Movie theaters are evolving, not dying

LOS ANGELES — The movies are still big. It’s the multiplexes that are getting smaller.

Since 2019, the number of total screens in the U.S. have decreased by around 3,000 to just under 40,000.

This consolidation was a direct result of the Covid pandemic, which shut down theaters for a time and triggered a surge in streaming subscriptions. A number of regional chains have shuttered for good, while others were left to reevaluate their financial footing. For many, that meant closing locations or selling off leases.

“Think about retail out there in general, it’s repositioning itself, you don’t have as many of the same branded stores in the marketplace,” said Rolando Rodriguez, chairman of the National Association of Theatre Owners. “Consumers are a lot more selective, and I think that for the economics that are necessary, you’re not going to see these 30-plexes anymore.”

Rodriguez said that most newly built locations will range between 12 and 16 screens and those with larger, preexisting footprints will look to repurpose some space for supplementary activities for moviegoers, like arcades, bowling alleys or bars.

Theaters have been forced to innovate, even as Hollywood production returns to normal and studios offer more movies for release than they were able to during the earlier stages of the pandemic.

As the space contracts, cinema operators are investing in the basics, improving sounds, picture quality and seating as well as in bolstering its food and beverage offerings, events and alternative programming. The aim is to improve the baseline experience for moviegoers regardless of the type of ticket they purchase.

“We do better when people get in the habit of seeing,” said Larry Etter, senior vice president at family-owned regional chain Malco Theatres. “And I think that’s what’s going to happen. I think we’re going to recreate the habitual effect that on Friday nights or Saturday nights or whatever it is, we’re gonna go to the movies.”

Already, the industry is seeing improvements in ticket sales. Through Monday, the 2023 box office has tallied $958.5 million in ticket sales, up nearly 50% compared to last year and down just 25% from 2019, according to data from Comscore.

This is a marked improvement from the meager $98.7 million box office tally during the same period in 2021.

Foot traffic has also improved, but continues to linger behind pre-pandemic levels. In the two decades before the pandemic, the industry sold an average of 1.1 billion tickets per year, according to data from EntTelligence. Even as Covid restrictions were lifted in 2022, just more than half that number of tickets were sold for the year. And ticket sales should rise in 2023 as studios release more films.

While cinema operators are pleased that studio production has increased, they are no longer taking audiences for granted.

To that end, operators have started with upgrading projectors. Over the last few years, movie theater operators have been removing traditional digital projectors and installing laser units, citing cost savings over time and a better picture quality for moviegoers.

“It’s a little bit expensive, but it will produce a better product on the screen,” Malco’s Etter said. “The more light you have the clearer everything is and the easier it is to see. And it will be much more economical. It’s sustainable because you are going to use about 60% of the utilities that you did before.”

Etter explained that traditional digital bulbs need to be replaced after around 2,000 hours and produce so much heat that theaters have to pay more to air-condition the projector rooms. And laser components last for 20,000 hours so they can go years without being replaced.

Many theater operators told CNBC they are planning similar upgrades to sound systems, saying they have partnered with companies like Dolby to bring quality speakers into their auditoriums.

“We’ve invest in Dolby Atmos, we’ve invested in new screens, we’ve invested in laser projection,” said Rich Daughtridge, president and CEO of Warehouse Cinemas. “To me, that’s baseline. I feel like you have to create the best sound and picture experience you can create to get people motivated to spend money to come out to the cinema.”

Across the industry, theater chains big and small are also replacing outdated stadium seating with recliners in a bid to improve the overall cinema experience.

“[We are] really looking at our theaters and making sure all of them are amazing,” said Shelli Taylor, CEO of Alamo Drafthouse. “So if they don’t have recliners, we’re going in and we’re upgrading. We’re giving face-lifts where needed and just really refreshing and making sure that we continue to deliver that premium experience which people grow to love and expect from Alamo.”

These improvements are part of a wider trend that started prior to the pandemic. Consumers have begun to opt for more premium theatrical experiences for blockbuster features, choosing to pay more money to see films on bigger screens or in specialized theaters.

In 2022, 15% of all domestic tickets sold were for premium screenings, with the average ticket costing $15.92, according to EntTelligence data. A standard ticket costs an average of $11.29.

So far in 2023, that premium ticket average is higher — $17.33 each — because so many moviegoers saw Disney’s “Avatar: The Way of Water” in premium formats and 3D.

Big blockbusters have always been a driving force of ticket sales for cinemas. Before the pandemic, theater owners relied predominantly on studio advertising — trailers, TV spots and posters — to promote content and drive moviegoers to cinemas. Now, they are putting more in that mix.

Loyalty programs, direct marketing and special events are some of the recent tactics operators have employed to bring in audiences. AMC launched its first-ever advertising campaign in 2021 featuring Nicole Kidman with the tagline “We make movies better.” The company invested around $25 million in the campaign.

Budget-conscious smaller chains have to be a little more creative.

“I’ve had lots of conversations with distributors just talking about better and more efficient ways to market their films,” Warehouse’s Daughtridge said. “Often, that is data marketing and paid social, better trailer placements and [putting] tickets on sale at the right time.”

“I think there’s a lot of low-hanging fruit,” he said of email lists, loyalty programs and social media for personalized marketing.

Warehouse, which will soon open its third location, has also run promotions that range from offering margaritas with movie tickets to special “daddy-daughter” date night showings. Mid-pandemic, Warehouse Cinemas capitalized on the release of Solstice Studio’s “Unhinged” by hosting a car smash event during the film’s fifth week in theaters.

More recently, the chain held “pajamas and popcorn,” a promotion that entitled customers who wore PJs to the cinema a free popcorn. During that promotion, the company showed an Indiana Jones film and the classic animated dinosaur film “The Land Before Time.” Tickets were $5 each.

“The Land Before Time” showings sold 1,400 tickets, Daughtridge said.

“It was one of those events that just popped off,” he said. “We didn’t expect it to do that much business.”

For big chains like AMC, Regal and Cinemark, alternative programming has come in the form of live events, with cinemas setting up streams for concerts, sports and even Dungeons & Dragons campaigns.

Mid-sized chains like Alamo Drafthouse are even delving into the whimsical. When Oscar favorite “Everything Everywhere All at Once” played in cinemas, the theater chain passed out hot dogs to ticket buyers who went to its “feast” event to mark the famous hot dog fingers scene in the film.

The company also worked with the Lincoln Zoo ahead of the opening of its new location in the Chicago neighborhood of Wrigleyville to do an outdoor screening of “The Lion King” in the lions’ den at the zoo.

Alamo isn’t the only chain innovating with food and beverages. Concessions have long been a staple at the cinema, but in recent years theater owners have expanded on the traditional popcorn and soda fare.

Cinepolis, which operates more than two dozen cinemas in eight states, is a luxury dine-in theater chain that offers a wide variety of food and beverages, ranging from chicken wings to lobster tacos. Cinepolis hosts “movie and a meal,” a specialized dinner that is catered to a specific new film release.

“For us, the food is crucial for local experience,” Cinepolis CEO Luis Olloqui said, noting how more people have big high-definition TVs at home, coupled with the ability to order out from top notch restaurants.

This trend isn’t likely to slow down, and industry insiders are optimistic about the future of the movie theater business.

“I think we, unfortunately, had some very bad public relation aspects through the course of Covid,” said Rodriguez of the National Association of Theatre Owners. “And now we have to kind of rebuild that muscle with the consumers and remind them, ‘Hey, you know, that’s behind us. Theaters are fine.'”