For a little more than a decade, The Lyric Cinema has brought the independent film scene to the Fort Collins community. Year after year Fort Collins residents wanting to see films on the indie circuit or just wanting to get away from big blockbusters have sought out The Lyric’s unique offerings and affinity for the classics. But while Fort Collins supports the Lyric by having a strong academic presence through Colorado State University students and vibrant artistic community who are both eager to explore new realms of cinema, many other theaters are not so lucky.
The past two decades have seen a trended decline in the number of cinema sites from 7,744 locations in 1995 to 5800 in 2018, according to the National Association of Theater Owners. Many towns have experienced what it feels like to see a movie at their local theater on Saturday, only to see it shut down on Monday. While most of this article will focus on indie theaters and smaller chains like the Alamo Draft House, much of these problems are frightening for the entire industry.
But to really start to understand the unruly complex of problems facing the independent theater industry one must clear up some of the biggest misconceptions, namely the misconceptions around Netflix.
Competition (or lack thereof) from streaming services
If you ask anyone what the biggest threat to theaters is, they will likely answer streaming services in a few seconds, likely due to a combination of campaigning from major studios and theater owners as well as a plethora of think/opinion pieces from news outlets. When looking at the numbers however there doesn’t appear to be a definitive correlation between a decline in theater attendance and the rise of Netflix.
While annual ticket sales have had a declining trend in the last few years, this decline started in 2002 according to The Numbers a site that analyzes and cross-references film industry statistics. While ticket sales have gone done steadily, total annual box continues to rise. Going from $5.3 billion in 1995 to $11.9 billion in 2018. According to Google’s trend tracking, Netflix only started to garner serious attention in the U.S. in 2008. (insert image)
It’s also worth noting that theater attendance has been relatively low for decades. A 2002 study by Michelle Pautz on weekly movie theater attendance shows that the percentage of Americans who went to movie theaters on a weekly basis has hovered around 10% since the late 1960s. Thus, low theater attendance and declines in sales have been an ongoing trend long before most people heard of the most popular streaming services.
Paramount made headlines in 2014 when it announced The Wolf of Wall Street would have very limited film stock distribution, meaning the film would primarily be distributed and shown digitally, according to NPR. Many studios have made an effort over the last few years to switch to a digital-only format. While a small fraction of film distribution still makes film stock for analog projectors, that practice continues to dwindle and more distributors and studios are pressuring smaller venues to switch to digital by simply refusing to distribute certain movies.
A professional grade theater projector can cost anywhere from $40,000 to over $100,000 dollars. For smaller studios just purchasing only one of these projectors would be a considerable expense, let only purchasing multiple.
Many independent theaters, including Fort Collins’ Lyric Cinema, turned to crowdfunding to raise funds. But while some independent and small theaters managed to raise enough funds, many failed to reach their necessary goals.
Studios and distributors are pushing for digital filmmaking and reproduction for numerous reasons. Digital film is much easier to work with during filming, editing and distributing. Digital footage is also much cheaper to copy, meaning it would be distribution companies best interest to push digital video to cut down on costs.
As the years go on, new technical standards will be introduced which will require more new equipment. But the costs do not stop at new equipment.
Expenses don’t just stop at projectors or sound equipment either, a movie theater is a series of large expenses from top to bottom. A large profession popcorn maker can cost around $1,000, a soda fountain can cost anywhere from $4,000 to upwards of $11,000, and registers can range from $200 to over $1,000 depending on the level of quality. Taking into account that there is much more equipment needed to operate a theater and often times multiple of one item, theaters, even small ones, require large amounts of capital just to open.
And the list of expenses only gets bigger. A theater needs staff to operate the theater, food and drink need to be regularly reordered, utilities, rent or loan payments, property tax if you bought the land, repairs for broken equipment and general upkeep.
On top of all of this, theaters need to regularly deal with studios and distributors who have continually asked for bigger shares of revenue, according to Variety.
Dealing with studios and distributors
In order for films to be legally shown at venues for public consumption, you are given two licensing options, according to Indywood. Distributors will either allow you to pay for a one-time licensing fee or you have to surrender a large percentage of your profits.
When a theater and distributor cut a percentage deal, the first week the distributor takes a large portion of the profits (the actual percentage varies according to the theater and movie), then after the first week, the distributors cut gets smaller with each week until the theater stops playing the film. Over the years though, studios have also been asking for higher margins overall, leaving less room for theaters to make money in post-first-week sales. This compounds the fact that most traffic for a film dies after the initial week, meaning theaters wouldn’t be making stellar sales in subsequent weeks in the first place.
The majority of theater profits are made from concessions. Concession charges are so high because theaters are making up for the profit lost in the distributors cut of ticket sales. Former president of the National Association of Theatre Owners said in 2007 Boston Globe article that concessions can make up as much as “46 percent of profits” for a theater.
Distributors and studios also engage in several practices that prioritize larger chains over smaller theaters, according to Corpwatch. Studios and theater chains routinely sign exclusivity deals that exclude smaller theaters within a certain mile radius from showing certain movies at the same time as the large chains. Theatre chains have a long-standing history of undercutting independent theaters.
In the late 80s and early 90s, theater chains began to expand by opening large multiplexes and even megaplexes across the country. These massive theaters would usually have around 10, but megaplexes had upwards of 16 theaters. The usual small or independent cinemas typically had between 1-4 theaters. While venues with more than 4 theaters did exist for the 90s boom, it was during the 90s that their prevalence really took over America and first started to become a threat to smaller cinemas.
To reiterate, America saw a decrease in in the total number of cinema locations from 1995 to 2018 from 7,744 to 5,800, according to The National Association of Theater Owners But while the number of locations has been decreasing the total number of screens has been growing. In 1990 there was a total of 23,814 screens in the U.S. according to the National Theater Owner Association. By 2000 the number of screens rose to 36,379, later to 40,837 by 2018. So while many cinemas were closing there were more screens to replace them.
It also doesn’t take much knowledge of economics to understand why these large theaters drove so many smaller theaters and chains out. More screens means more opportunities for viewers to see the movie they want, it also means more time can be dedicated to the most popular release at the time. Bigger auditorium spaces in which the seating is designed to fit as many people as possible allows for more tickets to be sold and more viewing opportunities.
In contrast, independent theaters are often much smaller and have far more limited seating, thus even though their cost of operations is lower, smaller theaters still need to charge more to cover costs. Put simply, large chains have so much more to supply to audiences that they can charge for items at a lower cost.
Unlike smaller theaters, chains like AMC provide their own support network for its theaters. Theaters in lower traffic areas don’t have to worry about going without pay so long as most other theaters are doing well.
With so much to offer at a cheaper price, more people turned to chains than their independent theaters. Soon local theaters either began to sell out to the bigger brands or just simply went out of business. Little by little the biggest theater chains like Regal, Cinemark, and AMC began consolidating the market and pushing out competition. Now those three chains own 50% of the total number of screens in the U.S., according to Variety. But small theaters are not the only ones safe from consolidation, in 2016 AMC bought out Carmike Cinemas and its 271 locations for $1.2 billion dollars, which made it the largest chain in the U.S., according to an LA Times article. Now venues with less than four screens only make up 11% of the total market according to 2018 numbers.
A new approach for indie theaters
Many indie theaters have not stood by idly while large companies continue to consolidate, many have been reworking their strategy to offer a worthwhile alternative to the conventional theater experience. Independent theaters have started to focus more on small time or independent films that don’t get shown in major theaters as a way of attracting audiences for a different experience. Small time and indie distributor have also been easier to work with for many theaters, and these distributors are eager to get films in as many theaters as possible.
Small theaters like the Lyric have also taken steps to make the theater experience more comfortable by offering more comfortable seating like couches and reclining seats. These theaters have also started to implement better food and drink options by implementing restaurants and bars. Some theaters are even offering whole other forms of entertainment like game rooms, VR, bowling and even live performances.
In short, these theaters are offering not just alternatives to the blockbuster releases but offering a whole different experience that brings out the community. But in business, if there’s money to be made companies will discover it eventually, and no good idea goes un-stolen.
Recently large chains have also been looking to offer a more high-end experience, according to The Wall Street Journal. Both Cinemark and AMC have spent large amounts of money in recent years to renovate theaters by also implementing more comfortable seating, dine-in options, and bars. Companies have realized what drove a lot of customers away from theaters is the level of discomfort they experience in the theaters, so while they won’t necessarily change their pricing, what they will do is simply offer better options.
A change in these companies’ priorities is not only a threat to these smaller theaters, but it’s key to remember that these expansions and renovations are not free. These projects small theaters are taking in order to compete are investments, but in order for those investments to pay off the community around the theater must be receptive to those changes. Some theaters have already spent large amounts of money without much luck, according to Variety.
For as much as large theaters like to give off the image of struggle the simple truth is, they aren’t struggling to nearly the degree smaller ones are. AMC made over $11 million in profit in 2018 according to their financial reports, and because they’re so big they can easily keep making more money. And with so much money theaters can continue to adapt to the culture and industry changes with ease whether it be digital projectors, services, or simply installing new seats.