Sunday, March 13, 2011

Cinemath - Multiplex Loyalty and Indie Films Programs

Last week, announced a partnership with AMC to debut at least one new horror film per month. A few days before that, AMC and Regal formally announced the formation of a distribution company, "Open Road Films", that would acquire and distribute roughly eight to ten independently-produced but mainstream-friendly movies per year. Dating back to last October, AMC has a relationship with China Lion Films to open roughly one Chinese film per month the same day it opens in China.

Meanwhile, AMC is also replacing its loyalty program, which previously offered awards every five films seen, with one that offers $10 back on every $100, including money spent at the concession stand, while also offering other benefits. In most markets, this change kicks in at the end of the month. These two sets of developments are likely unrelated, although I do find it somewhat interesting that the theater chain I go to most often (they have 24 of the 67 screens in metro Boston) is making this shift while at the same time investing heavily in independent films.

Most large theater chains have loyalty programs now - visit the theater so many times, or spend so much money, and get a free ticket, popcorn, or soda (or, as is the case with AMC's new program, flat cash value). Their presumed main function is right there in the name - by offering better perks, you'll go to their theater rather than another when the choice is there. The new program is potentially a less rewarding one, value wise, especially if you don't spend a lot at the concession stand - $10 for every $100 is an easy 10% to figure out, whereas the previous program would alternate between soda, popcorn, and tickets every five tickets. Figure a soda is $4, a popcorn is $5, and a ticket is $9, and the average reward is $6 per $45 spent, or a bit over 13%. Of course, if you are spending as much at the concession stand as tickets, you were only getting 6.5%. Considering that these awards expire, that's not necessarily a bad payout for getting the audience to see a movie at your theater rather than the one down the road (or, as I've seen in Manhattan, directly across the street).

However, I suspect that in many cases this may actually be a secondary purpose, especially now that nearly every chain has a rewards program. After all, if you've got a card for every theater in your wallet, and they all pay out at roughly the same rate, you'll still get bonuses at the same clip, just spread among theaters. So I suspect that AMC expanding their program to include concessions may indicate that these offers serve another valuable function: They can be market research goldmines.

Now, admittedly, this may just be a case of my work history giving me a skewed perspective - as a student, I worked in a theater and saw first-hand what a crazy profit margin soda and candy has there, and my day job in the present is taking information that has been generated for one purpose and reporting on it for someone else entirely. But let's face it - while you only have to give out some basic-but-useful information when you sign up for one of these programs (age, sex, address), you're almost inevitably asked to complete a survey that nets the chain much more (income, race, marital status, preferred genres, etc.).

There is tremendously useful information to be mined from this, especially for a large chain that has other ways of gathering data. If they find that a certain type of movies attracts high-income customers, that's useful (especially when they're selling advertising time before the show). If they find out that, say, the Bloody-Disgusting series is regularly drawing people with ZIP codes 40 miles west to Boston, they might consider expanding it to Worcester. Combine the two, and you can find spots on the map that are ripe for expansion. Heck, you can compare the movies people say they're anticipating in your survey with their actual buying habits to adjust the tracking information you purchase from other sources.

From the theater's perspective, though, probably the most important information doesn't have much to do with demographics: It's which movies translate into the most popcorn sales. After all, that $10 ticket doesn't do a whole lot for the theater. They may keep one dollar's worth the first week (with the other nine going to the studio) and though the split becomes more favorable to the theater as weeks go by, only the really big hits stick around for much more than a month or so; the studios have gotten very good at front-loading a movie's box office. But the popcorn and soda are almost pure profit; the small $5 popcorn is, what, a dime's worth of corn in a bag that costs five cents? That's where they make their money, and when you present your rewards card at both the box office and concession stand, it takes a half-decent database guy something like five lines of SQL to figure out which movies are doing the sort of business that really matters.

By and large, there probably won't be a whole lot of variance, but the outliers might turn out to be spots where a theater or chain can really help themselves. For instance, kids' movies sell cheaper tickets, but if you sell $2 more per person in snacks for tickets where you keep twenty cents less per capita, you're doing all right. If you're finding that people in Harvard Square buy 30% less in snacks when seeing action-adventure movies than people at Boston Common, you know where to open your next action movie. And while the numbers likely aren't quite that definitive, every little bit counts, especially when the studios are squeezing the exhibitors in every way they can.

Which brings us back to the start, with AMC and Regal forming a distributor and picking up more independents besides. I'm going to go out on a limb, but I'm going to guess that China Lion does not get the same sort of deal Paramount gets; they need the theaters much more than the theaters need them, rather than vice versa. And while the theater gets to keep more of the box office for those films, there's a good chance that the concession money fluctuates more (what with the relatively small sample size) and is more important: At the end of the year, if the "Bloody-Disgusting Presents" movies and Chinese movies are doing about the same ticket sales, but one is selling more popcorn, I strongly suspect the latter is more likely to have their relationship with the chain continue.

One thing I am very curious about is how much effect all this gathered information will have on Open Road. Specifically, if Open Road's acquisitions guys have a number of movies they're looking at, will questions of which one (based upon similar movies in AMC/Regal's ever-expanding database) is more likely to sell the most popcorn be more important than, say, which one is likely to have a long life on DVD, Blu-ray, and streaming?

Heck, just given the company's ownership, will they act in odd ways, like setting an unusually low split? Which is better for AMC and Regal - if they were to go nuts and set a 50% split, the chain that sells each ticket ultimately gets 75% minus overhead, a far cry from the 10% they get now. Will these movies have an unusually long window between theatrical release and home viewing options? Will the theaters be able to use individual acquisitions as leverage against mid-range studio films?

This is probably more interesting to me than it really should be, as I don't own a theater, and I suspect that there's a fair amount of people reading this somewhat horrified at the very idea of there being a big database somewhere that tracks not just your moviegoing history, but what snacks you bought for which movie. Heck, as much as I don't really feel that I can object to this without being a hypocrite, the notion that ultimately the movies available for me to see will not be chosen on great direction, or even projected box office, but the likelihood that the people going will buy the large soda rather than the small is a little bit worrisome.

This is a business, though, and the more information a business has, the better decisions it can make, and the less likely we'll be seeing theaters close down. And if getting this sort of granular data means that chain theaters start to find that the screen they've got showing foreign and independent films is deceptively profitable, we all benefit.

And, hey, now that we've got the whole thing laid out here, maybe we can use it to our advantage. Certainly, from now on, I'll only be purchasing a popcorn and soda at movies where I'm really enthusiastic, or which are part of a series I'd like to support. The flicks I'm just seeing because I'm bored that afternoon and they looked okay, I can wait until later.

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