The Movie

Exhibition Industry
By:
MGMT 7012
Aditya Mubarkapuram
Case Analysis
Deemah Gabarty Under the supervision of:
Inas Abdou Prof. Osita Nwachukwu
Nahla Abdelhay
Content
- The Movie Picture Value Chain
- The Business of Exhibition
- The Major Exhibitor Circuits
- Trends in the general environment
- Five competitive forces analysis
- Challenges for Exhibitors
- Recent Exhibitor Initiatives
•https://www.youtube.com/watch?v=QvrnH
LOXABc
•Since 1995, domestic box office receipts
overall declined 5.2% to $10.36 billion as admissions
declined to their lowest level.

•Many trials were taken to encourage the viewers to

get their way back to theatre.
The Movie Picture Value Chain

• The motion picture industry value chain consists of

three stages: Studio production, Distribution, and
Exhibition.

The three main stages which form the motion picture industry THE MOTION PICTURE INDUSTRY: CRITICAL ISSUES IN PRACTICE, CURRENT
RESEARCH & NEW RESEARCH DIRECTIONS 2004
Studio production
• The main core of the industry.
•Studios focus on 12-24 year olds -18% of the U.S. population - this group purchases 30%
of all tickets.
•There are main 6 studios which are responsible for 81% of the box office receipts. (20th
Century Fox - Warner Bros. Pictures - Paramount Pictures - Universal Pictures - Sony
Pictures Entertainment - Walt Disney Studios)
•In 2014, the top 6 studios produced 99 major pictures, down from 110 in 2000.
•Over 71% of U.S. studio revenues are now international.
Distribution

• Distributors are the intermediaries between the studios and

exhibitors (marketing, logistics, and administration).
•There are more than 300 distributors.
•Since the 1940s, the distribution of all motion pictures in the
US entailed the physical shipment of reels of 35mm film.
• Beginning in 2006, exhibitors started the transition to digital
projection technology (high powered LCD projectors).
• By the end of 2014, more than 95% of U.S. screens had been
converted to digital.
Exhibition

• Exhibitors offer a location where audiences can view a motion picture.

• Town halls and churches - Permanent local theaters (One screen).
• July 12, 1963, Ward Parkway Center in Kansas City, Missouri had the first multiplex
cinema in the United States (Two screens).
• Exhibitors constructed large entertainment complexes, sometimes with two dozen or
more screens.
• Regal, AMC, Cinemark, and Carmike are the top four exhibitor “circuits” in the US -
operate 1,528 theaters (just 24% theaters - control 45.5% of the screens.
The Major Exhibitor Circuits

•Regal is the largest with 7,367 screens in 574 domestic theaters -focuses on mid-size
markets using multiplex and megaplexes - average nearly 13 screens per location.
- https://www.youtube.com/watch?v=XTiTpKPJTXM

•AMC is the second largest domestic exhibitor with 4,931 screens in 345 theaters -
average of 14 screens per location- Concentrating on urban areas near large population
centers- Focusing on 3D, IMAX, and other premium viewing experiences.
The Major Exhibitor Circuits

● Cinemark is the third largest circuit with 4,499 screens in 335

domestic locations - it serves smaller markets.
- The broadest international presence 153 theaters (1,344
screens) in Mexico and Central and South American countries.

● Carmike concentrates on small to midsized markets, targeting

populations of less than 100,000 that have few alternative
entertainment options - fewer screens at each location.
-https://www.youtube.com/watch?v=kxer0T-l6ao
The Business of Exhibition

•All revenues for exhibitors come from three sources which are box office receipts,
concessions, and advertising.
•Box Office Revenues: Ticket sales has the biggest share as they constitute two thirds of
exhibition business revenues.
•Concessions: At an average of $4.36 per admission, concessions constitute 30% of
exhibitor revenues.
- Concession are not only boxed candy, popcorn, and soft drinks now include a variety of
food, drink.
•Advertising: The most attractive source of revenues for the exhibitors.
- Constitutes just 5% of exhibitor revenues.(highly profitable and growing)
The Major Exhibitor Circuits

● AMC is the leader in the industry.

● It focuses on urban areas such as New York & Los Angeles
etc.,
● Cost of content is similar across all of these exhibition centers.
● Exhibition costs as a percentage of revenue are Regal (52%),
AMC (53%), Carmike (55%) and Cinemark (56%).
● Lower rental charges compared to smaller circuits.
● Cinemark and Regal earn twice the revenue compared to
Carmike.
The Major Exhibitor Circuits

● AMC was acquired by Dalian Wanda Group, a chinese

exhibition organization.
● Top 4 circuits are spread in different geographical locations
with minimum differences in offerings and ticket prices.
● People chose one circuit over other on different factors such
as distance from home, proximity to other relaxation places
and the convenience of parking.
The Business of Exhibition

● The rental fees varies and it depends on size of the circuit and the time and seat
commitment made to a film.
● Cost of film gradually decreases by each week.
● In the first week the cost of film would be around 80-90%
● It gradually decreases to 10-20%
● Costs are influenced by purchase volume.
● Bigger chains are able to negotiate better prices on everything such as from popcorn
to sodas.
 Trends in the general environment

The Demographic segment

● Largest audience for movies is from 14 to 24-year old making up 18% of population, and
30% of total ticket purchasers

● 10% of population are frequent moviegoers who constitute 50% of all ticket sales
 Trends in the general environment

The Economic segment

● Unstable economic conditions exert financial pressure on consumers

● The movie production costs are increasing even faster than the inflation since the use
of special effects being massively increased

● Dynamic Pricing
Trends in the general environment

The political / legal segment

● Legal: when the theatres threatened that they may boycott Universal studio features.
The plan was scrapped due to the theatres threats

● Political: the threat that exhibition business faces when governments ban movies that
could have increased the box office revenue

‘’The Interview’’
 Trends in the general environment

The Sociocultural segment

● Cost, interruptions such as cell phones, expensive concessions & ads prior to show

● Online streaming lead movie rentals to expand into physical DVD channels with
subscription such as Netflix and Amazon Prime; at home viewing option

● Type of service or product offered especially that films cross cultural and language
boundaries and appeal to a global market where over 71% of U.S. studio revenues are
now international
 Trends in the general environment

The technological segment

● Conversion to digital screens reduced the exhibitors’ costs and increased revenues

● The upgrading of projection operations is an investment cost on theatre owner

● Studios have eliminated the costs of film print. However, film rental fees,

including distribution costs, have held steady (54% among Cinemark,

Regal, and Carmike in 2014)

● 3D movies add more to the ticket price with the introduction of 3D content
 Trends in the general environment

The Global segment

● Over 71% of U.S. studio revenues are now international; domestic receipts average
annual growth rate of just 2%, while international growth rate is 11% annually

● Globalization allowed exhibitions to tailor their business strategies to meet demands.

However, Studios focused more on the international market which make the local
exhibitors' business decline
Five competitive forces analysis

Threat of new entrants (Low)

● The movie industry is a highly concentrated and requires huge amounts of capital

● Success is not guaranteed

● AMC, Cinemark, Carmike and Regal theatres are positioned in geographic markets that

does not allow new entrants to take the competition

Five competitive forces analysis

Bargaining Power of Suppliers (High)

● Studios control distribution windows, DVD sales, product licensing

● Top ten studios form more than 90% of box office receipts that gives the studios more
power in negotiating and pricing
Five competitive forces analysis

Bargaining power of buyers (High)

● Home viewing technology available at affordable prices. So, buyers became more

powerful

● Netflix and Hulu subscriptions, consumers have even more power to choose between

different options
 Five competitive forces analysis

Threat of substitute products (High)

● At home viewing and online video streaming

● Online TV networks; Netflix

● Netflix and Amazon offer HD formats and started to offer content in the 4K format

These substitutes threaten the market share of major exhibitors because they have a direct

impact on theatre’s operations and performance

 Five competitive forces analysis

Intensity of rivalry among competitors (High)

● There is little differentiation in the offerings of exhibitors where prices differ little, the

same movies are shown at the same times, and the food and services choices are

nearly identical. Competition between theatres can include distance from home,

convenience of parking, and proximity to restaurants

● High costs associated with the development of

megaplexes and the conversion to digital projection


Countering the Declining Allure of the Theater
The Home Viewing Substitution
lower cost, avoidance of
pre-movie advertisement
and the interruptions by
cellphones.
Challenges for exhibitors:
The Home Viewing Substitution − Technology
In 2014, 77% of U.S.
households had at least one
HD television allowing for
very high quality visual
images and audio and
speaker components
packaged as low cost home
theaters
Home viewing- Content Availability &
Timing.
these streaming services are
becoming a direct
competitor to both studios
and exhibitors as they move
into content development.
Netflix, for example, is
producing both television
series and original movies.
 Recent Exhibitor Initiatives

Projection Innovations

-IMAX format utilized film that was 10 times the size of that used in
standard 35mm projectors. IMAX is typically offered at a premium of $3 to
$7 per ticket.

-Dolby Laboratories: a full surround system with up to 64 individual

channels for speakers in a theater, including multiple ceiling speakers that
can truly immerse the audience in sound.

-Immersion Experiences: 4D & Beyond: A 4D theater utilizes 3D

technology and draws the viewer further into the action with added
elements such as dynamic seating with moving seats synchronized to the
onscreen action.
Alternative Content:
This includes live concerts and theater, stand
up comedy, sporting events. Alternative
content can attract repeat visits, such as
Metropolitan Opera Live, approaching its 10th
season, which features 10 live events on
Saturday afternoons broadcast by more than
700 domestic theaters.
Concession Initiatives
Expanded In-Lobby.
This expanded in-lobby dining causes
many theater lobbies to resemble mall
food courts. Some theaters now configure
the lobby around a bar, with expanded and
upscale fare, beer, and alcohol service.
In-Theater Dining
Many theaters have adopted an in-theater
dining format where orders are placed
from the seat in the theater by a wait staff.
Upscale Within Theater Dining
Several circuits are targeting the high end of the
theater market, focusing on the experience of the
theater with luxurious settings and upscale food.
Theater chain iPic offers perhaps the most
luxurious theater experience available outside of
a private screening room, complete with
reclining leather chairs, pillows, and blankets.
 - Advertising Initiatives - Multi-Entertainment Venues

Off-screen advertising such as promotional adding activities such as game rooms,

bowling, even laser tag and at-table trivia,
videos, lobby events and sponsored theaters become one stop locations for
concession promotions are 9% of revenues. family-friendly entertainment.

The majority, 91%, comes from on-screen

ads for upcoming releases, companies, and
products that play before the feature
presentation.
Thanks for your Attention