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TOPIC: Competitive Zone Impact on Grosses / Reality Check

Competitive Zone Impact on Grosses / Reality Check 04 Dec 2009 09:40 #32922

  • BWT
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Looking for some input/advice on the potential impact to grosses for a film zone that would be competitive.

(WARNING: this entry is a bit of a long read)

I am in the process of renovating and re-opening a 10-plex with stadium seating that went bankrupt about a year ago due to extremely poor management and some apparent money laundering operations. My re-opened location will be doing first-run showings and will have a fully networked digital content management system and 4 3-D capable screens.

Unfortunately, I just discovered that a new fork-and-screen location (estimating anywhere from 6-10 screens) is also opening about ~6 miles away from me around the same time as I am targeting a re-opening (late Q1 2010/early Q2 2010). Previously, the area I am in was considered exclusive booking (3-mi radius around my theater has ~65,000 ppl an the 5-mi radius pop is ~170,000). I just spoke with the Warner Bros branch manager for my area last night and apparently now the area is competitive b/c of the incoming fork-and-screen.

In terms of other competition, there are both a Regal 8-plex and an AMC 14-plex (both AMC and the Regal sit side-by-side near a local mall and are in a competitive film zone all to themselves) within 4 miles of my location as the crow flies. Neither of them get particularly good reviews from patrons, but there just has been a derth of other offerings since the location I am re-opening went under amidst the shady financial issues. Additionally, my location is in sort of a logistical choke-point for traffic flow in order to get to the roads which access the AMC and Regal, as well as this fork-and-screen.

My ultimate question is basically how much impact can I expect to my projected grosses if I am having to share content from the major studios with this new fork-and-screen? I am already assuming that my location is only going to do about ~70% of the industry average per screen admissions (my assumptions: 2008 NATO/MPAA numbers showed ~$256,000/screen annually).

Is this conservative enough, or should i expect to do a lot lower (40-50% of industry average per screen annual admissions) given that i will have to share the widest release content?

Also, in my research and general understanding, fork-and-screen locations are not necessarily normal-theater killers b/c the fork-and-screens appeal to a different demographic (older patrons, large families). Additionally, I have tried some informal surveys of many of my co-workers (at a non-theater related job) and they seem to prefer the traditional theater experience to a fork-and-screen type experience (and several of them have been to a fork and screen located near our office building, so they have both experiences for comparison).

Can anyone confirm peace and (semi-profitable) co-existence between a first-run normal theater and a first-run fork-and-screen?

Any input from the community would be appreciated!
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Re:Competitive Zone Impact on Grosses / Reality Check 04 Dec 2009 12:10 #32923

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Well your first mistake is to do any number crunching based on national figures or national averages. Just as all politics are local so too are all movie grosses (or more correctly stated ) each territory is local. They are areas even in a given state or a territory within that state which are acknowledged as bigger "movie going areas" than other areas of the same state or territories within that state.

Before buying or opening a theatre in any area you need to do a comprehensive analysis of the grosses within that area (or market territory) - and not just raw numbers but what kinds of films play or play better within that market. For example you may find that the area does well with art product but these are usually more limited print availabilities. Again you need to determine from the distributors what the print availability will be given your expansion into the market. It also seems to me for the size territory in which you are speaking - and I not sure from your description what that is - you may be runnning to the point where the distribs might not willing to provide that many prints - not so much of the saturation blockbusters - but of the middle level titles in the off months of Sept Oct etc.

It is also important to determine what the reasoable geographic limits of your market. As a general rule - again all things being reasonably equal - no one is going to drive any further than they have to (especially with gas now approaching $3.00 a gallon again - and if it hits $4.00 then movie business really plummets) to see a movie. Even if tickets are sligthly cheaper as it makes no sense to spend three dollars for a gallon of gas to drive an extra 20 miles just to save $2.00 on the price of a movie ticket. Not that most people even think that way. It is just what venue is the closest and most convenient. My general rule-of-thumb is a ten mile radius from a person's residence - that is how far they will drive to see a movie.

While no rule is steadfast it is generally acknowledged that when a new theatre opens in a given territory - and all other things being equal - it doesn't increase the moviegoing by much but merely divides the existing business gross totals of all previous screens by the new number of screens divided into the previous total grosses plus say 5%. Now I am not sure a fork and spoon is all things being equal - because it is a more specialty market but it will definetly have an impact.

One final rule of thumb that I use is that for a successful theatre you need two screes for every 10,000 of population within your area (and that I define is a 10 to 15 radius max).

Not sure all this answers your questions but it may help focus your thinking.
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Re:Competitive Zone Impact on Grosses / Reality Ch 04 Dec 2009 13:27 #32924

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Why don't you have your booker inquire about the previous owners grosses? That should give you some sort of baseline as what happened business-wise previously. Was it previously independently run?
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Re:Competitive Zone Impact on Grosses / Reality Ch 04 Dec 2009 14:48 #32925

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@trackfood:

The location was operated by an independent; it was previously owned by a couple of big boys, but got sold off to a random company during the late 1990s. I haven't been able to find out who was booking it previously and none of the bookers I have been negotiating with are willing to share any data with me until I sign a firm contract with them, which i am probably a few short weeks away from doing. I've also tried to contact/negotiate some historical data from Rentrak, but they are unwilling to divulge any data until I'm actually taking in ticket revenue.

No one, including the landlord, has been able to get much info about the financial operations of this place.

I've pulled what I could from the bankruptcy documents (mainly annual revenues and a list of assets), but given the illegal nature of what was supposedly going on there (forensic accountant believes some level of money laundering), I doubt any P&L that was/would ever be disclosed would be particularly accurate.

The last couple of years it operated saw total revenues drop dramatically, to the extent that their last year of operation had revenues that were basically a 35% or so of the top-line from a couple of years before.

From what the new landlords have been able to get from a forensic accountant, the old operators closed auditoriums to put in stadium seating, spent part of a landlord provided construction loan doing that, stiffed the stadium seating company, then took out the remainder of the credit line in cash and just disappeared and filed chapter 11 on the same day.

Additionally (from an operations standpoint), they stopped advertising, marketing, and promoting the theater in any way during the last 18 months or so before it was liquidated.

On a random note, I'm assuming the random and sudden financial spiral that was related to the cinema's bankruptcy is what probably prompted the studios to revoke its exclusive zone status with respect to film inventory, b/c there hasn't been much significant change in terms of population density or other demographic factors in the area over the past 12-24 months.
Last Edit: 04 Dec 2009 14:48 by BWT.
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Re:Competitive Zone Impact on Grosses / Reality Check 04 Dec 2009 18:59 #32926

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If the place was being used as a launderette, then perhaps that might explain the sudden 35% drop in revenues - prehaps they stopped taking in washing so that what was left was the actual theatre revenue.

You need to get figures not just the theatre that you intend to buy but for each and every theatre in at least a 20 mile radius. And how these other theatres are doing should give you at least a basic indication of the real market.

One other general rule of thumb - if it is good location and really making $$$$ someone would have picked it up already (or it would never have been let it go in the first place).
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