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TOPIC: Thinking about expansion

Thinking about expansion 30 Jan 2002 17:18 #23159

  • BurneyFalls
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I'm thinking about adding another screen (or two)to provide alternatives to my patrons. I talked to the Economic Development people yesterday and am fumbling my way through a business plan. My question to those who have added screen count is, what was the resultant increase in ticket sales. I know there are a million variables here. BUT.. Can I assume I would get more people if I had another choice of picture or would the same number of patrons just divide themselves between the screens?
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Re: Thinking about expansion 02 Feb 2002 19:59 #23160

  • BECKWITH1
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Burney: I was hoping some one else would take a stab at this because I would really like to hear their answer. Maybe we are all just in the same boat - nobody has a formula which can tell us for sure how many people we can expect to walk in the doors. You know the old Field of Dreams conundrum - If you build it they will come, but how many? Can I go to the bank with this?

My gut level reaction is that you will not be splitting the same people that you already have. While I am sure that you have customers who come to most of your movies because they are good, loyal customers you must also have a larger base of people who only come when you have something that they want to see. If you are running a childrens film some will not be interested. If your movie is animated there are people who are not interested in anything but live action. Then you have the other demographics: teen, adult, action, chick flick, etc. You can appeal to different audiences with your additional screens. OK so we know that you will have more people. How many?

Lets look at this 3 ways:

1.You could build a business plan based on how many people you need to have come in to make the business plan work. Keep adding people until you can cover all your costs and make the desired profit level. (This method was used by one large theater that I was once involved with. It got them a city guaranteed HUD loan. Unfortunately, the number of people needed never came in. The city got the theater back, leased it to Regal for 5 years, got the theater back again and gave a sweetheart deal to a local business man who operates it for them quite probably at a loss from what I hear.) Add this additional step at least: Step back and look at the number of people and ask yourself if you can reasonably expect that many people to come in.

2.Get your local census data and your NATO Guide to Exhibition. As I mentioned in the OCCUPANCY % thread, they have statistics on who goes to movies. Try their statistics out on your local census data. See what comes up. Compare how you are doing now against these numbers. Is there room to grow? For example, my city has 30,000 people. 30,000 people at 30%(frequent moviegoers) means that I could be getting 9000 admissions per month. (I am not, but maybe I could if I had more screens!). Next, ask yourself where these customers are currently going to the movies. How far away are your competitors? Will they still have more screens than you? What do they provide that you don't? Stadium seating, better parking, more show times, etc. Can you provide these things and win them back?

3. Take your current numbers and multiply by either two or three screens. Adjust if necessary - example - will you have enough seats to seat the same number of people?

This is my best stab at the problem. I hope someone else has some better ideas? Please share your thoughts.
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Re: Thinking about expansion 03 Feb 2002 19:34 #23161

  • wimovieman
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I am happy to see this topic appear, and hope more will answer as I am looking at the ame thing, at least in one of my towns. All my towns are too small to consider new construction, but think I could affordably add a screen. I really got interested after weekend of Jan 4th, as for the first time in the 5 1/2 years I have been in one town, I was unable to book a movie prior to newspaper ad deadlines and had to put a generic "call" ad in--I ended up holding "Kate and Leopold" to fulfill the contract I couldn't talk my way out of. I ended up with over 350 calls in two days--but only 53 people in those two days (mostly couples)---told me alot of people wanted to come to a movie--just not the one i was showing. Normally with the newspaper ad, I only average 1 call for every 15 people who come to a show.

I would love to hear from someone who might have recently added screens and what the outcome is.
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Re: Thinking about expansion 03 Feb 2002 23:12 #23162

  • D. Bird
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wimovieman, how big are your trading areas in these small towns? Where (how far) and what is the competition? I'm considering moving my planned outdoor to a smaller town as zoning is just not going to happen where I am. With good promotion, how many people to support a single? How far will they drive? Thanks.

[This message has been edited by D. Bird (edited February 03, 2002).]
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Re: Thinking about expansion 04 Feb 2002 20:34 #23163

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D. Bird,

Interesting you should bring up a drive-in. I have been working with the county fair commision on an idea of putting a drive-in in the fair grounds. They have been very receptive--but that is where it ended right now as need to get plans drawn up to bring to county board. I would sure be intersted in going into more detail with you as might not be able to do this alone. if interested in more details, ect e-mail me

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Re: Thinking about expansion 05 Feb 2002 00:22 #23164

  • RoxyVaudeville
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BECKWITH... I don't think we need anyone else to go over all that as you did a remarkable job. I think you covered most of it quite well. You obviously have given it a great deal of thought.

I'll just add a few comments. If you add more screens will more come? Yes, indeed they will for the many reasons you stated above, but not the same numbers as the original screen recieves. It will all depend on the product. Our business is product driven. Isn't it amazing how if there are six really good pictures out at a time and you have six screens with all six of those pictures, they will all do good business. If you have six duds, none of them will do business. Granted if there are several films going after the same market demographics, each one will be hurt somewhat, but over the run of each film they will all do good. However, for the most part except for those few special times like at the holidays or during the summer there aren't that many pictures doing great business at the same time. Generally, there will be one picture doing great business, one or two more doing well, a few doing average, plus a bunch of duds. Your cost of adding the extra screen(s) and the cost of the overhead to run them, along with your population and competition will determine just how many screens you can support before you cannibalize yourself.

What I have seen thus far would be appropriate for a first run operation. But what about a 2nd run situation? 2nd run theatres usually change pictures more often. In most cases a single screen will change weekly. Therefore, another formula comes into play if you're thinking of adding screens to a 2nd run. Every theatre has a holdover figure that is used to determine whether to hold a film for an additional week. Depending on ones operation, that figure may be based on various different considerations. Most exhibitors have a feel for the percentage of dropoff that will occur each week... 20%, 30% 50% or whatever and therefore can predict if an additional week will be profitable or not. While some exhibitors will only hold if they expect to make a profit, others will hold as long as they think they will at least break even. Then there are those that have a loss figure that they are willing to accept because they know that if they hold over and lose, let's say, $250 for the week it's still better then losing even more because there isn't anything else better to play.

Let's say that you have a single screen that averages $2,500 per week with a house expense of $2000 and an average concession per capita of $1.35 (remember this is 2nd run). With an average ticket price of $2.50 you would be averaging 1000 patrons per week. Your box office gross of $2,500 minus 35% film rental would leave you $1,625. Your 1000 patrons at $1.35 per cap will spend $1,350 on concessions which your share will probably be about 65% or $877. Your share of B.O. and concession combined would be $2,502. Take your house expense from that and your profit becomes $502. Now if you hold the picture over and it drops 30% and you do all the calculations again you would find that you would have a loss of almost $250. A figure that you might not accept and therefore would not hold. However, if you added a 2nd screen and can get the total overhead for it(cost of building, equiping, and operating) to lets say $1,500, that same 2nd week gross would produce a profit of $250. Using this scenario no extra product would be needed to support the 2nd screen as it would be supported entirely by holdovers. Obviously not every picture that plays the theatre hits the average gross figure or even the breakeven point. Those pictures that don't do well enough to be held over would be augmented by new product that wouldn't have been booked before on the single screen, but now would be profitable on the 2nd screen with the lower overhead. The size of the auditorium need only be in relation to the decrease in attendence of the 2nd week. Using the figure of 1000 patrons as the average for a week, then a theatre that usually drops 30% each week would pull 700 patrons to the new screen on the 2nd week moveover, of which probably 45% (315) would come on Saturday night, and of which 60% (189)would come for the biggest show, usually the 7 PM round, therefore suggesting that 200 seats would be sufficient for that auditorium. A space 35' x 65' would be needed to hold 200 seats or 2275 sq ft. @ $80 per sq ft the cost of the building would be around $182,000. Good used equipment for both projection and seating can be had for $20,000. Add plans, permits etc and the 2nd screen could be done for about $210,000 total. With low interest rates of 5% for 15 years, debt service would be $1,661 per month or $303 per week. A space this size should not exceed a weekly house overhead of $750. Add the weekly overhead and the debt service and you get a total weekly expense of about $1,100, well below the $1,500 I used earlier. Using all these figures the 2nd screen would be well worth it.

[This message has been edited by RoxyVaudeville (edited February 05, 2002).]
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Re: Thinking about expansion 05 Feb 2002 19:47 #23165

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Thank you for the excellent input. That's exactly what I am curious about. I will forge ahead with my business plan even though my kids think I'm nuts.
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Re: Thinking about expansion 05 Feb 2002 20:32 #23166

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Thank you Roxy for adding your input. I love this discussion thing we have going here, but I want to look again at your point that there is only one movie doing the business during some parts of the year. I totally agree with you that at two seasons the business expands to accommodate more films doing good business while at other times you are in distress trying to fill up the auditoriums that you have. You are exactly right, but...

I used to fill in the second screen in my business plan with less grosses than screen 1, but after watching what happens to us here I have come to the conclusion that your grosses for the second screen don't have to be cut back. In fact your second screen may pull your grosses on screen 1 up. What I have realized is that you can't keep people interested in what you are doing with one screen tied up on a 4 week contract. I think that people quit calling. They go somewhere else while you have that movie that they don't want to see. Then it is hard to get them to come back when you do get something else. I think that the second screen can be used to keep them focused on you and what you are running. If you take very good care of them they might never run to another theater again. That means that you have to try to get a good mix of films so that they will come to see one of them even if it is not their first choice. You must also try to keep the films changing as often as possible so that they don't get bored and quit looking. I know that is something that I fight here and that keeps us from doing the business that we think we deserve. People love us but they don't know if we will get the film that they want to see. If they felt comfortable that we would eventually get most of the important stuff, they would forget about any other theaters. That is why I am no longer convinced that my second screen would do less business than the first. I am not sure we are all in the same boat so put some thought into it and see whether it fits your situation.

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Re: Thinking about expansion 11 Feb 2002 17:34 #23167

  • Mike
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When we were condisering going from 2 to 3 we had a anylsis done by a acct. (not Anderson) and he estimated that we would increase our sales by 50 %. We built and it was true. I believe that in a large population area..... like Roxy... you can have a single screen but in the smaller towns you need more screens. Burney: you qualify. The rule is true: if you build it they will come! And not just the same people. BUT the facts are that your best customer goes to the movies regularly so if you don't have more movies where are they to go? Also: some people love a love story and others prefer a Black Hawk while others need to Shrek.... choices is what makes our business go. BUiLD IT!!!

Mike Hurley
www.bigscreenbiz.com
Michael Hurley
Impresario
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Re: Thinking about expansion 15 Feb 2002 05:26 #23168

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Thanks for all your well-thought out replies. I am proceeding. Talked to an Ass't Planner today and he thought it would get approved without any problems. That cost will be about $1100 for the permit. One thing I noticed that is not mentioned in the previous posts is the cost to remodel the buildings. They are currently vacant storefronts that are in need of repair, so there is another major expense to figure into the formula. I wasn't very good in algebra, so I am still forging ahead.
Probably will contact a contractor to inspect the buildings next. Of course, this whole thing could be for naught if the property owner doesn't lower her price considerably. Currently she wants 3X more for her dilapidated vacant buildings than I paid for my single screen operating theatre. The theatre even came with an antique (1800's) couch in the attic, that I just had reupholstered. It is beautiful.
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