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10 Things Movie Theaters Won't Tell You

1. "We're obsolete? No way!"

Hard to believe, but movie theaters have been holding their own, despite intense competition from cable, the Internet and other media. After a 2005 slump, box office revenue increased over the past few years, and it's likely 2009 will have set a new record. But that growth is due largely to inflation; the number of tickets bought has stayed close to 1.4 billion since 2005, while the average ticket price has climbed from $6.41 to $7.46.

Looking for new ways to make money, theaters are exploring options like more in-house advertising and expanded concessions. But the biggest potential lies in digital technology and the flexibility it affords programming. For starters, events like live opera or college bowl games can draw 75 percent capacity on slow days, when theaters are usually "lucky to fill 10 percent of their seats," says Richard Herring, consultant for Davidson Theaters in Virginia. The trend is still young: Just a quarter of the more than 375 theaters using digital-projection company Cinedigm's technology, for example, are set up to show live events, but that number is growing quickly. Eventually, says Herring, as much as half a theater's revenue could come from this type of special programming.

2. "We get rich selling your eyes."

Theaters are drawing a bigger portion of their revenue these days from the on-screen advertising shown before the previews start. Revenue from these ads has been increasing by roughly 10 to 15 percent a year for the past several years, says Patrick Corcoran, spokesperson for the National Association of Theater Owners, and it's not going away anytime soon. That's because industry insiders rely on surveys like the one conducted in 2003 by marketing firm Arbitron that found two-thirds of audience members didn't mind them.

Some moviegoers do mind, of course -- more than 3,400 of them cared enough to sign a recent online petition demanding Regal Cinemas stop showing ads before movies. "I'm wondering why ticket prices are going up, and we're being forced to watch these ads at the same time," says Jason Thompson, who started the petition after growing frustrated with sitting through a string of ads before showtime. "The preshow presentation has been a part of theater exhibition for many years," says Dick Westerling, senior VP of marketing and advertising at Regal. What's more, thanks to digital technology, the preshow has become "more upscale and attractive."

3. "If you're getting tired of blockbusters, you may be in luck."

Special-events programming isn't the only change digital technology may be ushering into your local cineplex. It also makes film distribution cheaper and easier, thus potentially opening up more opportunities for independent filmmakers to get their work screened. "It's like a big iPod," explains Cinedigm CEO Bud Mayo. Movies are shipped on hard drives or downloaded from a satellite, without the cost or inconvenience of transporting heavy film canisters, and the theater can cue them up with the click of a mouse. That means theater owners can set up their schedules by "trial and error," says Lauren Goffio, manager of the Pavilion Park Slope theater in Brooklyn, N.Y.

The trend toward digital could also mean a move away from blockbusters. Hollywood has been offering mass-market products while most industries are directing specialized products to smaller groups, says Rashi Glazer, professor of marketing at the University of California, Berkeley: "The one-size-fits-all approach is the past, it's not the future." And digital lowers "the barrier of entry," since distribution is no longer an expense to be reckoned with, says Corcoran.

4. "We really prefer you didn't come on opening night."

Contrary to the way Hollywood considers opening-weekend box office numbers the ultimate test of a movie's success, theaters themselves are far less worried about packing the house for new releases. That's because they pay a percentage of ticket sales as a fee to studios, and the cut is typically bigger earlier in a film's run.

How does it work? Studios negotiate separate agreements with each theater chain for each film, so the conditions vary. But generally speaking, theaters pay somewhere between 35 and 70 percent of box office receipts to the studio as a film-rental fee, says consultant Herring. In most cases, the studio takes the biggest cut in the first week, and the percentage drops from there. "If you have a movie like Titanic that lasts for months and months, that's what we all dream about," says Bruce Taffet, the owner of The Pearl Theatre at Avenue North in Philadelphia. He says that by the third or fourth week of a given film's run, the exhibitor begins paying lower film-rental fees to the studio. Unfortunately for theater operators, "most movies don't last that long," Taffet says.

5. "We're all about the bells and whistles."

Noticed lately that the moviegoing experience has become a lot more, well, experiential? It's a result of theaters including more "premium experience" screenings in their lineup, including the use of IMAX and updated 3-D technology. And the trend seems to be accelerating. Regal Cinemas, for one, had 168 digital 3-D screens out of a total 6,782 screens nationwide by the end of 2008 and plans to up that number to 1,500 in the next few years. Meanwhile, about 175 Regal theaters have installed IMAX in the past six years, with more than half of those within the past year.

The lure is profit, naturally: After initial upgrades and outlays -- such as special screens and IMAX's imaging process -- theaters can charge $2 to $3 more for these tickets. And customers like it, says IMAX CEO Rich Gelfond. He cites 2009's Star Trek, for which IMAX made up 2 percent of total screens but 12 percent of box office over a two-week period. Similarly, 3-D screenings have won up to half the total audience for films like Pixar's Up. But Glazer chalks up the excitement to novelty, since "the films themselves don't particularly have anything to commend them compared to others."

6. "Our concessions are so profitable, it's ridiculous..."

Recessions com and go, but it seems concessions are here to stay. The average amount each customer spends at the candy stand keeps heading steadily upward, from $2.51 in 2004 to $3.09 in 2008. In fact, for major theater chains, concessions typically account for about a quarter of total revenue. So how is it that theaters get away with charging as much as $10.50 for a large popcorn and soda? First and foremost, movie concessions are a monopoly, since most theaters don't allow patrons to bring in outside food or beverages. (It's "not a requirement" to buy popcorn when you go to the movies, says Corcoran, of the National Association of Theater Owners. "People who want concessions can order them or not.")

But there's also an important emotional component, says Richard McKenzie, professor of economics at the University of California-Irvine and the author of "Why Popcorn Costs So Much at the Movies." When you buy Junior Mints or another favorite treat, you're buying a piece of the moviegoing experience, along with "the opportunity to laugh with a crowd and everything else people go to the movies for," McKenzie says.

7. " we might put in a bar."

Some theater owners are trying alternative concessions, offering menus that include more than the usual candy and popcorn fare, and even serving alcohol at some locations. For example, Regal Cinemas partners with Cinebarre at five venues serving beer, wine, mixed drinks, appetizers, burgers and pizza. And while there are only about 400 theaters across the country that serve liquor, the numbers have been slowly but steadily increasing. Terrell Braly, CEO of Cinebarre, says his company will expand to 20 theaters by 2011.

But that doesn't mean your local multiplex will be adding a bar anytime soon. There are inherent problems with serving drinks at the movies -- for one thing, it precludes teenage audiences, a key demographic for many theaters. There was even resistance from studios until the late '90s, says Corcoran, including refusal to allow first-run films to be shown in theaters serving alcohol, for fear patrons wouldn't pay attention. Braly says Cinebarre has proved it can deliver the same quality of viewing experience as a traditional chain and says leaving out teenagers isn't a flaw in the business plan, it's a boon to adult patrons by removing "the middle-school mafia."

8. "Actually, your neighbor's cell doesn't bother us that much."

We've all been there: sitting in the theater, our attention consumed by the drama unfolding on screen, only to have the spell broken by a ringing cell phone or the distracting glow of a text message. And with the cultural shift toward personal technology well under way, such disturbances are becoming a regular part of the theater experience, says Toon van Beeck, senior analyst at market-research firm IBISWorld. "People are so glued to their cell phones that it's become a big problem for theaters," he says.

A major check on theaters attempting to police these and other sorts of audience disturbances is the fear of customer backlash, says van Beeck. Movie houses don't want to lose younger audiences -- who are primarily responsible for disruptions -- by cracking down too hard. "But they've got to at least show the baby boomers that they're trying," says van Beeck. Kerasotes Theatres, a Midwest chain with 94 theaters, has taken steps toward offering an escape from rowdy crowds with its "enchanted evening" policy. At select locations on Friday and Saturday nights, no one under the age of 17 is permitted without an adult into movies that start after 9 p.m. The policy, says a spokesperson for Kerasotes, is intended to get people to attend the movies as a family. "When Mom and Dad are around, everyone tends to be on their best behavior."

9. "Going to the movies could be hazardous to your hearing."

Movies sure can get loud, but could they actually be harmful to your ears? Individual theaters' decibel levels vary, but special effects-laden action flicks, for example, can hit the same dangerous territory as a loud rock concert, thus potentially contributing to hearing loss, according to the Center for Hearing and Communication. In fact, any sustained noise over 85 decibels (roughly the level of city traffic) can damage your hearing, says Amy Boyle, director of public education for the center.

"We've received complaints" about noise level in movie theaters, but those who have taken it up with theater staff "have been met with resistance," says Boyle. If you're concerned about volume, you can buy a sound level meter at retailers like RadioShack to measure the decibels around you. Meanwhile, if you experience any ringing in your ears after seeing a movie, then that means it was too loud. "Remember, even the sounds that we like can be damaging to our hearing," she says.

10. "It may soon be safe to go to the movies in February."

Moviegoing has traditionally been a seasonal activity. According to Herring, theaters bring in 40 percent of their yearly revenue in just three months: May, June and July. The winter holidays are another big period for box office revenue, while spring and fall have been dumping grounds for low-budget movies and potential flops. But things are slowly changing as studios seek to spread their quality releases more evenly throughout the year. With the old calendar in flux, some smaller films are debuting with less competition and doing far better than expected.

Last year's surprise late-January hit Mall Cop, for instance, would probably not have been as successful had it been released in the summer against bigger films, Herring says. Indeed, we've started seeing more major releases off season in the past few years, says Alan Stock, CEO of the Cinemark theater chain. For example, September 2009 brought the release of family film Cloudy With a Chance of Meatballs. And if the trend continues, moviegoers might eventually see some high-caliber films come out in the dead zone of the major-release calendar: the postholiday doldrums of January and February.

Source: Smart Money

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