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Global movie theatre operators, present scenario and analysis

Going for a movie is a convenient and affordable form of out-of-home entertainment as compared to other alternatives of entertainment such as theme parks, concerts and sporting events. However, in the past few years with the increase in the internet penetration, especially in the developing economies and use of smartphones has led to the surge in demand for online digital content. The streaming platforms like Netflix, Amazon Prime, etc. have capitalized on the digital opportunity and are offering a broad range of TV series and movies online at a comparatively cheaper rate than out-of-home movies. In the current blog, Televisory tried to analyse the key operating parameters of movie theatre operators and impact of (if any) the advent of online content providers.

The global movie theatre industry’s revenue grew at a healthy CAGR of 5.74% between 2001-16 and was worth USD 38.6 billion in 2016.

In the movie theatre industry, the average ticket price and audiences are key growth determiners. The average ticket price depends on multiple factors, which is based on the cost such as a film rental, occupancy cost and other administrative expenses. Although, a movie’s audiences are impacted by other qualitative factors such as content, technology, film stars, economy apart from ticket prices.

The Asia-Pacific had the highest revenue share and surpassed North America and EMEA (Europe, the Middle East and Africa) regions in 2013. This was on the back of sustained economic growth and rising income levels in the developing economies, which led to increasing number of movie-goers resulting in growth of theatres and screens in the Asia-Pacific. Furthermore, China (39,194 screens) is close to the US (40,475 screens) in terms of movie screens as of September 2016.

However, in the last few years, the growth has slowed down in regions such as North America and EMEA. The main reasons are internet penetration, the growth of online streaming platforms like Netflix, Amazon Prime and Hulu, which gained market share in the above regions and this impacted the number of movie-goers. In addition, rising use of mobile phones supported the growth of these online services, this negatively impacted the movie industry in North America and EMEA. For instance, Netflix’s revenue grew to USD 8,830.7 million (2016) from USD 150.8 million (2002) at a CAGR of 33.7% (the firm derives more than 60% of its revenue from content streaming in the US). Thus, over the past decade in North America, the average ticket prices rose continuously, this along with increasing number of internet users impacted movie-goer numbers.

Consequently, other major factors that led to a decline in the revenue growth rate (in the past 10 years) was shrinking of theatrical release (theatrical release window is a time frame in which a movie is available only in movie theatres) window to less than 3 to 4 months or even lesser in few instances, this traditionally was 6 months. Therefore, once the window period is over, a movie is available on other channels such as VOD (Video On Demand), pay TV, DVD, etc.

In order to compete with challenges thrown by alternative movie distribution models, the movie theatre operators started focusing on new and innovative technologies with enhanced movie experience for the sake of attracting viewers. A movie such as ‘Iron Man’ viewed on a giant IMAX screen among a crowd is an experience which cannot be created at home. Sian Heder, a Hollywood director once said in a statement to the New York Times that one always wants a film to be shown on a big screen with perfect sound and the best projection. Likewise, a revolution in the three-dimensional stereoscopic film (3D movies) has given a new direction to the cinema industry. 3D movies quickly expanded their space in the movie industry, especially after the release of James Cameron's 3D movie ‘Avatar’ in 2009. This revolutionized the movie-watching experience in theatres. Its direct impact has been seen through a surprising growth of the digital 3D screens since 2009. Thus, movie theatre operators need to continuously invest in technology, this directly impacts their cost.

Overall, the movie theatre operators’ industry has experienced few challenges from online streaming of movies. However, the industry has shown a constant growth through technological advancements and creative concepts since people are ready to pay more if they get an enhanced experience of watching 3D movies in a theatre, but this growth has rather shown a slower pace. The online streaming industry has picked up the pace in the last 2 to 3 years, the real impact of this is yet to be seen on the actual performance of the movie theatre operators. 

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