SIC 7832
MOTION PICTURE THEATERS, EXCEPT DRIVE-IN



This category covers commercially operated theaters primarily engaged in the indoor exhibition of motion pictures.

NAICS Code(s)

512131 (Motion Picture Theaters, Except Drive-In)

Industry Snapshot

Motion picture theaters are part of an increasingly complex film industry that has been characterized by large initial capital investments and long revenue streams. Movie theaters are one aspect of the film industry, which also includes movie studios, broadcast and cable television, and the sale and rental of both digital video discs (DVDs) and videotapes.

Motion picture theaters remain a significant contributor to the film industry. Although videos have surpassed theaters as the biggest contributor to film industry revenue, the United States' 35,000 movie screens create the initial market for a film's future formats. The industry, along with the rest of the U.S. economy, endured a recession in 1990 and 1991, but box-office receipts rose from $4.8 billion in 1991 to a record $6.95 billion in 1998. Weak economic conditions returned in the early 2000s, wreaking havoc on many sectors of the U.S. economy. However, box-office receipts continued to reach record levels each year, peaking at $9.5 billion in 2002. Admissions reached 1.63 billion in 2002, a 44-year high.

Organization and Structure

The movie theater industry is represented by the National Association of Theatre Owners (NATO). NATO was formed through the 1966 merger of the Theatre Owners of America, which was founded in 1920, and the Allied States Association of Motion Picture Exhibitors, which was created in 1939. The organization compiles and publishes statistical and historical information on the economics of theater and concession operations, film producers and distributors, theater equipment, box-office sales, and attendance.

Throughout the movie theater industry's history, entrepreneurs have had to make high up-front investments. Film rental fees are usually negotiated in terms of boxoffice revenue in which movie studios charge a percentage of the box-office receipts.

Total theater receipts are derived from three sources: admissions, concessions, and screen advertising. Although it accounts for a much smaller percentage of revenues than ticket sales, concession income is a favorite of cinema operators because it commands a high profit margin that is not split with movie studios. Concessions and screen advertising have been recent avenues for growth. On-screen ads included live-action spots and slide-show-type reels that promote local businesses. The advertising concept was not particularly well received by patrons and some distributors, and by the late 1980s several studios rebelled against the practice. In fact, Walt Disney Company and Warner Bros. banned on-screen advertising in theaters showing their films.

Background and Development

The motion picture theater industry was born at the dawn of the twentieth century following the 1903 release of The Great Train Robbery, which is widely regarded as the first feature film. Previously, movies were given second billing in deference to live vaudeville acts, but as the films' technical quality and popularity grew, they became attractions in and of themselves. The first building devoted exclusively to movies was built in Pittsburgh in 1905, and the first movie house opened in Manhattan, New York City, in 1913.

Theaters became the United States' primary source of entertainment during the 1920s, and some theaters boasted full houses three or four times each day. During this decade, elaborate venues seating as many as 5,000 were built in cities and towns across the country. These theaters sometimes upstaged their featured films with architectural styles that ranged from baroque, Greek, and Spanish to Egyptian, Byzantine, and Aztecan. Details included imported marble columns, crystal chandeliers, and gold-painted figures; huge pipe organs were built for many theaters to provide music for silent films. Services included immaculately uniformed doormen, ushers, and lounge attendants.

The 1927 release of The Jazz Singer, the first film with synchronized sound, revolutionized the motion picture industry. Millions of dollars were spent to upgrade film production facilities and buy equipment for movie houses. Within three years the transformation to sound was complete—silent films, pipe organs, and many movie stars of the silent film era faded from the limelight.

Many theaters were able to convert efficiently to sound because they had the backing of major movie studios. The motion picture theater industry of the first half of the century was dominated by a handful of companies known as "the five majors": Paramount, Twentieth Century Fox, Warner Bros., MGM, and RKO Pictures. The five produced, distributed, and exhibited films in company-owned theaters. Columbia, Universal Pictures, and United Artists Corporation, known as the "little three," were primarily film distributors. Ironically, it was one of the "little three"—United Artists—that became the motion picture theater industry's biggest player by the end of the twentieth century.

The five major studios controlled the exhibition of movies throughout the 1920s, 1930s, and 1940s. Together they produced 95 percent of all big-budget features released before 1950 and owned 70 percent of the first-run theaters in the United States' 92 largest cities. Each studio gave the others access to its first-run theaters in exchange for reciprocal privileges. They also enforced "block booking," whereby independent theater owners wanting to run a big-name movie had to agree to run several of the studio's lesser pictures. The five majors even dictated admission prices.

The Depression took its toll on movie attendance in 1931 and 1932, and the five majors gained even more control over the remaining market. Even the architectural style of newly constructed movie theaters reflected the tough times. One author surmised that the streamlined art deco look grew popular "as an economy measure of sorts, an attempt to maintain a richness of design without spending quite so much."

In the 1930s and 1940s, attendance fluctuated from lows of 60 million per week to highs of 90 million per week in the late 1940s, before a significant period of decline set in. From 1946 to 1953, 853 indoor theaters were built, but 4,696 were permanently closed as television siphoned off theater's audiences. Many in the indoor theater industry blamed booming drive-in attendance for their declining fortunes, but historical analysis has concluded that drive-in theaters actually kept the movie industry alive during the 1950s in the face of bruising competition from television.

In 1949 the federal government ordered the five majors to divest their theater holdings. The industry had been the object of scrutiny by the government since the 1920s, when the major studios emerged, but it took a 1938 lawsuit to get the wrecking ball rolling. Loews and MGM resisted the trust-busting the longest, and it was not until 1957 that the breakup was completed. The percentage of chain-owned theaters dropped from 70 percent to 46.8 percent by the time of the final dissolution.

The breakup of the theater trust exacerbated the film industry's decline, because it eliminated the major studios' guaranteed revenue. This loss of revenue in turn limited production budgets, resulting in fewer and less extravagant films. The court order also compelled movie distributors to negotiate theater-by-theater, movie-by-movie contracts, as opposed to block booking and other agreements that had previously given the dominant theater chains advantages over their independent counterparts.

The flight of affluent city dwellers to the suburbs was the final blow for traditional downtown theaters. Shopping center cinemas with free, abundant parking were closer to the burgeoning suburban population. Nevertheless, weekly attendance at films continued to spiral downward through the 1950s from 60 million per week in 1950 to a decade low of 39.6 million per week in 1958 before bottoming out in the low 40 million range. Because of the country's population boom, these figures represented even lower percentages of moviegoers than during the Depression. Box-office receipts, employment, and the number of establishments also fell steadily from 1954 to 1963. Industry-wide box-office revenues fell from $1.17 billion in 1954 to $803.46 million in 1963. During that same period, the number of movie houses declined from 14,716 to 9,150.

The number of theaters continued to decline throughout the 1960s to just over 8,300 in 1972. Annual ticket sales dropped steadily as well, but ticket prices increased by 110 percent from 1963 to 1974. Despite these factors, industry revenues grew 43 percent to $1.4 billion from 1963 to 1972.

Multiplexing, the grouping of several relatively small screening rooms in one facility, began in the 1970s. The multiplex attracted more patrons with more films to choose from while using fewer employees. From 1972 to 1977, industry revenues increased by 50 percent to $2.13 billion as the motion picture industry and the theater business rebounded.

The theater industry recorded consecutive annual gains from 1981 through 1984, with box-office sales peaking at more than $4 billion in 1984. But admissions fell 11.9 percent and box-office receipts dropped 7 percent in 1985, as construction glutted the market with screens. During the early 1980s, Hollywood produced plenty of films, but there were not enough screens to accommodate them. This resulted in over-construction in the theater industry; from 1980 to 1987 the number of screens increased from 17,675 to more than 23,500. An opposing industry trend found Hollywood releasing fewer and fewer feature-length films; the number of films produced annually peaked in 1987 at 515 but sunk to about 470 in 1989. The net result of these two trends was that theater owners had to offer larger cuts of the boxoffice revenue to movie studios to remain competitive and book top films.

The mid-1980s industry recession combined with a relaxation of some regulatory restraints resulted in a revival of the distributor-owned movie theater. Four of the top six distribution companies made sizable gains in theater ownership, including Matsushita Electric Industrial Ltd., which acquired about half of Cineplex Odeon; Sony, which bought the Loews Theatres chain; and a joint venture between Paramount and Time Warner, which bought the Cinamerica theater chain. These four distributors had a stake in about 9 percent of the United States' theater screens, enough to attract the attention of federal regulators, who seemed to indicate that they would keep their distance as long as the distributors did the same. Strengthened by new corporate ties, the top 10 exhibition chains captured 55 percent of the United States' theaters by 1990, up from 27 percent in 1985.

"Expansion madness" gripped the U.S. theater industry in the early 1990s. The number of screens increased from about 24,000 in 1991 to nearly 30,000 by the end of 1996, up 7 percent (about 1,900) in 1996. By the end of the year, there was one screen per 9,000 people. The boom was driven in part by an increase in the number of movie releases from Hollywood, which was generating upwards of 300 feature films each year. The advent of the "megaplex" (16-plus screen complex) increased the number of screens exponentially with each new construction project. Mid-decade, this trend showed signs of migrating to international markets.

The number of movie screens in the United States increased from 30,000 in 1996 to 35,000 in 1998. The market was expected to peak at about 40,000. Large-format cinema remained first in annual growth rate among attraction/entertainment businesses, second only to the gaming industry. In 1998, there were approximately 160 large-format screens operating in the United States. By 1999, there were 29 large-format films in production, with another 19 in development by 2001.

The 1999 summer box-office season broke all previous records. In just 17 weeks, box offices took in $3.1 billion, a 19 percent increase from 1998. Additionally, 10 films grossed more than $100 million each. Admissions increased from 1998's 533 million to near 610 million in 1999, a 14 percent increase.

Current Conditions

According to U.S. Census Bureau figures, revenues in the motion picture and video exhibition industry increased from $9.2 billion in 1999 to $10 billion in 2000, and reached $10.4 billion in 2001. Figures from NATO indicate that box-office receipts continued to reach record levels each year during the early 2000s, rising from $7.7 billion in 2000 to $8.4 billion in 2001, and reaching a peak of $9.5 billion in 2002. According to Daily Variety , projections from different industry analysts indicate that box-office receipts will likely range between $10 to $12 billion by 2006, and profits are expected to increase by as much as 30 percent. Along with revenues and box-office receipts, average ticket prices also continued to increase, rising $5.06 in 1999 to $5.80 in 2002, according to NATO.

Movie screen counts, which increased steadily throughout the 1990s, peaked at a record high of 36,448 in 1999. However, the number of screens then declined for the first time in many years, falling to 35,627 in 2000 and 34,490 in 2001. In 2002, screen totals began to rise again, and the number of indoor movie screens reached 35,170.

By the early 2000s, digital technology was being adopted in many movie theaters. According to the Motion Picture Association of America (MPAA), figures from Texas Instruments show that the number of digital cinema screens increased steadily between 1999 and 2001, rising from a mere 12 to 45. However, in 2002 this number mushroomed to 124. In its June 15, 2002, issue, the Los Angeles Times reported that theaters were "under pressure from the Hollywood studios to equip their cinemas for digital films," and explained: "The price tag of digital projection equipment—up to $200,000—is so daunting that many in the business question its value. But some advocates of digital technology say the payoff is in the alternate programming that the new equipment makes possible, such as live concerts, educational programs, corporate functions and other special events. At the very least, they say, the extra offerings could help fill seats from Monday to Thursday, when moviegoing usually drops off."

Industry Leaders

The leaders in the motion picture theater industry during the early 2000s included Regal Entertainment Group (Regal Cinemas, Edwards Theatres, and United Artists Theatre Co.), AMC, Carmike, Cinemark, and Loews Cineplex Entertainment. Regional markets were influenced by a number of other chains.

Based in Englewood, Colorado, Regal Entertainment Group (REG) was formed when an investor named Philip Anschutz obtained control of Regal Cinemas, Edwards Theatres, and United Artists Theatre Co., all of which were headed for bankruptcy. According to the company, REG was the world's largest motion picture exhibitor in 2003, with 5,663 screens in 524 locations across 36 states. REG's Regal Cinemas had become the country's largest theater chain in 1998, when it merged with the Act III chain. REG posted 2002 sales of $2.1 billion, a 284 percent increase over the previous year. That year, the company employed nearly 22,800 people.

Headquartered in Kansas City, Missouri, in 2003 AMC Entertainment, Inc. operated about 3,500 screens in some 250 theaters in the United States, Canada, Spain, Portugal, Hong Kong, and Japan. Since 1995, AMC has specialized in building megaplexes containing 20 or more screens. These entertainment complexes feature stadium seating with plush, high-backed seats, AMC's own High Impact Theatre System (HITS) with wall-to-wall and floor-to-ceiling screens and unique speaker configuration, and state-of-the-art computer systems to monitor everything from ticket and concession sales to the theater's temperature. In the fiscal year ending March 2002, AMC realized sales of $1.3 billion, up more than 10 percent from 2001, and the company employed 17,700 people.

Carmike Cinemas, with headquarters in Columbus, Georgia, operates more than 2,260 screens in about 300 theaters across 35 states. Carmike has traditionally concentrated on secondary markets (cities and towns with populations of less than 100,000), although it is beginning to make some tentative forays into larger metropolitan areas. Before 1998, the company grew mostly by acquiring existing theaters and circuits. It then launched an effort to build screens, expand smaller complexes, and renovate its older theaters. In 2002 Carmike was able to reemerge from Chapter 11 bankruptcy protection, for which it filed in 2000, after closing nearly a third of its theaters. In 2002, the company's sales were $507 million.

With 2,900 screens in more than 450 North American theaters, Loews Cineplex Entertainment Corp. also is an industry leader. The company was created in 1998 as the result of a merger. Loews Theatres joined forces with Canada's Cineplex Odeon Corporation to form Loews Cineplex Entertainment, with headquarters in New York and Toronto. Although Sony Pictures Entertainment and Universal Studios previously had ownership stakes in Loews, by 2003 it was owned by Onex Corporation, the fourth largest company in Canada, as well as Oaktree Capital Management. Sales for Loews in 2002 were $856 million. That year, the company employed 16,500 people.

Workforce

Motion picture theaters employ more than 132,000 workers, a majority of them part time. In recent years, each theater averaged about 13 employees total, a far cry from the 1920s when elaborately uniformed workers met the patron's every need; a New Orleans theater during that period boasted a corps of 100 ushers who were called "The Soldiers of Service." Ushers, lobby attendants, ticket takers, and food servers still comprised two-thirds of the industry's workforce. Requiring up to one month of on-the-job training, projectionists were the only skilled members of the industry. They also were often union members

America and the World

The European theater industry of the 1980s was reminiscent of its U.S. counterpart in the 1950s and 1960s: run-down and shrinking fast. A recovery of the industry abroad that commenced in the mid-1980s reflected the resurgence of American movie houses a decade before. The European renewal started in 1985 in Britain, when American Multi-Cinema Inc. opened a U.S.-style multiplex. As the new theaters spread, British movie attendance nearly doubled.

The movement emigrated to the mainland during the 1990s. The first movie theaters to be built in Germany's Ruhr Valley in decades were opened in 1991. One was a joint venture of Paramount and Universal (United Cinemas International), and the other was built by Time Warner. Both players sought to revive the Spanish and Italian movie markets in the early 1990s. Although U.S. exhibitors stimulated the overseas theater renaissance, several European chains played a part in the rejuvenation as well.

Research and Technology

When television pirated the country's movie audience during the 1950s, Hollywood looked for new ways to get people into theaters. CinemaScope and stereo sound were introduced by Twentieth Century Fox in the 1950s. Cinerama's giant concave screen and Paramount's Vista-Vision big-screen system tried to capitalize on a movie's visual impact, which television could not equal. Other gimmicks, like three-dimensional films, were unique but often less technically impressive and proved to be passing fads.

Movie house owners worked to redefine the "theater experience" in the early 1990s to compete with the public's plethora of entertainment options. Expanded concessions included pastries, cappuccino, mineral water, and frozen yogurt. Credit card and phone-ahead ticket sales, first introduced chain-wide by Cineplex Odeon Corp. in 1991, added convenience. Advance ticket sales and reserved seating followed in 1992 when United Artists Entertainment Co. began testing the service. Movie boutiques stocked with film-related T-shirts, posters, stuffed toys, and other paraphernalia capitalized on the rising popularity of movie licensing.

Motion simulation theaters were developed by Omni Films International Inc., Imax Corp., and Iwerks in the 1990s. Previously, these panoramic, curved screens, designed to give audience members the sensation of being in the film, had been limited to amusement parks, planetariums, museums, and science centers. Omni hoped that its 50-seat motion theaters, which incorporated hydraulically mobilized seats and a computer control unit to synchronize seat movements with the film, would become attractions at shopping malls. The newest theaters also used state-of-the-industry digital sound and high definition projection systems.

Further Reading

Amdur, Meredith. "Veronis: Media Will Rebound in Late '02." Daily Variety, 6 August 2002.

Boucher, Geoff. "Pop Beat; They're Rockin' at the Multiplex; Digital Technology Allows Cinemas to Beam In Concerts, but the Jury Is Out on Whether It Will Be Just a Fad." Los Angeles Times, 15 June 2002.

Dawtrey, Adam. "Study Sez Exhib Profits Will Soar By 2006." Daily Variety, 31 July 2002.

Eisenberg, Daniel. "It's Theaters Galore." Time Canada, 13 September 1999, 35.

Hoover's Company Capsules, 24 April 2003. Available from http://www.hoovers.com .

"In a Time Warp." Newsweek, 18 January 1999, 6.

Klady, Leonard. "Heat Wave at Summer Box Office." Daily Variety, 7 September 1999.

"Large Format Cinema Has Bright Future, Price Tells LFCA Members." Amusement Business, 7 June 1999.

Motion Picture Association of America. U.S. Entertainment Industry: 2002 MPA Market Statistics. 21 April 2003. Available from http://www.mpaa.org .

"Multiplex Theater Entertainment Centers." Encyclopedia of Emerging Industries. Gale Group, Detroit, 2000.

National Association of Theatre Owners. "Statistics." 24 April 2003. Available from http://www.natoonline.org .

Schoolcraft, Lisa. "AMC Ready to Open Curtain on Latest Theater Technology." Business Journal: Serving Jacksonville & Northeast Florida, 12 March 1999.

U.S. Census Bureau. 1997 Economic Census. GPO: Washington, DC: 1999.

——. 2001 Service Annual Survey: Information Sector Services. 15 January 2003. Washington, DC: U.S. Department of Commerce, Economics and Statistics Administration, U.S. Census Bureau. Available from http://www.census.gov .

U.S. Department of Labor. Bureau of Labor Statistics. "2001 National Industry-Specific Occupational Employment and Wage Estimates." 24 April 2003. Available from http://www.bls.gov .



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