5 Headaches That Wrack Movie Theaters Despite 2015’s Box Office Boom

Disney’s muscle flexing, an anti-trust probe and the rise of streaming take some fun out of record grosses for exhibitors

This should be a dream year for movie-theater owners, with “The Avengers” sequel landed and a new James Bond movie, the “Hunger Games” finale and the long-awaited next “Star Wars” among the blockbuster movies on the way.

And it is — sort of.

Grosses are running roughly 5 percent ahead of last year and on pace for an all-time high of $11 billion. Admissions are holding steady, cinema advertising rates are down, volume is up, and consumers are learning to love the high-end amenities like dinner and drinks that many theaters now offers. At one point this year, AMC Entertainment’s stock was up 24 percent, Carmike Cinemas was up 18 percent, Cinemark was up 17 percent and Regal Entertainment Group rose 11 percent.

But executives at AMC, Cinemark, Regal and smaller chains still wake up punching the pillow some nights, and  here are some reasons why:

avengers ultron overseasGreat movies are a double-edged sword

Few businesses are as reliant on their suppliers as movie theaters, and this year’s crop is arguably the most marketable ever. In particular, Disney’s 2015 slate is remarkable with “Avengers: Age of Ultron,” “Star Wars: Episode VII — The Force Awakens” and two Pixar movies. Emboldened by that slate, the studio flexed its muscle and squeezed theaters for a higher share of the grosses and limits on matinee showings on Marvel’s “Age of Ultron.”

We’ll get a better idea of how tough Disney wants to play this holiday season, ahead of the rollout of “The Force Awakens.” But none of the other studios have that strong a slate this year, so a broad shift in that direction is unlikely anytime. And it’s worth noting that Disney didn’t invent the concept; rates have been quietly adjusted on other studios’ big releases in the past.

Disney is loaded next year too, and with Pixar Animation, Marvel Studios and Lucasfilm in it stable, will be for the forseeable future. Warner Bros., with “Batman v. Superman,” “Suicide Squad” and J.K. Rowling‘s “Fantastic Beasts and Where to Find Them,” looks extremely strong next year, Universal is building franchises and momentum, and in 2017, Fox will begin rolling out three new “Avatar” movies from James Cameron. Not all of the studios are inclined to play the kind of hardball that Disney has, but if their rivals do, it becomes harder to avoid and compete.

welcome to meStreaming May Turn to a Tidal Wave

More than 80 percent of moviegoers would be willing to pay up to $20 extra to see first-run films at home, according to a PricewaterhouseCooper survey released in January. Downloading new movies has become de rigeur for arthouse movie fans, and indie film companies have made digital a key part of their business plans. The Kristen Wiig film “Welcome to Me” for example, took in roughly $96,000 from 81 theaters last weekend for Alchemy Entertainment, and $510,000 from video on demand. Its domestic box-office total is $435,000 after three weeks. “The Interview” was a one-off because of the whole Kim Jong-Un controversy, but it took in more than $40 million from downloads for Sony and showed the potential for a wide digital-only release.

The proliferation and growth of streaming services like Netflix, Amazon and Hulu have conditioned consumers to regard their couch as a prime vantage point. Coupled with the ever-growing threat of piracy, the prospect that streaming will overtake movie theaters as the platform of choice for mainstream consumers seems almost inevitable.

regalThe Antitrust Hammer Is Coming Down
The three biggest theater chains — Regal Entertainment Group, AMC Entertainment Holdings Inc. and Cinemark Holdings Inc. — control more than half of the 40,000 movie screens in the U.S. and they’re the target of a Justice Department probe to determine if they’ve violated the Sherman Antitrust Act.

At issue is the practice of “clearances,” in which license agreements give first-run movies to some theaters exclusively, blocking nearby rivals from playing the same movie at the same time. AMC and Cinemark have been sued by smaller independent chains like Flagship Theaters, which is based in Rancho Mirage, Calif., and partly owned by “Breaking Bad” star Bryan Cranston.

If the Justice Department finds the chains acted illegally to squeez their smaller rivals, they could face significant penalties and possibly an injunction against standard clearances, which would blow up the current studio-theater business model. (Criminal penalties are unlikely.) A decision is expected in six months or more. In the meantime, a nasty side effect is the possibility that the issue will increase the already large divide between the smaller, largely rural chains and the giants.

movie-tickets 2015Ticket Prices vs. Perception, and Popcorn

One of moviegoers’ frequent complaint is the cost of tickets, now over $8 on average and as high as $12 in big cities like L.A. and New York. Compared to other entertainment activities, however, moviegoing is among the least expensive. According to the latest figures from the Motion Picture Association of America, the cost for a family of four to see a movie at $32.68, lower than the price of an NFL game ($337), a trip to a theme park ($208) or a Major League Baseball game ($112).

It doesn’t seem that way to consumers, though, particularly those drinking a $7 Coke and nibbling $8 popcorn. But concession prices remain the area where theater owners have the most control — and those costs are unlikely to drop given all the financial pressures from other quarters.

Kit Harrington in HBO's

It’s Hard to Be Creative When You’re Under Siege

Since tech-savvy young people increasingly forsake movie theaters for other entertainment platforms, some owners, like Digital Cinema Destinations founder Dale “Bud” Mayo, have countered with alternative programming like sports events, concerts and even opera. And IMAX Theaters screened episodes of the HBO series “Game of Thrones” earlier this year.

But in some cases, like the ongoing negotiations with studios for exclusive windows for first-run films, theater owners’ tough stance may work against them over time. Defending windows makes sense in the short run, but it could hurt their ability to experiment with studios and steaming and pay-per-view providers to develop long-term solutions.

Theater owners have been hearing about the death of their industry for years now,” B. Riley analyst Eric Wold tells TheWrap. “They’ve show a lot of resiliency and their response overall has been pretty strong actually, and their stock reflects that. I don’t think we’re ever going to see a time where there isn’t a place for parents taking their kids to see a movie on the entertainment landscape. It will have to evolve, but it’s not going away.”