Regal’s brand names include Regal Cinemas, United Artists theaters and Edwards theaters. They operate nearly 7,000 screens in 537 locations across the
U.S.
In the company’s recently filed 10-K, they alert us to some of the risks their business faces.
“A change in the type and breadth of movies offered by motion picture studios may adversely affect the demographic base of moviegoers.”
“We license first-run motion pictures, the success of which has increasingly depended on the marketing efforts of the major motion picture studios.”
An unsettling aspect of Regal Entertainment Group (NYSE:RGC)’s business is that they depend on other companies making wise marketing decisions that result in consumers flocking to their theaters. If film studios lose touch with what the mass audience wants to see, the mass audience will find other things to with their time. Similarly, we’ve all seen the confusing ad campaigns studios roll out for their films. One ad makes the movie look like a romantic comedy, the next one implies it is an adventure film.
For example, I have no idea what this new “The Great Gatsby” film will be like. The ads look like an over-caffeinated “Dancing with the Stars” episode. I do know F. Scott Fitzgerald probably wouldn’t buy tickets to see the thing. I will, because I’m both an admirer of Fitzgerald’s work and a fan of the horror film genre. And I’m sure the film will make big bucks for Warner Brothers Pictures and its parent company, Time Warner Inc. (NYSE:TWX), although the task of recouping the film’s reported $127 million budget is a daunting one. Yep, that’s right: $127 million.
Players in the film industry sometimes make a fundamental Marketing 101 mistake: looking at the demographic segments that are currently attending movies as the only ones that will attend in the future. It would seem to me a better growth strategy would be to try to understand what the customer segments that aren’t currently a big part of your customer base want to see at the cinema and then make movies that attract them to the theaters too. One major
Hollywood
film mogul always talks about who “today’s audience” is. He doesn’t realize that by the time he gets this demographic data, that’s actually yesterday’s audience. I always advise my consulting clients that our task is to expand our customer base beyond today’s. Just sayin’, for you moguls out there.
Hollywood churning out clunkers or launching unfocused marketing campaigns will always be a significant risk for Regal Entertainment Group (NYSE:RGC).
“An increase in the use of alternative delivery methods may drive down movie theater attendance and reduce ticket prices.”
First it was that video stores were going to be the demise of theaters because we could rent a film and watch it at our convenience at home. That of course didn’t happen. The video stores’ popularity waned and the theaters are still going strong. Now the risk has expanded to pesky high-tech competitors such as video-on-demand and Internet delivery platforms. Netflix, Inc. (NASDAQ:NFLX) is a company taking full advantage of the burgeoning demand for video-on-demand. Regal uses a cool term for this: “the domestic exhibition industry.”
I always thought that a domestic exhibition meant your neighbors wearing really tacky looking pajamas and robes when they come out in the morning to pick up the newspaper. That sight can certainly put me off my eggs and bacon.
And here’s another issue: motion picture distributors shortening the window of opportunity they allow theaters to show first-run films before they offer them to cable TV stations and video-on-demand outlets. The window was about six months a decade ago, Regal reports. Now it is only four.
Regal Entertainment Group (NYSE:RGC) is entirely correct when it says “a material contraction of the current theatrical release window could significantly dilute the consumer appeal of the in-theatre motion picture offering.” Theaters depend on capturing the audience that is anxious to see a new release.
“Deteriorating conditions in the global credit markets could negatively impact our business partners which may impact film production.”
Because I wrote a book titled “Attracting Capital from Angels” I’m from time to time contacted by individuals seeking advice about how to find capital for their ventures. During the credit crunch a few years ago, several of these people were indie film producers, which got me to thinking that apart from the major studios that have lines of credit with major financial institutions and access to equity capital, most producers are in a constant scramble for funds to make their movies. When capital is scarce, film production can decline, making fewer choices available for the theater operators to show. Consider how many popular films in the last 10 years didn’t come out of the major studios.
One reason video stores did not cause theaters to shut down is because for many entertainment consumers, a big screen film experience shared with hundreds of other enthusiastic moviegoers is more exciting and absorbing than sitting on the couch at home.
Yes, we “ought to be in pictures.” Perhaps not as performers or producers but as investors in solid companies like the nation’s largest theater operators. A multi-screen theater operator shows a number of different films at one time. This “diversification” mitigates the risk of one film that bombs. The producer on the other hand has to sweat the opening week box office results.
And of course as an investor you have the opportunity for a much longer career than actors typically enjoy.
The article Regarding the Risks of Being Regal originally appeared on Fool.com.
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