Is the Movie Theater Business in Jeopardy?

The movie business may be losing its hold on frequent filmgoers ages 12-49 in the United States and Canada.

Despite a year in which the movie industry posted record global-box office receipts of $35.9 billion, up 4% from the previous year, some ominous signs have emerged in the Motion Picture Association of America's 2013 Theatrical Market Statistics report:

  • U.S./Canadian box office rose slightly from $10.8 billion in 2012 to $10.9 billion in 2013, but ticket sales fell to 1.34 billion, the second-lowest total in the last 10 years.
  • The share of tickets purchased by frequent moviegoers fell to 50% from 57% in in 2012.
  • In 2013, the number of frequent moviegoers increased among 2-11 year-olds and 50-59 year-olds, but it fell for all other age groups, including the largest age groups of frequent moviegoers: 18-24 year-olds and 25-39 year-olds.

The first two bullet items above really come as byproducts of the third, and the drop-off in frequent movie attendance shows an underlying weakness in the industry. 

"Frequent moviegoers who go to the cinema once a month or more continue to drive the movie industry," according to the MPAA. These are the people who just like going to movie theaters, the ones who don't only turn out for event pictures. If this audience loses interest in simply going to the movies because it's fun to see a movie in a theater, this is very bad news for theater chains such as Cinemark  (NYSE: CNK  ) and Regal Entertainment (NYSE: RGC  ) . Without frequent moviegoers the industry becomes even more reliant on blockbusters -- the types of films that bring non-movie people into theaters. 

How bad is the drop?
On the positive side the number of frequent moviegoers (people who go to the movies once a month or more) ages 2-11 grew from 2.8 million to 4.3 million. Those young moviegoers must have been taken to the theater largely by their grandparents because the only other age group to post a gain was 50-59, which saw an increase from 3.3 million in 2012 to 4.2 million in 2013.

In all other age groups the declines in frequent movie-going were steep. Ages 12-17 dropped from 6.3 to 5.5 million, 18-24 fell from 8.7 to 7.2 million, 25-39 slipped from 9.9 million to 8.2 million, and 40-49 plummeted from 5.8 million to 3.2 million. A drop even occurred in the 60-and-over age group from 4.6 million to 3.8 million.

These drops happened despite an increase in the number of U.S. theaters from 13,559 to 14,483, an increase of nearly 1,000 screens. More of those screens are digital as well, as nearly 93% of all U.S. screens have been updated with the latest technology. The improved technology and higher screen count make the drop in audience look even more troubling.

It's also worth noting that while U.S. and Canadian combined box office did increase very slightly the average ticket price also rose from $7.96 in 2012 to to $8.13 in 2013. The increased price masked the impact of lower attendance, but if ticket sales continue to fall, at some point it won't be possible to keep raising prices to cover the difference -- especially given the much less pricey non-theater options now available.   

Why are frequent moviegoers staying away?
One of the challenges theaters face is that while going to a movie theater used to offer a special experience, the gap between the theatrical experience and watching a film at home -- on our increasingly large flat screens with theater-quality sound and pictures -- has shrunk. In some cases the hassle of going to the movies, parking, and paying inflated prices for popcorn and drinks just does not compare to the idea of bringing a film up on Netflix (NASDAQ: NFLX  ) and watching a movie from our couch. 

"With the advent of options like Red Box and movies hitting shelves as DVDs faster than ever, the only reason to go to the movies anymore is for the experience of sharing it with others and being out in public, and for young people that is not a draw," Shaun Walker, creative director for HEROfarm, a marketing and public relations agency that does work for film companies. "When you can wait two to three months after a movie comes out, rent it from Red Box for $1.31, and eat snacks in your home as compared to paying $20+, it's easy to see where things are headed."

Audiences may also be staying away from films because the nature of entertainment has changed and younger people no longer have as much interest in a medium that only involves sitting in a chair and watching.

"Youth attendance might very well keep declining because of the very nature of viewing a film in a theater," Barna W. Donovan, Ph.D., and director of the graduate program in strategic communication at Saint Peter's University, told the Fool. "Theatrical films are the last true passive forms of entertainment in a time when young people are expecting more and more of their media content to be interactive."

The quality of movies needs to continue improving
One of the reasons rarely cited for the drop in movie attendance is that TV has gotten so much better. The best stories from the best directors used to go on the big screen, but now the lure of television offering time to tell longer, deeper stories has attracted some amazing talent to the small screen. Game of Thrones, for example, might have been an excellent three or four films as Lord of the Rings, a similar series of novels, was. However, even the three lengthy Rings films cannot approach the scope of Thrones, which will likely play out over seven television seasons. TV is getting better and outlets like AMC  (NYSE: AMC  ) and HBO (of Time Warner) continue to attract top talent for high-quality projects.

Add that to the fact that the home movie experience has improved dramatically and flat screen prices continue to fall and it's clear the movie industry has a problem on its hands.

To maintain its U.S. and Canadian market share the movie industry needs to focus on the quality of its product. Audiences will flock to well-made creative fare like Gravity and they will still turn out for anything Marvel (of Disney) releases, a new Pixar film, or the current incredibly well-executed incarnation of James Bond. Give younger audiences more Harry Potters and less Percy Jacksons and perhaps the $10 billion industry can be stabilized.

In a world where the Internet and a $7.99 Netflix subscription offer an enormous amount of choices, audiences clearly won't show up in theaters for 2013's bombs such as The Lone Ranger, R.I.P.D., The Incredible Burt Wonderstone, or pretty much anything starring Vince Vaughn.

Make the films matter with real scripts and clever ideas, not just franchise reboots or remakes of old television shows. Treat frequent filmgoers better by recognizing that making a few extra bucks by inflating your popcorn price may not be worth alienating your customer base. Most importantly, make the movie-going experience special by continuing to evolve theater technology and delivering films that won't be as much on a tablet or even in a home theater. 

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