Yahoo Finance Will Subscription Services Really Give Movie Theaters a Boost?
Almost eight months into 2018, total U.S. box office sales are on track to be the highest ever. According to Box Office Mojo, total ticket sales have brought in $7.62 billion as of this writing, which is 4.2% higher than the previous comparable period high-water mark set in 2016.
Granted, 2018 was expected to be a smashing success for theaters. Marvel Comics -- part of the Disney entertainment empire -- had one of the top-grossing films of all time with the Infinity War entry to the Avengers tetralogy. Plus, the superhero brand's Black Panther exceeded all expectations early in the year with one of the best-ever U.S. box office runs. Add to that other big hits like Jurassic World: Fallen Kingdom from Comcast's Universal Studios and Mission: Impossible-Fallout from Viacom's Paramount, and it all makes for a record-breaking year for theaters. However, something else could be contributing to the box office success: the advent of subscription services.
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Filling up empty chairs
Movie theaters have been coping with falling ticket sales for years. Nearly 1.6 billion tickets were sold in 2002, but that number was just over 1.2 billion in 2017. The cinema industry has made up the difference by raising ticket prices. The average ticket cost $9.27 in 2018, a 3% increase over 2017 and a 60% increase over 2002. That steep rise -- combined with better TVs and bingeable internet streaming services at home -- explains America's waning interest in going to the cinemas.
Yet despite another 3% ticket price hike this year, total gross sales are over 8% higher than 2017. That implies more tickets are being sold. Besides the blockbuster hits mentioned, services like MoviePass are taking credit for a renewed interest in going to the local cineplex. For $9.95 a month, members can see up to three movies a month and get a $5 discount on any additional tickets purchased.
The company behind Moviepass claims its users are going to the movies more often and are seeing movies they otherwise wouldn't have bothered seeing. Its ticket price disruption -- and its over 3 million subscribers acquired in less than a year -- got the attention of AMC Entertainment Holdings (NYSE: AMC), the world's largest theater chain. AMC launched its rival Stubs A-List service, which allows for three movies a week for $19.95 a month. Barely a month past its arrival, AMC said Stubs A-List boasts over 175,000 subscribers, surpassing its own expectations.
It's still the early days for theater subscription services, but initial indications are that foot traffic is seeing a resurgence as a result of them. Whether they are profitable over the long term is another question entirely.
A Catch-22?
For MoviePass, its $9.95 a month price tag makes for an enterprise that's guaranteed to lose. The company is subsidizing its users' theater attendance, as the monthly fee barely covers one visit. However, the company plans on making up the difference through things like marketing fees and its own movie production venture, which could make up for losses if it can herd members to its own feature films. Until MoviePass proves that model can work, it's a high-risk venture that benefits theater operators more than it does MoviePass. Yet the company has already had to modify its rules from its original plan that allowed unlimited viewing, and recent earnings results show that MoviePass still has work to do to prove that its business model is viable.
By contrast, AMC says its $19.95 pricing is sustainable even though users can see substantially more flicks every month. The reason is that, as the operator of the theaters themselves, AMC doesn't have to shell out ticketing upcharges like MoviePass does. Plus, additional concession sales from frequent attenders and full-price-paying friends and family joining subscribers are no doubt built into the company's assumptions.
Nevertheless, there is risk that movie theater binging could seriously dent the bottom line for AMC, just as TV streaming carries a lower profit margin than traditional cable does. Thus, a less profitable future may be in store for theaters like AMC, which adopted a subscription based model, at least in the short to mid term. Or a best-case scenario is that theaters could end up with significantly more foot traffic than they've had in years, opening up new ways for them to monetize the movie business. Either way, box office by subscription appears to be gaining momentum as a way for theaters to try to stave off further disruption in the entertainment business.
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Nicholas Rossolillo and his clients own shares of Walt Disney. The Motley Fool owns shares of and recommends Walt Disney. The Motley Fool has a disclosure policy.
