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Cinema Sector Turns to Business Intelligence Systems, Mobile Devices

Movie theaters are hurting from the pressures created by declining admissions and at-home entertainment. Now they're using the latest mobile and self-serve technologies to reel the crowds back in.

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.


Creating Convenience

While movie choice certainly plays a big role in people's decisions about whether to trek to the neighborhood multiplex, industry executives believe there's something more endemic at work. "Historically when attendance dropped, the key thing would be to blame it on poor product," says Jim Fagerstrom, who until May was senior vice president and CIO at Loews Cineplex Entertainment Corp. in New York. (In January, AMC Entertainment Inc. completed its merger with Loews to create a 415-theater chain.) Yet as attendance trends continue to slide, "there's a general sense in the industry that it's more than poor product now." Theater companies are therefore compelled to "do whatever we can to maximize revenues and decrease costs," says Fagerstrom.

At Loews, IT implemented a business intelligence system that enables managers to monitor variable costs closely. By getting a real-time view into payroll costs per hour, theater managers can more closely align work schedules with actual and anticipated box-office receipts so theaters are neither under- nor overstaffed. Carmike uses a chainwide proprietary system that centralizes administrative functions such as ticket and concession sales tracking and theater staffing levels. The system also allows corporate managers to centrally manage payroll, track invoices and generate reports, all in the name of keeping daily tabs on performance. Cineplex Entertainment LP, a $700-million chain in Toronto, delivers comprehensive performance data to theater managers via individualized portals on the company's intranet, says CTO Jeff Kent.

When it comes to increasing revenue, companies need to improve the overall moviegoing experience and diversify by filling seats any way they can. And convenience is one area where IT can help make improvements. Cineplex is upgrading all its point-of-sale terminals to speed sales at the box office, according to Kent. The company is also "looking at wireless capabilities to bring the box office to patrons," he says. Mobile devices, for example, can sell tickets in parking lots or lobbies and can scan in customers who have printed tickets they bought on the Internet at home. Cineplex is also looking into delivering tickets to cell phones.

At Landmark Theatres, a chain of 290 screens owned by Cuban and Wagner, vice president of IT Paul Duchouquette says that using customer-facing technology to boost convenience is a priority. Landmark, which exhibits art-house films, is installing kiosks throughout theaters so customers can buy tickets and concessions when the theater is crowded. "The kiosks provide a consistent experience and contribute to our loyalty program," Duchouquette says. Landmark's loyalty program aims to establish a sense of community among customers via online newsletters and exclusive screenings.

Cineplex is also launching a loyalty program. By the end of the year, patrons will swipe a loyalty card whenever they make a purchase; the theater will then link that transactional data with general demographic data to get a clearer window into its customer base, says Kent. In return, customers will receive discounts or free screenings.

More Than Movies

Companies aren't betting their business on movies alone or even on the onscreen advertising that increasingly is a part of any movie's preshow. Making facilities available for corporate events, college classes, pay-per-view sports and concerts are strategies most companies are pursuing in order to fill theaters at times they would otherwise be empty; according to McAlpine, many seem to be having some success with these alternate uses.

Through its partnership with Microsoft, Cineplex hosted a weekday event in which people played the Halo 2 video game, which was projected on theater screens. The company also offered a pay-per-view Bon Jovi concert the day before the band released its latest CD. To accommodate such uses, theaters are Web-enabled and equipped with the latest digital cinema technology.

Even as movie attendance flags, many in the industry believe that a segment of the population will continue to choose a trip to the theater over a DVD. There's something about the communal experience that has infinite appeal. "Going to the theater and seeing a movie on a 60-foot screen is way better than seeing it at home," says Kent. "Comedies are funnier and scary movies are scarier when you see them with a crowd."

Megan Santosus, a former senior editor at CIO Decisions, is now a features editor for Write to her at [email protected].

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