12. Evaluating Theater Opportunities

This section of the toolbox provides a method for quantifying market opportunities specifically for movie theaters located in the downtown district. It includes techniques for estimating market demand and supply in terms of square feet of theater space, number of screens and other more qualitative and equally important market considerations. Finally, more advanced analysis techniques using GIS are provided.

Movie theater trends have changed the industry. From the ubiquitous movie palaces that dotted nearly every community’s downtown to the current rash of megaplexes with 16 or more screens on the edge of town, the movie exhibition industry has always had to adapt and change with the demographics, technology and demand from the community. While movie theaters can provide a viable entertainment option for keeping the downtown active later in the evening, movie theaters are more than a social, cultural and entertainment outlet. They are a business. Any romantic notions of bringing the movies downtown should be tempered with the reality of movie theaters as a capital-intensive business dependent upon consistent and quality products, movies.

In some smaller communities, movie theaters do not survive as a business, yet are still operated as a service to the downtown and surrounding community often as a non-profit, a cooperative or a city-owned endeavor. For examples of alternative owning and operating strategies for downtown movie theaters, see the March 2005 Let’s Talk Business newsletter at http://www.uwex.edu/ces/cced/lets/Mar05ltb.html.

A few key questions must be answered to determine what entertainment venues will have the greatest potential:

• What do the local demographics suggest about the market demand?
• Based on lifestyle characteristics, what are the preferences of the various market segments?
• What and where are the existing movie theaters in the downtown, trade area, and region? What types of movie experiences do they provide? (First run, discount theaters, restaurant and movie combination, independent, foreign and classic films, etc.)
• What movie theater concepts (in all forms) are missing from the downtown district and/or trade area?

Using market analysis findings, you can draw conclusions regarding the viability of certain venues. However, the movie theater industry is complicated; therefore, a more thorough market feasibility study will have to be conducted to determine final location, size, and financial pro forma results. The following flowchart describes the analysis process.

Exhibit 12.1 - Evaluating Movie Theater Opportunities

Movie Theater Trends

Recent trends in the movie exhibition industry emphasize megaplexes (16 or more screens), multiple story stadium seating and digital sound and picture. While Megaplexes may work well in large metropolitan areas, smaller cities may not have the population or density to support such large developments. The large footprints required for these developments may not fit in with downtown plans focusing on creating pedestrian friendly districts emphasizing a sense of history and place. Not every market will support a megaplex, and there is a demand for everything from single screens, miniplexes (2 to 7 screens) and multiplexes (8 to 16 screens) on up.

While supply and demand are essential to determining if there is a viable market, the following elements specific to the movie theater industry are essential to consider:

• If you are entering a competitive market (where competitors are geographically close), will you be able to get access to your preference of first run prints? Often when movie theaters are geographically close together they may be unable to run the same movie. This is a concern if only one movie theater in a community can book a popular film and make a good profit on concessions for weeks on end. In markets with large chain movie theaters, it is harder for smaller or independent movie theaters to gain the advantage.
• The question of the number of screens is an important one. Single or twin screen movie theaters are often not first run, due to the contractual limitations of running first run movies (holding the movie for a certain number of weeks and sometimes guaranteeing a certain attendance or gross). The current trend is to build movie theaters with a minimum of 6 or 8 screens featuring a few larger auditoriums, with the remaining auditoriums of increasingly smaller sizes. As a movie “ages” and draws a smaller audience, it can be moved to the smaller auditoriums while the newly opening films can be screened in a larger one. In this way, the risk of choosing a poor performing movie is spread out over enough theaters so that ticket sales should not suffer too greatly.
• Renovation of an existing facility, whether an historic movie theater or other building being converted, brings its own set of issues. Questions to consider when considering renovation or reuse of an existing facility include but are not limited to the following:
  • What is the capacity of the movie theater(s)?
  • What, if any, equipment is included in the sale?
  • Does the movie theater have a proscenium (stage) or enough of one to allow for musical or theater performances?
  • What are conditions of seats, lobby, screen, restrooms, etc?
  • Are there concession areas / equipment available?
  • Is there a problem with an obstructed view?
• To help identify new trends, try consulting the website of the National Association of Theatre Owners at www.natoonline.org. In addition, the Motion Picture Association of America publishes a series of reports on the industry each year that are available on their website, www.mpaa.org.

Summarizing Trends and other issues

In considering the items above, write up your conclusions in paragraph form. Remember to consider any concerns around:

• The process for booking films in the area
• Whether or not there is a desire to build new or to redevelop an existing facility; including the potential size and number of screens
• Site specific issues of location and condition of the land, building etc.
• The opportunities and constraints of the specific downtown location desired

Movie Theater Demand Analysis

Step 1 – Demographic Analysis

Selected demographic data are one factor in gauging consumer interests (age breakdowns) and ability to participate (income). Most of the demographic data considered below has been gathered when the “Analyzing Customer Demographics and Lifestyle Data” in section seven of the toolkit was completed. The demographics gathered were those for a specific trade area. Before continuing on, it is important to reconsider if the trade area used in the past section is still appropriate to use in a specific market such as movie theaters, as different products and services can have different trade areas. Are reasonable drive times included in the earlier consideration of the trade area? Does the trade area reach far enough? Refer to section five of the toolkit titled, “Analyzing your Trade Area,” for more details. Once you have identified the trade area, continue by filling in the information below. Sample data has been entered into the trade area population column as an example only. A blank worksheet is available in Appendix A.

* If the demographic data available does not fit into these age categories, try to use categories that are similar and consistent.
** The best source of data on college student population may be from colleges and universities proper. Note whether the schools are more commuter or residential in nature.
*** Sample data provided as an example only based on data from the Villages of Sauk City and Prairie du Sac

In particular, age, education, housing starts, average household income and population growth in younger age categories could be advantageous. The Motion Picture Association of America publishes an annual Movie Attendance Study entitled, “US Movie Attendance Study.” Here are some key findings from the 2004 report:

• The 12-29 age group represents almost half of annual theater admissions
• Frequent moviegoers (those attending at least once per month in a year) make up 81 percent of total admissions. The most frequent moviegoers are those aged 18-20 years old (53 percent)
• Of the total population aged 12 and over in 2003, 72 percent were moviegoers

While families, teenagers, college students and young couples are essential to movie ticket sales, it is important not to overlook any demographic. A community with a sizable retirement population may want to program special daytime screenings. The presence of a local film society could also encourage sizable ticket and concession sales at the movie theater. A large number of stay-at-home parents with younger children may support daytime programming of family films. A large teenage population may sustain midnight screenings on weekend nights. Collaborations with local groups and organizations along with targeted marketing and promotions may provide the needed boost in admissions.

Step 2 – Analyze Lifestyle Characteristics

Lifestyle segmentation systems such as Community Tapestry TM consumer classification data from ESRI can be used to learn about entertainment and recreation preferences for household groups in the trade area. The ESRI data provides an index as well as the number and amount spent on movies for different lifestyle groups. Data available from ESRI includes information on the total number of individuals in a specific lifestyle group who:

• Attended movies in the last 6 months
• Attended movies in the last 90 days, less than once per month
• Attended movies in the last 90 days, once a month
• Attended movies in the last 90 days, 2 -3 times a month
• Attended movies in the last 90 days, once a week or more
• Prefer to see a movie after the second week of release.

While movie attendance cuts across many income groups, understanding where people are in their life stage can provide more insight into what programming would be most appropriate for each group. One example would be a trade area consisting primarily of “Laptops and Lattes” as classified by ESRI. These affluent singles in metro markets may pay more for a more upscale movie environment, or they may prefer foreign and independent films.

Step 3 – Consumer Attitude Research

Surveys and focus groups can help assess demand specific to your particular community and/or trade area. Surveys can be conducted on local residents, regional residents, daytime population, and visitors. More information can be found in section eight, “Assessing Consumer Attitudes” in the toolkit.

Sample questions that could be added to a consumer survey include:*

• Have you attended a movie at a movie theater in the past year?
• How many times have you seen a movie in a movie theater in the past 30 days?
• How far are you willing to drive to get to a movie theater?
• One to three miles
• Four to seven miles
• Eight to 15 miles
• 16 to 30 miles
• More than 31 miles
• Excluding the cost of the movie ticket, how much do you spend on popcorn, candy, soft drinks and other food?
• I never buy food or drinks at a movie theater
• $1 – $4.99
• $5 –$9.99
• $10 – $14.99
• $15 – $20
• More than $20
• When you go to a movie, do you decide on the film before arriving?
• Rank the importance of the following features of a movie theater:
• Historic building
• Stadium seating
• Good sound
• Good projection
• Size of the screen
• Clean lobby/theater/restrooms
• Convenient location (short drive/walk/bus ride to movie theater)
• Affordable ticket prices
• Affordable concession prices
• Good concession food
• Other activities in movie theater lobby (video games, etc)
• Convenient show times
• Independent / Foreign films
• Family films
• New releases
• Proximity to restaurants, other entertainment venues
• How many times in the last year have you just “shown up” to a movie theater and picked a movie from those playing?
• How often do you visit downtown for entertainment/recreation activities?
• How often per month does your household (1) rent movies? (2) watch movies at a theater?
• How often per month does your household visit downtown for entertainment/recreation activities?
• What types of books and magazines do you read? (provide a list to choose from)
• Demographic questions (include gender, age, ethnicity, family size, etc.)

*Some questions adapted from: http://www3.interscience.wiley.com:8100/legacy/college/mcdaniel/0471684767/questionnaire/questionnaire.doc

Step 4 – Demand Analysis in Square Feet and Number of Screens

Beyond analysis of consumer behavior, it is also essential to examine the expenditures made at movie theaters in the trade area. To estimate the trade area’s consumer spending potential we can easily calculate demand in dollars as well as in square feet of retail space or in number of screens.

The steps in the calculations are based on available secondary data from the U.S. Economic Census and the Urban Land Institute. Local trade area population and per capita income collected in Exhibit 12.2 will be used in our table below. Purchasing potential index data are available from private data firms or it can be entered and calculated as demonstrated below. Exhibit 12.3 explains how the Demand Calculator works. The calculations can also be performed manually as demonstrated in this exhibit’s example.

* Sales figures above include all movie theater sales including admission, concessions and other spending.

Summarizing Demand

In examining the four steps above, write up your conclusions in paragraph form. Try using the questions in the above text in addition to those below as a guide:

• Does the demographic data indicate enough current population and growth in key categories to support a movie theater?
• Do the lifestyle characteristics of those in the trade area indicate a strong movie-going behavior?
• Does the Consumer Attitude Survey provide a clear indication of strong movie-going behavior? If so, is there a tendency toward a certain type of theatre, location, price point, environment or type of movie product?

Movie Theater Supply Analysis

Step 1 – Inventory of Existing Supply (Qualitative Analysis)

The evaluation of supply is essential in determining the overall movie theater market potential as well as which type of market (first run, second run, independent/foreign film, etc.). In filling out the form below, include all venues, which offer movies to the public including colleges, universities and recreation/senior centers in addition to traditional movie theaters. Complete a column for all movie venues in the trade area. Because people are willing to travel farther for entertainment, inventory all venues in the broader region. Depending upon the geographic location, the broader region could be as far as a 100-mile radius, or about an hour and a half drive time. In larger metropolitan areas, this radius may vary. A blank worksheet is available in Appendix B.

This information can be mapped with GIS to provide visual cues as to where a movie theater market may or may not reside with respect to the closest competition. More information on this is provided in “Advanced Topics: Analyzing Movie Theater Demand and Supply with GIS” following this section.

The above information on competition is essential in finding any gaps in the market that might signal the potential for a new movie theater in the trade area. What it also provides is an opportunity to examine the characteristics of successful downtown theaters in other communities. Focus on communities able to support a downtown movie theater with similar population size, demographic characteristics and distance from major metropolitan areas, and try to answer these questions:

• Is the movie theater part of an entertainment district with restaurants and other evening and nighttime draws?
• What complementary businesses or events help contribute to the vitality of the downtown? (Complementary businesses can include coffee shops, restaurants, recreation centers, clubs or other activities that take place in the evenings or on weekends.)
• In total, does your downtown have greater or fewer complementary businesses than the comparison communities?
• How concentrated is business activity in the downtown area compared to edge-of-town locations?

Step 2 – Supply Analysis (Quantitative Analysis)

Using the information gathered in Exhibit 12.4, we can now utilize this information to determine if there is an under or over supply of movie theaters in the trade area.

For each movie theater listed in step one above, confirm that there is a reasonable estimate of theater size in square feet. Square feet of space is often called gross leasable area (GLA). It can be estimated by actual measurement of a building's street-front width and estimate of its depth. In some communities, building square feet may be available in tax assessment records. In many cases, square feet can be estimated by simple observation and comparison with other stores. The Urban Land Institute's Dollars & Cents of Shopping Centers: 2002 provides information on store GLA statistics that can be used as a comparative benchmark.

Using the information collected in exhibit 12.4, total the square feet available and the number of screens for any of the categories of interest below. A blank worksheet is available in Appendix C.

* Numbers are not accurate, but are used only to provide and example

Now compare the number of square feet and number of screens of movie theaters in supply, to that of demand in the trade area. In the example above, the supply in the trade area is 50,000 square feet and 20 screens. The demand shows 12,618 square feet and 3 screens. In looking for an over or undersupply, our example shows an over supply of theatre space and screens. In comparing within specific categories, there is a gap in second run, independent/foreign and movie theatre and restaurant combinations. However, based on the clear over supply in the trade area, one should be cautious and seek out further research before considering these markets. Keep in mind, this is one factor to consider among many others we will examine in the Possible Concepts section.

Summarizing Supply

In examining the four steps above, write up your conclusions in paragraph form. Try using the questions in the above text in addition to those below as a guide:

• What is the distance from your downtown (in miles and minutes) to the competition?
• Are there gaps in the supply of movie theaters in the trade area? Generally, is there an under or over supply of movie theaters in the region? Is there an opportunity in a specific movie theater format like single or twin screens, multiplexes, first or second run theaters, independent/foreign theaters, combined movie theater/dining concept etc.
• How many screens are there per person in the trade area (a general rule of thumb for first run theaters is 10,000 people per screen)? How does that rate with comparable communities in the trade area? Is the demand in the trade area adequately served by the supply?
• What are the strengths and weaknesses of the other movie theaters in the trade area? What can be learned from them, especially with regard to other successful downtown movie theaters? What elements of their downtowns are essential to the downtown’s vitality and the theater’s success? Are those elements shared by your downtown?

Possible Concepts

The business of owning and operating movie theaters can be complicated, but start with analyzing the supply and demand within the proposed trade area. From the work you have just completed, you have developed a wealth of information. Write up a summary of the potential for a movie theater in your downtown specifying a concept that could work in the current market. Use the following questions as well as the section summaries and information collected previously to develop a full and detailed report.

• What size and type of theater is under consideration for the location? Think in terms of square feet and number of screens. Consider a variety of concepts including combined movie and performing arts venue, a restaurant/movie theater combination, first run, second run or independent/foreign/classic film theater or other incarnation.
• Do certain concepts seem more appropriate than others in terms of catering to a certain demographic group based on their lifestyle characteristics, or where they are in their life stage?
• What results could be found in the consumer attitude survey? Is there a stated preference for a particular type of movie theater concept?
• Is there a specific concept to avoid due to proximity of competitors, an over-supply of theatres or other concerns?

Advanced Topic:
Analyzing Movie Theater Demand and Supply with GIS

The traditional role of GIS in demand and supply analysis is to find a suitable location for new movie theaters. In other words, GIS is used to analyze market characteristics (such as competitor locations, consumer demand, demographics, traffic counts, etc.) and search for an optimal new location.

However, conducting downtown market analysis means the potential new movie theater location is already known. Even so, GIS can still be used to analyze the feasibility of a downtown location in the context of the larger trade area. These types of GIS applications will contribute additional insight that may determine whether or not a locating a movie theater downtown makes good business sense.

If you are interested in the following techniques and do not have GIS expertise, consider contacting a consultant, planner or market data provider for technical assistance.

Using GIS to Visualize Demand and Supply Distribution

Knowing the geographic distributions of retail demand and supply is vital to understanding the market. Mapping these distributions will show concentrations of high and low demand and the location of potential competition. More importantly, mapping these distributions will show the relationships between demand and supply. For instance, do areas of high demand have a large number of nearby theaters or do gaps exist in the market? As GIS can overlay, or superimpose, different data sets onto one another, it is an ideal tool for exploring this relationship.

To map supply, use business addresses and plot existing retail locations in a given NAICS category. The NAICS category for movie theaters (except drive-ins) is 512131. Furthermore, the amount of consumer demand can be mapped using the demand calculations previously discussed in this section, or buy using data purchased from private data firms. Once mapped, the supply can be shown along with the retail demand distribution. The combination of this information on the same map creates a powerful visual tool that can be used to analyze the downtown market. If the location of movie theaters does not match the concentrations of consumer demand, a market gap may exist. If these gaps occur around a downtown or business district, the maps could show an opportunity for a new downtown theater location.

An example is shown in Exhibit 12.6. The GIS map shows the demand and supply conditions for movie theaters around Sauk City and Prairie du Sac, Wisconsin, two adjacent communities both with downtown districts. First, notice the supply of movie theatres, represented by yellow Stars. Prairie du Sac has a three screen cinema downtown, the Bonham Theatre. Now, notice the consumer demand for movie theaters. We saw earlier that the average per capita spending is almost $40. The Bonham theatre is able to tap into considerable demand in its immediate vicinity, The competing theatre in Baraboo is a single screen and the next closest competitors (based on drive times) are the 15 screen multiplex in the Wisconsin Dells and several multiplexes on the west side of Madison, not shown on this map. The three screens located in downtown Prairie du Sac serve the community and are large enough to pull its audience from nearby towns. This map does not show a market gap for first run movie theaters; however, further examination of the types of theaters present may provide more understanding as to the type of programming available and if there is room for a more non-traditional movie theater concept.

Exhibit 12.6– Sauk City and Prairie du Sac, Wisconsin Movie Theater supply and demand

Appendix A – Demographic Analysis Worksheet

* If the demographic data available does not fit into these age categories, try to use categories that are similar and consistent.

** The best source of data on college student population may be from colleges and universities proper. Note whether the schools are more commuter or residential in nature.

Appendix B – Inventory of Existing Supply Worksheet

Appendix C – Calculating Supply in Square Feet and Number of Screens