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TOPIC: Is this theatre worth the purchase?

Is this theatre worth the purchase? 12 Sep 2019 09:30 #44394

  • B_Rosen
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The Lowdown:

1. College town of 20,000...60,000 in the county. Theater is one mile from the college.

2. Our only competition is a newer 10-screen built in 2014 on the outskirts of town, 5 miles away.

3. Potential theater is a 4-screener downtown connected to a popular restaurant. It closed in 2012 after GKC and Carmike neglected it and never fixed the seats or converted it to digital. Theater made $3 million in ticket sales from 2002 to 2012.

4. All of the best restaurants in town are downtown next to the 4-screener.

Questions....

Would I have trouble as an independent distributor getting films? My competition is a small regional chain.

We would need all new seats, and new projectors, concession equipment. Probably a very heavy cleanup as the theater has sat empty for seven years now. Might be costly. Not sure if the owner would let us buy it, or just lease it (he owns the restaurant as well) but what would be better?

General thoughts?
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Is this theatre worth the purchase? 12 Sep 2019 17:49 #44396

  • theBigE
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That sounds promising but expensive! New seats, projectors - sounds very costly, but lots of potential.
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Is this theatre worth the purchase? 12 Sep 2019 20:58 #44397

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I think so, but I'm still worried about fighting the multiplex down the highway for films. I think they make over $1.7-$1.9 million a year but people really want to stay downtown and have a night out. People also grew up going to the theater I want to reopen.

Projection - at best $400K for four units + screens.
Renovations - probably $200K...no clue really.
Seating - $170K
Concessions/Point of Sale/Posters Cases - $17K

Roughly $800K needed to reopen it.

No clue on what the owner wants to sell it for. He might lease it.

Oddly enough, this was cheaper than the non-profit single screen we were trying to restore over the past two years which was $1.8 million including the purchase of the building!
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Is this theatre worth the purchase? 13 Sep 2019 08:38 #44400

  • lionheart
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I don't know what area you are in, but if I were you, I'd consider if putting $800K into a property I don't own makes sense. Many people would say yes if the business plan is solid and if you can count on healthy profits. But, there is always risk that it might not work out the way you plan. If you should fail and have to sell your business or simply your assets, you'll only be able to recoup a fraction of what you put into the place. Failed businesses are not very valuable after all. It is not doom and gloom thinking to consider the worst case scenario.

On the other hand, buying a theater building has it's own issues. Again, in the worst case of failure, a specialty property like a theater can be very hard to sell... trust me on this one. If it didn't do a lot of business, then you might only get a small fraction of what it cost you when you go to sell. Even if someone would be willing to go through the trouble and expense of converting it to another purpose, they expect you to absorb that expense as a loss on the sale. Otherwise, it won't be worth it to them.

Now some of this information could help you get a better deal from the property owner. He has been sitting on a closed theater for 7 years. Not many people are looking to pay him much for it. Although, he probably wants at least what it's worth based on location and square footage. But you are armed with the knowledge that it will be costly to bring the place back to life. You will want him to discount the property as much as possible to counter that expense. He doesn't have to do that, but you don't have to buy either.

The same goes for leasing. He might be persuaded to help with the initial costs of renovations if he is guaranteed a healthy payback over the course of the lease. He is sitting on a white elephant or an albatross after all. If it were a hot property, it wouldn't still be vacant.

Now, as for taking business from the multiplex, how will you compete? Do they have stadium seating, larger rooms, better parking, etc.? It's not just about being next to restaurants. You will have to split customers with them, assuming you can get the movies you want. And you may not be able to... check with a booker on that. You will not likely generate many new ticket sales in town. You will mostly just siphon off some of those that were going to the competition. At one time on these boards, people used to say that you should have 10,000 people for every screen in a market area. Later some said you could get by with smaller numbers of people per screen. But even if you can count 60,000 as your market area, then 60,000 divided by 10 is 6,000 per screen. And, 60,000 divided by 14 is 4,286. That seems a bit low to me. Your area would probably be over-screened.

And, I have concerns over using county figures for market area, based on my own experience. It's hard to say if that would be the correct way to go. I think that the further away someone lives, the less likely they are to patronize your theater. I also think that the more rural an area, the less likely people are to go to the movies in general.

So, if the average American sees 3.5 movies per year (the last number I read somewhere... and it was 5 times per year just 10 years ago), then you would hope there are 210,000 tickets being sold at local area theaters. Now, if you can even get a third of that business, you might sell about 70,000 tickets per year. But, if you can't get first run movies most of the time, while your competition does, then you will be left with crumbs.

Is the $1.7 million per year the competition is making consistent with selling 210,000 tickets per year? If not, then your county might not be statistically average. I think urban areas raise the average. I wouldn't be surprised if your county average was below the national average.

If a booker told me that I couldn't compete well with the multiplex, I'd be hesitant to go for it.
Last Edit: 13 Sep 2019 17:30 by lionheart. Reason: corrected some arithmetic
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Is this theatre worth the purchase? 13 Sep 2019 08:59 #44401

  • slapintheface
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3 million each year ??
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Is this theatre worth the purchase? 13 Sep 2019 13:15 #44402

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I will clarify...

Our competitor made $1.3 million in 2017 and 2018. About 160,000 patrons per year.

The theater I want to open made $3.2 million in a 10 year span off 5 screens. Average gross per year is $320,000. The theater shutdown when GKC/Carmike refused to replace the seating or dump money into digital. When I last visited the place in 2011, it was in a really sad place due to corporate neglect.

According to comScore, they played an artsy movie in their fifth screen and had pretty poor returns on that. I LOVE indie films but they only do well in bigger cities where there is enough of an art community to support it. This is a blue collar town with a tourism boom in the summer. However, the new configuration has removed that screen, so only 4 remain now.

2 of those screens can be stadium seating. The 2 others are smaller and would have traditional seating.

The current owner has been sitting with that property for many years and has promised new mixed use/retail space but my guess is that he does not have the capital or time to do anything with it. He owns two restaurants and bounces between both of them. He initially promised movies with this new restaurant and he got an $400K grant to fix it, but he spent all of it on the restaurant and shut down the theater which pissed a lot people off who loved going there.

Parking is all behind the building, no issues there. We can also get some economic grants to make it happen.
Our booker is fantastic and is connected, but I still worry about not getting the big releases.

I would like to lease...but I'm not sure how much control that gives him. He's known to be stubborn and he's honestly my biggest worry. I question why he's letting the building rot away...and so far he's ignored phone calls which is unfortunate for him because both of his businesses and his own pockets benefit from this restoration.
Last Edit: 13 Sep 2019 13:42 by B_Rosen. Reason: added facts
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Is this theatre worth the purchase? 13 Sep 2019 17:48 #44403

  • lionheart
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I see that I made a math mistake or two in my previous post. I corrected them.

I had a good booker, too. He was connected as well, since his family owned a good sized chain which he also booked for. I still had to go with what the distributors were willing to let me have, which wasn't everything on the break. And, I didn't have competition in my county. But, my market was smaller... so you have to consult with your booker.

Does anyone know if clearances are still used? I've been out of the business for years. If so, then you will definitely suffer. Even if there are no clearances (bigger competitors requesting nearby competition be denied a movie at the same time they have it), then the distributors can deny you movies on the break anyway just because you don't fit in their roll out plan. They like bigger per screen or per show averages for some reason. If your numbers are less, then they might not give you the chance to improve them much.

I just don't think you can expect to get everything on the break with that 10-screen nearby... maybe hardly anything. Unless they are really, really bad and could be pushed aside, I personally would not do what you are considering. I would say it's not worth it. You will probably not siphon a third of their business. You will probably get much less. That's my opinion. The risks are too high. Sorry.
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Is this theatre worth the purchase? 13 Sep 2019 18:16 #44404

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lionheart wrote:

I just don't think you can expect to get everything on the break with that 10-screen nearby... maybe hardly anything. Unless they are really, really bad and could be pushed aside, I personally would not do what you are considering. I would say it's not worth it. You will probably not siphon a third of their business. You will probably get much less. That's my opinion. The risks are too high. Sorry.

As much as I trust my booker and like him, booking at this theater was my concern (and my landlord). It's too bad because it's such a great venue.

To be honest, we'd have better luck with our single-screen project which was non-profit:

1. Second-run/off-the-break blockbusters for only $5.
2. Art films via a programming grant - or - Proludio hookup
3. Stage for live-music once a week (I know a twinned theater that pulls this off)
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Is this theatre worth the purchase? 03 Oct 2019 05:30 #44420

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I do not understand your figures.

A 5 screen theatre cannot survive with only $320,000 per year in boxoffice. It may have been a second run theatre.

You might be able to structure a deal with him on the rental. Maybe 10% percentage rent and he refurbishes the cinemas etc.
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Is this theatre worth the purchase? 03 Oct 2019 12:03 #44421

  • Mike
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Some states allow clearances and others do not. Any broker will be able to find this out for you. I always cringe when I hear the words... "The business MADE...." Made would or should refer to NET. There's gross and there's net. In some places or business you could gross 10 million and lose money. Until you know if you can get films it is a moot question.
Michael Hurley
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Last Edit: 03 Oct 2019 12:04 by Mike.
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