Can beer and plush recliners save the movie industry?
A funny thing is happening to the movie industry: Box office sales has been disappointing, but movie theaters are doing just fine.
Admissions revenue at movie theaters has increased over the last five years, according to a recent report from Wedbush analyst Michael Pachter. At the same time, box office sales have been mixed, with declines reported for four of the past five years.
So why isn't the movie theater industry mirroring the box office's travails? It may boil down to the upgrades some theater chains have made to their theaters, which include La-Z-Boy-like recliners, full menus and bars that serve cocktails.
When AMC Entertainment Holdings (AMC) set a new strategy a few years ago of reducing its number of theater seats in favor of plush recliners, it may have seemed counterintuitive. But attendance at its upgraded theaters jumped almost 50 percent in the first year after the renovations even though the seating is frequently reduced by two-thirds, the company said in a regulatory filing.
There was some concern outside of AMC about the decision to reduce seating, said spokesman Ryan Noonan, but the company was reassured by early trials. "It requires significant space for the recliner," he said. "You want to make sure people can get by. We take all that into account, which was why we lose some of seating capacity."
Premium screens like IMAX and 3D screens are also driving more attendance, Pachter noted. Even though the box office forecast for the rest of the year is middling, he expects IMAX could grow its revenue from conventional films that are upgraded to IMAX format, such as "Star Wars Episode VIII: The Last Jedi," which is slated to be released later this year.
"The exhibitors and IMAX have implemented various upgrades to their theaters including seating upgrades, concessions upgrades, as well as theater-level upgrades which are undoubtedly driving higher revenue," he wrote.
Despite stronger sales for the movie theater industry, that's not translating into higher share prices for some exhibitors. AMC's shares have declined about 20 percent in the past 12 months, while IMAX's (IMAX) stock has slipped 25 percent. Cinemark's (CNK) shares have increased 7 percent over the same time period.
One cliffhanger is the potential arrival of premium video-on-demand, or releasing movies in the theater and through streaming services simultaneously. A business that's working on such a plan is Screening Room, started by tech billionaire Sean Parker. Under his plan, customers would pay $50 for the option of watching a new movie at home.
Some investors are also concerned about growing competition from streaming-video services such as Netflix (NFLX), Pachter said. But he noted that he disagreed, adding, "People are still going to the movies."
