Film-Tech Forum ARCHIVE: AMC Spending $600 Million to Remodel Theaters With Larger Chairs, Fewer Seats

my profile | my password | search | faq & rules | forum home

»	Film-Tech Forum ARCHIVE » Operations » Ground Level » AMC Spending $600 Million to Remodel Theaters With Larger Chairs, Fewer Seats (Page 1)

This topic comprises 5 pages: 1 2 3 4 5

Author

Topic: AMC Spending $600 Million to Remodel Theaters With Larger Chairs, Fewer Seats

Terry Lynn-Stevens
Phenomenal Film Handler

Posts: 1081
From: Toronto, Ontario, Canada
Registered: Dec 2012

posted 07-27-2014 12:31 AM

Now at the Movies: Fully Reclining Seats

The nation's second-largest movie theater chain is spending hundreds of millions of dollars outfitting a number of theaters with La-Z-Boy-type seats that fully recline—a conversion that removes up to two-thirds of a given auditorium's seating capacity. It's a less-is-more approach to a business that has long thought bigger was better.

But AMC's counterintuitive success with the program has converted skeptical competitors and become integral to the company's pitch to new investors.

The conversions are AMC's highest-profile campaign since it was purchased for $2.6 billion by China-based Dalian Wanda Group Corp. in 2012 and went public last December. The company plans to spend about $600 million over the next five years to "reseat" 1,800 of its nearly 5,000 screens. The renovations typically cost $350,000 to $500,000 per auditorium, with landlords often shouldering some of the cost.

Theater operators spent years building tricked-out multiplexes with more than a dozen huge auditoriums. AMC Chief Executive Gerry Lopez says he is now banking on quality over quantity. AMC plans to wait about a year after upgrading its theaters before raising ticket prices.

The conversions highlight a liability facing the country's biggest film exhibitors: a supply of outdated theaters that rarely sell out, yet would be costly to tear down and rebuild.

Attendance in renovated AMC auditoriums has leapt 80%, on average, despite the drastic reduction in capacity to sometimes fewer than 70 seats. The company declined to say what the average before-and-after attendance numbers were, though Mr. Lopez acknowledged that the biggest attendance boosts would come in theaters that were weak performers, some of which were losing money.

The conversions are occurring only in certain places: Busy venues in major markets like Los Angeles or New York don't need cushy seats to attract customers, so it doesn't make sense to cut their capacities. In a second wave of conversions at better-performing theaters, AMC is planning to install seats that don't recline as far back, so just half of the capacity is lost.

Box-office revenue was up more than 60% at the 37 AMC theaters that had been fully reseated in the first quarter of this year, said Mr. Lopez.

Removing seats and filling more of the remaining ones "doesn't conceptually make sense," said Eric Wold, an analyst at B. Riley & Co. But he is encouraged by data showing the changes bring customers back more often and siphon traffic from competing theaters in an area.

Overall domestic movie attendance has stayed relatively flat over the past 10 years, with the number of tickets sold in the U.S. slipping 1.5% from 2012 to 2013, according to the Motion Picture Association of America. The decline comes amid growing competition from video-on-demand streaming services like Netflix Inc. NFLX -0.83% and other entertainment options.

"There are no more bodies coming through the door," said Mr. Wold. "So you have to find something to get them to come back more often or pay more."

To that end, the country's major movie-theater chains have beefed up the concession stand with options like chicken fingers and mozzarella sticks; expanded the number of 3-D and large-format offerings; and shifted to digital projection that many viewers think produces a sharper image on screen.

"For all of us, it becomes part of the arrows in our quiver," said Tim Warner, chief executive at Cinemark Holdings Inc., CNK -1.06% which has some recliner theaters.

Regal Entertainment Group, RGC -3.20% the country's largest exhibitor, has ramped up its reseating efforts in the wake of AMC's success, and plans to have 25 theaters across its circuit outfitted by the end of the year—some in markets where a competitor has introduced the concept, said David Ownby, Regal's chief financial officer. The chain is taking a more-cautious approach than AMC, spending less on the conversions and waiting to see how the theaters perform before planning more.

Mr. Lopez, a former Starbucks Corp. executive who joined AMC in 2009, was told by industry peers that the program would never work. But he had come from a company accustomed to teaching consumers new habits—like the $3 coffee, he said.

Mr. Lopez attributes the jump in attendance to several factors. Some reseated theaters have full dine-in capabilities, offering a food-and-drink menu comparable to an Applebee's restaurant. That allows moviegoers to consolidate their evening activities.

The reseated theaters attract more midweek audiences than normal theaters, and tend to draw more adults, who pay higher ticket prices than teens or young children.

AMC typically doesn't change ticket prices in the first year after construction to "seed" behavior, said Mr. Lopez, but the admission fee goes up in subsequent years. Then, if a regular theater raises ticket prices 25 cents, tickets to a reseated auditorium might go up $1 or $1.25, he said.

Collecting those pricier tickets allows for some bargaining power with Hollywood studios. AMC can argue for better terms on how it splits ticket revenue with studios if it can show higher-priced sales are coming from its theaters. "We remind them of that all the time," said Mr. Lopez.

Costs quickly move beyond the auditorium, said Mr. Lopez, who realized at the chain's first reseated theater that customers in cushy seats wouldn't tolerate subpar bathrooms or lobbies. "If we're going to do this, we do the full monty," he said.

Now at the Movies: Fully Reclining Seats