Movie Theatres
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Industry Overview
The US movie theatre industry includes about 2,000 companies that operate about 5,000 indoor theatres and 300 drive-ins with combined annual revenue of about $11 billion. Major companies include Regal Entertainment, AMC Entertainment, and Cinemark. The industry is highly concentrated: the 50 largest companies generate about 85 percent of industry revenue.
Competitive Landscape
Personal income and leisure time drive demand. The profitability of individual companies depends on securing access to popular movies and sales of high-margin food and beverages. Large companies have advantages in negotiating with movie distributors; marketing; and economies of scale in purchasing. Small companies can compete effectively by specializing in movie type or audience, or providing better service and amenities. Average annual revenue per worker is $80,000.
Products, Operations & Technology
Major services are sales of tickets, food, and beverages. Ticket admissions account for almost 70 percent of industry revenue; food and beverage for more than 25 percent; and on-screen advertisements, over 1 percent. Other services include facility and concession rental during non-peak hours, amusement machine use, and merchandise sales. Drive-ins have fewer services than indoor theatres and on average earn 80 percent of revenue from admission sales, 15 percent from food and beverages, and less than 5 percent from facility rental.
Movie theatre operations center on licensing and showing (“exhibiting”) films to consumers, and obtaining and selling concession items. Theatres acquire from distributors the right to use (license) a movie in specific geographic zones for a determined duration. Distributors define the zones, which typically vary from two to 15 miles in radius. Theatre companies that are the only exhibitor in a zone have an advantage in negotiating and selecting which new (“first-run”) films to exhibit. Distributors typically rank zones by their population density, audience demographics, and potential box office revenue.
Most theatres license films from independent distributors, although large theatre chains rent directly from distributors owned by the major movie production companies. License contracts typically are on a theatre-by-theatre and film-by-film basis. Theatres negotiate license fees with distributors using one of three types of formulas: a percentage-of-revenue rate set prior to exhibition (“firm term”); a rate set at completion of the engagement (“review or settlement”); or an agreed “sliding scale” formula that will apply decreasing rates to successive weeks of an engagement. Sliding scale rates are typically 50 to 70 percent of box office revenue at the start of a film’s run, dropping to around 30 percent after a month or two. Theatres pay more to license potential blockbuster movies, which typically have longer engagements.
Major operational metrics are ticket sales (“box office revenue” or “admissions”); food and beverage (“concession”) sales; and revenue-per-customer. Metrics for size of business are total number of screens (auditoriums) and ratio of screens to theatres. The largest companies have a screen-to-theatre ratio of over 12 to 1, but the national average historically has been below seven. A multiplex theatre has more than one screen; a megaplex, 10 to 20. The largest company has over 6,000 screens in its US circuit. Most companies locate theatres near areas of high consumer traffic, such as shops and restaurants. Theatre facility formats include the older sloped-floor auditorium or modern stadium seating.
Concession items consist mainly of popcorn, candy, and soft drinks; some theatres, particularly “art” theatres, sell wine and beer, and some offer children’s meals. Because concession items have higher margins than ticket sales, theatres focus on food and beverages to increase the average purchase per customer. Theatres incent concession staff to increase sales and service speed. Theatres buy food and beverages from concession distributors, which make weekly or as-needed deliveries. Chains negotiate bulk rates and order directly from manufacturers, but receive the shipments from distributors, paying them a percentage for warehouse and delivery services.
Technology has become important for selling tickets and measuring business performance. Companies’ e-commerce websites enable customers to buy and print tickets in advance or pick them up at the theatre, sometimes at self-service kiosks. Point-of-sale systems track ticket and concession sales, triggering automatic replenishment orders to suppliers. Systems integrate sales data real-time from a theatre, its website, and third-party ticketing services to provide staff with current ticket and seating availability. The data also enable management to change schedules and screenings and to support negotiations for film bookings with distributors. Many companies send sales data electronically to firms that measure and rank movie theatres.
Most theatres continue to exhibit content that production companies recorded on 35mm film, although digital formats are increasing. Other than referring to the technical recording format, the industry uses the term “film” synonymously with “motion picture” or “movie.”
