Case 23
The Movie Exhibition Industry 2013
Brett P. Matherne
Georgia State University
Steve Gove, David Thornblad
Virginia Tech
It is apt that 2012’s top grossing film was The Avengers for
movie studios and exhibitors sought to avenge a dismal
prior year at the box office. Domestic box office receipts
climbed 6% from 2011 to a record setting $10.8 billion.1
Three films, The Avengers, The Dark Knight Rises, and
Skyfall grossed more than $1 billion each in global ticket
sales (Exhibit 1). Behind the scenes, the success, even the
fundamental health of the exhibition industry, is far less
clear. Consider these contradictions:
■■ Domestic ticket revenues grew 6% in 2012, but that
volume ranks just 13th since 1980. The 1.364  billion
tickets sold is down 13% from the most recent high
in 2002 of 1.575 (Exhibit 2).
■■ 2012’s record revenues resulted from ticket price
increases, not more attendees. At $7.94, the average
ticket price has risen 24% since 2005. But over the
long term, prices keep pace with inflation, raising
questions about the creation of differentiated value
(Exhibit 3).
■■ The long-term per-capita trend is negative. In 2012,
the average number of films seen per capita was
3.9.2 In 1946, the peak of moviegoing in America,
the industry sold 4  billion tickets and the typical
American went to 28 films per year at the theater.
■■ Movies are more widely available than ever, creating
© Vividfour / Shutterstock.com
new substitutes for where, when, and how to view
movies.
Exhibitors are especially anxious for moviegoers
to return to the theater as the industry has invested
an estimated $1.6 billion to convert theaters from film
CHE-HITT11E-13-0403-CaseStudy23.indd 295
to digital projection since 2005 (Exhibit 4). The main
promises of digital projection are decreased distribu-
tion costs, 3D capability, and the potential to show
alternative content. Despite the sizable investment,
financial benefits have yet to materialize for exhibitors.
Attendance decreased in 5 of the 8 years since conver-
sion began.
Which represents the current and future state of the
movie exhibition industry: The bright lights of a red car-
pet Hollywood premiere or a dimly lit marquee?
The Motion Picture Value Chain
The motion picture industry value chain consists of
three stages: studio production, distribution, and exhi-
bition – the theaters that show the films. All stages are
undergoing consolidation and technological changes,
but the basic three-phase structure is largely unchanged
since the 1920s.
Studio Production
The studios produce the life blood of the industry: they
create motion picture content. Content drives attendance
and studios are highly concentrated. The top six studios in
2012 created 17% of the films for the year, but these films
accounted for 76% of the box office gross (Exhibit 5).
The top 10  studios constitute over 90  percent of box
office receipts. This concentration, coupled with highly
differentiated content, gives the studios considerable
negotiating and pricing power.
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 Exhibit 1  Top 25 Releases of 2012 296

Domestic International Total

Movie 3D 3D Studio Genre MPAA Prod. Budget Gross % Rank Gross (mil.) % Rank Gross Rank
% Rating (mil.) (mil.) (mil.)
The Avengers Yes 52% Buena Vista Act Adv. PG-13 $220.0 $623.4 41% 1 $888.4 59% 1 $1,511.8 1
The Dark Knight Warner Bros. Act Thrl PG-13 250.0 448.1 41% 2 632.9 59% 4 1,081.0 2
The Hunger Games LGF Act Adv. PG-13 78.0 408.0 59% 3 278.5 41% 12 686.5 9

CHE-HITT11E-13-0403-CaseStudy23.indd 296
Skyfall Sony Act PG-13 200.0 300.9 29% 4 737.6 71% 2 1,038.5 3
Twilight: Brk. Dawn 2 Summit Rom PG-13 120.0 290.8 35% 5 532.5 65% 6 823.3 6
The Hobbit Yes 49% Warner Bros. Fant PG-13 175.0 288.7 31% 6 632.2 69% 5 920.9 4
Amazing Spider-Man Yes 44% Sony Act Adv. PG-13 230.0 262.0 35% 7 490.2 65% 8 752.2 7
Brave Yes 32% Buena Vista Anim PG 185.0 237.3 44% 8 298.1 56% 10 535.4 11
Ted Universal Comedy R 50.0 218.8 43% 9 289.4 57% 11 508.2 12
Madagascar 3 Yes 45% Para. - DrmWrks Anim PG 145.0 216.4 29% 10 525.7 71% 7 742.1 8
Dr. Seuss - Lorax Yes 50% Universal Anim PG 70.0 214.0 61% 11 134.8 39% 19 348.8 17
Wreck-It Ralph Yes 38% Buena Vista Anim PG 165.0 181.4 51% 12 173.4 49% 17 354.8 16
Men in Black 3 Yes Sony Sci-F Com PG-13 225.0 179.0 29% 13 445.0 71% 9 624.0 10
Lincoln Buena Vista Hist. Drama PG-13 65.0 161.9 98% 14 3.3 2% 25 165.2 25
Ice Age: Cont. Drift Yes 35% Fox Anim PG 95.0 161.2 18% 15 714.0 82% 3 875.3 5
Snow White & the Universal Adv PG-13 170.0 155.3 39% 16 241.3 61% 14 396.6 14
Huntsman
Hotel Transylvania Yes ? Sony Anim PG 85.0 146.6 46% 17 173.8 54% 16 320.4 18
Taken 2 Fox Act PG-13 45.0 139.5 38% 18 232.0 62% 15 371.6 15
Django Unchained Weinstein West R 100.0 139.4 74% 19 48.4 26% 24 187.8 23
21 Jump Street Sony Act Com. R 42.0 138.4 69% 20 63.1 31% 23 201.6 21
Les Miserables Universal Musc PG-13 61.0 131.8 47% 21 150.5 53% 18 282.3 19
Prometheus Yes 25% Fox Sci-Fi Act R 130.0 126.5 31% 22 276.9 69% 13 403.4 13
Safe House Universal Act Thrl R 85.0 126.4 61% 23 81.7 39% 20 208.1 20
The Vow Sony / Sc. Gems Drama PG-13 30.0 125.0 64% 24 71.1 36% 21 196.1 22
Argo Warner Bros. Drama Thrl R 45.0 115.3 62% 25 69.3 38% 22 184.5 24
  Total for Top 25 $2,891.0 $5,536.3 $8,184.1 $13,720.4
  Average for Top 25 41% $115.6 $221.5 47% $327.4 53% $548.8

Notes: Data from Boxofficemojo.com, MPAA, NATO, and author estimates. 3D revenues is based on opening weekend. Genres as follows: Act = Action; Adv. = Adventure; Anim = Animation; Com = Comedy; Drama = Drama;
Fant = Fantasy; Hist = Historical; Musc – Musical; Rom = Romance; Sci-F = Sci-Fi; Thrl = Thriller; West = Western. Some production budgets estimated.
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 Case 23: The Movie Exhibition Industry 2013 297

Exhibit 2  Domestic Box Office Receipts & Ticket Sales, 1980-2012

$11,000 1,600
$10,000

Gross Revenues (mil. $)

1,400
$9,000

# Tickets Sold (mil.)

$8,000 1,200
$7,000 1,000
$6,000
800
$5,000
$4,000 600
$3,000 400
$2,000
$1,000 200
$0 0
1980 1990 2000 2010 2012
3D Tickets Sold (est.) - right axis 2D Tickets Sold (est.) - right axis
Gross Revenues (left axis)

Data Source: Boxofficemojo.com and author estimates. 3D ticket volume estimated based on reported 3D revenues with ticket prices estimated as 30% premium over 2D.
Portion of 2012 3D revenue and ticket volume is estimated.

Exhibit 3  Ticket Prices 1980 - 2012

$9.00 $8.63
$8.00 $7.94
$7.00
$6.00
$5.00
$4.00
$3.00
$2.00
$1.00
$0.00
90

00

10

12
80

19

20

20

20
19

Average Ticket Price Inflation Adjusted Ticket Prices (base year = 1980)

Studios are increasingly managed as profit centers
in large corporations. Management is risk averse, as
investments are large and a formula for success elusive.
Consider the fate of two films inspired by comic books in
2011. Warner Bros.’s Green Lantern was considered a flop,
grossing $219  million ($116  million domestic, $103 inter-
nationally) and ending plans for a series. That same year
Paramount’s Thor grossed $449 million ($181 domestically,
$268 internationally), giving the green light to a sequel.
Studios focus on 14- to 24-year-olds, consistently
the largest audience for movies. At just 15% of the U.S.
population, this group purchases 21% of all tickets. More
narrowly, 10% of the population are “frequent” moviego-
ers who attend more than one movie per month and are
responsible for half of all ticket sales.3 Studios target this
audience with PG and PG-13 fare including 19 of 2012’s
top 25  releases. However, domestic demographic trends
are unfavorable. While the U.S. population will increase
42% by 2050, this core audience will increase just 35%
(19 million) or 475 per existing screen (Exhibit 6).
The risks for studios are significant as production
costs are considerable (see Exhibit 1). Studios invested
$1.6 billion for the 10 films which ranked among 2012’s
highest grossing ($165  million per film). Costs have
increased faster than inflation. In 1980, the produc-
tion budget for the highest grossing films averaged just
$11  million. In the 1990s, films turned to special effects
and costs reached $102 million (up 827%). Today, special
effects alone can top $100 million for a major production.
These investments are considerable, yet no guarantee for
success: Green Lantern, the flop, was made for $200 mil-
lion while the successful Thor cost $150 million.
Domestic exhibitors were once the sole distribution
channel for films. This has changed dramatically. Films

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 298

CHE-HITT11E-13-0403-CaseStudy23.indd 298
Exhibit 4  U.S. Theater Screens 2000-2011
Analog Screens Digital Screens D Digital 3D
Year Total Change # Change As % of # Change As % of Est. # Change As % of As % of Est. 3D
Screens from from Total from Total Digital from Total Digital Invest.
Prior Prior Screens Prior Screen Invest. Prior Screens (mil.)
Year Year Year (mil.) Year
2000 37,396 37,396 100.0%
2001 36,764 −1.7% 36,764 −1.7% 100.0%
2002 35,280 −4.0% 35,280 −4.0% 100.0%
2003 36,146 2.5% 36,146 2.5% 100.0%
2004 36,594 1.2% 36,594 1.2% 100.0%
2005 38,852 6.2% 38,862 6.2% 100.0% 200 0.5% $10
2006 38,415 −1.1% 36,412 −6.3% 94.8% 2,003 901.5% 5.2% $100
2007 38,974 1.5% 34,342 −5.7% 88.1% 4,632 131.3% 11.9% $256 986 2.5% 21.3% $74
2008 38,843 −0.3% 33,319 −3.0% 85.8% 5,515 19.1% 14.2% $311 1,427 44.7% 3.7% 25.9% $107
2009 39,233 1.0% 31,815 −4.5% 81.1% 7,418 34.5% 18.9% $453 3,269 129.1% 8.3% 44.1% $245
2010 39,547 0.8% 23,773 −25.3% 60.1% 15,774 112.6% 39.9% $985 7,837 139.7% 19.8% 49.7% $588
2011 39,641 0.2% 14,020 −41.0% 35.4% 25,621 62.4% 64.6% $1,606 13,001 65.9% 32.8% 50.7% $975

Notes: Based on author estimates and MPAA reports on # screens. Estimated investments (cumulative) based on estimated cost of digital screen ($50,000 per installation) and digital 3D ($75,000 per installation). Digital
screen counts include digital 3D.
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 Case 23: The Movie Exhibition Industry 2013 299

Exhibit 5  Top 6 Studios / Distributors 2012

2012 2000 % Change 2000-2012
Studio / Rank $ Share Total # Films Rank $ Share Total # Films Total # Films
Distributor Gross Gross Gross
Sony / Columbia 1 16.6% $1,792 25 7 9.0% $682 29 163% −14%
Warner Bros. 2 15.4% $1,665 36 3 11.9% $905 22 84% 64%
Buena Vista 3 14.3% $1,551 18 1 15.5% $1,176 21 32% −14%
Universal 4 12.2% $1,324 17 2 14.1% $1,069 13 24% 31%
20th Century Fox 5 9.5% $1,025 19 6 9.5% $723 13 42% 46%
Paramount / 6 8.5% $914 21 4 10.4% $791 12 16% 75%
Dream Works
  Total for Top 6 $8,273 136 $4,664 81 77% 68%
  Industry Total $10,835 795 $7,661 478 41.4% 66.3%
 Top 6 as % of 76.3% 17.1% 61.4% 16.9% 24.3% 1.0%
Industry

Source: Author calculations based on data from boxofficemojocom.

Exhibit 6  U.S. Demographic Trends

Segment % of Movie Tickets # in 2010 % of Population # in 2050 % of Population # Increase % Change
Purchased (2011) (mil.) (2010) (mil.) (2050)
Under 5 years 21.1 7% 28.1 6% 7.0 33%
  5 to 13 yrs 15% 37.1 12% 50.7 12% 13.6 37%
  14 to 17 yrs 9% 17.0 5% 22.7 5% 5.7 34%
  18 to 24 yrs 12% 30.7 10% 39.5 9% 8.8 29%
  25 to 44 yrs 28% 83.1 27% 110.9 25% 27.8 33%
  45 to 64 yrs 24% 81.0 26% 98.5 22% 17.5 22%
  65 yrs+ 11% 40.2 13% 88.5 20% 48.3 120%
Total (mil.) 310.2 439.0 128.8 42%

Source: Data: US Census (2008), Table 2. Projections of the Population by Selected Age Groups and Sex for the United States: 2010 to 2050 (NP2008-T2), MPAA Theatrical
Statistics, and author estimates.

must increasingly cross cultural and language boundaries
and appeal to the global market. Over 70% of U.S. studio
revenues are now international (Exhibit 7). Studios see
this as the primary opportunity for growth. While domes-
tic receipts increase on flat ticket sales, both ticket sales
and dollar volume are rising rapidly internationally. From
2000 to 2012, domestic receipts grew at an average of just
3% while international growth averaged 13% annually.
The studios are also changing their perspective on ticket
prices in large population markets. In India, for example,
attendees paid an average of just $0.50.4 However, Indian
exhibitors sold 3.3  billion tickets in 2008. At current
growth rates, the attendance volume increase each year in
India alone equals total current U.S. annual admissions.5
This trend of content internationalization shows no
signs of abating. While the drama of Argo and the humor
of Ted cost less to produce, they are risky in international
markets. Franchise films, with known characters, made
in 3D and laden with special effects, present the least
content risk internationally. Yet these films carry their
own risk due to large budgets. The special effects alone
for a major film may exceed $100 million. The Avengers,
The Dark Knight Rises, and Skyfall all rank in the top
10 for worldwide gross. Combined, they constitute an
investment of $670 million in production costs.
As studios shift their focus to the international mar-
ket they are less dependent on domestic exhibitors. This
increases the threat of disintermediation through alter-
native distribution channels. Studios increase revenues
through product licensing, DVD sales, and international
expansion; at the same time exhibitors – movie theaters –
have seen their business decline.

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 300
Exhibit 7  Domestic & International Box Office Receipts ($ bil.)
$35
$30
$25
$20
$15
$10
$5
$0
2000 2001 2002 2003 2004
Domestic ($ Bil. Left axis)
% Domestic (right axis)
Distribution
Distributors are the intermediaries between the studios
and exhibitors. Distribution entails all steps following
a film’s artistic completion including marketing, logis-
tics, and administration. Distributors either negotiate
a percentage of the gross from the studio for distribu-
tion services or purchase rights to films, profiting the
box office directly. Distributors select and market films
to exhibitors’ booking agents. They handle collections,
audits of attendees, and other administrative tasks. There
are over 300 active distributors, but most is done by a few
majors, commonly a division of a studio. Disney Pixar,
for example, produced Brave while distribution was done
by Disney’s Buena Vista.
Until 2005, the distribution of all motion pictures in
the U.S. entailed the physical shipment of reels of 35mm
film, a process little changed from the 1940s. Each theater
would receive a shipment of physical canisters contain-
ing a “release print” of a film. These prints cost $20,000 –
$30,000 in up-front costs and $1,000 – $1,500 for each
print. Print costs for a modern major picture opening on
3,500 screens costs $3.50 – $5.25 million. This is borne by
the studios and exhibitors, but paid for by movie attendees.
Beginning in 2006, distributors and studios encour-
aged exhibitors to transition to digital projection technol-
ogy. The technology works by using high powered LCD
projectors to cast the movie onto a specialized screen. In
lieu of film, the movies are delivered on reusable hard
drives or via satellite or high speed internet. The threat of
piracy is a major concern for the industry so all files are
encrypted. The cost savings of digital distribution over film
are considerable: The cost of each hard drive is $150, just
10% of the cost of physical film. Additionally, digital pro-
jection allows for consistently high quality images as there
is no physical wear to the film, and enables the exhibition
CHE-HITT11E-13-0403-CaseStudy23.indd 300
Part 4: Cases
80%
60%
40%
20%
0%
2005 2006 2007 2008 2009 2010 2011
International ($ Bil. Right axis)
% Global (right axis)
of “alternative content” – images other than motion pic-
tures that are obtained outside of the studio system.
The transition to digital projection involves consid-
erable capital investment. Each digital projection system
can serve a single screen and costs $50,000 to $75,000,
including the projector, computers and hardware, and
a specialized screen. To encourage the transition, dis-
tributors offered rebates in the form of virtual print fees
(VPSs) for each film received digitally. These fees, as
much as 17% of rental costs, will expire in 2013.
Exhibition
Exhibitors offer a location where audiences can view
a motion picture. The basic business model of exhibi-
tors (using movies as the draw and selling concessions
to make a profit) has changed little since the time of
touring motion picture shows that would set up in town
halls and churches. As the popularity of motion pictures
expanded, permanent local theaters were established.
Studios soon recognized the potential profit in exhibi-
tion and vertically integrated, allowing control over
audiences and capturing these downstream profits. This
practice ended in 1948 with the Supreme Court’s ruling
against the studios in United States v. Paramount Pictures.
Theaters were divested by studios, leaving the two to
negotiate film access and rental fees. Single theater and
single screen firms’ exhibitors fared poorly as studios
retained the upper hand in setting rental rates. Exhibitors
sought to increase bargaining power and economies by
consolidating, multiplying the bargaining power of indi-
vidual theaters by the number of screens managed.
This reached its zenith in the 1980s with the mass
rollout of the multiplex concept. Maximizing both bar-
gaining power based on multiple screens while mini-
mizing labor and facility costs, exhibitors constructed
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 Case 23: The Movie Exhibition Industry 2013 301

large entertainment complexes, sometimes with two
dozen or more screens. Most of the original local single
screen theaters that survived were doomed as they were
unable to compete on cost or viewing experience and
were unable to gain access to the capital needed to con-
struct multi-screen locations. Today, the typical exhibi-
tor location has 7–12 screens and is likely to be operated
by Regal, AMC, Cinemark, or Carmike. These four oper-
ate 1,061 theaters in the U.S. (just 19%), but control 45%
of the screens (Exhibit 8). This market concentration
provides exhibitors with negotiating power for access to
films, prices for films, prices for concessions, and greater
access to revenues from national advertisers. However,
the real power continues to remain with the studios due
to differentiated content, the ability to play rival exhibi-
tors against each other, and the increasing potential for
disintermediation.
The Business of Exhibition
Exhibitors have three main revenue sources: box office
receipts, concessions, and advertising (Exhibit 9).
Managers have low discretion; their ability to influence
revenues and expenses is limited. Operating margins
average a slim 15 percent; net income may fluctuate wildly
based on the tax benefits of prior losses. Overall, the busi-
ness of exhibitors is best described as loss leadership on
movies: the firms make money selling concessions and
showing ads to patrons who are drawn by the movie.
Box Office Revenues
Ticket sales constitute two-thirds of exhibition business
revenues. The return, however, is quite small due to the
power of the studios. For large exhibitors, film costs
average 53% of box office receipts. For smaller circuits,
average costs are higher. Rental fees are based on the size
of the circuit and the time and seat commitment made to
a film. The revenues retained by the theater increase with
each week following an opening. On opening weekend
an exhibitor may pay the distributor 80–90% of the box
office gross, retaining only 10–20%. In subsequent weeks
the exhibitor’s portion increases. The record-setting rev-
enues at the box office have been the result of increases
in ticket prices, the majority of which has flowed back
to the studios.
The complexity of booking is increasing. The major-
ity of revenues historically comes from opening week-
end. In industry terminology the “multiple” (the per-
centage coming after opening weekend) has been declin-
ing steadily, falling 25% since 2002,6 putting exhibitors at
increasing risk. While exhibition used to be a question
of which movie to show, it now also involves decisions as
to how many theaters to allocate to analog versus digital
and 2D versus 3D. All these factors plus the “make or
break” nature of opening weekend complicate the exhibi-
tor’s operations.
Concessions
Moviegoers frequently lament the high prices for con-
cessions. Concessions average near 30% of revenues.
Direct costs of just 15% make concessions the largest and
sometimes sole source of exhibitor profit. These profits
are influenced by three factors: attendance, pricing, and
material costs. The most important is attendance: more
attendees = more concession sales. Per-patron sales are
influenced by prices – a common moviegoer complaint is
high concession prices. The $4.50 and $8.00 price points
for the large soda and popcorn are not accidental, but the
result of market research and profit maximization calcula-
tion. Costs are influenced by purchase volume with larger
chains able to negotiate better prices on everything from
popcorn and soda pop to cups and napkins.

Exhibit 8  Leading U.S. Circuits 2012

Circuit Total Total Screens / Analog (% Digital (% Digital 3D
Screens Theaters Theater Screens) of Screens) (%Screens)
AMC (AMC, Loews) 5,128 346 14.5 55.1% 44.9% 31.3%
Carmike (Carmike) 2,254 237 9.5 5.6% 94.4% 33.0%
Cinemark (Cinemark, Century) 3,878 297 13.1 0.0% 100.0% 48.0%
Regal (Regal, United Artists, Edwards) 6,614 527 12.6 28.6% 71.4% 42.1%
  Total for 4 Largest Circuits 17,874 1,061 12.4 27.1% 72.9% 39.1%
  4 Largest Circuits as % of Industry Total 45.1% 18.6%
  Industry Total 39,641 5,697 6.9 35.4% 64.6% 32.8%

Notes: Data from SEC filings, MPAA, NATO, and author estimates, based on screens entering fiscal 2012.

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 302 Part 4: Cases

Exhibit 9  Typical Revenue & Expenses Per Screen at an 8-Screen revenue with no direct monetary costs) and growing.
Theater Advertising revenues for exhibitors averaged $16,245
REVENUES per screen.8 Audiences, however, express dislike for
 Box office ($285,650/$7.94 = $ 285,650 65% advertising at the theater. Balancing the revenues from
35,975 admissions; 691/week/ ads with audience tolerance is an ongoing struggle for
screen) exhibitors (Exhibit 10).
 Concessions (135,250/35,975 $ 135,250 31%
admissions = $3.75/admission)
 Advertising ($21,500/35,975 $ 21,500 5%
The Major Exhibitor Circuits
admissions = $0.60/admission) Four “circuits” dominate the domestic exhibition market,
 Total Revenues $ 442,400 100% serving different geographic markets in different ways.9
($12.29/admission) Regal, which operates its namesake Regal Theaters as well
EXPENSES as United Artists and Edwards theaters, is the largest with
 Fixed 6,614 screens in 527 domestic theaters. Regal focuses on
 Facility $ 50,000 11%
mid-size markets using multiplex and megaplexes that
average 12  screens per location, with an average ticket
 Labor $ 40,000 9%
price of $8.90. AMC, operating as AMC and Loews chains,
 Utilities $ 50,000 11% is the second largest domestic exhibitor with 5,128 screens
  Other SG&A $ 60,000 14% in 346 theaters. Averaging nearly 15 screens per location,
   Total Fixed Costs $ 200,000 45% AMC leads the industry in the operation of large mul-
 Variable tiplexes. They do so by concentrating on urban areas
  Film Rental $ 155,000 54%
near large population centers such as those in California,
Florida, and Texas. By focusing on 3D, IMAX, and other
  Concession Supplies $ 21,650 16%
premium viewing experiences, AMC achieves the highest
   Total Variable Costs $ 176,650 40% ticket prices, averaging $9.04. Cinemark is the third larg-
  Total Expenses $ 376,650 85% est player with 3,878 screens in nearly 300 domestic loca-
OPERATING INCOME $ 65,750 15% tions under Cinemark and Century brands. Cinemark
serves smaller markets, operating as the sole theater in
over 80 percent of its markets. Their average ticket price
Advertising of $6.72 in 2012 was the lowest of the major chains.
The low margins derived from ticket sales cause exhibi- Carmike concentrates on small to mid-sized markets,
tors to focus on other sources of revenue. The highest targeting populations of less than 100,000 that have few
margin, therefore the most attractive, is advertising. alternative entertainment options. They do so with fewer
Since 2002, advertising revenues, and the time devoted screens at each location. With 237 theaters, they have just
to them at the start of every feature, has increased 2,254  screens, an average of 9.5 per location. Carmike’s
dramatically, climbing from $186 to $644  million.7 ticket price averaged just $6.85 (Exhibit 11).
Exhibitors also generate revenue through pre-show and While ticket prices vary considerably, differences
lobby advertising. Though this constitutes just 5  per- in net profit margins are due mostly to differences in
cent of exhibitor revenues, it is highly profitable (i.e., utilization and the costs of facilities, labor, and utilities.

Exhibit 10  Exhibitor Advertising Revenue ($ mil.)

$800 $658 $644

$540 $571 $584
$600 $456
$367 $395
$400 $273
$186
$200

$0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Source: NATO press releases 2005-2012.

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 Case 23: The Movie Exhibition Industry 2013 303

Exhibit 11  Select 2012 Carmike, Cinemark & Regal Financials

Carmike Cinemark ** Regal
Theater and Attendance Information
Screens (U.S. only) 2,502 3,916 6,880
Theaters (U.S. only) 249 298 540
Screens per Theater (U.S. only) 10 13 13
Total U.S. Attendance (in thousands) 50,357 163,639 216,400
  Avg Ticket Price $ 6.85 $ 6.72 $ 8.90
  Avg Concessions $ 3.10 $ 3.34 $ 3.46
  Avg Attendance per Screen 20,127 41,787 31,453
  Avg Admission Revenue per Screen $ 137,130 $ 280,797 $ 279,811
Income Statement ($ mil.)
Revenues
Admissions $ 343.10 $ 1,099.60 $ 1,925.10
Concessions* $ 172.58 $ 546.20 $ 748.40
Other Income *
$ 23.62 $ 50.10 $ 150.70
Total Revenues $ 539.30 $ 1,695.90 $ 2,824.20
  Admissions as % of Revenues 64% 65% 68%
  Concessions as % of Revenues 32% 32% 26%
  Other as % of Revenues 4% 3% 5%
Expenses
Exhibition $ 186.00 $ 610.50 $ 1,000.50
Concessions $ 23.20 $ 71.10 $ 101.10
Building, Wages, Utilities & Other Operating Costs $ 211.70 $ 548.20 $ 1,120.30
Total Cost of Operation $ 484.60 $ 1,229.80 $ 2,490.00
Operating Income $ 54.70 $ 466.10 $ 334.20
  Operating per admission $1.08 $ 2.85 1.54
  Operating Income as % total revenue 10% 27% 12%
  Exhibition Costs as % of Admission Revenues 54% 56% $52%
  Concessions Costs as % of Concession Revenues 13% 13% 14%
  Buildings, wages, utilities & other costs as % of Total Revenues 39% 32% 40%
  Buildings, wages, utilities & other costs per attendee $ 4.20 $ 3.35 $ 5.18
Net Income*** $ 96.30 $ 171.42 $ 144.80
Net Profit Margin 18% 10% 5%
Balance Sheet (dollars in millions)
Total Assets $ 712.70 $ 3,862.41 $ 2,209.50
Total Debt $ 434.70 $ 1,914.18 $ 1,995.20
Debt : Assets Ratio 0.61 0.50 0.90

Notes: Data source: SEC filings & author estimates

*
Carmike reports aggregated concession and advertising revenues. Amounts are estimated.
**
Theater, screen and revenue, expense data for Carmike’s U.S. operations. Net income, assets and debt figures are consolidated (dom. and intl.).
***
Net income may include carryover of substantial tax benefits from losses.

CHE-HITT11E-13-0403-CaseStudy23.indd 303 10/22/13 3:12 PM

 304
Despite considerable size differences, the actual cost of
content for these circuits varies little among the major
circuits. Regal’s is lowest at 52% of admission revenues,
followed by AMC (53%), Carmike (54%), and Cinemark
(56%). While the rental costs for these circuits is similar,
it is lower than for smaller circuits.
The circuits’ ability to efficiently utilize their facilities
varies considerably. Cinemark’s average of 41,787 attend-
ees per screen is nearly double Carmike’s 22,032 per screen.
The differences in utilization combined with differences in
the underlying costs of facilities, wages and other expenses
result in high variability in their costs on a per-ticket basis.
At $5.18, Regal’s cost per attendee is the highest, followed
by Carmike ($4.20), and Cinemark ($3.35).
Despite the trend toward internationalization by
studios, exhibitors have until recently been exclusively
domestic firms. Cinemark has had the largest inter-
national presence with 167  theaters (1,324  screens) in
Mexico and seven Central and South American coun-
tries. In 2012, AMC was acquired by the Chinese con-
glomerate Dalian Wanda Group Corp. for a reported
$2.6  billion.10 Wanda, with interests in property, enter-
tainment, and tourism owns and operates 730 screens in
China, responsible for 15% of the Chinese box office with
plans to expand to 2,000  screens. The deal will make
AMC the largest global exhibition company.
Overall, while the major circuits focus on different
geographic locations, there is little differentiation in
the offerings of exhibitors within individual markets.
Prices differ little, the same movies are shown at the
same times, and the food and services choices are nearly
identical. Competition between theaters within markets
often comes down to distance from home, convenience
of parking, and proximity to restaurants.
Challenges for Exhibitors
Exhibitors are faced with an increasing number of chal-
lenges in their operating environment.
Benefitting from Digital Investments
Exhibitors have made considerable investments in
digital projection technology. At the start of 2012,
two-thirds of the 39,641  screens in the U.S. had been
converted to digital with the remainder expected to
be converted by 2014. The total investment by exhibi-
tors is $1.6  billion. The benefits of this conversion
should manifest themselves in lower exhibitor costs
and increased revenues. To date, these do not appear
to have accrued to exhibitors.
On the cost side, digital distribution dramatically
reduces distribution costs when compared to physical film.
CHE-HITT11E-13-0403-CaseStudy23.indd 304
Part 4: Cases
Digital distribution is expected to save $1 billion annually
on print costs and distribution. Yet there is little evidence
to date that these savings will accrue to the exhibitors. Film
rental fees, which include distribution costs, have held steady
despite the transition to digital. On the revenue side, exhibi-
tors have seen significant additional per-ticket revenues
from surcharges for enhanced viewing experiences, primar-
ily 3D. 3D content requires the cooperation of studios and
exhibitors. For studios, 3D adds 15–20% to the cost of pro-
duction. For exhibitors, 3D requires conversion to digital
projection and the added costs for 3D-capable equipment.
Among domestic digital projection systems about half are
3D capable. The planned 2009 release of Avatar was used
to spur digital installations. The film grossed $750 million
domestically, with an estimated 82% from 3D viewings. The
film was a critical and box office success, introducing audi-
ences to a new age of 3D movies and projection. Avatar’s
success led to an increase, perhaps excess, of 3D releases.
The portion of opening weekend receipts from 3D
movies averaged 63% from 2009 to 2011 (Exhibit 12).
Today the 3D portion of major releases shows a worri-
some trend. In 2011, only 45% of Kung Fu Panda 2’s box
office gross came from 3D and Disney’s Pirates of the
Caribbean had just 47%.11 In 2012, the average across all
3D films released declined to 45%. 3D may be an aspect
of the theater experience which audiences are only occa-
sionally willing to pay for. Some industry observers cau-
tion that the future opportunity to capitalize on 3D-driven
revenues may be limited. “Certain movies are doing well
in 3D and others failing terribly,” Bob Greenfield said.
“People are getting a lot choosier. I would be surprised if
in 2013 and 2014 we didn’t see a more reduced slate that
focuses on the films that deserve it.”
Declining 3D attendance is a serious concern for
exhibitors. With an average investment of $75,000, the
payback period for 3D may be more than 3  years. The
extent to which the conversion to digital will benefit
exhibitors through cost reductions and revenue enhance-
ment will be determined in the coming years as rental
costs and 3D viewership rates are better established.
Countering the Declining Allure
of the Theater
Traditionally, the draw of the theater may have been far
more important than what film was showing. Moviegoers
describe attending the theater as an experience, with the
appeal based on:12
■■ the giant theater screen
■■ the opportunity to be out of the house
■■ not having to wait to see a particular movie on home
video
10/22/13 3:12 PM
 Case 23: The Movie Exhibition Industry 2013
Exhibit 12  3D as Percentage of a Film’s Opening Weekend Receipts
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2005 (6) 2006 (8) 2007 (6) 2008 (8) 2009 (20) 2010 (25) 2011 (45) 2012 (41)
Notes: Based on news reports and author estimates. Numbers in parentheses are the number of 3D releases in a year.
■■ the experience of watching the movies with a theatri-
cal sound system
■■ the theater as a location option for a date
The ability of theaters to provide these above what
audiences can achieve at home appears to be diminish-
ing. Of the reasons why people go to the movies, only
the place aspects — the theater as a place to be out of
the house and as a place for dating — seem immune to
substitution. Few teenagers want a movie and popcorn
with their date at home with mom and dad.
The overall “experience” currently offered by the-
aters falls short for many. Marketing research firm
Mintel reports the reasons for not attending the theater
more frequently are largely the result of the declining
experience. Specific factors include: the overall cost, at-
home viewing options, interruptions such as cell phones
in the theater, rude patrons, the overall hassle, and ads
prior to the show.13 A recent Wall Street Journal article
reported on interruptions ranging from the intrusion
of soundtracks in adjacent theaters to cell phones. “The
interruptions capped a night of moviegoing already
marred by out-of-order ticketing kiosks and a parade
of preshow ads so long that, upon seeing the Coca-Cola
polar bears on screen, one customer grumbled: ‘This is
obscene.’”14 Recounting bad experiences is a lively topic
for bloggers. A typical comment: “I say it has gotten
worse. I hate paying $9.00 for a ticket and the movie is
90–100 minutes long, people are talking on cell phones,
the people who work at the theaters look like they are
bored, and when you ask them a question, the answer
is very rude.”15
The time allocated to pre-show ads can be eye
opening, even for industry insiders. Toby Emmerich,
CHE-HITT11E-13-0403-CaseStudy23.indd 305
305
Max
+ 1 sd
Avg. 3D Opening
Weekend
-1 sd
New Line Cinema’s head of production, faced a not-so-
common choice: attending opening night in a theater
or in a screening room at actor Jim Carrey’s house. Said
Emmerich in an LA Times article “I love seeing a movie
with a big crowd, but I had no idea how many obnoxious
ads I’d have to endure – it really drove me crazy. After
sitting through about 15 minutes of ads, I turned to my
wife and said, ‘Maybe we should’ve gone to Jim Carrey’s
house after all.’”16
The Home Viewing Substitution
For many, home viewing is growing as a viable substi-
tute to theater attendance due to rapid improvements
and cost reductions in home viewing technology and
the widespread availability of timely and inexpen-
sive content. The unique value proposition offered by
movie theaters’ large screens, the long wait for DVD
release, and advantages of theatrical sound systems are
also fading.
Home Viewing Technology
The average home television set is increasingly a large,
high-definition set coupled with an inexpensive yet
impressive audio system. Compared to home equip-
ment options of the past, at-home technology increas-
ingly represents a significant substitute for moviegoing.
Prior to 2009, television transmissions were formatted
as 480 interlaced vertical lines (480i) of resolution, the
standard since the 1950s. FCC-ordered changes resulted
in all broadcasters converting digital broadcasts by
February 2009, setting the stage for high definition
(HD) digital broadcasts providing up to 1080 vertical
lines of resolution (1080p).17 This transition started a
10/22/13 3:12 PM
 306
consumer movement to upgrade televisions. The tran-
sition also reduced the difference between home tech-
nology and the giant theater screen and sound system
offered by theaters.
The average size of TVs has increased dramatically:
from 23  inches in 1997 to 36.8  inches in 2012. As LCD
technology became the standard for both computer
and television screens, manufacturing costs declined.
Wholesale prices for televisions fell 65 percent from the
late 1990s to 2007.18 Between 2011 and 2012 alone, the
average retail price of a 32-inch TV declined from $546
to $435.19 Consumers, however, spend more on every
television, consistently electing to purchase larger and
more advanced sets. In 2012 the average TV sold for
$1200.20 Features such as 3D, internet connectivity, and
applications for Netflix, Hulu and others are becoming
common and add little to retail prices. Sharp, a lead-
ing TV manufacturer, predicts that by 2015 the average
screen will reach 60 inches.21 Home viewing technology
may be reaching its apex. While technologically image
size and quality can continue to increase, they are limited
by practical realities. The ideal distance for viewing a 42˝
TV is 5ʹ3˝. A 70˝ screen should be viewed from 8ʹ9˝. The
adoption and benefit of 80˝+ sets will require a viewing
distance that exceeds the size of most living rooms they
would be installed in.
Large screen televisions, low cost high-definition
DVD players, and audio and speaker components are
commonly packaged as low cost home theaters. The
average Bluray DVD player now costs under $125 and
3D players under $150. Bundled home theater systems
offer a movie experience that rivals many theaters, all for
under $1,500. Mike Gabriel, Sharp’s head of marketing
and communications, stated, “People can now expect
a home cinema experience from their TV. Technology
that was once associated with the rich and famous is
now accessible to homes across the country.”22
Content Availability & Timing
The best hardware offers little value without content.
Channels for renting or purchasing movies are increas-
ing. “We’re seeing a cultural shift occurring where peo-
ple are consuming their entertainment from Netflix,
the iPad, Hulu,” said Paul Dergarabedian, president of
Hollywood.com’s box-office division. “There’s more
competition for the eyeballs of consumers.”23
Since the 1980s, studios have relied on VHS, then
DVD sales to fuel profits. DVD sales peaked at $13.7 bil-
lion in 2006.24 This revenue stream fueled studio profits,
but are in decline. In 2011, studio revenues from physi-
cal and digital sales totaled $9.5 billion.25 Physical DVDs
CHE-HITT11E-13-0403-CaseStudy23.indd 306
Part 4: Cases
are widely available, but are now exceeded by digital
purchases (e.g., Apple’s iTunes and Amazon). To spur
sales, studios have been consistently reducing the time
period between the theatrical and the DVD release. This
“release window” declined from 166  days in 2000 to
120  days in 2012. Exhibitors express concern that these
declines cannibalize theater sales. Studios, meanwhile,
continue to seek ways to stem declining DVD sales and
increase their return on each film. Decreased sales also
result in lower prices for content. DVDs average $25 with
upgrades to Blu-ray HD adding $5, and 3D and a digital
copy for tablet or PC viewing adding another $3 each.
Each sale nets the studio $12 to $15.26
Both studios and exhibitors are facing pressure
from streaming and rental services. Once dominated
by physical stores, movie rentals expanded into physi-
cal DVD channels with subscription (e.g., Netflix and
Blockbuster) and one-up (e.g., Redbox and Blockbuster)
options as well as subscription streaming (e.g., Netflix
and Hulu). These offer very attractive prices for consum-
ers, but have been identified by studios as a contributing
factor for declining DVD sales. Studios net about $1.25
per DVD sold to a rental company.27 This allows Netflix
to offer a physical DVD subscription service of 2 DVDs
out at a time for under $15 per month. RedBox’s kiosk-
based rentals are attractive to occasional viewers, costing
as little at $1.25 per night.
Content-streaming services grew from $992 million
in 2011 to $2  billion in 2012.28 Streaming is among the
most cost effective for viewers and providers. Estimates
put Netflix’s average streaming cost at $0.51 per viewing.
This is offset by fewer content options. Apple’s iTunes
provides perhaps the greatest selection, but with rent-
als at $4 to $6 per viewing, emphasizes selection and
HD quality over Netflix’s low cost. Streaming suffi-
ciently cannibalized DVD sales to the point that studios
imposed a 28-day delay from DVD sales to the avail-
ability of streaming. Exhibitors expressed strong encour-
agement when several studios expressed a desire for a
56-day delay to increase DVD sales.
Studios are seeking to increase their share of the
rental market, putting them increasingly in direct com-
petition with exhibitors. For the studios, each current
video on demand (VOD) showing contributes $3.50 in
revenue, far less revenue than DVD sales.29 Studios con-
tinue to develop premium VOD as an alternative. The
main feature of Premium VOD (P-VOD) is a decreased
release window, including simultaneous release on films
in theaters and through P-VOD. Exhibitors threatened a
boycott due to Universal’s plan for a P-VOD release of
Tower Heist just three weeks after it opened in theaters.
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 Case 23: The Movie Exhibition Industry 2013
The plan was scrapped due to the threats. While exhibi-
tors won the battle, the potential revenues from the
planned $59.99 premium VOD will remain attractive
to the studios.
Premium cable networks (e.g., HBO, Starz, etc.) offer
both a programmed line-up of movies, albeit at sched-
uled times and with monthly subscriptions, but at low
per-viewing rates. All major cable and satellite providers
offer VOD services and carry multiple channels focusing
on films. Overall, the availability of content and the visual
and audio experience available in the home is rapidly
converging with the offerings available at a movie theater.
As a blogger on the movie fan site Big Picture posted:
I used to go to the movies all the time – even my blog is
called the Big Picture. Then I started going less – and then
less still and now – hardly at all. My screen at home is
better, the sound system is better, the picture is in focus,
the floors aren’t sticky and the movies start on time. My
seat is clean. And there’s no idiot chattering away 2 rows
behind me, and (this is my favorite) THERE’S NO CELL
PHONES RINGING. EVER.30
Recent Exhibitor Initiatives
Exhibitors are well aware of the increasing number of
ways in which to view motion pictures. They have a long
tradition of adopting innovations that increase atten-
dance or reduce costs. Exhibitors were among the first
commercial adopters of air conditioning, which perhaps
drew in as many customers as a refuge from summer
heat as for entertainment. Advanced projection sys-
tems, screens, and sound systems have been continu-
ously adopted to improve the viewing experience. Other
innovations increase experience quality while also low-
ering costs. Stadium-style seating, now ubiquitous, was
originally viewed as an experience differentiator, but
equally beneficial is a reduction in the square footage
needed per seat. This reduces the size and cost of facili-
ties. Exhibitors continue to pursue a number of strategic
initiatives aimed at increasing attendance, increasing the
viewer’s willingness to pay, and lowering costs.
Technological Innovations
The conversion to digital projection and roll-out of 3D are
not the only projection innovations being pursued. Some
directors are opting to increase image quality by dou-
bling the number of frames per second (fps) of film from
the long established standard of 24 to 48. Peter Jackson’s
2012 The Hobbit was shown in the 48  fps format on a
limited number of screens with the required projection
CHE-HITT11E-13-0403-CaseStudy23.indd 307
307
technology. The increased frame rate results in an espe-
cially crisp image with no blurring that, while jarring to
some, is said to create a sense of being part of live action.
Several circuits offer extra-large scale screens as
a feature.31 Traditionally located only in specially con-
structed dome-shaped theaters in science museums, the
original IMAX format utilized film that was 10 times the
size of that used in standard 35mm projectors. IMAX
now operates more than 600 screens. These circuit-based
IMAX digital screens are far smaller than the original
IMAX screens, but can be much larger than the typi-
cal theater screen. Located within Regal or AMC theater
complexes, the screens are often booked and operated by
IMAX. Action films, usually in 3D, are a staple. To cap-
ture more of this differentiated revenue, several circuits
have begun creating their own super-size screens.
Sound systems are also being upgraded. In the 1980s,
theaters impressed viewers with 7.1 sound systems – two
rear channels (left and right), two channels mid-screen,
two near the screen, one under the screen, and a sub-
woofer channel for bass. Such systems have long been
available for homes. To keep theater sound as a differen-
tiator, Dolby® Laboratories has created Atmos™32, a full
surround system with up to 64 individual channels for
speakers in a theater, including multiple ceiling speakers
that can truly immerse the audience in sound. Given the
number of speakers involved, this may be a technology
that is viable in very few homes. For those seeking still
more, there is motion seat technology.33 The heavy foot-
steps of a dinosaur, for example, are simultaneously seen
on the screen, heard through the sound system, and felt
through a motion seat that rumbles as if being shaken by
the footsteps. Both IMAX and motion seats are offered as
upgrades, commonly at premiums of $3 to $7 per ticket.
Alternative Content
Exhibitors’ transition to digital projection is an enabling
technology for alternative content, which consists of vir-
tually any content that is not a motion picture. Revenues
for this totaled $112 million in 201034. Some estimate this
will reach $1 billion annually – 10% of current box office.
Events have included concerts, live concerts and the-
ater, sporting events, television series premiers and fina-
les, even virtual art gallery tours such as 2012’s Leonardo
Live35 that was broadcast one night only in 500 U.S. movie
theaters.36 The Metropolitan Opera is the most successful
alternative content. Now in its seventh season, the series
features 12 live events on Saturday afternoons, broadcast
to nearly 700 domestic theaters. A distribution network
for alternative content has emerged with companies such
as National Cinemedia providing a single contract point
10/22/13 3:12 PM
 308
for a variety of music, sports, television, and other alter-
native content. Having a large scale intermediary for a
distributor is essential for exhibitors, as the cost of pur-
suing and licensing content is cost prohibitive for all but
the largest exhibitor circuits.
Most exhibitors seek to incorporate alternative con-
tent in ways that attract new attendees during off-peak
times, particularly Monday through Thursday when
only 5% of theater seats are occupied.37 Bud Mayo, CEO
of Digiplex Digital Cinema Destinations, describes the
approach: “What happens with those [alternative con-
tent] performances is that a single event will outgross cer-
tainly the lowest-grossing movie playing that theater that
day. The relationship has averaged more than 10  times
the lowest-grossing movie for the entire day.”38 In mar-
ginal dollar terms, alternative content can be a boon on
otherwise slow nights. A recent Wednesday showing of
Broadway’s West Side Story at a Digitech theater had an
average ticket price of $12.50 and grossed $2,425. In com-
parison, screens showing films that night grossed just $56
to $73. The alternative content also brought in nearly 200
additional potential customers for concessions.39
Dynamic Pricing
Movie theaters are among the minority of entertainment
outlets that have not incorporated differentials based on
content, schedule, and seating options. Most events have
multiple pricing levels based on seating, night versus day,
and weekday versus weekend. Movie theaters, partly due
to existing exhibition contracts, commonly have limited
flexibility. Matinee and youth and senior discounts are
the primary pricing tiers. Ticketmaster, a leader in event
ticket sales, is developing a “dynamic pricing” system
that incorporates demand into pricing models.40 This
could mean radical changes with lower ticket prices
for off-time and poorly attended movies and increased
prices for prime seats at peak times on opening weekend.
Thus far, no studio or exhibitor will acknowledge inves-
tigating the technology.41
Concession Initiatives
Expanding beyond the standard concession stand offers
exhibitors opportunities to capture new revenue streams.
Three main formats for concessions have emerged.
Expanded In-Lobby. Many theaters have expanded
the concession counter beyond candy, popcorn and soda.
This expanded in-lobby dining causes many theater lob-
bies to resemble mall food courts. In- and off-lobby res-
taurants operated or licensed by the exhibitor allow for
pre-theater dining. Taking a page from restaurants where
CHE-HITT11E-13-0403-CaseStudy23.indd 308
Part 4: Cases
a primary profit center is often the bar, some theaters
now configure the lobby around a bar, with expanded
and upscale fare, beer, and alcohol service.
In-Theater Dining. Many theaters have adopted an
in-theater dining format where orders are placed from
the seat in the theater by a wait staff. Chunky’s Cinema
Pub, with three New England locations, locates theaters
in lower cost, underutilized former retail locations. The
format combines burger, salad, and sandwich options
with beverages, including beer. The format is flat the-
ater with banquet style tables. The seating is unique: old
car seats on casters that allow for easy cleaning. Alamo
Drafthouse Cinemas takes a similar approach using a
stadium seating configuration. A single bar-style table in
front of each row of seats serves as a table for customers’
orders. In comparison to traditional theaters, these for-
mats see significant increases in food and beverage sales.
Upscale Within-Theater Dining. Several circuits
are targeting the high end of the theater market, focusing
on the experience of the theater with luxurious settings
and upscale food. In addition to its standard theaters,
AMC has developed Dine-In Theaters with two theater
configurations. Its Fork & Screen theaters are much like
the Alamo Drafthouse Cinema with enhanced stadium
theater seats and in-theater wait service on an expanded
menu. Its Cinema Suite theaters make the experience
more intimate. Customers, only 21 and older, purchase
tickets for specific seats in smaller theaters with reclining
lounge chairs with footrests and in-theater wait service.
Theater chain iPic offers perhaps the most luxurious
theater experience available outside of a private screen-
ing room, complete with reclining leather chairs, pil-
lows, and blankets. Lobbies resemble stylish high-end
hotels and feature a cocktail lounge and full restaurants.
Complete with a membership program, the theaters
operate more like social clubs than traditional theaters.
Tickets, $16–$27 per seat, are purchased not from a ticket
booth but from a concierge.
Advertising Initiatives
Exhibitors are keen to expand advertising revenues, but
must do so in ways that do not diminish the theater
experience. Revenues are generated from advertise-
ments both on- and off-screen. Off-screen advertising
such as promotional videos, lobby events, and spon-
sored concession promotions are 9% of revenues. The
majority, 91%, comes from on-screen ads for upcoming
releases, companies, and products that play before the
feature presentation. Both exhibitors and advertisers
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 Case 23: The Movie Exhibition Industry 2013 309

seek ways to make on-screen ads more palatable to
audiences. Many ads are produced in 3D with produc-
tion quality rivaling a studio release. Theaters are also
incorporating innovative technologies such as crowd
gaming into ads where the movement or sound of
the audience controls on-screen actions. In October
of 2008, audiences in the U.K. attending Disney’s
Ratatouille “drove” an on-screen Volvo XC70 through
an obstacle-laden course, waving their arms while scor-
ing points for avoiding obstacles. Results were ranked in
real-time to audiences in other theaters.42 What equip-
ment was required? A wireless video camera placed
above the screen, a web-enabled laptop containing the
game linked to the developer’s website, and specialized
motion-sensing technology. These were linked to the
theater’s digital projector.
More interactive approaches are on their way: fans at
a Formula One race in Singapore played the videogame
Angry Birds, controlling in-game slingshots used to
fling birds at the rivals, pigs based on voice volume. The
louder the crowd, the further the birds were launched.43
Making ads enjoyable, rather than loathed, may create
an opportunity to increase this small but high-margin
component of exhibitor revenues.
Bright Lights and Red Carpet or
Dimly Lit Marquee?
Are these initiatives enough to return people to the local
movie house? Is the future of the movie exhibition indus-
try a return to red carpet glamor? Or will the lights on
the marquee dim?

Works Referenced
1. All ticket sales and box office data in this
section is from: www.boxofficemojo.com.
2. MPAA 2011 Theatrical Statistics.
3. MPAA 2011 Theatrical Statistics.
4. Thakur, A. (2009, July 29, 2009). India
dominates world of films. The Times of
India. Retrieved from Factiva.
5. Ibid.
6. Fritz, B., & Kaufman, A. (2011, December
30, 2011). Solid start, fast fade for movies,
LA Times. Retrieved from latimes.com/
entertainment/news/movies/la-fi-ct-box-
office-wrap-20111230,0,2205189.story
7. NATO press releases, Cinema Advertising,
2005-2012.
8. Ibid.
9. Data on the firms, theaters and screens,
location, etc. from web sites and SEC filings.
10. Kung, M., & Back, A. (2012). Chinese
conglomerate buys AMC movie chain in
U.S. Wall Street Journal, p. 2.
11. Boorstin, J. (2011, May 31, 2011). Huge Upside
and Ominous Underbelly From a Big
Weekend Box Office. Retrieved from
http://www.cnbc.com/id/43228469/.
12. Mintel Report, Movie Theaters - US -
February 2008 - Reasons to Go to Movies
over Watching a DVD.
13. Mintel Report, Movie Theaters - US - February
2008 - Reasons why Attendance Is not Higher.
14. Kelly, K., Orwall, B., & Sanders, P. (2005). The
Multiplex Under Siege. Wall Street Journal,
December 24, 2005, P. 1.
15. blog comment on Cinema Treasures |
Over the past ten years, the movie theater
experience has …; http://cinematreasures.
org/polls/22/,accessed 12/11/2008
16. Incident reported in Patrick Goldstein,
2005, Now playing: A glut of ads, Los
Angeles Times, July 12, 2005 in print edition
E-1; http://articles.latimes.com/2005/jul/12/
entertainment/et-goldstein12; accessed
December 5, 2008.
17. DuBravac, S. (2007) Connecting tomorrow’s
consumer: Consumer technology trends to
watch, presentation at Fleck Connection
Conference, http://www.fleckresearch.com/
fcc2007.
18. Ibid.
19. Tuttle, B. (2012). TV prices shrink — Yet
average TV purchase costs more. Time
Magazine.
20. Ibid.
21. Average TV size up to 60-inch by 2015 says
Sharp, TechDigest, http://www.techdigest.
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27. Ibid.
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43. Reuters. (Sept. 22, 2011). Angry Birds to
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