Industry AnalysisGlobal Movie Theater Industry Group 2 Buss. 440 LasellCollege 4/10/12
TABLE OF CONTENTSI. Industry & Company Backgrounds ........................................................................................................ 1II. Situation Analysis ................................................................................................................................... 4 A. General Environmental Analysis .......................................................................................................... 4 1. Technology Trends ......................................................................................................................... 4 2. Demographic Trends ...................................................................................................................... 5 3. Economic Trends ............................................................................................................................ 6 4. Political/Legal Trends .................................................................................................................... 8 5. Socio-Cultural Trends..................................................................................................................... 9 6. Global Trends ................................................................................................................................ 10 7. Most Impactful Environment ....................................................................................................... 11 B. Industry Analysis ................................................................................................................................ 13 1. Threat of New Entrants ................................................................................................................ 13 2. Bargaining Powers of Suppliers .................................................................................................. 14 3. Bargaining Powers of Buyers ...................................................................................................... 14 4. Threat of Substitute Products ...................................................................................................... 14 5. Intensity of Rivalry among Competitors ..................................................................................... 15 C. Competitor Analysis ........................................................................................................................... 15 D. Internal Analysis ................................................................................................................................ 18III. SWOT Analysis .................................................................................................................................... 26 A. Strengths ............................................................................................................................................ 26 B. Weaknesses ....................................................................................................................................... 29 C. Opportunities ..................................................................................................................................... 29 D. Threats ............................................................................................................................................... 32IV. Strategy Formulation .......................................................................................................................... 33 A. Strategic Alternatives and Evaluations .............................................................................................. 33V. Strategic Alternative Implementation ................................................................................................ 36 A. Action Plan ......................................................................................................................................... 36
1I. Industry & Company Backgrounds The global movie theater industry has an overall box-office worth of $32.6 billion andcontains about 124,000 screens in four major markets: U.S./Canada (42,390 screens); Europe,Middle East, Africa (EMEA) (39,211 screens); Asia/Pacific (24,870 screens); and Latin America(9,899 screens) (MPAA, 6, 2012). The industry is comprised of over 30,000 movie exhibitors,ranging from stand-alone movie houses and “megaplexes” to small, midsized, and large theaterchains (Hoovers, Movie Theaters –Industry Overview). When looking at all exhibitors in termsof revenue, National Amusements Inc. is by far the largest bringing in $8.5 billion in totalrevenue (Hoovers, National Amusements, Inc.). Although their revenue number is very high, itdoes not accurately reflect their operations from a movie exhibition standpoint, as the companyhas 80% ownership in both CBS and Viacom, two of the world’s largest media conglomerates(Hoovers, National Amusements, Inc.). To accurately analyze the movie theater industry you have to look at the exhibitors whoseprimary operating revenue comes in the form of movie ticket admissions. From that point ofview, the world’s three largest exhibitors are: Regal Entertainment Group (Regal) ($1.8 billion),AMC Entertainment, Inc. (AMC) (1.6 billion), and Cinemark Holdings, Inc. (Cinemark) (1.2billion). These three companies also exist as the world’s largest movie theater chains in terms ofoverall movie screens, as Regal operates 6,614 screens, AMC operates 5,128 screens, andCinemark operates 5,152 screens. (Regal, 2012) (AMC, 2012) (Cinemark, 2012)Regal Entertainment Group The movie theater company currently with the highest level of box office revenue(income derived from ticket sales) is Regal Entertainment Group, generating $1.8 billion in
2ticket sales for FY 2011. This theater also operates the largest amount of movie screens, as theyown 6,614 screens in 527 theater locations throughout 37 different states, as well as theaters inthe District of Colombia. (Regal, 2012) Regal Entertainment Group is a somewhat new movie theater chain in comparison to theother major chains in the United States. It was formed by combining three failing companies inthe year 2002. These three companies included United Artists, EdwardsTheaters, and RegalCinemas. All three of these companies filed for bankruptcy in 2001, and a man named PhilipAnschutz decided to take hold of these companies and combine them. (Hoovers, Regal)“Because of the reorganizations each of the three components of Regal Entertainment wereforced to undergo, the assets supporting the three entities were in better shape than before filingfor Chapter 11 protection (Fundinguniverse.com – Regal).” Also, while they were reorganizingthe companies, they were able to separate themselves from bad leases and end operations atunder-performing locations. This helped create a leaner, stronger company that is nowconsidered to be the largest movie theater chain in the world. (Hoovers, Regal) When the newly formed company went public in 2002, they began trading at $19 pershare, offering a total of 18 million shares. That per share value has decreased quite a bit overthe past 10 years, as their stock is now trading around $13.20. (Regal, 2012)AMC (American Multi-Cinema, Inc.) The movie theater company with the second largest box-office revenue is AMCEntertainment, Inc. AMC generated $1.6 billion in ticket sales for the FY 2011. They currentlyhave 5,128 screens and over 300 locations. They have amenities such as AMC Dine-In Theaters,IMAX and ETX auditoriums, and the AMC Stubs reward program. (AMC, 2012)
3 The company began in 1920 when three men, Maurice, Edward, and Barney Dubinskypurchased the Regent Theater in Kansas City, Montana. They changed their family name toDurwood, and their company later became known as Durwood Theaters. It soon grew into amovie theater chain in the Kansas City area. (amctheaters.com, 2012) Edward Durwoods son, Stan Durwood, helped change the movie theater industryforever. In 1963, he was the first person to come up with the idea to play more than one movieat a movie house. He knew that if a company could have multiple movies playing at the sametime in the same location, it would lead to more guests and more business. It was at this point intime when they decided to remodel multiple large, single screen theaters and turn them intobuildings with multiple auditoriums. (amctheaters.com, 2012) AMC Theaters was also the first when it came to other innovations in the movie industry.In terms of being the first to do something within their industry, they introduced the firstarmchair cup holder, stadium seating, and the first rewards program which was called AMCMovieWatcher Rewards. (amctheaters.com, 2012)Cinemark Holdings, Inc. Cinemark Holdings, Inc. currently generates the third largest box-office revenue, with$1.2 billion in ticket sales for their 2011 FY. They currently have 5,152 screens within their 456theaters throughout about 40 states and over a dozen Latin American countries. Most of theirmultiplex theaters are located in suburban areas near large cities, as well as locations in smallercities. Also, “The company prefers to build new theaters in midsized markets or in suburbs ofmajor cities where the Cinemark theater is the only game in town.” (Hoovers-Cinemark HoldingsInc., 2012)
4 Cinemark was founded in 1984 by Lee Roy Mitchell. It was initially a smaller chain ofmovie theaters which were located in Texas, Utah, and California. The company has beenexpanding ever since, and is currently “the most geographically diverse circuit in Latin Americawith 159 theaters and 1,274 screens in 13 countries.” Also, they are ranked either number one ortwo by box office revenues in twenty four of their top thirty markets as of 12/31/2011.(cinemark.com, 2012) Over the past twenty-three years, Cinemark has been steadily acquiring other movietheater companies. One of the most important acquisitions was on October 26, 1989 whenCinemark Mexico acquired Premiere Cinemas, and the next year they also acquired Peble Corp-Theater Operations from Peble Corporation. In 1999, Cinemark USA Inc. acquired Conate,which was one of their South American partners. This deal gave Cinemark full control over anextra 139 screens in Latin America. (Paxman, 1999)II. Situation AnalysisA. General Environmental Analysis 1. Technology Trends A major technology trend within the movie theater industry has to do with the transitionfrom traditional 35mm film based cinemas to digital cinemas. This transformation for theaterscan be quite expensive. Digital projection systems can cost anywhere from $150,000 to$250,000 and that is only good for one movie theater screen. An average movie theater withapproximately 8 different screens can pay close to $2 million to make their whole theater digital.The movies themselves are less expensive to produce digitally as compared to film based prints,but due to the cost of remodeling a traditional theater, the savings don’t represent much. (Hitt, A.M., Hoskisson, E. R., Ireland, R. D., 221, 2010)
5 Out of the four major geographic markets, the U.S./Canada market has the largest amountof digital screens with about 28,000, the EMEA market comes next with about 18,500,Asia/Pacific with about 13,000, and lastly Latin America with a little over 2,000. By 2015 it’spredicted that digital screens will make up 83% of all movie theater screens in the world. (Lowe,2012) Within the digital movie industry, there is a constant trend of theaters starting to integrate3-D technology with the digital technology. In 2011, 18% of global ticket sales were generatedby 3-D movies, adding $1.8 billion in box-office revenues (MPAA, 9, 2012). The U.S./Canadamarket has the most digital 3-D screens with about 13,700, which is about 50% of all digitalscreens in the country (Lowe, 2012). The price of admission to a digital 3-D movie is aboutthree to four dollars higher than an average film (Hoover’s, Movie Theaters-IndustryDescription). The premium placed on this kind of movie experience made up for $580 million(8%) in revenue for the U.S./Canada market overall in 2010, mainly due to the success ofAvatar.(Hoover’s, Movie Theaters-Industry Description) A very small percentage of 3-D digital movie theaters are IMAX theaters. There areapproximately 244 3-D capable IMAX theaters in the United States (Lowe, 2012). IMAXtheaters are considered to deliver “The Ultimate Movie Experience”, as they are equipped with12,000 watts of digital surround sound and 50X70 ft. or larger screens, which in most cases have3-D capabilities (IMAX Corp, 2012). There are currently 583 IMAX theaters globally, spanning48 countries. 2. Demographic Trends Approximately 68% of the U.S. and Canadian population attend the movies at least oncea year, which makes up about 223 million individuals and 1.3 billion overall admissions.
6Approximately 51% of these moviegoers are women, leaving the remaining 49% as males. 63%of the individuals are considered Caucasian, 19% are considered Hispanic, and 12% areconsidered African American. African American movie goers have an even split in terms ofgender, but trends show that Hispanic movie goers are more likely to be male. (MPAA, 7-9,2011) In terms of age, the 25-39 year old bracket makes up the largest portion of movie goers atabout 21%. Following that would be 2-11 year olds and 40-49 years olds each making up forabout 15% of movie goers. For 3-D films, approximately 50% of all moviegoers see at least one3-D digital film a year. A majority of these individuals, 47%, are within the 2-17 year old agebracket. (MPAA, 15, 2012)(MPAA, 15, 2012) 3. Economic Trends The current U.S. economic recession is one of the main trends affecting almost allindustries, but as consumers are looking for cheaper forms of family entertainment, going to themovies seems like a smart economical choice. On a yearly basis the average price of a movieticket increases between 3-5%. In 2011, the average price for a movie ticket, as listed by the
7Motion Picture Association of America, was $7.93. Four tickets to a movie, in most cases, costsa family under $50, while on average four tickets to a professional sports league game ordestination theme park costs $100-$300. This, among other factors, correlates to much higherattendance ratings for cinemas. In 2011 there were approximately 1.3 billion movie tickets sold,as compared to 350 million tickets for theme parks and 133 million tickets for sporting events.(MPAA, 10-11, 2012) While the sale of movie tickets keeps the movie theater industry running, the theatersthemselves see their largest return on the sale of concessions. The movie theater industryexperiences loss leadership on the movies themselves, as operating net income is very low formost companies. Due to this issue, movie theaters have to fight for even a larger portion of aconsumer’s discretionary income and have to increase the amount of advertisements shownbefore movies. Advertising accounts for only about 5% of theater revenues, but offers a highmargin of return for the exhibitors themselves. It’s expected that movie theater advertising willincrease by at least 10% by 2020. (Hitt, A. M., Hoskisson, E. R., Ireland, R. D., 220, 2010) Movie theater companies are also competing with an increase in consumer spending onhome-viewing equipment. In recent years, television prices have fallen significantly. This hascaused retailers, such as Best Buy, to experience a significant loss in income (Martin, 2011).While price cuts may be hurting retailers, they’re helping consumers as individuals are finding itmuch more affordable to purchase big screen TV’s. Beyond simply buying TV’s consumers areinvesting more in their overall home theater systems, as the global market for home theatertechnology and services is expected to reach the $3 billion mark by 2013 (O’Donnell, 2011).With many individuals investing more in their home theater technology, movie theatersthemselves are seeing a steady drop in admissions (MPAA, 2012).
8 4. Political/Legal Trends The largest political legal trend affecting the Movie Theater Industry at this point in timehas to do with the abundance of online piracy for digital media. According to the InformationTechnology and Innovation Foundation (ITIF), in 2005 online piracy was estimated to accountfor more than $20 billion in potential lost revenue for the entertainment industry (ITIF, 2010).With the oncoming of the world’s largest file sharing database, Bit Torrent, trends don’t seem tobe moving in the opposite direction. In 2010, Bit Torrent made up for about 18% of all internettraffic, two-thirds of that traffic (63.7%) was made up of illegally downloaded and sharedentertainment media. Of that shared entertainment media, 35.7% was directly related to thedownloading and sharing of films. (Envisional, 2011) Although there is a lot of money thought to be lost through online piracy, a very smallportion of it is in the form of domestic box office receipts. A lot of the movie ticket revenue thatis considered to be lost comes from international box offices (Brooks, 2012). It’s estimated thatInternational online piracy decreases the movie industry’s overall box office returns by about7%. There are two main reasons why international online piracy is so rampant: there is a lackof movie theater locations in many foreign countries and the theaters that do exist don’t getfeature films quick enough. For domestic films, the difference in national vs. internationalmovie premieres can be, in some cases, more than eight weeks. Domestic movies that arereleased at least eight weeks later than they were in the United States typically generate close to40% less in overall revenue. Release dates are often country specific, as Denmark, Finland,Italy, Poland, and Turkey are known to have some of the longest lag times in regards topremiering U.S. or Canadian films. (Brooks, 2012)
9 From a negative external trend to an internal trend, the movie theater industry has an on-going problem with anti-trust lawsuits. The movie theater industry is made up of four maincompanies:Regal, AMC, Cinemark, and Carmike. The companies ultimately exist asconglomerates as they control more than 50% of the movie screens within the U.S.Independent/small cinema chains are finding it increasingly difficult to compete as largercompanies command much of the market and film distribution rights. (Verrier, 2011) In 2011, an anti-trust lawsuit was filed by a small independent California based movietheater, Palme d’Or, against Cinemark Holdings, Inc. Palme d’Or believes that the movie theaterconglomerate allegedly was taking part in the common industry practice of “circuit dealing”.Circuit dealing occurs when, “theater chains leverage their size and buying power to preventdistributors from booking movies at theaters owned by their rivals” and was outlawed in 1948.It’s through this practice that movie theater conglomerates assert their dominance overindependent cinemas and ultimately acquire them to increase their revenue. The lawsuit has yetto be settled, but could help to exploit the illegal actions taken by corporations such as Cinemarkand help to promote the existence of independent theaters. (Verrier, 2011) 5. Socio-Cultural Trends Over the past year there has been an increasing demand for movie theater companies tolist the nutritional information for their prepared food offerings, just as fast-food companies arerequired to do. It’s estimated that an order of popcorn from a movie theater can contain up toalmost 1500 calories, or the equivalent of three Big Mac sandwiches. The actual amount ofcalories consumed depends on the portion size and the amount of butter placed on the serving.Legislation has recently argued that consumers don’t realize the amount of calories they areconsuming when they eat popcorn or other prepared food at a movie theater. In many cases it’s
10estimated that what consumers are consuming at the movies is comparable to what they would beconsuming at a fast-food restaurant, in terms of calories. (Young, 2011) On April 1st, 2011 legislation was passed in regards to increased labeling among preparedfood. The rules directly affect companies whose main operation is related to the sale and/orpreparation of food. Grocery stores and convenience stores have been highly affected, but notmovie theaters. Though the industry remains unchanged, the threat of food labeling has helpedto raise consumer awareness when ordering prepared food from a movie theater. (Newman,2011) 6. Global Trends The movie theater industry is becoming even more of a global business. The top threemovie theater conglomerates, Regal, AMC, and Cinemark, all have operations throughoutEurope and Asia-Pacific. China is currently showing the largest country-wide growth in terms offoreign box office sales and recorded $2 billion in box office sales alone in 2011, growing byabout 30% since 2010 (MPAA, 5, 2011). There are a few reasons for this rapid growth. TheChinese government invests a lot of revenue in film production as they feel it can be used to“strengthen state influence at home and export Chinese culture abroad”(Pierson, 2011).Beyondthat China is experiencing a large amount of entertainment media piracy which is stronglyhurting DVD sales and causing Chinese film producers to mainly depend on the sale of box-office admissions. Lastly, working individuals in China are reporting a higher level ofdiscretionary income and leisure time and are finding the movies an enjoyable experience tospend their earnings on (Pierson, 2011). Beyond China and the Asia/Pacific market, attention is also being directed towards LatinAmerica for further expansion (Hoover’s, Movie Theaters-Business Trends and Opportunities).
11(MPAA, 5, 2012) From the graph above, it can be noted that Latin America is quite behind Europe andAsia Pacific, in terms of box office sales, but trends show that their sales are steadily increasing.It’s believed that there is a lot of opportunity in metropolitan areas of Latin America. With thatin mind, further marketing research is needed to predict how much demand individuals in certainareas of foreign countries command in terms of attending movies on a consistent basis. (MPAA,2011) 7. Most Impactful Environment The general environment that will have the biggest impact on the movie industry is theeconomic environment, specifically with consumer spending on home viewing technology.Everything from movie projectors to more comfortable recliners is experiencing an increase indemand because suddenly it doesn’t seem that crazy to have your own home theater system(O’Donnell, 2011). In 2015, Sharp predicts that the average TV screen size will be 60 inches,nearly 20 inches larger than the average screen size in 2008 (Walker, 2011). As put by Sharp’shead of marketing and communications, Mike Gabriel, “People can now expect a home cinemaexperience from their TV. Technology that was once associated with the rich and famous is nowaccessible to homes around the country” (Walker, 2011).
12 Home theater systems are inevitably a contributing factor towards the decline in theaterattendance.(MPAA, 9, 2012) As can be seen by the graph above, theater attendance in 2010 was at it’s lowest point inalmost a decade. Individuals are able to stay at home and enjoy a movie-like appearance alsodue to the increase in popularity and affordability of Video-on-Demand (VOD) technology.Rental firms such as Net Flix and Red Box and service providers such as Comcast and Verizonall offer an extensive collection of movies soon after they hit theaters and at lower cost thanadmission.
13(NATO, 2011) The graph above, generated by the National Association of Theater Owners (NATO),shows a declining trend in the amount of time studios release movies to DVD or VOD formats.Recent statistics show that this window is at its smallest point ever, hovering around the 4 monthmark, as opposed to at least 5 months 10 years earlier. This will continue to have a negativeimpact on the movie theater industry, as consumers will not only have the home viewingtechnology, but the newest content to back it as well. (NATO, 2011)B. Industry Analysis 1. Threat of New Entrants Although there are tens of thousands of movie theater companies in the world, the threatof new entrants in the movie theater industry is low. There are many barriers to entry whichmake it difficult for small chains to survive and compete in the overall market. Firstly, the cost ofbuilding a brand new movie theater is extremely high, usually reaching millions of dollars. Inorder to compete in the movie theater industry, there is a need to use the newest equipment suchas digital film and high definition projectors. Also, there are many regulations and rules whichmovie theaters must follow in order to operate, and must work hand in hand with suchorganizations as the MPAA. Also, since there are only four main movie theater companies in theUnited States, it would be hard to start up a new theater when people are used to attendingtheaters which they already know they enjoy. Companies such as Regal, AMC, Cinemark, andCarmike have established brand loyalty as well as high product differentiation. (Hoover’s,Movie Theaters-Industry Description)
14 2. Bargaining Powers of Suppliers In the case of the movie industry, the bargaining powers of suppliers (which would befilm distributors) have the ability to decrease the profitability of a theater by raising costs orreducing quality. If you compare the number of movie theaters to the number of movie studiosproducing new movies, it is clear that there are many more movie theaters as opposed to moviestudios. This gives film distributors such as movie studios a medium to high bargaining power.It is an absolute necessity for theaters to maintain good relationships with movie studios so thatnew films can be debuted at their locations, since a large portion of revenue is generated when amovie is first released. Due to this fact, relations with suppliers are extremely important to thetheater business. (Hoovers, Movie Theaters-Business Challenges) 3. Bargaining Powers of Buyers The bargaining power of buyers in the movie theater industry is high when it comes tothe larger chain theater brands such as Regal, AMC, Cinemark, and Carmike, due to theswitching cost being low. There is very little difference between these theaters, since most ofthem offer showings of new movies for around the same price and generally the same amenitiessuch as concessions, video quality, sound quality, and seating. Buyers are ultimately highlyprice sensitive and are not loyal to a specific brand. Consumers will choose the theater thatoffers the best price and movie times.(Hoovers, Movie Theaters-Industry Overview) 4. Threat of Substitute Products The threat of substitute products is medium to high. This is becoming one of the largestproblems for the movie theater industry. Although it can be difficult to recreate the atmosphereof a movie theater, home theater equipment has rapidly dropped in price, causing manyconsumers to create their own version of a home cinema. Beyond having the equipment,
15theatrical release windows for movies have significantly decreased, allowing consumers tobuy/rent new movies sooner than ever before. (Hoovers, Movie Theaters-Business Challenges) 5. Intensity of Rivalry among Competitors The intensity of rivalry among competitors in the movie theater industry is medium tohigh. In the U.S. there are four dominant theater companies who control about 50% of thedomestic market and they offer consumers similar products/services. They all play newlyreleased movies as soon as possible, which is usually the same day across the board.Internationally, the competition is mainly amongst small to mid-sized theater chains. Eventhough there are no major international movie theater companies, existing competitors areconstantly fighting for more admissions and have trouble obtaining consumer loyalty. (Hoovers,Movie Theaters-Industry Description)C. Competitor Analysis As mentioned, the largest movie theater chain is Regal Entertainment Group. Accordingto the company’s website, there are 224 million annual attendees at their theaters. The theaterchain only operates within the United States and identifies their primary markets as California,Florida, and New York. The theater has been public since 2002 and currently trades at around$13.20 per share. (Regal, 2012) Regal has developed a strong presence in the world of inbound marketing and theirwebsite is well designed, informative and user friendly. There is the obvious ability to find showtimes on their website, but there are some other points to note here. First is the ability to seewhich Hollywood films are coming to which Regal Theaters. Secondly, the consumer has theopportunity to sign up for weekly movie times. Customers can also sign up for birthday partiesat their selected location. With IMAX becoming a growing trend within the movie theater
16business, there is also an entire tab dedicated to which IMAX movies are playing and their showtimes. (regmovies.com, 2012) The Regal Crown Club is another feature on the website that is aimed at obtaining repeatcustomers and thus generating brand loyalty. The Crown Club is not an innovative idea; it’snearly impossible to buy something today and not be prompted to join a rewards program, but itis still an important component of a business. By offering rewards to customers you encouragethem to come back, and to choose you over competitors. The Crown Club allows frequent moviegoers to build points towards concessions, often the priciest part of the movie theater experience,and you can even track these points online. (regmovies.com, 2012) AMC is the second largest theater chain in the US, in terms of box-office revenue. Asmentioned the chain operates throughout the U.S. and has various locations in Canada andEurope. That being said its two primary market regions are California and Illinois, as thosegeographic locations contain a substantial amount of their theater locations. (AMC, 2012) The company itself is currently planning on returning to the stock market with a $450million IPO. This is down significantly from the $750 million IPO they filed for in 2006. Theirwebsite is crisp and easy to navigate. AMC has an extremely strong inbound marketing presence.Inbound marketing is not a fad, it is a revolution of the way companies market, and makes iteasier for a company to cut costs while growing through their marketing. One of the keys to thisstyle of marketing is Search Engine Optimization (SEO). One way to do this is to blog, andAMC has that covered. Blogging allows you to use key words to obtain good visibility in searchengines and blogging keeps new content on your page, which also helps you stay current. Themovie news tab on the AMC page is a stroke of genius. Like Regal, AMC also takes advantageof a rewards program, and you can check it out on the website as well. (amctheaters.com, 2012)
17 Two additional key features for AMC are that they sell advertisements on their moviescreens. This happens in theaters but they also promote the idea on the business page of theirwebsite. The other, and even more intriguing business venture, is their theater rentals. AMCrents out theaters to business professionals for meetings. They pitch the idea that you can haveyour meeting in a new setting, with a feature you can’t get anywhere else, wall to wall videos.(amctheaters.com, 2012) The third company is Cinemark, in terms of box-office revenue. As mentioned,Cinemark not only operates throughout the U.S., but they also have 150 theaters and 1,500screens in Latin America. In the U.S. their two largest markets are Texas and California, asalmost 50% of their U.S. theater locations lie within those states. That being said, Cinemark alsoranked number 1 or 2 in their Box office revenues in 24 of their 30 markets last year. They as acompany also utilize inbound marketing to spread their name, but have no blog. From afinancial standpoint, Cinemark’s current stock price is $21.05. As of late they have held prettysteady in that area of $21.00. (cinemark.com, 2012) For all three companies, ticket prices and concessions are similar and vary depending onstate. For example there are tickets as low as $5 on the east coast; the same movie costs $8.25out west in the same theater. The overall advantage appears to be the number of theaters andscreens. All three companies have similar price points, similar websites, and similar marketingstrategies. They all offer different services such as theater rentals, but for the most part it seemsto be exposure that is the key factor. (Regal, 2012), (AMC, 2012), (Cinemark, 2012)
18D. Internal AnalysisRegalAMCCinemark The value chain analyses for AMC Entertainment, Regal Entertainment, and CinemarkHoldings are similar in most aspects but also have their differences. The inbound logistics for allthree of these movie theaters includes acquiring the equipment needed to show a film. Thisincludes purchasing the films and the technological devices necessary to project the film onto thebig screen. The operations of each of these companies differ. AMC Entertainment is focused onthe satisfaction of their customers and wants every guest to leave the theater pleased with their
19movie going experience. Regal Entertainment focuses on having a wide variety of movieofferings as well as providing convenient showing times. Lastly much like AMC, CinemarkHoldings focuses on performing excellent customer service. (AMC, 2012) (Regal, 2012)(Cinemark, 2012) There are differences between these three companies in regards to their outboundlogistics as well. AMC Entertainment’s outbound logistics focus on the different types of movieexperiences that they offer, including 3D, IMAX, and Dine-In theaters. Regal’s outboundlogistics include computerized ticket stations where customers can purchase their tickets fasterwithout the hassle of waiting in a crowded line. Cinemark Holding’s outbound logistics focuseson the 3D movie experience that the theaters offer. Each of these company’s outbound logisticsinclude the option of visiting the concession stand where guests can purchase food and drink toenjoy during their movie. (Regal, 2012), (AMC, 2012), (Cinemark, 2012) Each of these companies uses the Internet as a marketing scheme. Specifically,Cinemark Holdings offers weekly email subscriptions where guests receive informationregarding movie times, invites to special screenings and also promotional information.Cinemark also has an application for iPhone users where customers can locate theaters, buy theirtickets, and look for movie times. Regal Entertainment uses their concession stand as amarketing strategy. If there is a popular movie showing, the concession stands will offersouvenir items in relation to that movie which is meant to encourage concession stand purchases.The service for all three of these companies is to provide entertainment to moviegoers across thecountry. (AMC, 2012), (Regal, 2012), (Cinemark, 2012) When conducting our financial analysis, we first decided to look at the financial situationof the overall industry.
20(MPAA, 9, 2012)The graph above shows a ten year summary of U.S./Canada box office revenues vs. admissionlevels. The blue line represents revenue and the orange line represents admissions. From thegraph it can be seen that for the most part U.S./Canada box-office revenue has increased over thepast ten years, as it’s grown 11% since 2002. On the other hand admission levels have droppedabout 18% over the past decade; this can be mainly attributed to a 37% increase in the price of amovie ticket since 2002. (MPAA, 9-10, 2012) Transitioning to the three companies, we decided to look at Regal, AMC, and Cinemark’s2011 revenue breakdown.
21As can be seen from the revenue break down pie graphs, a majority of these theaters’ revenuescome from their main operating activity, selling tickets. With that being said, they see theirlargest returns on the sale of their concessions. The graph above shows that for every dollar spent by consumers on admissions, thecompanies keep, 46-48 cents. With every dollar spent on concessions, the theaters keep 84-86cents. Although the return rate for concessions out-weighs the return rate for admissions,admission return rates are still delivering relatively good returns.
22 Although revenue and profit breakdowns reveal interesting financial information from thecompanies being analyzed, it’s through revenue and cost comparisons that one can see how thesethree companies and the industry overall are struggling to ensure positive growth trends.The graph above provides a ten year analysis of the compounded annual growth activity for eachof the firm’s total operating revenue vs. expense amounts. The main point to be taken out of thisgraph is that each company’s costs are growing faster than their revenue from a year to yearbasis. This can make it difficult for firms to sustain suitable operating margins, so whileadmission returns are currently around 46-48%, trends are showing that higher annual expenseswill cause revenue streams to be limited in terms of future profitability. Liquidity ratios determine if a company is liquid enough to cover their debts. The currentratio is a liquidity ratio that shows the company’s ability to pay for their short-term debts usingtheir current assets and is calculated by dividing the current assets by current liabilities. In 2010the current ratio for Regal Entertainment was the .74, which means that for every dollar of debtthe company only had $0.74 in current assets to pay for it. Luckily last year Regal
23Entertainment’s current ratio rose to 1.01 showing that the company basically broke even whenpaying their short-term debt. In 2010 the current ratio for AMC Entertainment was 1.32 and itdecreased in 2011 to .91. The 2010 current ratio for Cinemark Holdings was 2.12 and in 2011 itdropped slightly to 2.05. Comparing the current ratio of these three movie theaters in 2011,Cinemark Holdings has the best hold on covering their current debts by using their current assets.(AMC, 2012) A company’s ability to produce income in comparison to its expenses is measured byusing profitability ratios. Return on assets is a profitability ratio that shows the amount of profitearned for every dollar that is tied up in assets. This ratio is calculated by dividing a company’sprofit after taxes by their total assets. Since 2009 Regal Entertainment’s return on assets hasdropped nearly 2% showing that in the past two years Regal has not been consistent atconverting their investments into profit. The higher the ROA ratio is shows how well acompany’s assets are performing. In 2009 Regal’s ROA was 3.6%, in 2010 it was 3.1% and in2011 it was 1.7%. The 2010 ROA for AMC was 1.7% and in 2011 they had an ROA of -3.3%due to a net loss for the year. Cinemark’s 2010 return on assets was 4.4% and in 2011 it droppedto 3.8%. Out of these three companies Cinemark had the highest return on assets in 2011.(AMC, 2012) Return on equity is another profitability ratio that shows a company how much moneythey have earned in relation to the shareholders’ investments. Return on equity is calculated bydividing profit after taxes by the total amount of shareholders’ equity. In 2010 the ROE forRegal Entertainment was 15.7%, and last year in 2011 it was -7%. Regal’s ROE droppedsignificantly due to the fact that they reported a negative level of shareholders’ equity in 2011because the company had paid approximately $3.3 billion back to stockholders since 2002 using
24cash dividends. In comparing the return on equity for Regal, AMC, and Cinemark it appears thatCinemark has the highest return rate at 13.1%, where AMC has a negative ROE of -34%. (AMC,2012), (Regal, 2012), (Cinemark, 2012) Companies use net profit margin to determine how much profit comes from every dollarof sales. This ratio is determined by dividing profit after taxes by the dollar amount of sales.Regal Entertainment’s net profit margin was 2.7% in 2010 and it dropped in 2011 to 1.5%.These numbers tell the company that they have not earned much profit from their sales. In 2010AMC’s net profit margin was 2.9% and it dropped in 2011 to -5.1%. Cinemark’s net profitmargin was 7% in 2010 and dropped slightly in 2011 to 5.8%. Of these three companiesCinemark had the highest net profit margin showing that this company does the better job ofturning sales into profit. (AMC, 2012) Leverage ratios are used to measure a company’s ability to meet their financialobligation. One example is the debt to assets ratio, which measures the company’s total debt as apercentage of their total assets. This ratio is calculated by diving total debt by total assets. If thisratio is more than 1 it shows that most of the assets are financed through liabilities. In 2010Regal Entertainment’s debt to asset ratio was 1.19 and it increased in 2011 to 1.24. AMC’s debtto asset ratio was .79 in 2010 and rose to .90 in 2011. Cinemark’s debt to asset ratio has stayedpretty consistent over the past two years being .70 in 2010 and .71 in 2011. The debt to equityratio compares funds that a company has borrowed and needs to pay back to funds that wereprovided by shareholders. This ratio is calculated by dividing total debt by total equity of thecompany. The higher this ratio is the higher the chances are for problems surfacing whenrepaying debts. Since 2010 Regal’s debt to equity has dropped from 6.08 to 5.10 in 2011showing that the company has a good handle on repaying debts. Comparing Regal’s 2011 debt
25to equity to AMC and Cinemark’s, AMC has the highest ratio at 9.38 and Cinemark’s is thelowest at 2.48. This shows that Cinemark has a better handle on repaying their debts and AMCmay face issues in repaying any of their debts. (AMC, 2012), (Regal, 2012), (Cinemark, 2012) The inventory turnover ratio of a company shows the number of times a company is ableto sell inventory throughout the year. This ratio is calculated by dividing sales by inventory offinished goods. Since 2010 Regal Entertainment’s inventory turnover has decreased. In 2010 itwas 191.01 times and in 2011 it decreased to 181.19 times. AMC’s inventory turnover alsodecreased since 2010 going from 294 times to 237 times in 2011. Cinemark’s inventory turnoverhas increased since 2010 going from 195 times to 207 times. AMC Entertainment had thehighest inventory turnover rate out of these three companies in 2011. (AMC, 2012), (Regal,2012), (Cinemark, 2012) Financial ratios are a quick way for companies to get an idea of how successful theycurrently are. Each ratio tells a company something different about their financial standings andallows them to compare their numbers with previous years as well as comparing withcompetitors. AMC Regal Cinemark 2011 Entertainment Entertainment Holdings Current .91 1.01 2.05 Ratio Return on -3.3% 1.7% 3.8% Assets Return on -34% -7% 13.1%
26 Equity Net Profit -5.1% 1.5% 5.8% Margin Debt to .90 1.24 .71 Assets Debt to 9.38 5.1 2.48 Equity Inventory 237 Times 181 Times 207 Times TurnoverIII. SWOT AnalysisA. Strengths As previously mentioned, Regal Entertainment Group is the strongest of the three cinemachains being compared in this study. As of 2012, Regal operates 6,614 screens in 527 theaters in37 states and Washington, DC, which gives the company more screens in more U.S. locationsthan their competitors. While they do not operate in some states due to some of their competitorshaving a strong hold on the regional market, they are the most geographically widespread namein cinemas in the United States. (Regal, 2012) Another of Regal’s strengths is the fact that they pay dividends to their stockholders. Ofthe three major cinema chains in the U.S., only two are publicly traded (Regal and Cinemark), ofthat, only Regal pays their stockholders’ dividends regularly. Between their IPO in May 2002and December 2011, Regal paid their stockholders a total of $3.3 billion in cash dividends.Regal has decided that keeping their investors happy is a priority, which will help them retain
27their long-time investors and will help attract future prospects, which will in turn help grow thebusiness. (Regal, 2012) As noted earlier, AMC Entertainment, Inc. is the second largest cinema chain in theUnited States in terms of box-office revenue and they operate 5,128 screens in 360 theaters.Although AMC operates mostly in the U.S., the company has branched out internationally. Thechain now has eight theaters in Canada, two in the United Kingdom, two in Hong Kong, and ahandful of others in France and Spain. Growing internationally is a smart strategy, as the UnitedStates market is fairly saturated. (AMC, 2012) Throughout its 92 year run, AMC has made branding a top priority. All three of the toptheater chains have at one time or another (or currently still do) acquired other cinema companiesto grow their number of screens and locations. Whenever AMC buys out a company, it changesthe signs on the existing theaters to read “AMC”, closing the former brand and growing theAMC name. This is an attempt to make the AMC name more powerful and the companycontinues to do this in the hopes that “AMC” will become the name most people think of whenthey are going to the movies. (AMC, 2012) As stated previously, Cinemark Holdings, Inc. is the parent company that owns andoperates Cinemark Theaters, the third largest chain of movie theaters in the United States.Cinemark operates 3,878 screens nationally in 297 theaters in 39 states. The brand is young –founded in 1984 – and it has grown extremely fast in its short lifespan. (Cinemark, 2012) Cinemark’s biggest strength is its international presence. In addition to the 3,878 screensthat the company owns in the United States, they lay claim to another 1,274 in countries aroundthe world, bringing their worldwide screen total to a whopping 5,152 in 456 theaters. Accordingto the company’s most recent 10-K form, Cinemark now operates theaters in the U.S., Brazil,
28Mexico, Argentina, Chile, Colombia, Peru, Ecuador, Honduras, El Salvador, Nicaragua, CostaRica, Panama and Guatemala.Their operations in 14 countries have made Cinemark the mostgeographically spread out theater chain worldwide. Cinemark realized early on that the marketin their home country was not one that was inspiring much growth, so they focused growing theCinemark brand into untapped territory. The Latin American market for movies is growingrapidly, due to an increase in the teen population for major metropolitan areas within the region.(Cinemark, 2012) Cinemark is also growing in the United States, mostly through acquisitions. Cinemarkbuys up smaller or failing theater chains, but it usually will keep their branding intact, unlikeAMC’s strategy of holding on to one immense brand name. Cinemark will often times buy achain that has a strong local draw and keep it nearly the same (and only changing businessoperations if they aren’t up to par for the company). In an industry where brand loyalty isdifficult to come by, Cinemark has realized the importance of the feeling some people havetowards their smaller, local theater chains, and it is using this to its advantage. (Cinemark, 2012) Cinemark’s latest acquisition was Century Theaters, which was based mostly inCalifornia and a few other western states. Adding these screens to its total helps close the gapbetween Cinemark and AMC, a second priority for the third largest U.S. chain (Friedman, 2010).In recent years, Cinemark also operates a sister brand, CinéArts, which showcases artistic andindependent films that do not usually make it to the mainstream theaters (Cinemark, 2012). Thecompany also owns the Tinseltown USA theater brand, adding to its growing roster of theaternames.
29B. Weaknesses Regal, AMC, and Cinemark face very high operating costs, due to the capital intensivenature of the industry they’re operating in. The industry itself is also one that has historically hada hard time maintaining any kind of brand loyalty, making competition between majorcompanies even more difficult to combat. While all three of the top theater chains have someform of a customer loyalty program, they have proven to be minimally successful (Fenn, 2011).Customers are willing to go to another theater if they believe they find a better priced ticket or amore convenient movie time. On the other side of this are the movie studios, who are every year charging more andmore for their products. Theaters are in a pinch, as they only really sell one thing: the movie-viewing experience. Concessions and other money-raising ventures, such as advertising helptheaters to generate a slim profit margin, but they depend on box office success to generate themajority of their operating revenue, making it their lifeblood. Theater chains need to have thenewest movies the moment they are available, and studios and distributors know this, so they canessentially charge whatever they want. If a chain decided to forego a certain Hollywoodblockbuster or wait to buy the rights to it, it would be at their peril. The rising cost of buyingthese films has led to the equally rising cost of ticket prices, which have been a factor in thedeclining attendance numbers at many theaters. (Singer, 2011)C. Opportunities The three companies that make up the top tiers of the movie theater industry are alllooking into the future and for new opportunities. The biggest of any option out there right nowis expansion. All three companies have seen this, and they have all made expansion a priority interms of growth. (Regal, 2012), (AMC, 2012), (Cinemark, 2012)
30 Regal Cinemas has purchased not only other theater companies, but it has also spent timeand money on buying theaters from its closest competitors, taking certain markets away fromthem entirely. AMC has worked on becoming the best-known name in American cinemas whilealso opening theaters in select cities in Canada and Europe. The company has also had quite abit of acquisition/selling activity, as in 2010 the company acquired Kerasotes ShowplaceTheaters, Inc. This acquisition added 92 theaters and 928 screens to their portfolio. Thecompany also sold 8 theaters that were located throughout Illinois, Indiana, and Colorado toRegal, to generate more available cash. Cinemark has made the largest strides in the field ofexpansion, opening secondary brands, buying out other companies (but continuing to operatethem under their original names), and championing the American stronghold on the cinemaexperience in Latin America. In 2011 the company purchased 10 theaters and 92 screens fromHoyts General Cinema in Argentina, which helped them to further expand their presencethroughout Latin American countries. (Regal, 2012), (AMC, 2012), (Cinemark, 2012) Beyond expansion to Latin America, China continues to pose as a land of opportunity forthe movie theater industry. Recent trends show that there is still rapid growth in demand formovie theaters in the country, as over the past four years the amount of movie theaters within thecountry has doubled to about 6,200. Currently AMC is the only American movie theater chainthat has operations there, with only two theaters. (Pierson, 2011) A second form of growth is the number of screens per theater. Historically, there weremany movie theaters in the U.S., each with a few screens. The trend of multiplexes has beengrowing over the decades, and these days more and more of the large theater chains are choosingto grow the size of their buildings, rather than just the number. For example, in the past fouryears, the number of theaters and screens that Regal operates has gone up and down, but the
31number of screens per theater is on a steady incline. Operating theaters can be difficult in somerural areas of the country, so instead of opening more theaters and trying to get people to come,the company is willing to have their customers drive farther, but there will be more movieoptions, and less selling out of blockbusters (as they are now able to show a certain film onmultiple screens at the same time). (Regal, 2012)(Regal, 2012) Beyond increasing the amount of theaters within multiplexes, new advancements intechnology have allowed movie theaters to offer a more exciting movie theater experience thanever before. For example, in 2011 Regal invested in adding 10 Regal Premium MovieExperience (RPX) theaters to their overall theater portfolio. These RPX theaters have largerscreens and boast an enhanced movie experience. AMC has followed suit by offering EnhancedTheater Experience (ETX) theaters. These theaters have 20% larger screens, 3-D capabilities,and 50,000 watt sound systems. Lastly, Cinemark offers their Xtreme Digital (XD) cinemaexperience at certain theater locations, which also offers a more exciting movie experience.(Regal, 2012), (AMC, 2012), (Cinemark, 2012) Recently, Regal and AMC have joined together to form Open Road Films, a distribution
32company of mostly independent films. This is to be the first of its kind in terms of distribution,as usually distributors are the movie studios who have annoyingly (for theaters) added to the costof each film they show. The new venture will allow independent production studios to supplytheir new films directly to AMC and Regal. This will help the theaters keep the prices down, andit will help the indie cinema industry find its way into thousands of theaters that it otherwisemight never have had the chance to do. If this company succeeds, it will be a breakthrough forthe industry, as it will show that there is, in fact, a way to cut out the middle man and streamlinethe process by which films make it onto the big screen. (Waxman, 2011)D. Threats The biggest threat to the movie theater industry is the growing number of forms ofcompetition through substitute products that it now faces. Many years ago, if one wanted to gosee a new (or at least fairly recent) film, the only option was to go to the theater. It would bemonths before the movie was made available for purchase, and then that was still a moreexpensive option than buying a ticket. These days, such is no longer the case; there is amultitude of other ways to see any movie. (NATO, 2012) Movies go to home video much faster than they used to, which cuts down on the amountof time theaters have to capitalize on the novelty of a new title. This shortened window has alsoconvinced some to forego the theater entirely, as there are many titles that they are willing towait for. Expanding this problem is the fact that the avenues a person can take to see thesemovies has increased. No longer is the local video store the only place to rent a new film; rather,it hardly seems a viable option anymore, with many shutting their doors due to lack of business.Netflix, Hulu, Amazon...the list of legitimate businesses that are operating video subscription orstreaming services is growing by the year, each one chipping away at the cinema’s market share.
33Add any and all illegal file sharing, and the reasons to go to the cinema just don’t add up to thecost of a ticket for many anymore. (Vanairsdale, 2010)IV. Strategy FormulationA. Strategic Alternatives and Evaluations When looking towards improving or developing strategies, all three of these companieshave to consider alternatives that will help them to do three major things. First, all three of thesecompanies have substantial levels of long-term debt. Decreasing the amount of money they owein the long-term is key. Second, these companies need to work towards getting more out of theirassets. These companies are dealing with very expensive assets that in many cases areunderperforming due to a drop in demand for their overall operations. Third, they need to makegoing to the movies exciting again. If increased foot traffic in these theaters isn’t generated, thenthe companies won’t be able to grow. (Regal, 2012), (AMC, 2012), (Cinemark, 2012) From a business level prospective none of these companies have been able to leveragethemselves with a cost-leadership strategy. All of these theaters have an average ticket price ofaround $6-$8, when looking at pricing in all of their geographic regions. The theaters couldchoose to utilize a flexible pricing model that would allow for tickets to be priced based ondemand. This would have to be worked out contractually with studios, but could ultimately havetheaters bringing in a higher price per admission for new blockbusters and at the same timeseeing a rejuvenated life span for less popular films because they’d be offered at a lower price.(Zeitchik, 2011) A flexible pricing model for tickets could also have adverse effects. Demand for a moviemight be so high, that the price of a ticket is driven up to the point where it angers consumersand actually hurts attendance numbers. Also, on the other end if less popular films become
34cheaper, then that will mean that the operating margin for those ticket sales will be even lower.(Zeitchik, 2011) Beyond potentially underutilizing cost-leadership strategies, there is also a limitedamount of differentiation within the market. All cinema chains offer mainly the same productsand services. There is a lot of room for creativity when it comes to showing alternative forms ofcontent, such as televised professional sporting events, ballets/plays, or even concert footage.Theaters could also put more time and money into offering a wider arrange of concessionchoices, as that’s where they make a majority of their profit. That being said, diverging awayfrom the standard snack foods and soda to higher quality food items will increase their initialconcession supplies expense. There are no guarantees that a positive return on investment willcome of it. (Snider, 2011) Beyond showing alternative content, all three of the major movie theater chains havestarted to differentiate themselves by providing a premium theater experience. These kinds ofofferings boast improved digital/3D projections, enhanced surround sound, and higher qualityamenities. The issue remains that these theater formats also command higher operating costs,which translates to higher admission costs for the consumer. Since the three major theaters havestarted the production and expansion of these establishments at relatively the same time, theyhave seemed to lose a first-mover competitive advantage. (Regal, 2012), (AMC, 2012),(Cinemark, 2012) All three of the movie theater companies being analyzed utilize corporate levelacquisition strategies. The chains have all been able to command key regions of the U.S. marketthrough the use of acquisitions. Also, AMC and Cinemark have utilized acquisition strategies toexpand internationally, with operations in the EMEA, Asia/Pacific, and Latin America markets.
35China is currently the fastest growing country in terms of movie theater demand, but yet only hastwo American movie theaters, both owned by AMC, operating within the nation (AMC, 2012),(Cinemark, 2012). The country currently has 6,200 operating movie theater screens and thatnumber is expected to double by 2015 (Pierson, 2011). Latin America is another popular market for expansion and only Cinemark has takenadvantage of this rapidly growing region. Brazil tends to be the most popular country within thisparticular market, mainly due to an increase in the teen population which has spurred a higherdemand for American and international films (Cinemark, 2012). Beyond Latin America, EMEAis a very large market, but there is limited involvement from American movie chains because ofvarying theatrical release dates (Brooks, 2012). Countries’ governments control wheninternational movies will be released for their domestic market. As previously stated largeEuropean countries, such as Italy, release movies from international markets much later thanother countries. This is partially done to allow domestic films to reach their full potential(Brooks, 2012). With nationwide drops in movie theater attendance, theater chains may start choosing todiversify their operations to offer more than simply a theater experience. For example, AMC hasstarted to offer Dine-In theaters, which offer an array of dining and lounge options forconsumers. Currently 13 of AMC’s theaters are considered Dine-In theaters that offer amenitiesfrom their self-formed Fork and Screen in-theater restaurants and MacGuffin’s pubs. Thisconcept of diversification can also be conducted through partnerships with popular existingrestaurants chains to generate further demand for movie theaters. Currently Regal and Cinemarkdo not offer any form of restaurant or lounge areas within their theater locations. (Regal, 2012)(Cinemark, 2012).
36 Movie theaters have the ability to diversify their operations to offer consumers a moreextensive movie theater experience, but they can also use the concept to help themselves increaseexhibition operating margins. As previously mentioned, in 2011 Regal and AMC entered a jointventure to open the independent movie studio, Open Road Films. This will allow these twotheater companies to produce and distribute independent and less commercial films in-house,which in the future will allow them to generate much higher operating margins on specific films.This strategy has not yet been utilized by Cinemark, but is one that could prove to increase theprofitability of movie theater chains. (Regal, 2012), (AMC, 2012), (Cinemark, 2012) Although each of these companies has the ability to utilize corporate-level strategies togrow and diversify their operations, these strategies can also be used to consolidate or dispose ofexisting locations. For these companies to undertake new exciting strategies, they have nochoice, but to first eliminate some of their future debt. This could be done by selling some oftheir assets in the form of property, plant, and equipment. (Regal, 2012), (AMC, 2012),(Cinemark, 2012)V. Strategic Alternative ImplementationA. Action Plan Staying consistent with the goals of decreasing debt and increasing asset return ratios,Regal, AMC, and Cinemark need to strictly measure the profitability of offering premium movieformats, as their primary business level strategy. These companies have all seen an increase inrecent demand for 3-D movies, but ROI calculations need to be reviewed to understand if futureinvestment in 3-D and other premium formats are generating profit margins that are suitable forthe amount of risk they’re undertaking. (Regal, 2012), (AMC, 2012), (Cinemark, 2012)
37 From a corporate level perspective the growth of the movie theater industry will dependupon how well theater companies are able to profitably diversify their operations. That beingsaid, before the theaters can conduct further diversification strategies they need to decrease theiramount of long-term debt, which will improve their overall cash-flow. The theater chains shoulddo this domestically by closing underperforming theater locations and consolidating theaterlocations in states where they have a wide range of cinemas. All three companies are spreadvery thin in large states such as Alaska, Arkansas, Missouri, Minnesota, and Kentucky, offering1-2 theaters throughout the state. Due to the lack of involvement in these areas, it’s obvious thatthey don’t view these regions as ones that contain high levels of demand for their service. It’s inthese areas, where their level of brand awareness is probably scarce, that they should focus ondisposing a majority of their operations unless they consider them to be highly profitable.From another prospective, all three theater chains have the same number one market, in terms oftheater locations and screens; California. Although California is third largest state in the country,these theaters could strategically consolidate their operations to generate larger standalonetheaters in their busiest locations. (Regal, 2012), (AMC, 2012), (Cinemark, 2012) Once these companies have decreased their long-term debt obligations, more focusneeds to be placed on expanding to China. AMC licenses its trademark to two theaters withinthe country, but should work to increase their overall brand presence as consumers are showing arapid increase in demand for digital movie projection. Cinemark has been very successful inLatin American countries and has shown that they’ve been able to transition their business modeloverseas. Cinemark should now take a stab at the Asia/Pacific market, primarily China to see ifthey can further expand their international presence. (AMC, 2012), (Cinemark, 2012)
38 To this day Regal still doesn’t operate outside the U.S.; they have shown that the U.S.market is very profitable if targeted in the right areas, as they continue to generate the highestbox-office revenues. With that in mind, Regal should expand to Canada through strategicacquisitions. Canada is unaffected by theatrical release windows the way that many Europeancountries are and overall exists as a highly untapped market for U.S. movie theater firms(Brooks, 2011). Beyond international expansion, Regal and Cinemark should diversify their operations toinclude dining amenities at some of their locations. Unlike AMC, with generating their own puband restaurant, Regal and Cinemark should generate partnerships with popular restaurant chainsthat aren’t that prevalent in their major regions. The idea behind this is that a restaurant chainlooking to expand would get guaranteed exposure in a movie theater setting. A prime restaurantcandidate for this kind of diversification would be Chipotle Mexican Grill, as it’s a rapidlygrowing company that appeals to a wide variety of consumers and offers a very limited amountof products that directly infringe upon the movie theater concession market. Texas andCalifornia, two of Regal and Cinemark’s larger markets, have very few, if any, Chipotlelocations. If Chipotle were to expand through partnerships with these theaters it couldpotentially increase the demand for their brand in new regions and help through cross promotionto bring some excitement back to existing movie theater locations. (Regal, 2012), (AMC, 2012),(Cinemark, 2012) (Chipotle, 2012) The last corporate-level strategy that all these firms have to look towards is theopportunity of either partnering with or starting their own independent movie studio. Regal andAMC have already done this with Open Road Films, but Cinemark has yet to branch into thedistribution business. An operational segment of Cinemark Holdings, Inc., CineArts theaters,
39which specialize in showing independent and foreign films, provides this company with anopportunity to partially evolve into an independent and foreign film production company.Cinemark could finance this strategy with existing current assets in the form of cash and cashequivalents, as they reported over $550,000,000 in total current assets. (Regal, 2012), (AMC,2012), (Cinemark, 2012)
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