Long before former Hulu chief Jason Kilar became disruptor in chief at WarnerMedia and put the entire 2021 Warner Bros slate on HBO Max, Fredric Rosen began changing the way concert tickets were sold as the Ticketmaster president/CEO, when the service became the leading computerized ticketing company in the world. He would become co-CEO of Outbox Enterprises, which encompassed Cirque du Soleil and The Anschutz Entertainment Group, headed Stone Canyon Entertainment and later became president/CEO of Red Carpet and its subsidiary Red Carpet Home Cinema, which tried a version of the custom day and date movie releases for wealthy patrons similar to the Screening Room strategy. Here, he explains why movie theaters could experience a renaissance, if they take the hard lessons learned in the pandemic and embrace disruption to reboot the business, exploiting Chapter 11 and flexible pricing as methods to make more money in a future that will clearly include streamer dominance and fast-closing windows.
I’ve been reading so many obituaries of the movie exhibition business that I’m not sure where to make my charitable donation in the name of the deceased. The problem is that the movie exhibition business is not going to go away–and it’s not going to significantly diminish over time. In fact, after establishing and steering Ticketmaster for 17 years and working with the industry to scale pricing for many of the concert acts, and later starting the premium home theater business Red Carpet Entertainment, I was thinking about a business that could be reinvigorated and reinvented, and it’s possible that could be the theatrical movie industry.
As we were forced to confront with Ticketmaster back in the day with the concert business, the financial model for movie theaters is more than 50 years old. The way they run, and the way they are priced is antiquated and has to change with the digital times.
Right now, we are in a reset moment, because of the devastating pandemic that has made group sharing experiences almost impossible—you can’t go to a movie theater until you feel comfortable that the person next you can sneeze or cough and they won’t send you to the emergency room.
As we all know by now, streaming is the present and the wave of the future–and threatens to demolish all in its path. Let me be clear–streaming is great—-but it’s only television, and the prospect of giving the consumer what it wants, where and when they want it, strips away any sense of urgency that has propelled broadcast TV since the ‘50s. You can binge watch all of it on your timetable, and appointment television is basically over–except for sports and breaking news. It’s great for consumers; the selection of programs to view is extraordinary—varied and unlimited. That said, we still have to confront the law of physics: there are only 24 hours in a day. And when people go back to work—and they will next year—people will watch less television. That will create a shake out and consolidation in the industry.
How does this impact movie theaters? Significantly. Right now, when theaters are either closed or mostly empty as we await mass inoculations to bring us to herd immunity, this is the time for movie exhibition to reinvent itself. Disregard the business models of the past when exhibitors could keep the studios that mostly all own streaming services — except for Netflix — wait for three months to bring their movies to other platforms—after P&A awareness has worn off.
Being proactive and disruptive is a better plan than complaining about the plight exhibition chains find themselves in. Does anyone expect studios to back away from the 17-30 day windows they have imposed on theaters with the leverage they obtained in 2020? Adversity and economics force change, and theaters will have to do what they do, much better. Great picture (screens), superior sound, better concessions; and for the theaters that don’t meet those standards–now is the time to close or renovate them.
It is also a moment where theaters, from chains to mom and pops, need to make new deals with landlords—based solely on percentages. Clearly, malls need reasons for people to go–because e-commerce has eviscerated so many of their retail tenants–and significant vacancies exist.
Exhibition companies are hobbled by the debt they carry, and by the presence of too many bad and inadequate theaters. AMC is a perfect example of delaying the inevitable. I give them credit for continuing to avoid Chapter 11 by raising equity to operate. My question is, why? Look ahead at the next 24 months. Next year has to be better than 2020, but will not come close to reaching 2019 box office numbers. Only in 2022 will the sun come out again.
Right now is the time to make the hard decisions—and you can use Chapter 11 to do that. The debt holders “would probably” take over the company, close theaters and renegotiate leases that drag down the business. Do small or bad theaters really sway consumers toward leaving their streaming services for a night out? Many of those movies will wind up on streaming in a short period of time anyway. The 17 day window is really 10—because if you tell the public they can see the movie on streaming in a week, they will wait, and the 3rd week-end is game over—it’s a perfect circular firing squad. The costs of marketing movies is significant, which makes it much more difficult for small and independent films.
So what’s in it for exhibitors? This is the opportune time to review pricing strategies with the goal to both increase attendance and make the grosses larger. We all know that attendance has been static and the revenue growth in the industry in America has been from raising prices. Theaters will need to look at and embrace variable pricing. Lower prices on Monday, Tuesday and Wednesday, and before 4pm on Thursday—ticket prices from $4-$7, might entice new customers to fill otherwise empty seats and change attendance patterns. In the evenings and on weekends, ticket prices should scale the other way, upward. Every theater now has reserved seating–so its easy to do this. Charge more for the most desirable seats and premium times. We learned in the live business that the consumer will decide what a seat is worth. No one pays more for a ticket than they want because they have the option not to go. Why pay more to go to the movies? Because it’s not nearly the same experience at home, no matter the size of your TV screen. We like spectacle — we like our movie stars larger than life, and VFX also. On television, special effects look like a video game. Most of all, human behavior is tribal—it’s more fun in a group. At home, you don’t immerse yourself in the experience the same way. You don’t laugh as much, or get as scared; you tend not to cry the way you would in the communal environment of a movie theater. At home, the pause button beckons; the phone rings, the dogs barks, you are “advised” to take out the garbage. Going to the movies is about sharing experiences with friends—date night–and family outings.
I learned a great deal about pricing as Ticketmaster became a disruptor and a voice in that process. Almost 40 years ago, the live industry had one price for most concerts in arenas. Service charges were the same for every event ($1). In the fall of 1982, I became the CEO of Ticketmaster and worked to effectuate changes in pricing for the purpose of enlarging the pot of money that was shared by the principals involved—performers, promoters, venues — as well as have a reasonable return for the company. Under the existing financial structure at that time no one was happy. Everyone argued over the static amount of money the event created. That made no sense to me—-scaling the house for concerts, having multiple service charges for the same events, golden circles all occurred during my tenure–and yes Ticketmaster had a role in it. I cannot remember the first act that had a golden circle, but it was quickly adopted by the industry–because it worked and was embraced by the public. Now–to the chorus of boos—let me be clear, the basic principle of ticketing has not changed. No one pays more for a ticket than they want—and today the revenue generated in the secondary market is almost as great as the primary market. Why has that happened?–because it’s a free market and the public decides. Why do people sit in the last 20 rows of an arena when they could have a better view of the game at home—or sit outside in freezing temperatures with no shirt on at a Packers game? It is that tribal desire for a communal experience.
Pointing to the limits of consumer demand, I started Red Carpet Entertainment in 2018, because I believed there was an opportunity to reach a very limited audience with a luxury product for first-run movies on the week-end they opened. It would cost a few thousand dollars to see the movies in your screening room, no different than spending the money for a first growth wine. The consumer decides if they will pay for that experience. With the windows collapsing/collapsed, that model is no longer viable.
The goal with variable pricing is to increase attendance and make the grosses larger. Exhibition will have to negotiate new sharing arrangements with the studios. It will not be easy, but it is necessary. It was the studios that changed the model, and this is a perfect opportunity to reopen the discussion for revenue sharing for these shortened windows. Everything has to be on the table, because you cannot invent tomorrow if you are stuck in yesterday.
And maybe the exhibitors begin to create their own content; I’m sure the consent decrees entered into so many years ago will be rescinded. The goal here is to make the viewing experience for the consumer better and the revenue for both sides larger.
This is my view of this industry today: it’s the perfect time for change, re-invigoration and reinvention. When that happens, movie theaters will take their rightful place again in providing a special environment for the public to view great films by imaginative and creative storytellers and filmmakers. And America will once again say, let’s go to the movies.
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