If we address this question in terms of the laws of economics, as well as comparisons to other businesses who have faced similar challenges, the answer comes in focus.
In the early days, the supply of “movies” was limited because theatres were the only venue in which to view them. As their entertainment value improved, so did the demand. High demand and low supply equals success in any business.
Fast forward to today and, while movies are better than ever, the supply and accessibility to them has gone through the roof. Movie theft on the Internet, pay per view, Netflix, DVDs, Red Box, cable pay tv channels, and free tv offer non-stop movie viewing options by the thousands. Other competitive entertainment choices such as sporting events and gaming are also growing. This abundance of supply has also brought the cost of seeing movies way down, everywhere that is except at the movie theatre!
Convenience is another factor impacting the viewing of movies. The public can now watch them whenever they want, in the convenience of their own homes. They can stop and start them as the wish, and the viewing quality is excellent, and constantly getting better.
Theatres, who once provided movie entertainment for the masses, are gradually being relegated to offering a premium experience to a shrinking audience. While we tout premium sound, BIG picture, enjoying a film with an audience, getting out of the home, climate control, restaurant quality food options, and luxury seating, we still lose the price battle when non-affluent patrons ask: “Why should I pay $50 to take my wife or girlfriend out (or a $100 to take my family out) when we can enjoy the same movie (plus Coca-Cola and popcorn) all for less than $10? It simply makes no “economic” sense!
Exhibition can rightly claim that, when taking into account inflation, the cost of a movie ticket is no higher than it was 10, 20, or even 50 years ago. (We can’t however, make that claim when it comes to our concession pricing!) The problem here is not that our pricing is high, but that our competition’s pricing is so low!
As a comparison, Amazon is putting many big box stores out of business. They are doing this via just two advantages - price and convenience! These are the same two competitive factors that exhibition is facing.
There are other warnings. The public looks for entertainment on the weekends when the work week for most is over, so weekend business is still pretty good. Weekday business, however, has been going downhill for years. Empty auditoriums, almost unheard of 20 years ago, are becoming commonplace on many weekday nights at most theatres. The other alarming factor is that, while some blockbusters continue to impress, smaller movies often die at the box office. There is no urgency to see them because it is so easy for patrons to wait and catch them later at home.
Based on all of the above, we have no choice but to conclude that our business is going to continue getting worse, rather than better. That’s not to say that many theatres who provide an enticing venue and who are located in “upscale” markets won't continue to thrive. Also, well-run theatres in good and growing markets are likely to continue to prosper. There are, however, many “average” theatres fighting the losing battle of constantly having to invest in upgrades for a stagnant or declining number of patrons!
So, what is the answer?
Growing our audience through offering an enjoyable and fun experience at a competitive price is our ONLY option for increasing our market share. “Price” is the key word in this solution. We have two options:
1. By adding to “normal” business through local price incentive promotions aimed at targeted groups. As an example, if we engage a fast food restaurant to distribute thousands of discount coupons to their customers in a week that are good at our theatre, many of those recipients (who would not normally have attended) will take advantage of the savings and the suggestion to attend a movie at our theatre. Thus we have our “normal” business, but we attract additional patrons via the marketing. The only problem here is that most theatres have abandoned marketing under the assumption that it’s the studio’s job. Weekly promotions designed to target specific groups and add to normal business require time, effort and expertise which is sadly lacking at most theatres. There is also the question of studio per capitas to deal with.
2. We can drop the price of admission for everyone! If we charged just $5/admission, and that price was properly marketed, attendance would increase substantially! If, by going from a $10 to a $5 admission, and assuming a 55% average film rental, and our concession per capita holding steady at $4.50 with a 70% profit margin, we would only need to increase attendance by 33% to have the same gross income. If lowering from $10 to $7/admission, attendance would need to increase by less than 20% to achieve the same gross profit. Most every other retail business has sales to boost business, so doesn't it also make sense for us?
Movie-going was once compared to a freight train. When business is slow (and the train is hardly moving) it is hard to boost business and get the train moving quickly. Once it has picked up a full head of steam, however, and lots of patrons are in our theatre enjoying good movies, seeing trailers to upcoming product, and sharing the experience with friends, business tends to keep moving at a brisk pace. Our job is to get that train moving, which is a real challenge when coming off a slow summer and heading into the fall!
Still, with great films, a good experience for our customers, and EFFECTIVE MARKETING there are options for making sure our future is a rosy one!
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