Digital technologies are disrupting many companies within the movie business, but perhaps none more than the theatrical exhibitors. This post focuses on the largest theatrical chain in the US, AMC Theaters, and how it is struggling to keep up with seismic digital shifts in the industry.
AMC aims to provide the best possible movie-going experience for its customers. They concentrate on a number of areas to make this possible. First, they exhibit high quality, in-demand films from top studio suppliers. Key to this relationship with studios is the theatrical exhibitors’ right to show films first and during an exclusive timeframe (before any other digital platforms). Second, they have best-in-class sight and sound systems installed in their theaters. This means they’ve invested in the highest quality technology like IMAX and Dolby to deliver the best audiovisual experience possible. Third, they have concentrated on enhancing the theatrical experience beyond the screen to include comfortable seating, mobile ordering, bars, lounges, and a variety of concessions.
AMC Theaters captures value from their customers in two ways: ticket sales and concessions. Interestingly, tickets prices do not vary by film. This means that a large tent-pole movie such as The Dark Knight will be priced the same as an unknown, independent romantic comedy even though they differ drastically in production cost and demand. AMC Theaters splits ticket sales with the studio/distributors of each film (usually about 50-50, depending on the deal). Concessions are 35% of total revenue and a huge profit contributor as AMC garners 86% gross profit margins on food and drink (see this and more data here).
Changing Digital Trends
A few key trends spawned by digital transformation of the movie industry are threatening the current business model of AMC. They include:
- Change in Content Viewing Habits: The digital age has delivered content on demand from providers like Netflix and Hulu which has shifted the way people consume films. People are now used to watching what, when, and where they want – something not conducive to AMC’s model of outside-the-home, minimal choice, appointment viewing.
- Explosion of Entertainment Options: With phones, tablets, video games, sports, concerts, etc., there are so many entertainment options. AMC now needs to compete with all of them when a customer is deciding what to do in his/her leisure time.
- Shortening Theatrical Windows: Content owners (studios) now have many ways to monetize their films beyond the theatrical window. Other windows include VOD, DVD, SVOD, and TV. Theatrical has historically always been the first window, and performance at the box office has informed the prices content owners can garner in subsequent windows. This is still true, however as studios aim to maximize profits across all windows, some have started to give less respect to the length and exclusivity of the theatrical window. This means that people are less likely to go to the theater, because they know they can just see it on-demand in a few weeks. Not good for AMC. Some in the industry are even talking about moving to “day-and-date” release where movies will be available in-home on the same day they are released in theaters, just at a higher price.
The impact that these digital trends have had on AMC’s and the theatrical exhibitor business has been decreasing attendance and decreasing cultural relevance of the theater.
AMC’s Reaction and Why It Might Be a #Loser
To counteract this drop in attendance, AMC has focused on improving the movie-going experience, creating loyalty programs that incentivize theater usage (AMC Stubs), and looking at new ways to price tickets. They have focused on IMAX and 3D – trying to create experiences that cannot be replicated in the home. They have also favored large tent-pole movies that people feel the need to see on a big screen. Another core strategy has been to enhance the movie-going experience with reclining chairs, better and more varied concessions, and social gathering elements like lounges and bars.
AMC is currently focused on incremental and modular innovation when a radical innovation (direct-to-consumer digital delivery of content) has taken place in its industry. What they should be more focused on is architectural innovation – working on where they fit into this new landscape, and how to use their existing brand to stay relevant. Put simply, perhaps they should be focusing more on partnering with studios to creating exclusive, first-look, premium digital delivery platforms than on the plushness of their seats and recipe of their mozzarella sticks, because the young millennials may not be coming in anyway.