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Sean Hinton

Going to the movies has long been a staple American pastime, but this traditional night out has come under pressure in recent years. The number of moviegoers has been growing slowly, if at all, reflecting the rising popularity of alternatives such as DVDs (especially with the advent of high definition formats), television, and on-demand Internet services. While some of the larger chains of traditional cinemas have posted slightly increased sales over the past few years, the movie theater business is slow-growing at best.

In 2007, there were 2% fewer people who went to the movies with 172M versus 176M in 2006. However, those people bought 1.47B tickets which was essentially flat from 2006.M^[1]

Film studios cite an rise in piracy as the reason for their increasing emphasis on non-theatrical distribution methods. Studios make much higher margins on DVD sales and royalties from pay-per-view providers, giving them an incentive to pursue these distribution vehicles more aggressively. Barry Meyer, the chairman and CEO of Warner Bros. Entertainment was quoted as saying that, in the future, "your premiere will be in Wal-Mart."^[2] Some data suggest that the movie industry is heading in exactly this direction: away from the traditional release timeline and more toward a simultaneous release of movies in theaters, on DVD, and on cable television. Film studios would benefit from the higher margins of the alternate distribution channels, as well as save on advertising expenses. Movie theaters, however, are staunchly opposed to this movement, citing the irreplaceable experience of catching a matinée or going on a late-night movie date as reasons why theaters cannot be replaced by DVDs and movies on television. While this may be true, film studios, who provide cinemas with the movies they need to attract customers, have a growing reason to pursue higher-margin distribution methods.

The tale of a rodent chef, Ratatouille is one of the biggest hits of 2007's summer movie season.

Companies that benefit from increased movie attendance

^[3]

Movie theaters

• Regal Entertainment Group (RGC), Cinemark Holdings (CNK), and AMC Entertainment (AC) are the largest movie theater chains. Cinema chains have seen slowing growth in attendance rates, with most sales growth coming from higher ticket prices.
• Marcus (MCS), Carmike Cinemas (CKEC), and READING INTERNATIONAL (RDI) are smaller chains of movie theaters.
• National CineMedia (NCMI) operates a movie theatre advertising network that displays ads before the movie.

Cinema equipment

• Dolby Laboratories (DLB) manufactures audio/video equipment used in movie theaters. Though Dolby is one of the largest names in this industry, sales of consumer electronics has grown to account for around half of its revenues. Theater equipment accounted for only around one fourth of its 2006 revenues.

Movie Theater Refreshments

• Tootsie Roll Industries (TR) had 10 of the top 50 theater and home video candies in 2007, including the top selling (Junior Mint) and second-highest selling (Dots).

Companies that benefit from decreased movie attendance

Counterintuitively, declining attendance at movie theatres can benefit movie studios, as studios make more money off of DVD sales than they do off of theatrical releases. Provided that declining movie attendance indicates viewers are watching movies at home, studios benefit.

Independent film studios

• Dreamworks Animation SKG (DWA) and Lions Gate Entertainment (LGF) are the two largest publicly held, independent film studios. Because these companies are not subsidiaries of parent corporations, the rate of movie attendance is all the more dramatic.

Major film studios

Since the major studios are all divisions within larger corporations, the impact of changing movie attendance would have a more modest impact on these companies' stock prices when compared with smaller independent film studios.

• Sony (SNE)
  • Columbia Pictures, TriStar Pictures, Destination Films
  • Sony owns 20% of MGM Holdings, which includes MGM Studios and United Artists Entertainment. Comcast (CMCSA) also holds a 20% stake in MGM. The remaining 60% is owned by several private equity firms.
• News Corporation (NWS)
  • 20th Century Fox, Fox Searchlight, Fox Atomic
• Walt Disney Company (DIS)
  • Buena Vista Motion Pictures Group, Walt Disney Pictures, Touchstone Pictures, Miramax Films, Hollywood Pictures
• Time Warner (TWX)
  • Warner Bros. Pictures, New Line Cinema, HBO Films, Castle Rock Entertainment
• Viacom (VIA)
  • Paramount Pictures, DreamWorks (separate from DreamWorks Animation)
• General Electric Company (GE)
  • NBC Universal, Universal Studios, Focus Features

DVD rentals

• Netflix (NFLX) is a leading online movie rental service. Netflix offers movies on DVD, which are mailed to customers, and via an online viewing service.
• Blockbuster (BBI) operates both traditional brick-and-mortar movie rental stores and an online rental service.
• Movie Gallery (MOVI) also provides movie rentals, primarily through its retail stores. It acquired MovieBeam, Inc, an on-demand movie service, in March 2007, and also introduced its own online rental service. Despite these moves, MOVI has been facing financial difficulties, spawning rumors of a possible sale of the company's assets.

Home Entertainment

• Home entertainment companies will likely prosper from a decline in cinema viewership as families choose to watch movies in the comfort of their living rooms, on large high-definition televisions, with surround sound speakers rather than pay high prices for movie tickets and concessions.

References

1. ↑ [mpaa.org, Movie Attendance Survey 2007]
2. ↑ http://entertainmentcomplex.blognation.us/blog/_archives/2005/5/27/890972.html
3. ↑ [[http://www.mpaa.org/MovieAttendanceStudy.pdf mpaa.org, Movie Attendance Survey 2007