolby-atmos.html, Accessed:
30, 2011). Solid start, fast fade for movies, 20. Ibid. 1/5/2013.
LA Times. Retrieved from latimes.com/ 21. Average TV size up to 60-inch by 2015 says 33. Kung, Movie Magic to Leave Home For?
entertainment/news/movies/la-fi-ct-box- Sharp, TechDigest, http://www.techdigest. 34. Sony. (2011). Alternative Content for
office-wrap-20111230,0,2205189.story tv/2008/01/average_tv_size.html; accessed Theatres. Sony Digital Cinema 4K, 1.
7. NATO press releases, Cinema Advertising, 2008/12/11. 35. Schubin, M. (Writer).(2012). Alternative
2005-2012. 22. Ibid. content at a theater near you. You Tube:
8. Ibid. 23. Verrier, R. (2012, December 30, 2011). U.S. SchubinCafe.
9. Data on the firms, theaters and screens, theater owners get lump of coal at box 36. Smith, R. (2012, February 15, 2012).
location, etc. from web sites and SEC filings. office, LA Times. Retrieved from latimes. Leonardo’s London Blockbuster: The Movie,
10. Kung, M., & Back, A. (2012). Chinese com/entertainment/news/movies/la-fi-ct- NY Times. Retrieved from Factiva.
conglomerate buys AMC movie chain in theaters-20111230,0,7228622.story. 37. Cinedigm. (2012). Investor Presentation:
U.S. Wall Street Journal, p. 2. 24. Kung, M. (2012, May 10, 2012). Movie Magic Jefferies 2012 Global Technology, Media &
11. Boorstin, J. (2011, May 31, 2011). Huge Upside to Leave Home For? Wall Street Journal, Telecom Conference. Cinedigm. Retrieved
and Ominous Underbelly From a Big pp. D1-D2. from http://files.shareholder.com/
Weekend Box Office. Retrieved from 25. Snider, M. (2012, 1/9/2012). Blu-ray grows, downloads/AIXD/2302444840x0x567367/
http://www.cnbc.com/id/43228469/. but DVD slide nips home video sales. USA 4a213e2c-11ae-4cdc-8dd1-970919ac80ac/
12. Mintel Report, Movie Theaters - US - Today. CIDM%20IR%20deck%20050712%20
February 2008 - Reasons to Go to Movies 26. Jannarone, J. (2012, February 6, 2012). Short.pdf
over Watching a DVD. As Studios Fight Back, Will Coinstar Box 38. Ellingson, A. (Oct. 15, 2012). Who’s stressed
13. Mintel Report, Movie Theaters - US - February Itself Into a Corner? Wall Street Journal, about digital cinema? Not Digiplex’s Bud
2008 - Reasons why Attendance Is not Higher. p. C6. Mayo. The Business Journal - LA.
14. Kelly, K., Orwall, B., & Sanders, P. (2005). The 27. Ibid. 39. Ibid.
Multiplex Under Siege. Wall Street Journal, 28. Zeitchik, S., & Horn, J. (2013). Sundance 40. Lazarus, D. (2012, April 26, 2012). Movie
December 24, 2005, P. 1. darlings eye alternative distribution tickets: Now how much would you pay?,
15. blog comment on Cinema Treasures | platforms, LA Times. Retrieved from http:// LA Times.
Over the past ten years, the movie theater touch.latimes.com/#section/641/article/ 41. Ibid.
experience has …; http://cinematreasures. p2p-74047654/ 42. Audience Entertain. (2009). AE Case: Volvo
org/polls/22/,accessed 12/11/2008 29. Jannarone, J. As Studios Fight Back, Will XC70 Launch, Retrieved from http://www.
16. Incident reported in Patrick Goldstein, Coinstar Box Itself Into a Corner? youtube.com/watch?v=HYVuLGLnyAM.
2005, Now playing: A glut of ads, Los 30. The Big Picture | Why is Movie Theatre 43. Reuters. (Sept. 22, 2011). Angry Birds to
Angeles Times, July 12, 2005 in print edition Revenue Attendance Declining? Swoop on Formula One Track, CNBC.
E-1; http://articles.latimes.com/2005/jul/12/ http://bigpicture.typepad.com/ Retrieved from http://www.reuters.
entertainment/et-goldstein12; accessed comments/2005/07/declining_movie.htm. com/article/2011/09/22/us-angrybirds-
December 5, 2008. Accessed 12/11/2008. idUSTRE78L1IY20110922.

CHE-HITT11E-13-0403-CaseStudy23.indd 309 10/22/13 3:12 PM