Analyst: Movie Theater Chains Should Focus on Customer Satisfaction, Not Popcorn Profits

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NEW YORK – BTIG analyst Richard Greenfield feels movie theater operators have the wrong priorities and should re-focus on the consumer experience.

“We believe exhibitors’ core strategy of raising ticket prices through 3D premiums and pushing concession pricing as far as humanly possible in the midst of shifting theatrical release windows is a dangerous strategy,” he said in a blog post on Tuesday. “Exhibitors should be less concerned with paying dividends and maximizing near-term revenues/profits through $6 buckets of popcorn at 98 percent margins than with increasing consumer satisfaction with the movie-going experience.”

Greenfield’s ire was raised by an investor conference appearance a day earlier by Regal Entertainment Group CFO David Ownby who, among other things, touted how profitable popcorn is for exhibitors.

“One of my friends is a commodity trader and every time the price of popcorn goes up, he calls me to remind me that it’s going up,” Greenfield quoted Ownby as saying. “And I like to remind him that we sell a bucket of popcorn for $6. Our cost in that $6 bucket of popcorn is about 15 cents or 20 cents. So if that cost doubles it doesn’t really hurt me very much.”

Ownby also touted the premium prices for 3D movies that exhibitors can charge after a low capital investment in the technology, saying “we typically [charge] a premium anywhere from $3 - in a very few markets now we’ve gone to $4.50. I would say the average around the country at this point for us is about $3.50.”

All this led Greenfield to use the following title for his blog post: “As Gas Prices Soar - Regal Touts Charging You $6.00 for 15 cents worth of Popcorn and $3.50+ Premiums for 3D.” The analyst’s conclusion: “In the face of shifting release windows (not to mention soaring gas prices), we found it disturbing to hear Regal management tout how much they are overcharging the American consumer for popcorn.”

Greenfield pointed to this weekend’s performance of 2D animated film Rango, which made $38 million, as an example for “how 3D premiums may not be the best way to drive the profitability of a film.” Said the analyst: “Rango opened well above Gnomeo and Juliet and should be at least double Mars Needs Moms, despite MNM being released in both 3D and Imax.”

He predicted that this Friday’s release of Mars Needs Moms would “bomb, with childrens’ 3D tickets at a Manhattan Regal going for $13.00 in the early afternoon, versus only $9 for Rango, with a Regal in Brooklyn charging children $15.50 for a 3D Imax showing of Mars Needs Moms.”

Greenfield also made some predictions on the premium VOD plans of Disney, Fox, Sony, Universal and Warner Bros. Studios have signaled first trials could come by mid-year. “All appear ready to begin releasing movies on VOD around eight weeks after they are released in movie theaters for around $25,” the analyst said.

“We expect a stream of high profile movies to trial early release, premium-priced VOD by the end of the second quarter - with titles such as the final Harry Potter and Cars 2 likely to be included," Greenfield added. "While exhibitors continue to view these as so called “tests” and “hope” to be compensated by improved theatrical film rental splits, we believe the studios are very serious about moving this initiative forward and that studios have no interest in giving exhibitors more favorable splits.”


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