Of Movie Theaters and Shrinking DVD Windows

Doug Shapiro of Bank of America Securities introduced Shari Redstone, President of National Amusements (a privately held chain of screen exhibitors). Of course, Shari is also in line to be a principle shareholder of Viacom and CBS - giving her an interesting perspective as a person who sees some of the current issues of movie theaters and movie production from both sides of the fence. The following is a brief synopsis of statements and comments she made during a speech given at Bank of America. The original speech can be heard here .

Ch-ch-ch-ch-Changes

In 1994, the worldwide box office was approximately $5 billion. It is now almost $9 billion, representing a 66% increase over the last decade or so. The penetration of TV within US households was 65% in 1994. Now, there is over 92% penetration with an average of 90 channels per household.

New technologies have changed the media business and advertisers forever - now giving them choice of many mediums (wireless, Internet, "mobi-sodes", etc). Shari recognizes future business needs and changes happening, included the recent split of CBS and Viacom. Viacom is spotlighting, in particular, the high growth rate of cable access.

Focusing on National Amusements, she explained that they are an "under the radar" company which is a globally diversified media organization - primarily in the theatrical distribution arena. They have the advantage in that they can focus on slow growth issues and take stock in what the industry is doing as a whole. They have controlling interest in CBS, Viacom, and Midway among other companies.

Explosive Growth and International Markets

The primary competition 15 years ago was from other theater-based businesses... There were 26 thousand screens in 1994. By 1999 there were 37 thousand screens. Before it was finished, SIX of the top exhibitors filed for bankruptcy. It was around this time that National Amusements started exploring international markets (UK in 1980s) and then entered new markets such as Chile, Argentina, Russia and Brazil. While they started with just 16% of revenue coming in from outside of the US - that revenue is now 27%.

Cinema de Lux Theaters

In listening to today's consumers they reasoned that they have to give consumers a reason to leave their home (or iPod) and go to the theater to "see the movie in the way it was meant to be seen".

1991 opened "The Bridge" Cinema de Lux theater in Philadelphia. It includes a bar and restaurant, "Director's Halls", premium reserved ultra-wide leather seating, and an iMax theater-sized screen. Internet access is offered, you can get HDTV at the bar, and there is even overhead directional speakers for a customized listening experience. This improved movie-going experience resulted in ability to charge premium pricing for the added value. By adding these ameneties they have seen a 20% increase in patronage plus a 40% profitability increase. This is now the ONLY type of theater they build.

According to their research, the average American in 2006 will spend 9.5 hours per day consuming media... but only 2 minutes of that will be spent in a movie theater. This is the challenge presented to move theater owners and companies.

Shrinking DVD Windows

Shrinking DVD windows and simultaneous release schedules are adding to that challenge. As an exhibitor and Vice Chairman of a company including Paramount Pictures - she thinks shrinking windows are bad for business - and she means for everyone - studios included.

Americans bought 1.4 billion tickets last year. 70% of consumers still think that this is the ultimate way to see a movie. She wants to see that number increase to 80%. A movie's initial theater peformance is closely related to subsequent related revenues. Movie theater owners need to bring the WOW factor back to the theater. They also need to stop commoditizing the movie and the experience through misplaced costs cutting and failure to update and improve the environment.

In 2005 there were an average of 129 days between box office release and DVD or video sales. This is versus 180 days in 1996. Videos and DVDs are in Wal-mart, the Internet and other stores faster than ever. By shrinking release windows, the industry is consolidating four or five different potential revenue streams into one and ultimately shrinking overall revenue potential. In a recent speech Dan Glickment Chairman and CEO talked about regenerating a campaign to reinforce the importance of theater and increase the window of theater-to-DVD release, thus regenerating excitement of the movie-going experience. Apparently, the trend for a shrinking window is concerning more than just theater owners.

She advocates putting the release windows back to 6-7 months and possibly implementing multiple release windows depending upon the target audioence. Ultimately she advocates giving people a reason to go back to the movie theaters and enough distance to ensure that a person will still be likely to purchase a DVD after having seen the movie in a theater.

Building a Community - the Future of Theaters?

After living threough several doom-and-gloom predictions over the years (VCRs were supposed to be the end of movies back in the day) Shari remains optomistic that revitalizwation is the key. Consumers still have more disposable income than ever as well as a "voracious appetite for entertainment" and more leisure time. Reinventing the theater business is absolutely essential.

Reinvention is more than incorporating the hottest new concepts, but about building a community. The new theaters are now becoming "community entertainment destinations". If a theater can provide a variety of experiences to the consumer, they will come back and see a movie and grow the core business.

One of the first examples of this was the simultaneous broadcast of a RedSox game in NY. This was started 3 years ago. It led to the observation that there is a very fine line between marketing a core business and developing new business that can grow revenue. Now several games per year are broadcast - complete with ticket sales, hot dogs, popcorn and beer - transforming the theaters into a virtual "Fenway Park". They even charge a premium when the Yankees "come to town".

Live Music and Interactive Events

In May at a new Cyberzone in Ann Arbor, Michigan they will host major game tournaments and attract top gamers from across the nation. For less than a $1 million investment, gross sales are expected in the 7 figures (with the initial investment recouped in just 2 years). Sponsorship opportunities abound in the interactive entertainment industry as well as consumer product companies. Another excellent source of new business development occurred with using the theaters to provide a venue for multi-casting of live music entertainment. This has already begun and is expected to grow.

It's the Food, Stupid

The Cinema de Lux recently introduced a Vodka bar with fresh squeezed juices and other products... As a result of this and other ameneties, the average spend in a Cinema de Lux is expected to increase to $14 per patron, representing a 50% increase in revenue and a 35% increase in profits per patron. Soon they will be introducing a chocolate bar with chocolate based cocktails, entrees and desserts. Are we thinking outside of the box yet?

This type of thinking - onward and upward - is what could possibly save the stumbling theater market. As we at Audioholics listen to an almost constaint barrage of underwhelming feedback from theater goers it is apparent that change is in the air. At the minimum it will be a requirement in order to not see the movie theater become a thing of the past or morph into some kind of specialty event like going to an amusement park.