Fewer U.S. and Canadian residents went to the movies last year, but higher ticket prices led to a 1% increase in box office over 2012. That's one of the key takeaways from a new report by the Motion Picture Association of America.
Released on March 25, Theatrical Market Statistics 2013 presents other cool information: U.S. and Canadian movie theaters attracted more patrons than theme parks and major sporting events together in 2013. The typical customer bought four tickets during the year. The Hispanic audience is growing.
But most important for the future of the industry are the numbers showing how often U.S. and Canadian residents went to the movies last year. The majority attended less than once a month (47%) or only once during the entire year (10%). Yet "frequent moviegoers who go to the cinema once a month or more continue to drive the movie industry, although they account for only 11% of the population."
Hollywood, we have a problem
The report continues, "In 2013, the number of frequent moviegoers increased among 2-11 year olds and 50-59 year olds, but fell for all other age groups, including the largest frequent-moviegoing age groups (18-24 year olds and 25-39 year olds)."
Your most important customer base is decreasing, and you're raising prices? That's not a recipe for sustainability. What are North American cinema chains doing to increase the odds of their survival?
Regal Entertainment Group (NYSE:RGC) is enhancing the customer experience with premium screens (digital, IMAX, and RPX), luxury seating, expanded food and beverage options, customer loyalty programs, cross-marketing, and a mobile ticketing app. Regal's 2013 SEC Form10-K predicts a positive future: "We believe that long-term trends in motion picture attendance in the U.S. will continue to benefit the domestic motion picture exhibition industry."
AMC Entertainment Holdings (NYSE:AMC) is taking a similar approach, adding reserved seating, enhanced audio, and targeted programming to Regal's list of customer enticements. "We believe the industry is in the early stages of once again significantly upgrading the movie-going experience, and this shift toward quality presents opportunities to those who are positioned to capitalize on it," its 2013 SEC 10-K states.
Carmike Cinemas (NASDAQ:CKEC) places its theaters in "small to mid-size non-urban markets with the belief that they provide a number of operating benefits, including lower operating costs and fewer alternative forms of entertainment." Its 2013 SEC 10-K notes that the company focuses on acquisitions for growth. It offers premium screens, is planning some experimentation with its menus, has a loyalty program, and sells tickets online.
Carmike, however, places greater emphasis on the challenges movie theaters are facing:
The motion picture exhibition industry is fragmented and highly competitive. In markets where we are not the sole exhibitor, we compete against regional and independent operators as well as the larger theatre circuit operators. ... In addition to competition with other motion picture exhibitors, our theatres face competition from a number of alternative motion picture exhibition delivery systems, such as cable television, satellite, pay-per-view and Internet streaming video services and home video systems. The expansion of such delivery systems could have a material adverse effect upon our business and results of operations. We also compete for the public's leisure time and disposable income with all forms of entertainment, including sporting events, concerts, live theatre and restaurants.
That's a wrap (maybe)
Carmike's assessment is on the money. Does that mean U.S. and Canadian movie theaters are on their way to extinction? Not yet. Box office has grown from $9.3 billion in 2004 to $10.9 in 2013. Ticket sales, however, are generally trending downward, from 1.5 billion in 2004 to 1.34 billion in 2013. And that's the rub.
Adding value to the movie-theater experience may support higher ticket prices, but it hasn't stopped the erosion of the customer base. Unless members of the growing 2- to 11-year-old segment become rabid moviegoers or new enhancements attract more 18- to 49-year-olds, cinemas will be facing a significantly reduced audience in a few years. And that's cause for concern.
Suzanne Coffman has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.