Movie Theaters Get Makeovers to Revive Sales
Like an aging Tinseltown starlet, the AMC multiplex in Century City needed a face lift.
Some $15 million later, chrome stairway railings sparkle in the afternoon sunlight and the smell of new carpet blends with the aroma of popcorn. A terrazzo floor features famous movie quotes. Los Angeles Mayor Antonio Villaraigosa showed up to help reopen the 19-year-old complex, which plans to host movie premieres and other red-carpet events.
“We have to keep it fresh,” AMC Chief Executive Peter Brown said. “You have to make sure you are creating an experience that people will spend money on.”
Getting people to part with their dollars at theaters may be easier said than done.
Last year, 7% fewer people went to the movies.
That prompted speculation that consumers were spurning cinemas because they were too expensive or ran too many commercials, or because of competing entertainment from iPods, cellphones, video games, the Internet and top-quality home TV systems with hundreds of channels just a click away.
But exhibitors place the blame largely on Hollywood’s lackluster lineup of films. Brown cites a “tomatometer” measure of film quality, based on reviews compiled by the website Rotten Tomatoes.
Last year, movies scored a “rotten” average of 43.2 out of 100, compared with a “fresh” 63.9 in 2002 when attendance soared.
“The past year was a tough one for the industry,” said Heather Goodchild, managing director of media and entertainment for bond rating firm Standard & Poor’s. “A year of less popular films coincided with an increased number of audience diversions.... It is certainly a high-risk industry.”
For Brown and other exhibitors, those industrywide struggles offer more reasons for consolidation that will give movie houses more leverage with studios and suppliers while squeezing out underperforming theaters.
“Evolution isn’t always pretty,” Brown said.
In January, AMC absorbed rival Loews Cineplex Entertainment Corp., adding 200 theaters and 2,200 screens. AMC’s 5,672 screens now rank second in size only to Regal Entertainment Group.
Kansas City, Mo.-based AMC plans to shutter about 100 screens across the nation, but the chain does not expect any employee layoffs to result from the merger.
At the same time AMC is closing theaters, it will be remodeling and building new ones.
Brown hopes to replace two aging Loews and AMC theaters at the Santa Monica Promenade with one large complex. AMC also plans to build theaters similar to the AMC 15 in Century City, which is mixed in with restaurants, shops and bars in a plaza-like atmosphere.
“Consumers have many options for entertainment and leisure time,” said John Fithian, president of the National Assn. of Theatre Owners, an industry group. “Theater operators must continue to innovate and to create the optimal experience.”
Founded in 1925, AMC has managed to dodge some of the major bullets that have hit the industry.
The company pioneered stadium seating in 1995. In the late 1990s, AMC avoided the bankruptcy proceedings that engulfed most theater chains after a period of overbuilding.
The industry’s financial crisis allowed billionaire Philip Anschutz to roll up a group of ailing operations to create giant Regal, and helped AMC solidify its No. 2 status.
And in the exhibition business, bigger is better.
Larger companies can negotiate more advantageous terms with the Hollywood studios, which usually receive more than 60% of the first weekend’s box-office gross.
In addition, buying popcorn, candy and beverages in bulk allows theater owners to lower their purchase price and increase their profit margins on concessions, which already can be as high as 85%.
One emerging challenge threatening exhibitors is the shrinking window between theatrical openings and DVD releases, currently about four months.
Top industry figures such as Walt Disney Co. Chief Executive Robert Iger and Time Warner Chairman Richard Parsons have said publicly that the collapsing of the DVD window was inevitable.
But when director Steven Soderbergh released his latest film, “Bubble,” in theaters and on video simultaneously, it flopped.
Brown maintains that releasing a film in theaters and on DVD at the same time is a costly gambit not only for theater owners but also for the studios.
“Theatrical revenue is an important revenue stream,” said Brown, noting that DVD sales tapered off last year. “How will that be made up?”
The domestic box office also drives television deals, which generate a large percentage of revenue for the studios. It is in the best interest of both the studios and the theater owners to have strong theatrical showings, said Jim Tharp, head of distribution for Viacom Inc.'s Paramount Pictures.
“We wouldn’t have to worry about DVD windows if the ticket sales and revenue are there,” Tharp said.
So far this year, the box office is looking better, up nearly 4% so far compared with last year, according to box office tracker Exhibitor Relations Inc.
Such movies as “Madea’s Family Reunion” and “Eight Below” have been well received by audiences, and anticipated films such as director Ron Howard’s “The Da Vinci Code” and Pixar Animation’s “Cars” are scheduled for later this year.
“I think this will be a better year,” AMC’s Brown said. “Out-of-home entertainment is what human beings crave.”