Executive Summary of the State of the Industry
Within the movie theater industry there is a lot of competition that competes for market share. Some theaters offer ticket and concession packages to entice people to see a show at their theater, while others might offer loyalty cards to earn repeat business. Another approach is to upgrade the technology with digital projectors with cinematic screens and stadium style seating which can often allow them to charge more for the ticket.
The industry is forecasted to have a slow but steady growth into 2019 and beyond, reaching $16.0 billion by 2019. This increase has a lot to do with the projected per capital disposable income expected in our country. Over the next five years the average per capita is forecasted to rise from $37,352 to $42,312. As people’s disposable income increase they tend to spend more on leisure activities like going out to eat and enjoying dates to the movies.
Another positive trend for the movie theater industry is the growth in K-12 student. With about a quarter of the revenue in the industry coming from these kids, it is a good sign to see increased birth rates and high school retention.(1)
I propose rather than racing to the bottom dollar, lets do the upgrades that the people want and are willing to pay. We should get digital projectors in all of our theaters and upgrade the seating.(2) We should expand the menu to include restaurant style food. To meet the needs of parents, we should have daycare services available in all of movie theaters.
Analysis of the Industry
In my analysis of the movie theater industry I will focus on structural risks, growth risks, and sensitivity risk. In my research I came across a recent IBISWorld report that assesses the risk of each risk component on a scale from 1 being low to 9 being high. As shown in the figure below the overall risk to the movie theater industry is Med-low, with most of the weight coming from sensitivity risk.
Within the industry there is a lot of competition competing for market share, which leads to cheaper ticket prices and decreased revenue and profits. Most first-run theaters will be able to secure the license to show the biggest hits, so it comes down to ticket price and how nice the venue is. If a theater is equipped to show 3D films that could help draw people in over another theater. Some theaters offer movie and concession package deals or loyalty cards to earn business.
The industry also has high barrier to entry, this will help your existing firm from more competition in the long term. It is very expensive to buy all the equipment and to build a theater that will compete against the large established market players
The growth of the business according to the report will rise 1.3% in 2015 up to $15.1 billion. In recent years the growth was 1.8% per year. This slow growth is forecasted through 2019.
The most important risk component to the movie theater industry is sensitivity risk. The most significant factors are disposable income and external competition. When people have more disposable income they tend to spend it on leisure activities like going to the theater. The opposite happens when times money is tight, people will then find cheaper kinds of entertainment.
As you can see in the graph above rise in % change in per capita disposable income has been on rise ever since 2009. The 2014 estimated per capita is $37,352, this is expected to rise at a 2.5% rate over the next five years to $42,312 in 2019.
External competitions like cable, satellite TV, and online streaming platforms such as Netflix and Hulu do offer customers alternative options to going to the theater, but it is hard to match the viewing experience of the new upgraded digital projectors and stadium style seating you get as the new theaters.
Some underperforming and outdated theaters were closed over the past 5 years and operators are trending to few but larger megaplexes theaters.
Kids aged 17 and younger account for 25% of your revenue and the graph on above shows the forecasted % change of the number of K-12 students from the past and all the way into 2019. As you can see the growth rate is trending up into the future. This has to do with increase in birth rates and high school retention rates.(1)
Strategic Recommendations
If we can make movie night more appealing to the public, they will choice us over other night on the town events. Why diner and a movie, when we can be the whole event. Let’s server high quality restaurant style food in all our theaters.(3) I would also propose daycare services for a small charge for the parents that want to watch that rated R movie.
In the first year I propose we evaluate each theater in the chain to find out which are in the need of remodeling. In order to earn the highest dollar per ticket we need to have to best theaters in the industry. People will want to spend more for all our amenities. Once the data is collected and the renovation budgets are calculated, we should begin the rebranding.
In order to capture even more of the growing K-12 crowd, let introduce a reward style discounts kids that earn good grades. For every A and B a child earns on their report card, we will take off additional money off the ticket price. This will get our name out in one of our target markets and should increase traffic to our concession stands. This should be started as soon as the kids get back to school next year.
Over the next year or two every theater in the chain will offer daycare services for movie theater guests. We then need to upgrade all of our projectors to digital to give the customer the best experience possible. Starting with the theaters in the worst need of work, we need to upgrade the seats to plush leather and build in a limited seating VIP section to each theater.(2),(3) I would like to see 50% of the theaters make this renovation in the first 5 years. Once the VIP section is added, I would like
a marketing plan to get the word out that you will get oversized plush recliners and your own server before the movie starts. (3)
I would like to see these changes implemented as soon as possible, for sure by year ten. I feel that with these changes, we can increase revenue and make a difference in our communities.
Reference page
1. IBISWorld ( 2015, February) IBIS Industry Risk Rating Report Movie Theaters in
The US.
http://ibisworld.com/gosample.aspx
2. NPR (2014, Sept 28) Movie Theaters Hope To Add Another Dimension To Their
Profits.
http://npr.org/2014/09/28/352261469/movie-theater-hope-to-add-another-dimention-to-their-profits
3. The New York Times (2008, Feb. 20) To Lure Adults From Their Living Rooms,
More Cinemas Try a Full-Frills Model
http://www.nytimes.com/2008/02/20/realestate/commercial/20cinema.html?_r=0
Aaron Budnick’s Self-Reflection
This assignment forced me to apply business analysis strategies that I have learned during my management courses towards an industry that I had previously given little thought to. It was neat to research the movie theater industry and learn about their current challenges. In trying to find areas for improvement, I talked with friends and family members to get ideas about how the movie going experience might be improved. I think this demonstrated to me how surveying customer opinion could be really useful in developing strategies for situations like this.
As I was brainstorming, some ideas came up that sounded good at first, but further research showed that they had failed in the past. Understanding the past of an industry is useful when developing plans for future change.
In my efforts to understand this topic, I spent a lot of time reading articles about competition and ways to improve services within the movie theater market. This is always a time consuming task for me, I finally have to be satisfied that I have a broad enough understanding and dive into the specifics of the assignment. Recognizing the fact that I have a tendency to over-research is important because this is something that can decrease my overall efficiency in getting jobs accomplished. Obviously, research is important; but action plans and results are vital.
I appreciate an opportunity like this assignment to practice my skills in strategic management. I can imagine this type of scenario taking place in the real world.