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Second Run Movie Theaters

Second Run Movie Theaters:

Assessing its Value to Customers

Alejandro Yong, Himansu Sekhar Das, Marian Jarquin, Rakesh Prasad, Shubha H.S.

NationalChengchiUniversity

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Second Run Movie Theaters

Table of Contents

  1. Abstract 2
  2. Introduction3
  3. Flow Diagram5
  4. Literature Review6
  5. Field Observations8
  6. Research Question10
  7. Hypotheses10
  8. Methodology11
  9. Introducing Survey12
  10. Data Analysis12
  11. Business Model15
  12. Potential Demand/Revenue16
  13. Conclusion19
  14. List of References21
  15. Appendix I22
  16. Appendix II28

Abstract

Even though first run movie theaters are popular and lucrative around the world, second run movies are common among certain segment of the population.The following research is based on second run movie theaters in Taipei, which are located throughout the city without discriminating social and economical status. The objectives of this research were to identify whether there is potential demandto open a new second run movie theater near NationalChengchiUniversity and to explore its business model. Price and location were found to play an important role in generating demand for second run movies in Taipei. We also found that there is potential demand to open a new second run movie theater in Muzha area. However, taking into account the important attributes for the location, opening one close to NCCU may not be appropriate.

Introduction

The movie industry is a 14 billion-dollar business. Every year approximately 4,000 movies are produced worldwide of which over 700 feature films are produced by the American studios alone and are exhibited at 25,000 theaters in the U.S. and Canada(Shugan, 2006).According to Wikipedia Encyclopedia, theaters can be classified as:

  1. First-run movie theaters: run new released movies from major production houses and distributors.
  2. Second-run movie theaters: run the movies that were previously presented in the first-run theaters, where tickets are sold for a lower price.
  3. Art House: is a combination of art, second-run and classic movie runner.
  4. Adult Theater: specializes in pornography films.

Mainly the acquisition and payment structure divide the theater industry into First Run and Second Run theaters(Iceco Group, 2006).Bookers are the people who setup the relationship between the film companies and the theater with a purpose to distribute the films. Booker’s work ends with the shipment of the booking time settlement. Film companies get paid by charginga certain percentage of each ticket sold.In the case for the first run theaters, the percentage that goes to the film company can go up to 90% during first week.Forsecond run theaters,there is always a flat fee for the print and the percentage that goes to the film company, which is very low. This makes the second run theaters cheaper. Second run theaters can receive the prints only after the production companies officially announce the film to come under the second run category. So the more popular a film is, the longer it takes to go to a second run movie theater. Sometimes this could be a disadvantage for these theaters.

Secondrun movie theaters are also known as dollar theaters or discount theaters or sub-run theaters.These theaters mainly attractlower income families and teenager audiences with respect to their demands of affordable ticket cost and watching multiple movies or watching R rated movies.Having competitive advantage to attract customer, these theaters also face strong competition.When the “new release life cycle” for Hollywood movies was short to catch up the supply, the DVD/VHS industry took advantage and started to release those movies within a short period of time. This has become one of the major obstacles for second run theaters to generate greater profits, as moviegoers find renting a DVD cheaper than to visit one of these places.

There are many second-run movie theaters existing inTaiwan holding the same concept behind second run movie theaters.To discuss about the competition for these theaters in Taiwan we took a review done by TaiwanFun magazine, whichshows that there is a big scope for secondrun movie theaters. For example, many movie viewers have watched great movies on DVD/VHS but they always wish to watch these movies on big screens. So localsecond run theaters are very careful to book the popular films to entertain andsatisfy this type of customers (Abbouttown & Crook, 2006).

Throughout this paper we will be exploring the business strategy behind these theaters by placing close attention to price and location. These theaters have kept their popularity and profitability within price sensitive customers.Keeping low prices is one of the most important features for these theaters in Taiwan.Moreover, location and facilities are the other key attributes for the success of thistype of businessesin Taiwan. The paper also seeks to explore whether there is potential demand to open a new alternative second run movie theater in Taipei. Figure 1 summarizes the outline of the study.

Figure 1. Research Flow Diagram

Literature Review

Whenever thinking of entertainment, motion pictures attract our attention as they are a key driver for entertainment. The availability of research has made the industry appealing from a research point of view where several studies have been conducted related to those factors that generate movie demand and consumers’ (moviegoers) behavior.

The movie industry has been under the eye of the researchers since the early 1900’s. However, not until the 1940s when it moved from just preliminary studies towards more systematic and detailed studies on the movie audiences. During this period, areas of research were mainly focused on sociology, psychology, communications, and the film studies(Eliashberg, Elberse, and Lenders, 2005). Only in the recent years, the focus and the interest of studies spread on other areas such as economics and marketing. Although, we did not find any research relatedto second run movies, many of the research outlined factors such as price, location, and demographic factors that affects the demand for movies.

In traditional days, large film companies like ‘Paramount’ controlled the price within the movie industry as they largely owned the movie theaters. This has changed overtime as more and more theaters were opened, which shifted the right of setting prices to individual owners (Davis, 2001). Previous studies have proven that customer search cost of the theaters is inversely related to demand. In other words, a reduction in the consumer search costs will result in increased demand. Many factors such as: age, time of the day, etc are used as the segmenting variables for pricing i.e. price discrimination. For example, “admission to afternoon shows is offered for about 2/3rds of the evening adult admission price. Some theaters also offer reduced admission prices all evening on low demand days (e.g. Super Tuesdays)”(Davis, 2001,p.5).

According to Peter Davis (2001), location plays an important role in the customer’s choice of the theater, which he explains, by:

A consumer characteristic at the center of this study is her location Li. Each consumer is endowed with a location which determines her distance d(Li;Lh) from each theater. By allowing the distance term to enter non-linearly, the model can nest both the linear and quadratic transport cost specifications used by Hotelling (1929) and d'Aspremont, Gabszewicz, and Thisse (1979) and determining which is relevant is solely an empirical question. I use Euclidean distance so that a consumer's indifference curves in geographic space are concentric circles about her location. This formulation captures the idea that, all else equal consumers prefer to attend closer theaters, but that two theaters which are good substitutes are not necessarily physically close to one another; consumers living in the center of town may be indifferent between theaters located at opposite ends of town. (p. 6)

It is also observed that demographic characteristics such as age and incomeplay an important role in determining the moviegoer patterns. The density of the population around a movie theater is one of the important determinants of the number of customers for the theater. An increase in the population will lead to an increase the demand for the theater. Example “Growth in the number of consumers living between fifteen and twenty miles from a theater is predicted to increase theaters revenue only by 1/3 of the amount that an equivalent growth in local population would have.” (Davis, 2001, p.16)

Field Observations

In order for us to gain a better understanding of the research questions, we gathered secondary data about the movie theater industry in Taiwan. This information was used to givean insight about movie goers’ trends and the main business concept behind second run movie theaters. While exploring the “business model” behind these theaters, close attention was place to the following attributes:

  • Pricing & Promotion
  • Adverting
  • Customer Segments
  • Location

Taipei has a number of such movie theatres at different locations with slightly different business strategies. To gather first hand information concerning the business model of secondrun movie theatres, five theatres were visited for the purpose of comparison. These included: Guan Ming Theater in Muzha, Jia-Jia Lai Lai and Qiao Xing Theater in JingMei, Hsimen Theater in Ximen and Universal Theater in Nanjing E. Rd.

Pricing and Promotion:

All of these theaters have the concept of two movies (showing two movies in a row) by combiningdifferent genres. The five movie theaters that were visited adoptdifferent pricing strategy which is summarized in Table 1below. The average price is between NT$60 and NT$90 per person, except for Hsimen theater and Universal theater, who charges a slightly higher price because of theirlocation (high end area).In terms of promotion, these theaters offer special discounts and membership programs. A special discount is offered to students and annual memberships can also be bought at the Hsimen theater.

Table 1. Pricing and Promotion

Advertising:

These theaters do not conduct any type of advertising as a way to keep costs low and therefore offer lower prices. Also, there is limited information available for the public about these theaters. The only source of information found was TaiwanFun magazine/TaiwanFun.com, which is a free English magazine offered to the public with information about entertainment places and leisure activities. Also, information on those theaters located close to MRT station is provided in the bulletin board showing it respective exit.

Customer Segmentation:

The concept of two movies is well known amongst the younger generation, which largely comprise of high school and university students and is also frequently visited by families with children and senior citizens. It gives great opportunity for people who are on a tight budget but can still enjoy spending few hours in a dark room watching films on a big screen.

Location:

Location plays an important role for these movie theaters. These are located close to MRT stations, along main roads, schools/universities, night markets, and other recreational businesses. Accessibility to these places helps to generate demand.

Research Questions

The main reason for the movie goers preferring to go to second run movie theaters rather than first run movie theaters is because of price difference and the big cost savings. Being budget conscious customers and after having several visits to various second run movie theaters, we were interest to discover the answer to the following questions:

  1. How do second run movie theaters capture value for customers?
  2. Is there a potential demand to open a second run movie theater near NCCU?

Hypothesis

Through field observations and literature review, we found that demand, price and location/distance are the three important factors to be considered for the purpose of the research. Taking this into account, we formulatedfourhypotheses to further explore these factors. In addition three other hypotheses were formulated to explore other attributes such as genre preference, age and income.

Hypothesis #1: That the National Chengchi University Students prefer watching movies at 2nd Run Movie Theaters because it’s cheaper.

Hypothesis #2: That those 2nd run movie viewers will visit the theater at least once every 2 weeks.

Hypothesis #3: That the students or nearby Muzha residents would not be willing to spend more than 20 minutes traveling to a 2nd Run Movie Theater (nearest distance to the closest competitor location).

Hypothesis #4: That the National Chengchi University students and/or the Muzha residents would be willing to pay at least NT$90 (more than our nearest competitor) in order to have access to the alternative recreational concepts under the same roof.

Hypothesis #5: That National Chengchi University Students prefer to watch Action and/or Comedy movies.

Hypothesis #6:That the young adult audience (less or equal than 30 yrs) - are more frequent visitors than the adult audience (older than 30 yrs) to the 2nd Run Movie Theaters.

Hypothesis #7:That those individuals who have an annual income less than NT$ 300,000 visit 2nd Run Movie Theaters.

Methodology

A questionnaire based survey was designed and conducted to collect primary information on the customer attributes and behavior regarding 2nd run movie theatres. The survey attempted to evaluate the importance of the variables such as price and location on movie theater selection. In order to identify the importance of these variables, a total of fifteen questions are asked within the survey. The first part of the survey had a total of ten questions relating to the attributes of the movie theaters. The second part included five demographic questions, to explore the target market and identify some demographic trends between the segments that affect specific movie theater preferences (Refer to Appendix I). Once the data was collected, we tabulated and organized the information. This was then filtered in order to do hypothesis analysis. The Z and T distributions were used as statistical tool to test the hypotheses.

Introducing the Survey

A simple random sample technique was used to select the sample from the target audience of the NationalChengchiUniversity students and the nearby Muzha residents. The survey was administered to a sample of 82 individuals, out of which 9 had to be excluded due to incomplete and/or inconsistent data input by the respondents. It was assumed that this sample is random enough to capture different socio-economic status of the target population. However, it was discovered after the survey that the sample selection had some non response and coverage errors. The main reason behind non-response error was because most of the residents refused to respond to the survey apparently due to probable time conflicts leading to non-response bias. We attempted to minimize this shortcoming by approaching more NCCU students and less residents resulting in a slight selection bias. In addition, few ambiguities related to some of the questions in the survey were also identified where few important answer options were missing, which resulted in incomplete answers.

Data Analysis

Survey Data Analysis

In terms of demographics, the sample was evenly distributed between males (58%) and females (42%). The sample was also younger in age, 57% of the individuals surveyed were young between 18-30 years old. Most of the individuals surveyed were single 70% vs. 29% who were married, and only 1 person being widowed. Both results are probably because most of the respondents (78%) were NCCU students (graduate and undergraduate) versus 22% being either full time employees or having other occupations (e.g. housewives). The majority of the respondents (52%) had an annual income of less than NT$200,000 (this is probably because the majority were full time undergraduate students), whereas 34% of the individuals earned more than NT$400,000, 8% were in the income bracket of NT$200,000 – 300,000 and 6% between NT$300,000 - $400,000.

In terms of the customer attributes and behavior of the movie viewers, it was interesting to note that most of the respondents prefer going to firstrun movie theaters (79%) instead of second run movie theaters (21%). The most motivational factor was to watch the newest movie releases, where price was not a real concern. This indicates that there is limited demand for second run movies among the target population. However, in regards to the pricing of the new second run movie theater, 57% of the respondents agreed to pay a slightly higher price (> NT$ 90) to have access to alternative recreational activities, such as games, restaurants, etc under the same roof. The other 43% of respondents are not willing to pay a higher price. But most of the respondents (78%) agreed with the new concept. The other important finding from the survey was in regards to the location of the new second run movie theater. Most of the respondents (78%) are not willing to travel for more than 20 minutes to visit a second run movie theater. This indicates that location is a key factor in generating demand for such movies. In addition, only 20% of those second run movie viewers chose to visit at least once every two weeks. The other 80% are the less frequent visitors and would visit either once a month or even less often. Hypothesis Analysis