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Thursday, March 24, 2011


SINCE EARLY 2010 I'VE BEEN HARPING on the issue of boxoffice fatigue by the public.  Could we now be witnessing the tipping point in boxoffice attendance. Has the price for a movie ticket and concession products reached a point where it is no longer viewed as  "valued" entertainment but merely high priced same old ?

YTD the boxoffice is 20% below last year, equating to a downside figure of approximately $500 million. The question is whether this boxoffice disaster is merely a bump in the road which can be chalked up to a slate of lousy releases or are we witnessing the beginning of a structural shift taking place in the movie exhibition business?

Being so far behind 2010's results this early in the year -  and last year's performance was nothing to cheer about as ticket sales were down 6% from 2009's level - it will take a string of summer blockbusters and an over-the-top holiday season for ticket sales to reset on an upward trajectory.  And, unlike last year, when premium 3D admission pricing pushed the boxoffice gross slightly  over 2009 results the recent roster of 3D offerings have not garnered the public's enthusiasm nor wallet opening.

At the current pace 2011 will end the year at 1.04 billion admissions, which is tandamount to a drop of over 280 million as compared to 2010 and which will be at a level not seen in over 15 years.

 It's time for a revamp of the cinema exhibition business. This should be clearly evident to anyone and certainly for those, like myself, that make their living from this industry.  For over a year I have been pushing the notion that all movies are not created equal and thus should not have equal pricing.  There is no logical reason for boxoffice pricing to be a "one price fits all" scenario. The studios (and the exhibitors falling in lock step) should be tiering their pricing for films AT THE BOXOFFICE! And please, for the love of all that's holy, stop comparing the cost of going to the  movies with that of attending a football game or broadway play (as the folks at the National Association of Theatre Owners are always postulating) this argument is specious. As is the inflation adjusted speil. If computers were priced on an inflation adjusted basis the now gigantic desk top I purchased in 1995 ( which was way less powerful then a smart phone of today) would cost over $45,000. Some products can not be inflation adjusted and movies are one of them.  The trick (and it's really not a trick at all but run-of-the-mill marketing strategy) is to increase the volume of sales, ie more butts in seats at the cinema.

The current utilization rate at cinemas is about 13-15% or on average 85% of the seats are empty while a movie is being played. A concervative count puts the number of seats at cinemas in the U.S. at 9.6 million (275 seats times 35,000 screens). This means that on any given day movies are exhibited to over 8 million empty seats! It's no wonder that movie exhibition is such a marginal business. No industry could sustain this level of performance on a continuous basis. The volume of business MUST increase and the best, easiest, and most efficient way to accomplish this is by lowering the price of admission and the consequent lowering of concession pricing because the volume of business would be increasing, you know -  sell more popcorn but at a lower price and make more profit.

Given the current economic  situation, people (I truly believe) feel that attending a movie is too expensive and only of value with films that provide them a real out of home experience. Reducing the boxoffice admission price of the average film would increase attendance. And then it would be up to the exhibitors to lower concession pricing given the higher attendance volume. I may be naive, but this is one of the ways , and a must do, for the cinema to survive going forward.

Best and Happy Movie Going
Jim Lavorato

Friday, March 18, 2011

Diary of a Drive-In Theatre: Installment #1

IT'S NOT OFTEN THESE days that we get to consult on, design, and perform the build-out of a new Drive-In Theatre; however, we received a call about a month ago to do just that.  One of our cinema customers, who owns several multiplex movie theatres, asked us to meet and discuss with him and a landowner the feasibility of moving forward with their idea of building a new Drive-in Theatre  Since this project is still in the development stage I will wait and not divulge its name and location, at this time, other then to say that the site is located in a semi-rural area of a  mid-Atlantic state with no other Drive-ins even remotely close to it.

The parcel of land upon which the Drive-in will reside is large but has a high water table and is in a floodplain which makes it unsuitable for most commercial and certainly any residental development, but will work fine for a Drive-in with the right construction.


As of today, all but one of the required construction permits have been obtained and as we thought through the unique issues with the property and the current state of the cinema industry, we recommend that only two large screens be constructed capable of accommodating, at least, 600 cars each. This was done because we wanted to have large screens. I know this bucks the current trend of Drive-ins having multiple but smaller screens; however, I feel patrons want to view  movies on  large screens and a Drive-in is no exception. Additionally, we recommended that only one screen and projection booth be constructed for this summer's opening and the other in the summer of  2012.  This strategy allowed for assessing  the profitability of the Drive-in and would flush out any shortcomings or potential trouble spots encountered.

To side-step the water issue we recommended that the projection booth be constructed on stilts, much like the homes located on the southeastern coast of the U.S. In this case, the stilts would be telephone poles (which are easily obtained and water sealed). Only single phase power would be used, saving money on electrical power installation and, best of all, the concession areas and restrooms would be located in large movable trailers specifically outfitted for these purposes, and which could be moved and stored off-site, eliminating  the winter/spring flooding issues.

As the project moves forward I will be updating you with both narrative and photos, so keep on the look out for the next installment.

Best & Happy Movie Going
Jim Lavorato

Friday, March 11, 2011

Moola Report - March 2011

This is the premier issue of the CMG Moola Report - a monthly commentary on financial trends, technology, and events impacting the cinema industry.

A quick peruse of the Cinema Stock Index (insert) indicates  that the cinema industry isn't doing so well in terms of market performance on a YTD basis. The only stellar performer being Technicolor (TCH) whose stock price has risen over 42% since January 1st. The biggest under-performer being Dolby Labs (DLB) whose share price has dropped  23% YTD.  The overall performance of the CMG Cinema Index runs contary to the overall stock market which has risen slightly over 9% YTD.

                               3/7/11     1/1/11    % Chg.    P/E     Yield      
 Ballantyne/Strong                    7.11        7.77         (8.5)      NA      NA
 Carmike Cinemas                    6.77        7.72       (12.3)       19         -
 Cinedigm Digital                     1.49        1.68       (11.3)        -          -
 Disney                                43.49       37.51        15.9        19     .45/1%
 Dolby                                 51.08       66.70        (23.4)     20           -
 Entertainment Properties       47.31       46.25          2.3       24     .70/5.5%
 Imax                                   27.77       28.07         (1.1)     19         -
 Netflix                              198.18      175.70        12.8      67         -
 National Cinemedia              18.40        19.91        (7.6)     31       .80/4.2%
 Rentrak                              26.28        30.16       (12.9)     -           -
 Regal Entertainment            13.80         11.74       17.6       27       .84/6.1%
 Time Warner                     36.58         32.17        13.7       16       .92/2.6%
 Technicolor                         5.09         3.56          42.9        3             -
This month's  highlighted cinema stock is Entertainment Properties Trust (EPR) one of the stocks represented in the CMG Cinema Index. EPR, a real estate investment trust (REIT), is up only 2.3% YTD but could be a big beneficiary of a rising commercial real estate market - when that market normalizes - and by an increase in the inflation rate as EPR has built-in escalators in its lease agreements. Additionally, it currently  pays out a very respectable yield of 5.5% .

Overall, we do not see any of the stocks in the CMB Stock Index as pull away performers but will for the most part be flat-line trenders. Several, such as Netflix (which has been a comet over the last 18 months) will trend down, given its meteoric rise and the current large volume of short selling on this stock.

Cinema Stock of the Month: Entertainment Properties Trust

EPR is a real estate investment trust that develops, owns, leases, and finances properties geared toward consumer entertainment venues in N. America.

As of 2/28/11, EPR's year-end, assets totalled $2.9billion of which $1.5billion was invested in 105 megaplex cinema sites - housing approx. 1,950 movie screens.  In addition, to cinemas, EPR holds investments in retail centers, vineyards and wineries, ski parks, and public charter schools.

EPR's cinema tenents include: AMC Theatres, Regal Entertainment Group, Carmike Cinemas, Rave Motion Pictures, CineMagic/IMAX Theatres, Southern Theatres, Muvico, and Kerasotes Theatres.

Over the last three years EPR's revenue stream dipped from a high of $270m in '08 to $231m last year. While net income went from $102m to $58m over the same period, this performance mirrors the downturn in the commercial real estate market, which has yet to recover from the recession.

Over the last 3 years management has done of good job of de-leveraging the balance sheet and with its  lock-in rate leases with the movie circuits will maintain a good stream of income and coinciding dividend payout. Dividend payouts for 2011 are anticipated to be $2.80/share , equivalent to a 5.9% yield at its current share price.

Going Forward: EPR offers a good, stable return. It currently has the opportunity to purchase properties at bargain prices, and its downside - default by leasees - is not a present threat.  EPR's portfolio is skewed toward the cinema exhibition industry but has little risk regarding the ups/downs of the boxoffice and its leases all have built-in inflation escalators.  My guess is EPR will, going forward, place more emphasis on  non-cinema properties and holdings, particularly the charter school arena, and less on cinemas.

If you are looking for a good, steady yield EPR offers a comparable return to most other REITs and may be positioned to take better advantage of the commercial real estate market opportunites than most.


Rising             Falling                            Splat

Yoga              Kickboxing                      Palates
Streaming       DVD rentals                    DVD sales
Kinect            Wii Fit                             Guitar Hero
Lululemon      Under Armor                   Sweats

Best & Happy Movie Going
Jim Lavorato


In the March 4th issue of Entertainment Weekly the mag took aim at Hollywood and listed 10 - can do now initiatives - that would help get the movies back on course and stop the hemorrhaging of boxoffice attendance (a topic that has been covered many times in this blog).

The 10 initiatives ranged from : Stop making bad 3D flix to recruiting the best writers from TV-land to write film scripts. It's a good read and although I don't endorse all 10 , the article does point out that the cinema is in trouble and needs shaking up.

I would like to add another major initiative that Hollywood and the industry as a whole should embrace (which also happens to be my personal best way to get cinema attendance to soar) and that is to offer variable pricing at the boxoffice and stop charging the same price for all movie tickets. It makes no sense to price all movies the same. Variable pricing would enhance attendance by getting more people into theatres - who are currently not motivated by high ticket pricing for films they are not completely enthusiastic about seeing.  Distribs. and exhibs. would evidence enhanced sales: boxoffice and concession, due to higher attendance.  It would be a grand gesture by the industry that - I predict - would be warmly embraced by the public. Think about it.

Best and Happy Movie Going

Sunday, March 06, 2011


The premier of the Cinema Mucho Gusto Moola Report - is tomorrow. Therefore I thought an explanation of what this monthly Report will include and why would be helpful.

In addition to thought provoking (I hope) commentary and (always dangerous) industry prognostications The Moola Report will have the following recurring items:
- The CMG 13 Cinema Stock Index/Industry Forecaster
- The TrendSetter Report
- Commentary Highlighting Current Events & Trends
Impacting the Future of the Cinema Industry.

The CMG Stock Index
The CMG Index will highlight 13 publicly traded stocks. These companies were selected as being representative of the cinema industry's on-going and (more importantly) future performance.

The 13 stocks are:

- Ballantyne Strong (BTN)
- Carmike Cinemas (CKEC)
- Cinedigm Digital (CIDM)
- Disney (DIS)
- Dolby Labs (DLB)
- Entertainment Properties Trust (EPR)
- IMAX Corp (IMAX)
- Netflix (NFLX)
- National Cinemedia (NCMI)
- Rentrak (RENT)
- Regal Entertainment (RGC)
- Time Warner (TWX)
- Technicolor (TCH)

The Trendsetter
The Trendsetter will feature rising, falling, and out of trend products, ideas, and things which will provide you an opportunity to get on or get off trends which can make you or save you Moola.

The launching of the CMG Moola Report marks a first for providing concentrated financial and forward looking reporting and analysis on the cinema industry. It will benefit those having a personal and/or financial interest in the cinema and it's success will be judged on the accuracy of the information and prognostications it provides.

I look forward to having you read and comment on the Report each month and sincerely hope it provides you useful information and data which is thought provoking and helps in your decision making.

James Lavorato, President
Entertainment Equipment Corp.