Popular, Yes, but Profits? Not Yet

When Paul Marsh wants to see a movie, he doesn’t run, or even walk, to the nearest box office. He just picks up the phone.

The entertainment analyst at New York-based Cowen & Co. said he uses an automated phone-in service to buy tickets before leaving his house. “I’ll be damned if I’m going to go to a movie and stand in line without any assurance of getting a ticket,” Marsh said.

Although the box office still accounts for the vast majority of the $5 billion in tickets sold at U.S. theaters, more people are relying on telephone ticketing services such as New York-based MovieFone Inc., which earlier this summer logged a record 2.2 million calls nationwide in one week.

Starting this month, consumers will be able to buy movie tickets through computerized kiosks in certain grocery stores and other retailers. Banks have discussed selling tickets through automated teller machines, and experts say ticket sales over the Internet may catch on in the future.

For consumers, this should mean more convenience and a guaranteed seat for such hot films as “Independence Day,” which has played to sellout crowds this summer.

There’s just one problem: No one has figured out a way to make much money off automated sales of movie tickets. In fact, more than one company has lost money providing the service. The $1 fee typically added to each ticket’s face value is barely enough to cover the costs involved, experts say, and moviegoers will back away from any higher surcharge. So ticket sellers have been forced to subsidize the service with advertising from studios.

Automated movie ticketing is “not profitable, and I don’t expect that it will be profitable,” said Andrew R. Jarecki, chief executive of MovieFone, which now bills itself as an interactive information service that sells tickets as a sideline.

In stark contrast to the concert and theatrical ticketing business, where high service fees made a corporate behemoth out of Los Angeles-based Ticketmaster Corp., the basic law of supply and demand and the changing nature of movie distribution have conspired to keep automated movie ticketing a surprisingly unprofitable venture, at least so far.

Fred Rosen, president and chief executive of Ticketmaster, said he had high hopes for the movie ticketing business as recently as two years ago but no longer has any plans to enter the business.

“We initially thought . . . the demand for [advance] movie tickets would be higher than it is,” said Rosen, who believes that at most, consumers might buy 25 million advance tickets out of more than a billion each year. Only “on certain blockbuster movies [is] the demand so great that people feel the need to order in advance.”

Although it can be tough to get in to see a blockbuster such as “Jurassic Park” or “Independence Day,” especially on opening weekend in a big-city theater, the fact remains that there are usually more seats available than there are moviegoers to fill them. This is partly because Hollywood studios, under increasing pressure to deliver strong initial results at the box office, are releasing new movies on more and more screens--sometimes as many as 4,000 nationwide. Several years ago, a wide release would have meant about half that number.

Moreover, the ceiling on service fees is relatively low. The average U.S. movie ticket cost $4.35 in 1995, according to the Motion Picture Assn. of America. (Prices in large cities typically run $7 or more.) Because of the low face value per ticket, companies are loath to increase service fees.

Indeed, many believe that movie ticketing services work only as an adjunct to an interactive promotion scheme over the phone or at a kiosk.

MovieFone is a case in point. Although the company may log millions of calls in a busy week, less than 10% of callers actually buy tickets.

The New York-based firm pioneered automated movie ticketing with its 777-FILM phone-in service. (The Times is a local sponsor, under a barter agreement to exchange advertising on the phone and in print.) In the first quarter of 1996, about a fifth of MovieFone’s $3 million in revenue came from ticket service fees, which average about $1 per ticket.

CEO Jarecki is not sanguine about automated ticketing. “I hate it” as a business, he said bluntly.

So Jarecki is pushing MovieFone as yet another marketing tool for the studios--a tack eventually taken by most others who would find newer, supposedly better ways of selling movie tickets. The hope is that filmmakers will pay for promotional spots that will reach consumers in those few places not already plastered with movie ads: phone lines, checkout stands and cyberspace.

Studio executives “are finally saying, ‘My marketing budget, my average [marketing] cost, is $16 million a movie. I’ve got to find something to do to reduce my marketing costs,’ ” said Jarecki, whose company sells studios 15-second spots at the beginning of phone calls.

Exhibitors that have experimented with automated ticketing sound a similar note. AMC Theaters, an 1,800-screen chain of movie houses, offers an automated ticketing service primarily as a customer service and marketing tool.

“We never saw the service as something that will generate revenue itself,” said Nora Dashwood, vice president of West operations for Kansas City, Mo.-based AMC, noting that the service has generally lost money since being introduced in 1990. Dashwood said the ticketing service most often appeals to customers who are worried they might have to battle long lines. At AMC’s Century 14 in the Century City Shopping Center, for instance, weekend crowds routinely sell out shows hours in advance.

ETM Entertainment Network Inc., a 2-year-old Costa Mesa firm, plans to sell stock to the public for the first time this fall, mainly to raise between $6 million and $25 million for a new system of interactive ticket kiosks in upscale grocery stores, according to Senior Vice President Peter Schniedermeier. The kiosks will dispense movie tickets and show film schedules and clips on a high-resolution monitor, he said.

But the company expects to make most of its money through advertising revenue, not service fees. (The kiosks will also sell travel and concert tickets.)

Entertainment “is about promotion. That’s what I bring to the table,” Schniedermeier said. “We can promote events at the point of purchase” by selling monitor time and advertising space.

Jarecki, who co-founded MovieFone with partners Adam H. Slutsky and Russell Leatherman in 1989, conceived of a service providing callers with accurate information about theater locations and show times. But several years later, he began to think there might be a way to make money selling tickets.

He teamed with Pacer/CATS, a company that provides computer support for box offices nationwide. But when Ticketmaster purchased Pacer in 1994, plans to step up movie ticketing operations were thrown into disarray, Jarecki said. MovieFone and Ticketmaster have since been locked in a bitter legal fight that is headed for arbitration this fall.

“I was enthusiastic about” movie ticketing, Jarecki said. But the legal fight “turned out to be an enormous drain on our resources. Had it worked the way it was supposed to work, we could have made money doing it.”

Indeed, Jarecki blames legal fees for financial woes at MovieFone, which saw a first-quarter loss of nearly $1 million. (Ticketmaster’s Rosen declined to comment on the litigation.)

So now Jarecki, like so many other would-be ticket masters, sees more modest goals for his service. Information and advertising are in, ticketing is out.

“We certainly sell a lot of tickets,” he said. “But the reality is that ticket selling is always going to be a fraction of this business, because advance tickets for movies are relevant in a relatively small percentage of cases.”