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TOPIC: I need help :}

I need help :} 22 Nov 2004 01:48 #24811

  • Rbowden
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Ok gang...I need some help...I finished my business plan, looks beautiful....I am concerned with population figures....It looks like this project is questionable and I don't want to be wrong....

I am building from the ground up in a high, middle income area that is growing very fast....My 3 mile population radius is 9500, 5 mile radius is 29000 and 7 mile radius is slighlty over 60000 (20 mile radius is over 333,000 but didn't use any of that population as my clientele because it is like a world away and they have 20 other screens west of them to support that population). I am in the midwest where there is nothing to do but see movies. The total amount spent within my 7 mile radius for admission to movies, theater, opera, ballet was over $3.4 million. We are in an area where theater and opera are available but people don't attend them often so the bulk of the 3.4 million is on movie tickets.

I am (wanting to) build a 4-5 plex with 760+ seats. I want to charge $7.50 a ticket. The competition (Chain-12 plex)is about 8 miles north and is in a part of town that was going downhill but trying to be revived. My other competition is about 9 miles northeast of me and is a 9-plex.
I have already checked and won't have trouble getting film.

My trouble is this. I realize there isn't a magic formula for projecting clientele. I estimated 80% of the pop of the 3 mile, 70% of the pop of the 3-5 mile and 35% of the pop 5-7 mile. I multiplied those numbers by the average times a person goes to the movies (5.4) and used that as my bases for ticket sales and concession units. Population is all movie-going citizens.

There are no cinemas south of me and I know I will bring in more people from a larger radius but I want to be conservative. By using that formula, my projected number of ticket sales for the first year is 163,249 for a 5 plex....

Normally, I wouldn't be scared of just a projection. But, I need to sell close to this to make a small profit(paying myself a 30,000 salary and showing a net profit of 8%). I don't care about my salary but I don't want to start a business that is doomed to fail. I know in my heart this is the right location, but there are no existing buildings to take over and the area is growing causing land prices to become high. The start up is expensive.

What do you think? Population figures totally doable or really stretching it. The footprint looks like 17000-19000 sq ft....The project is coming in around $2.3 million. The banker was excited that I wanted to do this because she is fustrated that the nearby cinema is always sold out.

Thanks guys for all of your advice. This website has helped me and it is great to have a network of people in this crazy world who share the same passion and the willingness to help others.



[This message has been edited by Rbowden (edited November 22, 2004).]
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Re: I need help :} 23 Nov 2004 03:43 #24812

  • Mike Spaeth
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Sounds like you're in the ballpark. Is this going to be a stand-alone build or part of a shopping center? If it's a new development, build-to-suit is often available.
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Re: I need help :} 23 Nov 2004 08:51 #24813

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It will be a stand alone structure on 24 acres.....The land is undeveloped right now but it is city water and sewer and has a lot of prime road front footage. I thought I would build back and to the left, put most of the parking in the back and the side and once the cinema is up, sell the right side to a restaurant. We have a lot of pizza and quick food places in this small town but only one very expensive sit down restaurant. I thought someone might put one in after the theater goes up and I could recoup some of my money by selling off the corner of the land.....

There is about 13 acres being developed for build to suit as we speak right across the street but they have already contracted for a small supermarket and I figured I would have no room for expansion.....Plus, It backs up to a railroad track and I was worried about the sound.

I meet with the owner of the land today to try and put a contingent offer on it. Then the plans go to Mesbur and Smith and then off to the bank.

This has been a long road :}I hope you guys who have experience with 5-6 plexes can tell me if I will be streaching to reach 163,000 tickets.


My husband will keep his job and we can pump extra money from his income into the business for a while but not forever:}

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Re: I need help :} 23 Nov 2004 14:30 #24814

  • Mike Spaeth
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That is a very conservative number for a 5-6 plex. What are you looking at for total annual revenues?
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Re: I need help :} 23 Nov 2004 18:11 #24815

  • Rialto
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Hi Rbowden,

I read your posts and overall things look good. I do have a couple of observations/questions.

1. What are you using for your average ticket price? You state that you wanted to charge $7.50. I am presuming that this is your general admission or adult price. Since you will need to have bargain, kid and senior prices as well as probably accept some passes, this will drive down your average price. For instance, Large and I run a 5 screen arthouse theatre. We charge $9 for adults $6 for bargain, senior and child. Our average ticket price typically works out to about $7 but it fluctuates depending on the mix of films and who that mix attracts. I was shocked when I first figured out that we only sell about 40% of our tickets at the top price, but my booker who is much more experienced than I stated that we were on target. Bottom line, just be sure you are using an average ticket price to calculate revenue not the top price.

2. With regard to projecting attendance, do you know what the movie-going potential index is for your area? ESRI Business Information Solutions has a website where you can purchase reports for your specific location in banded radius' you select. Probably the most valuable of these reports are the Recreation Expenditures report and the Sports and Leisure market potential report. it sounds like you have some of the data from the Recreation Expenditures report. The Sports and Leisure Market Potential report will give you an expected number of adults who will do a wide range of activities along with a % of the total population and a market potential index. For the index, 100 is average. It would probably be reassuring both for you and your bankers to know what these indexes are for the bands of population you desribed. These reports do cost money, but spending $500 - $800 for some data is small change compared to rolling the dice on $2 million plus without reassurance. To order reports on line or view samples go to
www. myesri.com

3. Have you looked at the MPAA numbers on movie-going attendance? These are generic for the entire country, but will give you some idea of how movie attendance breaks down by age groups. You can then extrapolate from this and apply the movie-going frequencies to an age-based breakdown of your area's population.

Hope this info helps! Good luck
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Re: I need help :} 23 Nov 2004 19:29 #24816

  • Rbowden
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Rialto

Thanks for your input...A lot of my data came from ESRI and the index is as follows:
3 mile radius - 121; 5-mile 118 and 7 mile-108....

I show grossing over $1.38 million.....But with a gross margin at 51.94%,Pre-tax return on assets at 8.14%....

Concession was based on 2.10 per capita and ticket average being 6.50 (7.50 evening and 5.50 child and senior) I might be making a mistake by using an even average of the two...Your right, I forgot about the low kids rate at night....I will have to change that....

When you guys say per capita of.......on concession are you stating the figure as an average before or after you pay the taxes.....I listed 2.10 before paying the taxes on the item....

I worked out the land price tonight and hopefully will move forward....My husband is getting nervous with the low net profit amount because if we are wrong with the numbers we will run in the red :} so far I haven't found an insurance company that guarantees business mistakes...lol....Thanks guys you are the best....PS I showed running inventory at 4K a month...Any thoughts....

[This message has been edited by Rbowden (edited November 23, 2004).]
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Re: I need help :} 23 Nov 2004 22:05 #24817

  • Rialto
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Rbowden,

Ok, your index's look pretty good, but I'm curious, is that Admissions to Movies, Theater, Opera, Ballet index out of the Recreation Expenditures report? the Sports and Leisure Market potential report breaks it down futher into the following categories:
Attended movies in the last 6 months

Attended movies in the last 90 days, less than once per month

Attended movies in the last 90 days, once a month

Attended movies in the last 90 days, 2 -3 times a month

Attended movies in the last 90 days, once/week or more

Prefer to see a movie after the second week of release.

Let me show you how these numbers can differ from the combined Movies, Theatre, Ballet, etc number. For an area I looked into the Admissions to Movies Theatre Opera Ballet indexed at 184 in a 5 mile radius. Here's how the other indexes came out within the same 5 mile radius:
Attended movies in the last 6 months: 113

Attended movies in the last 90 days, less than once per month:109

Attended movies in the last 90 days, once a month:126

Attended movies in the last 90 days, 2 -3 times a month: 129

Attended movies in the last 90 days, once/week or more: 102

Prefer to see a movie after the second week of release: 118

I show you this because I want to make sure you understand that the earlier number is a composite and its good to know the details.

Your mix of movies is going to drive your percap for concessions...more kids movies = bigger percap
. Is your percap net of sales tax or not? In our arthouse situation, where percaps are lower, we run about $1.80 inclusive of sales tax. But our core audience is mostly women and many of them are seniors.

Your inventory figure, assuming you mean how much inventory you are carrying at month end, looks about right to me. Figure concessions cost of goods sold between 22 and 27% depending on what soda pricing you can get, etc. Note that % does not include anything for labor or overhead, just pure materials cost. The more popcorn you push out the better that number looks, so don't skimp on concessionists on busy shows.

Remember to budget for repairs and maintenance. Movie theatres are high volume and stuff breaks, wears out, etc. Preventative maintenance is key, so budget for regular HVAC service, etc.

Hope this helps!

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Re: I need help :} 24 Nov 2004 00:01 #24818

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Rialto

Thanks so much...I will order those reports right now.....When I calculated my sales I took concessions at 2.10 per ticket sold then at the end of the business report I taxed at 6% those concessions listed above....I was hoping the per capita figures everyone listed in the archives was the after tax number but it looks like it is the amount before they have to pay taxes on the concession items sold. So we make 94% of concessions and 45% of film....Ouch....:} I wish I could figure a way to build a basement under the theatre and live there and save on the house payment....lol
Thanks again

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Re: I need help :} 24 Nov 2004 04:59 #24819

  • Mike Spaeth
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Your Concession food cost should fall around 15% for traditional concessions, closer to 25-30% for "cafe" style concessions. Also, the $2.10 per cap is very conservative ... it's been awhile since i saw a first-run, mainstream theatre with that low of a per capita. $2.50 is about average
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Re: I need help :} 26 Nov 2004 01:17 #24820

I would not count on the figures from ESRI for total money spent on movies, opera etc... as a figure you can expect to get. I haven't seen a location yet that matches that number for the boxoffice number. You can expect leakage from your draw area to the larger cinemas in your area which is more than likely located in an area with retail. I would be cautious about building in an undeveloped area unless you are the only game in a 15 to 20 mile radius. The distance to the other theatres seem pretty close for a 5 plex to compete without retail or some kind of development to help the draw.

[This message has been edited by Greg Pauley (edited November 26, 2004).]

[This message has been edited by Greg Pauley (edited November 26, 2004).]
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Re: I need help :} 26 Nov 2004 17:43 #24821

  • revrobor
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You are right, there is no magic formula. In reality the success of your house depends on what you book. If you are going to book day-and-date with the other houses in your area then expect less revenue.

I would encourage you to get a handle on the demographic in your immediate area and to offer the movie-going public something different in the way of films, showtimes, presentation equipment, etc. and PROMOTE, PROMOTE, PROMOTE. Don't expect them to come running to your place just because you put a little one-column ad in the local paper.

Boy, I hope you've got the bucks to build this place!

Good luck.

Bob Allen
The Old Showman
"Back In The Saddle Again"
Bob Allen
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Re: I need help :} 26 Nov 2004 23:09 #24822

  • Rbowden
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Thanks Bob

I have saved and worked hard and here I am....I am starting to think maybe I should look for a new location....My competition that is north of me will open next summer. The national chain that is 1/2 mile away from them is shutting that location down so I could buy that building....It is already set up for a theatre, near restaurants and the public knows it is there. The problems are I don't think I would get film because of the new theatre, it is in an area where the people would not take care of things and I would be afraid to work there at night :{

I wish I could think small and then expand, but I am afraid if I build a 3-plex it won't be enough to attract people to the theatre. The town is growing fast, a new apartment complex and mini supermarket are going up and the city is starting to expand this direction very rapidly....The problem is there is no retail here yet and very little restaurants. I don't mind taking risks but I like them to be as educated and as calulated as possible.

I have missed a few opportunities in the past because I had a wait for a while approach and someone came up with the idea as well and it was a hit....I don't want that to happen in my hometown :}

Thanks guys for all of your help....I will keep you posted....


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Re: I need help :} 27 Nov 2004 14:36 #24823

  • revrobor
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I am not yet ready to accept the idea that more screens is the key to the success of a theatre. I believe what you put on those screens (or a screen), the type of equipment you have, how you promote it and how your customers are made to feel in your house are the keys to success.

Again, the best of luck to you.


Bob Allen
The Old Showman
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Bob Allen
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Re: I need help :} 28 Nov 2004 12:08 #24824

  • rodeojack
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I agree with Bob on this. However, HOW MANY screens seems to be a number for which I haven't noticed a reliable formula.

For sure, the idea of building a single screen would seem nuts to me. At the least, multi's spread out your risk of being committed to a dog for 2+weeks. On the other hand, it seems the movie-going public is increasingly unimpressed with anything below the top 5 or so, which makes me wonder how many no-shows those 20-screen megas get in a week. All that does is put the weight of paying for that unused square footage on those few screens that actually ARE making a profit.

It would seem that luck is still a viable factor in this business!
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Re: I need help :} 28 Nov 2004 16:15 #24825

  • revrobor
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I've had 8 or 10 "no shows" at the ten screener where I have been for the last four months.

Bob Allen
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Bob Allen
The Old Showman
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