Competitive Intelligence

AMC + Loews = Consolidation Hitting the Slumping Theater Business

AMC Entertainment and Loews Cineplex Entertainment have decided to combine to see if maybe, together, they can beat the biggest moviegoing slump in 20 years. Not that movies, necessarily, are the problem or aren’t popular. It’s just that, the theater distribution channel is obsolete, undifferentiated and destined to become even more so, unless theater chains can create some integrated experience that would warrant fighting the crowds instead of cozying up at home with movies on demand or DVDs by mail, rented or bought outright.

The second and third (respectively) leading theater chains agreed to merge into a 5,900 screen movie-viewing goliath with operations throughout the the country and overseas. The deal is valued roughly at $4 billion and will put them second to Regal Entertainment group, the largest movie entity with 6273 screens in 558 theaters.

What's an even broader reason for the consolidation? Maybe Batman has a shot at saving Hollywood this summer... or maybe, Tom Cruise...?

For four months, Hollywood has been waiting for a movie to reverse its grim box-office slump. "Batman Begins" looked like the perfect candidate. A once-beloved franchise that hadn't been in theaters for eight years, the film had been re-imagined by the hip English director Christopher Nolan and was propelled by an ardent fan base, a huge marketing push and numerous rave reviews.

But like so many other recent releases, the tale of the Caped Crusader failed to save the day, further cementing 2005 as the year of the missing moviegoer.

In an era when a pair of movie tickets can cost more than a DVD, and in a season when the films seem like sorry retreads of years past, consumers are leaving one of America's great pastimes.

Compared with last year, box-office receipts have been down every weekend since late February; the last time comparable business was off for such a long span was in 1985.

This summer's movie season has been especially brutal. North American theater attendance from early May to June 19 was off nearly 11% from a year ago, tracking firm Exhibitor Relations Co. estimated Monday. If the year's overall weak admission trend holds, it will mark the lowest number of moviegoers since 1996 and the third consecutive year of decline, a skid that hasn't been seen since 1962.

Even with the price of a ticket exceeding $10 in some big cities, box-office receipts have fallen almost 7% from a year ago, according to Nielsen EDI, which tracks box-office performance.

Although the inescapable culprit may be second-rate storytelling, the weaker-than-expected opening of "Batman Begins" suggests that other factors are contributing to the decline. The expensive flops include pedigreed films such as "Cinderella Man" and "Kingdom of Heaven," as well as what should have been action blockbusters: "XXX: State of the Union" and "Elektra."

Some people attribute the nose dive to the growing popularity of DVDs, which now can come out mere weeks after movies arrive in theaters. More worrisome, executives say, is the industry's penchant for flooding the market on opening weekend, often putting a would-be blockbuster in more than 4,000 theaters. Beyond the added expense of those wide releases, the strategy leaves little time for curiosity to build for good movies and accelerates bad buzz, which can now be passed with viral speed on the Internet.

"Now at midnight on Friday evening, you're dead or alive," said Lucy Fisher, a producer of the upcoming "Bewitched" and a 30-year veteran of the industry. "However long it took to make the movie, by Friday night, except for Academy[-Award-type] movies, your fate gets cast."

Just as home entertainment systems — including plasma screens and surround sound — have become increasingly lavish, the overall moviegoing experience has become a shell of its former self. Even as theaters offer stadium seats and martinis, moviegoers are being bombarded with countless advertisements and coming attractions.

"Going to a movie theater used to be a unique way of seeing a movie and carried with it a romantic notion — it was a special forum you shared with a group of people," said Terry Press, the head of marketing for DreamWorks. Theater advertising is annoying and ruins the value of movie previews, which are a studio's most powerful marketing tool, Press said. "At least at my house I have the ability to fast-forward through the commercials," she said.

Said Richard Zanuck, a producer of the forthcoming "Charlie and the Chocolate Factory": "I don't like [commercials] at all. People come to see the movie. The movie experience is supposed to be that…. They've come to see the film and not to be sold something else."

In fact, 73% of adults prefer watching movies at home, according to an Associated Press-AOL poll released last week. A quarter of those polled said they had not been to a theater in the last year.

Despite bad news on the home front, the studios have seen some of their losses mitigated by international box-office receipts and exploding DVD sales, which have become increasingly important to the overall profit of a film.

But how well a film does in U.S. theaters typically sets the stage for its profitability. And its opening weekend grosses foreshadow its ultimate domestic take. In this equation, studio executives cynically say, quality has become increasingly irrelevant. Whether good or bad, a film can be expected to make three times its opening weekend grosses in the U.S.

If a movie doesn't do well in its first weekend, a studio will often pull the plug on its marketing resources, saving that money for its video release.

"There's not that much separation between the theatrical release and the video release. It suggests that the movie is becoming the trailer for the DVD," said Jeff Berg, chairman and chief executive of International Creative Management, a talent agency. "Because the studios are compressing the release window [between a movie's theatrical release and its DVD release], it's easier for the consumer to wait 12 to 13 weeks to get the DVD and own it."

Although the final accounting for 2005 releases cannot yet be determined, their domestic runs indicate the prospects are decidedly dim.

The $88-million "Cinderella Man" has grossed just $43.9 million in domestic theaters, and the $140-million "Kingdom of Heaven" has sold only $46.7 million worth of tickets domestically (although it has grossed more than $158 million overseas). "Batman Begins," which cost more than $150 million to make, grossed $72.9 million in its first five days of release. (Movie studios typically collect about half the box-office receipts, with the rest going to the theater owners.) The underachievers also include smaller films such as "The Honeymooners" and "Lords of Dogtown."

Many in the business are hoping this is just a temporary downturn. Some say comparisons with last year are unfair because 2004 included Mel Gibson's surprise hit "The Passion of the Christ," which grossed more than $370 million.

Dan Fellman, president of domestic distribution for Warner Bros., which made "Batman Begins," said the film's opening should not be considered weak. And he suggested that this year's slump wasn't a harbinger of more fundamental change in America's moviegoing habits.

"In any business, whether it's the stock market or whatever, you aren't going to have every year exceed the year prior," Fellman said. "Like any business that has a little bit of a downturn, you can't panic because of six months."

Now show business executives are waiting to see whether Steven Spielberg's "War of the Worlds" can save Hollywood when the Tom Cruise sci-fi thriller opens June 29. But it would need to be almost a "Titanic"-size hit to make up the lost ground.

Quite frankly, the only big-screen flick I’d planned to see this summer was “Revenge of the Sith”, which I think reflects a lot of people’s attitudes these days – if the entertainment experience would be diminished on a small screen then it’s probably worth paying fifteen or twenty bucks to go to a movie, spend a nice away from home and crowd into a theater with a bunch of snotty middle schoolers… if not, then hey! I’d rather watch at home.

- Arik