The big picture on movie theaters

theaterpix.jpg You have to wonder whether exhibitors are feeling some resistance from moviegoers, especially older ones, who have discovered many other ways of watching a film. Average ticket prices inched up only slightly last year, compared with large jumps in 2008-2010 (much of that attributed to higher prices for 3D movies). Frankly, the theater business should be on death's door. It's an aging industry that's been run more or less the same way for generations, and it's competing with a host of technologies and distribution channels that make it unnecessary to schlep to the multiplex at a set time. But strangely it's hanging in there, largely due to big-budget, multiple-picture franchises. Of the ten top-grossing films last year, five were sequels of some kind (and that doesn't include the James Bond film Skyfall, which, it can be argued, is the 23rd sequel in that series). As I point out in the February issue of Los Angeles magazine:

Theater economics are not easy. Converting to a digital projection system runs an average of $100,000 per screen. Adding 3-D is another hefty expense. Ticket sales provide only so much help in underwriting those costs because of the skewed way in which the box office take is shared. The business model has movies leased out to theaters, with the distributing studio receiving the lion's share of revenue--as much as 80 percent--during the first two weeks of release. That's when moviegoers usually want to see the film. By the time theaters begin picking up a greater percentage of ticket sales, most of the audience has moved on to the next blockbuster. Charging a fortune for popcorn and soda is the traditional way of recouping what was given up to the studios.

One niche area gaining interest among exhibitors is the high-end multiplexes like iPic Entertainment, a chain of ten high-end multiplexes that combine dining and moviegoing. iPic already has a location in Old Pasadena and later this year plans to open in Westwood at the site of the former Avco theater.

Except that instead of 2,200 seats, the new complex will have only 430--all La-Z-Boy-type chairs. iPic's premium tickets, which can cost almost $30 depending on the theater and time, allow you to order food at your seat before and during the show (Angus burger sliders are $15; fajita quesadillas, $14; four-cheese flatbread, $13). Nonpremium seats near the screen of some auditoriums are about $10 cheaper, but they don't recline or come with individual service. "A lot of people are trying to copy this, but they have fallen on their faces because they don't get the concept," says iPic CEO Amid Hashemi, who operated two small chains before iPic. "This is all about service. If I'm charging you $24 or $28 a ticket, I raise your expectations so much that I better jump over them."

At a conventional movie complex, auditoriums must be large enough to accommodate weekend business. During the workweek, however, they're mostly empty, especially in the suburbs, where families are too busy to see a film. The average movie seat is occupied only 15 percent of the time; Hashemi says iPic's percentage is several times that level. More customers, along with higher ticket prices and additional revenue from food and drink, offset having fewer seats. The key is to concentrate in urban areas, where young singles and older adults are more likely to see a movie at any time. Another must is having adequate staff, much like a restaurant. While that means higher labor costs and lower profit margins, Hashemi says the privately held chain is well capitalized and has been making money. Last fall even AMC Entertainment began experimenting with the dine-in approach at its Marina del Rey location. Tickets for evening shows are $17.50, with seats that are smaller and closer together than iPic's.

Photograph courtesy of

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Mark Lacter
Mark Lacter created the LA Biz Observed blog in 2006. He posted until the day before his death on Nov. 13, 2013.
Mark Lacter, business writer and editor was 59
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