Big potential for the big screen

20 Jun 2016

Why the movie pipeline is so important for theatre operators and why they’re changing their business model

More cinemas with new and enhanced viewing capabilities and a string of expected box office hits should underpin a recovery in the movie theatre sector.

Social media and technological disruptors will also help bring more viewers into theatres, Macquarie analysts say.

“The studios continue to come up with a strong, broad pipeline of movies and that is what’s currently helping to boost the maturing US, Canadian, Australian and UK markets. But in our new digital age, that’s not enough,” Macquarie Securities’ head of US consumer stocks research, Chad Beynon says.

In the 12-to-18-year-old market, a new Facebook-linked mobile app allows users to notify friends about what they are seeing and when, and also enables friends to join in and buy tickets and concessionary items as part of the notification.

“Apps and initiatives that enable direct purchasing, or purchasing in a social application is certainly positive for the industry. Particularly those ideas targeting teenagers,” says Beynon.

“The biggest piece of feedback we get is that teenagers don’t like to turn their phones off for two hours, so therefore don’t like going to the movies anymore.”

More cinemas with new and enhanced viewing capabilities and a strong pipeline of expected box office hits may help trigger a recovery in the movie theatre sector.

As a result, one industry operator has raised the idea of a dedicated auditorium where viewers can keep their phones on and text or tweet during the movie, with tweets showing up on the big screen.

“For many people, that would be a big distractor,” Beynon says. “But the industry is trying to respond to the new and changing needs of the market, while remaining competitive with alternative entertainment offerings.”

Operators are also increasingly upgrading theatres to add enhanced concepts, including VIP seating, expanded food menus, beer and wine service and bigger screens, to encourage people back to cinemas.

In many cases, mall operators contribute capital to the theatre upgrades, as it ultimately drives traffic back to the malls, particularly for people aged 35 and over.

Online music streaming service Napster creator Sean Parker, also unveiled his latest product, which enables people to watch any movie on the day it is released at the box office, in the comfort of their own home. Parker has already received backing from Californian venture capitalists.

Hardware for Parker’s initiative is expected to cost $US150, and $US50 for each screening, with theatre operators receiving part of the revenue. This compares to $US8 a month for a Netflix subscription, $US10- $US15 for an HBO or premiere movie subscription channel, or between $US9 and $US15 for a single movie ticket.

Beynon likens this initiative and its price to a big sporting event such as a marquee boxing match that people may pay to watch a few times a year, but not once a week. He believes it may also appeal to families and care givers who would otherwise have to pay for babysitting to go to the movies.

But while the social disruptions and new wave of cinema linked apps should provide operators with wider potential audience reach, the biggest factor in ongoing success for stocks will be how many popular movies are being made, and how well the public responds to theatre upgrades.

For a full copy of the report, ‘Blockbuster quarter for movies and RGC’, please contact your Macquarie representative.

For more news and sector overviews visit Macquarie expertise.