Anakin Skywalker, Bruce Wayne, and Alex "Hitch" Hitchens haven't been able to save the cinema this year. After reporting $9.4 billion in domestic ticket sales in 2004, stateside movie houses have only been able to sell about $4.5 billion in admissions so far this year. Don't pin your hopes on the final five and half months bailing the industry out. Heavy hitters like George Lucas and Steven Spielberg have already had their swings this year.
In other words, this will likely be the third consecutive year of falling attendance for the theater operators. There are several theories out there. Some of them even make sense. Let's see if we can separate fact from fiction.
Even better, let's see if we can save the cinema.
While my multiplex slowly weeps
When AMC announced that it would be acquiring rival chain Loews, it wasn't pretty. It was more like one flotation device lunging for another. In a niche where leveraged companies rely on blockbusters to fill their seats and offset the high fixed overhead costs, AMC and Loews hooking up was little more than a marriage of convenience.
In 2003, there were 29 theatrical releases that cracked the $100 million mark. Last year, just 24 flicks lapped the milestone. So far this year just nine movies have made the cut. The knee-jerk reaction is to blame the product, but it's a hollow argument. Many of the year's most anticipated films have come with glowing reviews. More importantly, going by the surge in online subscribers at Netflix (NASDAQ:NFLX) and Blockbuster (NYSE:BBI), it's clear that the consumer's appetite for flicks has only intensified.
New films are still being watched. They're just not being watched at the multiplex. That doesn't lay the blame entirely at the feet of the theater operators. There are some trends that are truly beyond their control. It's not the theaters' fault that thanks to improved technology, movies are looking better on DVD than they did on the VHS standard.
You can't blame Regal Entertainment (NYSE:RGC) for the popularity of LCD and plasma television sets that almost mandate watching hit flicks at home to justify the investment. When it's not just the consumer electronics chains like Best Buy (NYSE:BBY) peddling 42-inch home theater appliances but even computer specialists like Dell Computer (NASDAQ:DELL) jumping on the high-def bandwagon, you know you've got a problem.
It's not Carmike Cinemas' (NASDAQ:CKEC) fault that film studios are releasing movies to video just months after they complete their multiplex runs, and pricing the discs aggressively. However, this is also why the movie studios aren't as concerned as the theater operators about the recent slide at the box office. They will still see meaty returns on their celluloid investments. The sums just aren't front-loaded anymore.
That's why if you're running a movie theater, you have bigger problems than sticky floors after a day of dishing out soda pop, Twizzlers, and buttered popcorn.
Saving cinema is about more than just saving face
There are some who feel that movie theaters deserve the beds they made. Ticket prices are exorbitant; $4 for a soft drink is extortion. I can't be the only one ticked off by the growing trend of filling up screen time with commercials before the feature presentation.
Let's dissect this though. What was the average price for a movie ticket last year? Odds are that you are probably guessing too high. It was just $6.22 a stub according to Exhibitor Relations. That's not entirely unreasonable. Ticket prices averaged $6.03 a year earlier so it's not as if one can fault the chains for jacking up admission prices beyond the whims of inflation.
That's why I don't buy the argument that the movie houses are just plain greedy. For starters, it's the film studios that receive the lion's share of a new film's box-office take. It's over the gradual course of a release's run that the split begins to tip toward the operator's favor. So I don't scoff at the $5 tub of popcorn. I just make sure I ask for a refill on the way out.
Movie theaters aren't necessarily greedy. They're just not as bright as they should be. Innovation is what will save the multiplex. I'm surprised that so few chains are tinkering with enhancements like reserved seating and gourmet concessions as a way to win back former moviegoers.
An improvement in food offerings in particular is a no-brainer. After all, the casual dining industry wouldn't be working on yet another record year if the "dinner and a movie" mindset was toast. I'm at a loss when I go to a theater where the culinary extremes are hot dogs and nachos. I understand that these are high-margin eats that take no skill to prep. But there is no one who will opt to see a film on the big screen instead of waiting to catch it at home a few months later just for the sake of a soft pretzel.
If you want to live, multiplex, diversify. Take chances. Mix up the menu. Have daily specials. Allow folks to order concessions at the time of ticket purchase and have them delivered to their seats. Create online experiences to galvanize the moviegoing community. Utilize less productive multiplex screens for community events that bring folks back to the theater for a variety of fresh purposes.
In space no one can hear you screen
The fact that so many movie chains have either filed for bankruptcy or have been taken private in desperation doesn't bother me. In fact, if you read my article "5 Pretty Stocks in Ugly Places," you may appreciate my position that the harder a sector struggles, the more likely it is that a true innovator will emerge and reshape the industry.
That's the kind of thinking that fuels the stock recommendations that are being singled out in our Rule Breakers newsletter service. It's why I'm keeping a close eye on Imax (NASDAQ:IMAX). The company's gargantuan screens and high-quality product are being put to good use as more traditional blockbusters are being released through the Imax chain. Earlier this year, AMC agreed to add Imax screens to some of its multiplex cinemas. That is the kind of value proposition that I think would make a difference to the home-theater aficionado.
Movie theaters are, after all, experience peddlers. They have to maximize the potential of the experience instead of simply trying to maximize the easy money tied to the captive audience. Stadium seating and ballpark concessions are just scratching the surface of what is possible.
Reject innovation? Treat stagnancy as if it's a prickly yet familiar recliner? Go ahead. Even Willy Wonka can't save you now.
Some other featured attractions in Fooldom:
- AMC and Loews is a match made in purgatory.
- Yes, you can find pretty stocks in ugly places.
- Get cracking on a free trial to our Rule Breakers newsletter service.
Netflix, Best Buy, and Dell are all past recommendations of the Motley Fool Stock Advisor newsletter service.
Longtime Fool contributor Rick Munarriz still takes the time to take his family to the theater these days -- but only because he's into the wide open spaces. He does own shares in Netflix. The Fool has a disclosure policy. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
