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Movie Theaters Are Back! Were They Ever Gone?

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At the end of 2011, many media analysts were predicting the demise of movie theaters. Complaints about quality of the movie-going experience and high prices were at the top of the list.

A lot of those complaints have merit, but the reality is this: the movie theater exhibition business really doesn't look to be in that much trouble.

Quite to the contrary, the U.S. box office is up a staggering 16.5 percent year-to-date over 2011. In fact, it's the highest it has been in over six years. Even looking at the performance through April (excluding The Avengers), the box office was up 14.7 percent vs. 2011 and 21.9 percent over 2008! According to Hollywood.com, attendance was up 19 percent through the first 113 days of 2012 (pre-Avengers). That performance is expected to persist throughout the year, making it likely that 2012 will be one of the highest grossing years at the box office in history.

Again, even before The Avengers, Regal Entertainment reported first-quarter revenue of $685 million, compared to $571 million in 2011. Profits were $46 million compared to a loss of $24 million in 2011. The stock is up 20 percent YTD compared to 5 percent for the S&P and 7 percent for Netflix.

Just last night, news broke that largest theater developer in China, The Wanda Group, is buying AMC Entertainment, the number two movie chain in the U.S., for $2.6 billion with plans to invest $500 million over time to retire debt, upgrade theaters for 3D, Imax and add dining options. Wanda's purchase is a reminder of the spectacular growth in exhibition in China, where the number of screens has doubled over the last four years to 6,200, a figure that is expected to double again by 2014.

While box office receipts are one sign of strength, there are additional signs that things are looking better:

1. Social Media May Actually Be Making it Cheaper and Easier to Market Films in Theaters

Lionsgate reported last month it spent 30% less on marketing The Hunger Games thanks to social media -- amounting to $15-20 million of savings relative to what a traditional studio marketing campaign may have cost. Being able to save that much on marketing only makes theatrical releasing look even better, especially for larger studio films.

2. Experience Innovation Is Happening Around The Edges

While the experience at the mainstream multiplexes still leaves much to be desired, smaller theater operators are bringing to bear some of the changes that consumers seem to desire.

Alamo Drafthouse, the popular Texas-based theater chain, has combined quality food, drinks and movies into a very successful formula. Alamo has focused heavily on the audience member experience, vigilantly policing cell phone usage as an example (listen to this great audio clip of an angry call from a customer who was kicked out of an Alamo Theater that Alamo creatively turned into a promotional video for its own use). Alamo has just announced plans to come to New York City and Los Angeles, an indication of their belief that there is a market opportunity for a quality differentiated experience in other parts of the country.

Nitehawk Cinemas and reRun Gastropub Theater, both in Brooklyn, have also combined food and film, and in addition Nitehawk has built its own customized pre-show, integrating in film clips from local filmmakers.

3. The Netflix Model for Theaters is Still Possible

Last summer MoviePass, a new service that promised consumers the opportunity to have an all-you-can-eat movie theater pass for $50 per month, launched with a lot of fanfare. Days later, AMC and Landmark announced that they were not going to participate in the program. I, for one, thought that was the last we might hear from MoviePass. As it turns out, MoviePass is still around and kicking, and by the looks of it from Twitter, consumers seem to be using and enjoying it.

4. New Demographics/Marketing

Generally speaking, the exhibitors have done little to no marketing to consumers in support of the general movie-going experience. They should take advantage of this opportunity to attract new demographics and audiences, as well as remind those who do go why they should keep going. We saw a small example of this last week when Imax launched its first-ever marketing campaign with new positioning aimed at emphasizing more the emotional aspects of seeing an Imax movie rather than the purely rational/technology reasons.

5. The Need for New Ideas

One of the things that is most exciting about the opportunity in exhibition is how much hasn't been done/tried. That's why ideas like "Tweet Seats" or MoviePass or Alamo's expansion or the global exhibition trends are exciting -- they all illustrate untapped opportunities and entrepreneurial energy. One idea that might add to the mix and excitement is for the major theater operators to open up to "day and date" releasing for limited run independent films at the same time as VOD. What if AMC and Regal agreed to exhibit "day and date" films, but if a distributor wanted to go "day and date," the film would have to recognize it would never go above a certain screen count? Pick a limit that would exclude every Hollywood film for now but open the exhibition option to smaller films that currently don't get shown in the major chains at any real level of exposure. This could be a win-win -- broadening the choices at the multiplex for existing audiences and bringing in new audiences that would enjoy the experience of seeing an independent film in the comfort of a multiplex. I am sure this idea has issues, but it's one more potential innovation to add to the mix.

A healthy theatrical exhibition experience is good for the movie industry and audiences for many reasons, including keeping up the pressure on digital outlets and others to continue to innovate themselves to deliver a quality movie-watching experience in the home.

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