Feature

Cinema Sector Turns to Business Intelligence Systems, Mobile Devices

Focus On: Movie Theaters
Top business challenge: To compete with forces that have drawn audiences away from movie theaters
Solution: To maximize profits by streamlining operations and extending use of theaters to pay-per-view sports and corporate events
How IT can help: Improve operations by implementing business intelligence systems and analytics; install digital communications equipment to facilitate various nonfilm uses

On January 27, 2006, media impresarios Mark Cuban and Todd Wagner launched an experiment. On that Friday, the two opened a film called Bubble in theaters while simultaneously releasing it for broadcast on cable TV. The following Tuesday, Bubble came out on DVD. Cuban and Wagner's idea was to offer consumers the choice of seeing a first-run movie whenever, wherever and however they wanted.

While Bubble recorded barely a blip at the box office -- grossing a total of $145,626, according to Box Office Mojo, an online box-office reporting service -- the release model represents another thorn in the side of midsized movie companies, which have seen just about every metric of performance steadily erode in recent years. According to the trade group the National Association of Theatre Owners, total box-office receipts nationwide were $8.9 billion in 2005, down from more than $9.5 billion in 2004. The association also reports that U.S. theaters admitted 1.4 billion people in 2005, 13 million fewer attendees than they had in 2004.

Fewer people in theater seats translates into fewer buckets of popcorn sold, which in turn creates more trouble, because concession sales often make up a sizable chunk of total revenue. Carmike Cinemas Inc. in Columbus, Ga., for example, had total revenues of $494 million in 2004; box-office receipts accounted for 67% of the total, while concession sales represented 30%. In addition, concession sales have much higher margins than ticket sales: Approximately 90 cents of every dollar's worth of popcorn sold goes directly to the bottom line, according to Edward Jay Epstein, author of The Big Picture: The New Logic of Money and Power in Hollywood. By contrast, theater owners generally split their box office take 50-50 with film distributors and studios.

Dennis McAlpine, a media industry analyst with McAlpine & Associates in Scarsdale, N.Y., says the movie theater industry has struggled since 2002 for several reasons. The most serious issue, McAlpine says, "is the narrowing of the theatrical window." If a movie doesn't have a big opening weekend, buzz tends to fall off quickly; people who might be inclined to see a given movie are now more willing to wait until the title shows up on DVD (which is typically four months after theater release).

Because the industry is highly fragmented and includes many private, regional players, it's also struggling with rising costs (for tickets and concessions); the erosion of patrons' leisure time; and competition from other forms of entertainment, such as video games and the increase in home viewing of movies.

This was first published in June 2006

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