Quiz 1

(26/10/2023)

Case Application 2: Not Sold Out

Competitors in the movie theater industry had hoped that they were through the challenges they’d
faced during the economic downturn.65 After ticket sales revenue in 2011 fell 4 percent from the
previous year, revenue in 2012 was up 6.1 percent. However, in 2013, revenues were up again, but
just barely—not even by 1 percent. The numbers of people going to see a movie continue to stall. So,
the industry has tried to pump up revenue with high-profile movies, higher ticket prices, and
premium amenities.

The number of movie screens in the United States totals a little more than 39,000. Together, the four
largest movie theater chains in the United States have a little over 19,200 screens—and a lot of seats
to fill. The largest, Regal Entertainment Group (based in Knoxville, Tennessee), has more than 7,300
screens. AMC Entertainment (based in Kansas City, Missouri) has almost 5,000 screens. The other
two major competitors are Cinemark (based in Plano, Texas—about 4,400 screens) and Carmike
Cinemas (based in Columbus, Georgia—almost 2,500 screens). The challenge for these companies is
getting people to watch movies on all those screens, a decision that encompasses many factors.

One important factor, according to industry analysts, is the uncertainty over how people want their
movies delivered, which is largely a trade-off between convenience and quality (or what the experts
call fidelity experience). Will consumers choose convenience over quality and use mobile devices
such as iPads? Will they trade some quality for convenience and watch at home on surround-sound,
flat-screen, high-definition home theater systems? Or will they go to a movie theater with wide
screens, highquality sound systems, and the social experience of being with other moviegoers and
enjoy the highest-fidelity experience—even with the inconveniences? Movie theater managers
believe that mobile devices aren’t much of a threat, even though they may be convenient. On the
other hand, home theater systems may be more of a threat as they’ve become extremely affordable
and have “acceptable” quality. Although not likely to replace any of these higher-quality offerings,
drive-in theaters, analysts note, are experiencing a resurgence, especially in geographic locations
where they can be open year-round. The movie theater chains are also battling IMAX Corporation for
customers as movie screens get bigger and bigger. Over the last five years, the number of these
oversized screens built by the five largest theater companies has grown to the point where it almost
equals the number of IMAX locations. The movie theater chains have invested in these formats
because it can add several extra dollars to the ticket price, resulting in increased revenues.

Another factor managers need to wrestle with is the impression consumers have of the movie-going
experience. A consumer lifestyle poll showed that the major dislike about going to the movies was
the cost, a drawback cited by 36 percent of the respondents. Other factors noted included the noise,
uncomfortable seats, the inconvenience, the crowds, and too many previews/commercials before
the movie.

A final question facing the movie theater industry and the major film studios is how to be proactive
in avoiding the problems that the recorded music industry faced with the illegal downloading of
songs. The amount of entertainment streamed online (which includes both music and video)
continues to experience double-digit growth. The biggest threat so far has been YouTube, which has
become a powerful force in the media world with owner Google’s backing. But now Amazon and
Netflix are flexing their movie muscles as well. To counter that threat, industry executives have asked
for filtering mechanisms to keep unlawful material off these sites and to develop some type of
licensing arrangements whereby the industry has some protection over its copyrighted film content.

Discussion Questions

3.21 - Using Exhibit 3-2, what external components might be most important for managers in
movie theater chains to know about? Why?

3-22 - According to the case, what external trends do managers at the movie theater chains have
to deal with?

3-23 - How do you think these trends might constrain decisions made by managers at the movie
theater chains?

3-24 - What stakeholders do you think might be most important to movie theater chains? What
interests might these stakeholders have?