Big Screen Opportunity

Manatt Digital

In today’s world of social media, mobile gaming, “peak TV,” and streaming everything, audiences have more choice than ever before in how and what they consume. As content choices increase, some critics and shareholders have speculated on the future of theatrical distribution being in jeopardy and ripe for disruption. However, this shift in consumer activity should be looked at as an opportunity for exhibitors. The theatrical market has a chance to evolve and grow alongside the rise of the digital boom, providing a differentiated experience for audiences around the world.

This year’s domestic theatrical box office is on track to potentially be the biggest of all time. So far, 2017 is tracking right with the previous five years in terms of box office sales year to date. With a strong list of holiday releases set to close out the year, including Thor: Ragnarok, Justice League, Coco, and Star Wars: The Last Jedi, 2017 should end up with a healthy overall revenue number. This is still possible with the slowest summer box office since 2006.

However, there is disruption occurring and exhibitors are smart to pay attention. Exhibitors are getting pinched on distribution splits, and the number of tickets sold has been declining since the peak in 2002, which means fewer concession sales. Theater chains are not sitting idly by as audiences divide their attention across different entertainment options. Exhibitors are providing new value propositions for consumers, including premium amenities and ancillary content experiences. One trend has been to upgrade seats, provide in-theater dining, and build bars in the lobbies for an enhanced customer experience, which also drives incremental revenue.

Exhibitors are also identifying other types of entertainment that can draw audiences into their spaces for non-movie purposes. For years, people have been attending remote screenings of opera or ballet performances, and this year’s Mayweather–McGregor boxing match was screened in select theaters around the country. The rise of esports has also caught the attention of movie theaters as they try to capture the dedicated youth-oriented demographic. Partnerships with organizations such as Super League Gaming for esports multiplayer events and competitions have provided a new reason for gamers to go to the theater. In 2015, Canada’s Cineplex acquired WorldGaming to provide competitive esports events in their theaters throughout the year.

Count virtual reality (VR) as another content experience coming soon to a theater new you. The VR start-up Dreamscape Immersive has taken an investment of $20 million from a major theater chain to build out up to six additional VR centers within the next 18 months in current theatrical venues. People can go experience new VR content and potentially catch a film while they’re there. There is a natural tie-in for companion content to the films playing on the big screen (with premium packages for tickets to both) as well as native original content produced solely in VR.

All of these non-movie activities provide ways to increase utilization for the complexes during off-peak hours. As exhibitors continue to augment their experiential offerings, the multiplexes become more of a destination event and an opportunity to create something similar to a theme park. Bring the family out for dinner and a movie in one convenient location. Or drop the kids off for an esports event and grab a drink at the bar before trying the latest VR experience.

While there are certainly challenges ahead for the theatrical market, this is not a new issue. Television, the VHS tape, and digital distribution platforms were all positioned as potential theater-killers at one point or another. The feature film business has moved away from the middle and focused on targeted lower-budget films with potential upside and high-budget tent pole films that minimize risk to an extent. Studios are world-building with their prized franchises to increase the draw for fans of their various universes and characters. Theaters are creating new value propositions that incentivize audiences to get in their cars and open their wallets, and consumers are finding that experience is the new black. But in order for the theatrical industry to navigate the challenges ahead, it needs to view the disruption and evolution of the market for what it is: an opportunity.