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Technological change and managerial challenges in the movie theater industry

Abstract

The recent rise of digital technology in the delivery of entertainment casts doubt among industry stakeholders on whether movie theaters will continue to be the primary channel of the release of motion pictures. Despite the growth of competing outlets due to the spread of digitalization, we argue that the movie theater industry may benefit from digital technologies as well. Enhancing the cinemagoing experience, better matching of the cinemagoing experience to consumer preferences, and improving capacity utilization are crucial if movie theaters are to continue having a pivotal role in the distribution of filmed entertainment. In particular, our data analysis demonstrates that the use of new digital technologies and “big data” may be one way to turn the current threats into future opportunities for movie exhibitors. Therefore, managerial strategies that aim to raise the value proposition of theaters by enhancing the cinemagoing experience, and that boost adaptability to rapidly changing consumer preferences about how and when they view filmed entertainment, ought to be studied and implemented.

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Fig. 1

Data Source: 2015–2016 China Film Industry Report

Fig. 2

Data Sources: Motion Picture Almanac, US Bureau of Census, the-numbers.com, NATO

Fig. 3

Data Sources: Motion Picture Almanac, US Bureau of Census, the-numbers.com, NATO, UNESCO Institute of Statistics

Fig. 4

Data Sources: Motion Picture Almanac, US Bureau of Census, the-numbers.com, NATO

Fig. 5

Data Sources: Motion Picture Almanac, US Bureau of Census, the-numbers.com, NATO, UNESCO Institute of Statistics

Fig. 6
Fig. 7
Fig. 8

Notes

  1. Consider, for example, entertainment content produced, posted and consumed on YouTube. YouTube counts 1.3 billion users, who upload 300 h of video content every minute and watch 5 billion videos on the platform daily. YouTube attracts over 30 million visitors per day. See https://videonitch.com/2017/12/13/36-mind-blowing-youtube-facts-figures-statistics-2017-re-post/.

  2. See https://variety.com/2017/film/features/movie-business-changing-consumer-demand-studios-exhibitors-1202016699/ for analysis of threats to profitability in movie exhibition from demographic and industry trends.

  3. As a cautionary note, we recognize that historic data from different sources used throughout the paper are not always consistent. Usually these differences are relatively small, but at times they can be consequential. We carefully state the data source used in our historical analysis at every instance, and we attempt to use the data source that allows us to compare across countries and time for the particular situation we are studying.

  4. For the purposes of this paper, we use the term “big data” to broadly define the increasingly high-volume data sets available for analysis that require sophisticated analytic and computational techniques. See Bajari et al. (2019) for an example.

  5. A more complete discussion of the financial model of movie exhibitors can be found in Vogel (2017).

  6. See information from National Association of Theater Owners (NATO hereafter), https://www.natoonline.org/wp-content/uploads/2018/10/Major-Studio-Release-Window-Averages-9_18_18.pdf.

  7. See this article in 2006 about the release of Steven Soderbergh’s film Bubble,

    https://www.eastbaytimes.com/2006/01/22/day-to-date-release-strategy-shaking-up-movie-industry/.

  8. Some of these improvements are noticeable in sound and image on screens, but also in movie schedule flexibility and variety of treats in concession stands. For example, US exhibitors invested $3+ billion to move from traditional film to digital screening between 2000 and 2015. See link in the NATO webpage, https://www.natoonline.org/initiatives/cinema-technologies/.

  9. US per-capita cinema admissions data are from the following sources: 1933–1979, Film Facts, https://www.the-numbers.com/market/; 1980–1998, NATO, Encyclopedia of Exhibition, at p. 283; 1946–1999, Motion Picture Almanac, at 9; and https://eire.census.gov/popest/data/states/tables/ST-EST2002-01.php.

  10. Data for China are from the UNESCO Institute of Statistics (data.uis.unesco.org); data sources for US listed in previous footnote. Because China banned the theatrical exhibition of virtually all US movies from the founding of the People’s Republic of China in 1949 until 1994, we focus on recent years where a comparison across the two countries is more sensible.

  11. Note that data from MPAA (https://mpaa.org/wp-content/uploads/2018/03/MPAA-Theatrical-Market-Statistics-2015_Final.pdf) and UNESCO are similar, but not always consistent with each other. While we are not aware of the reason for these differences, a contributing factor may be from NATO and MPAA bundling US and Canada when reporting their numbers. We conclude that the best sources for US data are as detailed in footnote 9.

  12. See Sun (2017) for further details on the Chinese film industry.

  13. Balio (1976) provides a more complete history of the development of the US motion picture industry.

  14. A distinctive aspect of the US exhibition market is the so-called Paramount consent decree, which largely led to the separation of production and distribution in the US. In 1948, the US Supreme Court ruled that the eight large distributors had engaged in anticompetitive practices in violation of the antitrust laws. To settle the lawsuit, the majors agreed to divest their investments in exhibition and to refrain from future acquisitions of movie theaters. Different studios signed individual decrees over the years and finally divested from their theatrical assets in 1955 (Gil, 2015). These restrictions are mostly still in effect.

  15. According to data from NATO’s Encyclopedia of Exhibition, the number of screens in the US dropped from 18,000 to under 12,600 from 1948 to 1963, and then, it steadily increased due to the emergence of multiplexes, reaching more than 40,000 in 2017.

  16. Note that admissions and attendance both measure number of movie tickets sold. Figures 2 and 3 report admissions and attendance counts, respectively; the terminology reflects the language used in the sources cited.

  17. Note that cinemas also served as news outlets prior to the introduction of TV. See here, http://en.wikipedia.org/wiki/Newsreel.

  18. While a few movies have experienced simultaneous releases on video-on-demand and in theaters, there is little and insufficient empirical evidence to separate attachment from impatience. See the following LA Times article for a discussion on this matter, https://latimes.com/entertainment/envelope/cotown/la-et-ct-sony-hacking-interview-vod-20141230-story.html.

  19. Online providers of entertainment are already making extensive use of such data analytics. For instance, Hulu gathers 15 billion data points per day on its users. Hulu used that data to identify binge watchers and to tailor advertising programs to such users. See article https://businessinsider.com/hulu-will-target-binge-watchers-with-specific-new-ad-type-2019-9.

  20. Examples of papers using granular data include Chisholm and Norman (2006), Gil and Hartmann (2007), de Roos and McKenzie (2014), and Ho et al. (2018).

  21. Shari Redstone, President of National Amusements, suggests that concession sales can account for about 30% of the revenue in a multiplex, while having food costs between 10 and 25% of such sales. See Redstone (2017).

  22. See http://stephenfollows.com/uk-event-cinema/.

  23. Although several companies such as Moviepass have attempted such a flat-rate approach, to date an economically viable business model has not yet emerged. See a discussion here, https://washingtonpost.com/opinions/three-theories-on-why-moviepass-failed/2018/08/02/a39ccc36-9691-11e8-80e1-00e80e1fdf43_story.html?noredirect=on&utm_term=.f7465f62d894.

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Acknowledgements

The research assistance in data analysis of Sonam Singh and Qiyan Wang is much appreciated. The financial support of the Social Sciences and Research Council of Canada (Weinberg) is gratefully acknowledged. We are grateful to participants at the 20th-Anniversary Mallen Economics Conference on Film Entertainment, the Editors, and three anonymous referees for helpful comments and suggestions. We would also like to thank the anonymous industry practitioners who provided proprietary exhibition data. The usual disclaimer applies.

Funding

The financial support of the Social Sciences and Research Council of Canada (Weinberg) is gratefully acknowledged.

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Correspondence to Ricard Gil.

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Weinberg, C.B., Otten, C., Orbach, B. et al. Technological change and managerial challenges in the movie theater industry. J Cult Econ 45, 239–262 (2021). https://doi.org/10.1007/s10824-019-09374-z

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Keywords

  • Movies
  • Theaters
  • Exhibitors
  • Technological change
  • Digitalization
  • Big data
  • Filmed entertainment
  • Product differentiation

JEL Classification

  • L82
  • L13
  • L21
  • D43
  • D22
  • Z10