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TOPIC: New theater planning--results of year-long search

New theater planning--results of year-long search 21 Jul 2009 14:15 #31951

  • debo
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Many thanks to Mike and all the others who make this site such a great resource. It's been a huge help.

Over the past year or so, I've been slowly compiling all the information needed to put together a solid business plan for a new six-screen theater. This site and many of the resources recommended here have provided most of this information, but it's been a bugger to find firm answers to a lot of my questions. So I thought I'd post some of the most important basics all in one place. Here goes...

Compiling information on Competitors

If you don't already know your nearest competitors, copy and paste this link ( in your browser, and change the XXXXX to your zip code. This will provide a list of the nearest theaters from closest to farthest. Next, Google the name of the theater to find their websites. These will provide information on number of screens, digital or film capability, ticket prices, and other information you may find useful. You can call each theater to find out the number of seats, but it may be easier to buy a ticket and check out their auditoriums--this will give you information on all sorts of other aspects of their business as well and will allow you to check concessions prices. More detailed information on your competitors (ticket sales, etc.) are available from some subscription services, but these are almost exclusively available to current theater operators only.

For your plan, you'll want to know ticket prices, concessions prices, number of screens and seats, digital or film, location, distance from your proposed site, and any specifics about the area surrounding the theater that may affect a consumer's decision about where to see a movie (e.g., restaurants, shopping, crime problems, limited parking, etc.).

Compiling information on your Trade Area

First check the websites for your city and county. Most will have extensive documentation of economic and consumer information on the city and county as well as in areas surrounding the site by geographic and driving distance--for example, you can usually find information on households within 20 miles or 20 minutes. The information you find on these sites may or may not be helpful depending on the scale and the distance to your nearest competitor.

To find appropriate population and economic data on your surrounding area, go to and search on the zip code where your site will be located. In my case, the nearest theaters are 40 minutes to the north, 40 minutes to the west, 70 minutes to the south, and more than 70 minutes to the east. Therefore, I had to look at a zip code map (can find at and make some educated assumptions about moviegoing behavior in the surrounding area. I settled on eight zip codes where I can capture most or all of the market share. I also obtained information on two zip codes where I think I can capture a smaller fraction of the market.

Once you have the fact sheet for your zip code, you want to collect the entries on population and per capita income. Divide the per capita income by the US per capita income (two columns over from local per capita) to get an adjustment for all the other national figures you will use. If you have multiple zip codes involved, multiply the population of each zip code by its per capita income, add together the results for all of the zip codes, divide by the total population of all the zip codes, and then divide by US per capita income--this will give you the average modifier for your whole trade area. In my case, that number is 0.68 which means that the per capita income in my trade area is 68% of the national average. You may be lucky enough to have a figure larger than 1.0 which means that your area's income is higher than the national average.

If the population or income in your area has changed drastically since the last census, you may need to obtain updated numbers from estimates provided by your local government. Call your local economic development agency for more information.

You may also want to collect population numbers for college students and Hispanic individuals if these groups make up a large percentage of the population in your trade area. Both groups go to the movies much more frequently than the average population (10.2 times per year for college students in 2008 and 6.6 times per year for Hispanics compared to 4.73 times per year for the general public over the age of 3).

Compiling information on The Industry

None of the reporting groups agrees on how to report movie viewing statistics, and it is important to understand the underlying assumptions each group uses before using their numbers. For example, the MPAA reports all of its statistics using only moviegoers as a base. So they report Hispanic viewing as 10.8 times per year. In reality, that number is understood as "among US residents who go to the movies, Hispanics see 10.8 movies per year." But only about 175 million people go to the movies each year compared to about 300 million people in the US. When adjusted for total population, your figures on Hispanic moviegoing would be lower--6.6 times per year.

NATO ( provides statistics on ticket sales, screens, theaters, and ticket prices. These appear to be accurate according to multiple sources.

According to NATO, moviegoers purchased 1.363 billion tickets in 2008. The US population at the end of 2008 was 304 million. Children 3 and under account for 16 million of those, and theaters typically don't sell tickets for these ages. Thus, 1.363 billion tickets divided by 288 million tells us that people in the US go to the movies ~4.73 times per year.

You can find additional information on number of movies produced, number in digital vs. film, etc. by Googling for that information.

Concessions sales are very difficult to pin down. Information from publicly-traded companies (Regal, AMC, etc.) suggest concessions per cap around $3. It's not clear whether this is pre- or post-tax. Anecdotal reports suggest that locally owned and operated theaters generally have better per caps for concessions, and discussions with a theater financing group that operates on both the East and West coasts revealed that they use $3.25 per cap in their projections as a national average.

Converting National information for Local Use

To determine how much you can expect to make in your Trade Area, you have to use the economic modifier you obtained from the census data. You can take several approaches, and each will give you somewhat different results. To determine admissions, you multiply the national average (4.73) times your population times your modifier. In my case that means that I can expect each person to go to the movies about 3.2 times per year. Multiplied times my population, I get a figure for annual admissions. I've also adjusted my numbers for the sizeable college population in my trade area. This approach assumes that my ticket prices are around the national average.

If you prefer to assume that your local population will go to the movies 4.73 times and want to determine the ticket price by that, you multiply 4.73 times the average ticket price nationally ($7.18) and get $33.96--this is the national average expenditure for movie tickets. You have to multiply that times your local modifier (.68 in my case) to get your local expenditure ($23.09). So if my local population is going to the movies 4.73 times per year, my average ticket price would need to be $4.88 (that is, $23.09 divided by 4.73). As you'll see in multiple discussions on these forums and elsewhere, $4.88 won't get you first-run films unless all your competitors' prices are lower. All of my nearest competitors are around $7 for kids and $8.50 for adults, so my prices will probably be comparable. You also need to make some decisions about how many sales will be matinee, child, student, adult, etc. and multiply those fractions times the total admissions and ticket prices. The sum of those parts gives you the total annual sales. Nationally, half of ticket sales are to the 12-29 age group. After removing my college students for a separate calculation, I assumed 1/3 of sales would be matinee/child/student and 2/3 would be adult.

You must also convert per caps, but in this case you multiply the national per cap ($3.25) times your local modifier (.68 for me) to get a local per cap ($2.21). Multiply this per cap times your annual admissions to get annual concessions sales. Some interesting studies suggest that the local modifier may not be necessary for concessions. At least one of these studies shows that concessions sales are only loosely related to 1) cost of the items, 2) cost of admission, and 3) local economic factors--in other words, people who buy concessions tend to buy them whatever the cost and regardless of ability to pay. This is obviously an oversimplification, but it suggests that your concessions sales will be higher than the above estimate if your local modifier is <1 and that they will be lower if your local modifier is >1--in other words, they'll tend to be near the national average.

The major chains have a 15% cost basis for their concessions. Local owner-operators may spend more, though I've seen numbers that are both higher and lower. It really seems to depend on how much effort you put into keeping those costs down. To include this in your expenses, multiply your annual concessions sales times 0.15 (or a higher or lower number depending on your circumstances) to determine the annual cost of your concessions.

Although the studio's take for any given week will vary from film to film and theater to theater, the average appears to be about 52%. This number includes the cost of booking and distribution as well but does not take into account any payments or concessions made to digital theaters. To include this in your expenses, multiply your annual ticket sales by .52. This is roughly the amount that will be paid to the studios annually.

Determining the Number of Screens

The old rule is 1 screen per 10,000 population in the trade area, but this antiquated measure is from the age of large auditoriums (400-600 seats), limited screens (usually no more than two at a given theater), and limited movie selections for much of the year. In the current climate of 18-screen megaplexes with average seating around 225 per screen and more than 700 movie releases each year, 1 screen per 10,000 probably won't work. But let's use it as a starting point. Divide your trade area population by 10,000 to get a screen number. In my case it's around 3.8 screens.

But we have other ways to evaluate the question that actually have data behind them rather than a "rule." Take your gross ticket sales (obtained by multiplying your annual ticket sales by your average ticket price) and divide by the national average sales per screen ($251,841). In my case, this gives me a number of 4.5 screens. As you can see, the national average sales per screen begins to take into account the difference in the number of seats. If we further modify the calculation for local economic conditions, we get a better number. The calculation is gross ticket sales divided by (national average sales per screen times the local modifier). In my case this gives 6.7 screens. In other words, the national average sales per screen assumes the national average for ticket price, economic status of moviegoers, and auditorium size. You can then work backwards from national average sales per screen using locally-modified ticketing and economic status to figure out an average auditorium size or auditoriums per population.

As you'll find on these forums, most owners are saying don't build fewer than five screen if you're building new. Given the movie selection available and the preferences of consumers, this seems like wise counsel. The trick is determining whether you can support a five screen or larger. If your assumptions leading to the above calculations are correct (trade area, market share, economic modifiers, concessions sales, etc.), they will give you a correct answer on number of screens. The cost of land and building will determine whether your trade area can support those screens.

Building Size and Cost

After talking with theater architects, pouring over these forums, and scouring the Internet, I've found that you can reasonably rely on an estimate of 18-22 sq ft per seat to get a size figure for your entire building. The more screens you have, the more likely you will end up toward the low end of that estimate and vice versa. The reason for this is that some fraction of the space is shared--lobby, concessions, bathrooms--and will only increase marginally as you increase the number of screens. Thus, for a six-screen theater, I need to assume 21-22 sq ft per seat. Although I haven't settled on exact numbers, let's assume a go with the following arrangement for my screen seating: 275/225/150/150/100. This gives a total of 1000 seats. Multiply the number of seats by the sizing estimate to get a range of 18,000-22,000 sq ft. The upper level of that is in line with the size of other new six-screen theaters as reported online. These calculations assume stadium seating. If you're not doing stadium seating (why wouldn't you?), you may be able to shave 10% off the calculation. These calculations also assume you are including a booth--if you aren't (and some new theaters aren't since they're going all digital), the theater architects say you can cut 10% off the calculation.

So I end up with a 22,000 sq ft building for six-screens and 1000 seats. How much parking do I need? If you are really lucky, you'll buy a 0.75-acre lot (or maybe even less if the shape is right) that is already adjacent to a shiny new parking lot that is part of a shopping and entertainment development. If not, you get to buy much more land (3-4 acres) and build your own. Local codes will completely dictate this number, but you need to consider a few things that might make you increase the size. Some local codes aren't equipped to deal with movie theaters, so they'll try to size your lot as a church or some other building type. Whatever the case, you'll need enough parking to accommodate all of your customers on your busiest night. If it's shared parking with other businesses, you'll have to consider that as well. If you assume your largest screen is full for a major opening and your other screens are on average 1/4 full because it's "date night," your theater is almost at half capacity. In my case, that means about 500 people in the building. Families, dates, and singles make up that group, but your local demographics are going to determine what that makeup is. In my case, the local college population may result in more singles than normal, so I need to be prepared to provide space. I probably wouldn't want fewer than 250 spots to accommodate those 500 people. At 300 sq ft per parking space, that's 75,000 sq ft for parking plus my 22,000 sq ft building. But again, local codes will dictate a minimum, and you'll need to decide if you need more. I can't even comment on the cost of building the lot since local rates vary so much for that particular construction (far more variable than the actual building).

How much will it cost to build the building? You can consult Reed Construction Data ( for current national data on specific construction types. The most expensive type of movie theater construction listed is with decorative concrete block and steel joists. As of the beginning of 2008, the national cost for this type of construction, including architect and contractor fees, was $121.07 per sq. ft. You can use a general construction cost book available at your local library or online (usually for a fee) to find geographic construction modifier values similar to the local modifier in our earlier calculations. Let's assume the modifier is 0.88. That means local construction costs are less than the national average, and that would be expected with our local economic modifier of 0.68. Some areas will have higher than average costs. In fact, almost all of the movie theater construction costs quoted in a recent article (cited elsewhere in these forums) come from areas where the modifier is >1, so those costs are all higher. To get our local cost for a six-screen building, we multiply $121.07 times the modifier (.88) for a total of $106.54 per sq ft. Multiply this times 22,000 sq ft for a total construction cost of $2.34 million.

Now what about equipment? You'll see estimates all across the board, but the best I've found is an estimate of $200,000 per screen. This figure includes the screen, the seats, other fixtures (lights, sound-modifying materials, etc.), and equipment for 35mm prints. As recently as late last year, the estimate for digital instead of film would have increased that by 50%--but the most recent estimates on digital equipment only increase the per-screen estimate by $25,000 to $50,000 depending on the specifics of the equipment. (Note that you may be eligible for payments or concessions of $800-$1000 per film from the studios if you go with digital, and you should include this information in your income and expense projections.) So assuming the best equipment (or at least most expensive), we'll go with an estimate of $250,000 per screen for a total of $1.5 million for equipment. You may or may not be able to outfit your concession stand within this estimate depending on how fancy you get in each auditorium. But if you go with average or a bit above average furnishings, you should have sufficient left over on six-screens to cover your concession stand.


Well, those are the basics of what I've found. I'd welcome comments from everyone on the accuracy and applicability of this information.
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Re:New theater planning--results of year-long sear 22 Jul 2009 17:47 #31960

  • theBigE
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Excellent post, debo! I appreciate the work you put into your research and I'm bookmarking this page! Thanks from a perspective theatre owner.
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Re:New theater planning--results of year-long search 22 Jul 2009 21:30 #31961

  • I_B_Don
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Very well put together.... Very helpful.... Thank you for your time and effort....
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Re:New theater planning--results of year-long search 10 Nov 2009 07:55 #32775

  • Paul_M
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Excellent post - thank you
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