Movie theaters are rebranding as event spaces to maximize their large square footage.

Paradoxically, and despite the increasing relevance of experience-based consumerism, movie theaters are struggling in the face of the rising video streaming economy. Between 2016 and 2017, gross box office revenue declined from $11.38 billion to $11 billion—in response, as cinemas fight to increase foot traffic and sales, ticket prices are rising, giving more movie watchers impetus to stay in and watch Netflix or Hulu (some movie theaters are even launching their own online video streaming services). But as the technology and services of these home streaming capabilities continue to improve, movie theaters need to take action to preserve their businesses.

1) As mall foot traffic continues to fall, mall brands like Build-A-Bear are breaking ground in non-traditional spaces, bringing shoppable activities to movie theaters.

As foot traffic falls at both malls and movie theaters—including the movie theaters housed in malls—both parties can do more to rejuvenate visitor numbers and sales. Some cinemas are hooking a larger pool of movie watchers by uniting movies with consumer product goods that extend the amount of time and money each visitor spends at a theater. These theaters are taking a page out of the theme park playbook, creating a hub of multiple branded experiences that exist under one roof.

In the midst of Toys R Us’ bankruptcy, another toy retailer, Build-A-Bear workshop, has experienced four years of profitability and grown its brick-and-mortar presence by 12% in the last five years. Now the workshop is extending its brick-and-mortar presence to select AMC movie theaters. Part of its willingness to enter the movie theater space originates from its retail philosophy—Build-A-Bear considers itself not as a peddler of toys, but as a peddler of memories. “Experience” is inherently tied to Build-A-Bear’s name—as a workshop, customers of all ages visit to create—not just buy—a customized stuffed animal.

These qualities have helped the company steer itself in a fast-changing retail landscape, evolving away from its traditional leases in malls to build customizable workshops where its customers already are—from resorts in the Caribbean to Carnival Cruise liners. At the AMC movie theater pop-ups, launched from November 2016 to January 2017, visitors could make and purchase Build-A-Bear classics, seasonal creations and other products released in tandem with movies, including characters from Dreamworks’ animated film “Trolls.” The company’s chief marketing officer has stated that Build-A-Bear is considering continuing these cinema pop-ups during summers and holiday seasons.

Though Build-A-Bear did not disclose numbers on its AMC pop-ups, Build-A-Bear’s foray into movie theaters is a welcome departure from stale mall real estate. The company already creates new stuffed animal models based on pop culture—specifically entertainment—so pairing itself with movie theaters is a good match. And, as a purveyor of memories, it allows movie watchers to see a film and then walk away with a tangible souvenir—an actual character with whom they’ve just shared an experience. The tactic resonates with that of Disney, whose theme parks create a liveable and consumable world out of its beloved cast of characters. While Disney created an activity built out of its movies, Build-A-Bear has always identified as an activity rather than a store.

On AMC’s side, the more willing the movie theater chain is to adapt and incorporate new types of shoppable experiences, the better poised it will be to compete with video streaming services. In late 2017, Netflix began experimenting with merchandise, selling products that accompany its hit television series “Stranger Things.” Around the same time, Disney revamped its brick-and-mortar stores to stream movies and live broadcast the Disneyland parade, infusing the celebration and excitement of the theme park experience in its stores—the company also plans to launch its own video streaming service after ending its licensing agreement with Netflix in 2019, and it could integrate consumer products on that platform as well. These developments will continue to layer new hindrances onto the movie theater industry. But those theaters that welcome brands and retailers that can supplement the movie-going experience like Build-A-Bear—and those brands and retailers that pursue new types of retail real estate before it’s too late—will be best positioned to succeed moving forward.

2) Other movie theater chains are diversifying their real estate to host different types of events.

Thinking about their real estate more holistically, some cinemas are beginning to operate not only as movie theaters, but as event spaces more broadly, reconceptualizing their real estate to respond to changing interests and needs in the consumer market. Cineplex, the biggest movie theater chain in Canada, is now hosting corporate events and meetings, giving different groups access to its screens and auditoriums. The chain is also live broadcasting the Met Opera and Sunday Night Football, morphing into the go-to space for people seeking a bigger and better streaming experience than their laptops or televisions at home. In 2015, Cineplex purchased an 80% stake in WorldGaming, an online video gaming platform that hosts live tournaments, tapping into the burgeoning esports industry, which valued $700 million in 2017.

Regal Entertainment Group, the second-largest cinema chain in the U.S., even began hosting church services—in the words of Regal’s Director of National Sales Barry Brown, “Everybody knows where the Regal theater is. But not everybody knows where the primary school 101 is.” Theaters, which often are a municipal landmark, are ready-made community centers and those that engrain in the local fabric are more likely to appear attractive to consumers, especially for large companies like Regal.

Diversifying their use, movie theaters like Regal and Cineplex are also ameliorating the cost effectiveness of their large square footage, utility expenses and rents. Because events like video game tournaments and conferences happen outside of the hours when people typically see movies, theaters can bring in new streams of traffic during the day that don’t affect their ongoing ones. Stripped down, movie theaters are large spaces with lots of seats, big screens and ample parking spaces—as pop-up real estate developers view temporary retail spaces as “white boxes” that they can build out in any shape or form, movie theaters can supplement falling foot traffic and sales simply by viewing their spaces as a blueprint that can serve a number of activities and purposes.

3) Alamo Drafthouse is going luxury to refine the cinema experience.

Other cinemas like Alamo Drafthouse are responding to shifts in the cinema industry by moving upmarket. The rationale is that more movie watchers will flow into theaters if they know they’ll get the full treatment, taking a quotidian event—marred by sticky floors and outdated seats—and upgrading it to make it special. Some theaters are upgrading to cushioned, reclining seats, enhancing their food and beverage options, and improving their sound systems and digital projection capabilities.

The success of theaters like Alamo Drafthouse points to the growing luxury trend, much of which centers on food service. Founded in Austin in 1997, the company—as of April 2017—is operating 29 locations across the U.S. and is preparing to open its third New York City location in the near future. The lure of the theater not only comes from the seat-side, locally sourced food and beverage service—all prepared on site—but also thanks to its wide range of movie offerings, from mainstream to indie and classics, bringing the personalized and high-end movie going experience outside of a small, independent theater.

Much like stadiums, the on-demand dine-in option at Alamo Drafthouse is both a way to improve the viewing experience and increase transactions at the theater. Paradoxically, while movie theaters with seat-side service provide customers the comforts of home, the experience becomes more lavish. Sure, an $8 popcorn might normally deter customers who want a small snack, but a movie theater that offers a full dinner service significantly changes the overall tone of a movie date—plus, viewers can enjoy craft beer, instead of just a soft drink.

Alamo Drafthouse is also piggybacking on a trend that is likely to grow. Food options remain a main draw for mall goers and incite shoppers to spend more time at the mall—according to one report, 40% of mall goers choose their shopping location based on its restaurants and snacks, favoring healthier and local options. Applying this study to the movie theater industry, theaters can work to offset the downturn in movie ticket sales with an improved experience.

4) Movie theaters that partner with MoviePass can lure more customers with a streamlined ticketing process.

Movie theaters that team up with MoviePass are also aiming to enliven the cinema experience by streamlining logistics. Founded in 2011, MoviePass sells a subscription service that offers subscribers unlimited access to movies—up to one movie per day—for the cost of $9.95 per month (as of March 2018). The company pays its theater partners—AMC, Regal and Cinemark—the full price of each movie ticket purchased by a customer.

Aside from its subscription model, which, in theory, works to counteract falling movie theater foot traffic, MoviePass streamlines the cinema experience. Subscribers use the company’s app for mobile ticketing, to reserve seats, and to book advance screenings, which removes any hassell that could deter a customer from going to a theater in favor of staying in to watch a movie on her own terms.

Despite its more than 2 million subscribers, MoviePass is losing money and could still be unsustainable in the long term—the model is built with the assumption that a large number of subscribers will only see one movie per month so the company can make a profit. In addition, though subscriptions are known to encourage more consumption, it’s not yet clear whether incentivizing consumers to watch a movie in a theater is enough to get them off of their couches. In contrast to Alamo Drafthouse, which is investing on improving the in-theater experience, MoviePass invests in lowering the price point of a movie—but is lowered foot traffic to theaters more about prices or about comfort and convenience?

Still, MoviePass’ customer base is growing, and the company is planning to integrate more deeply in the movie theater world. In April 2018, the company bought the movie directory service Moviefone from Verizon, which will likely bolster its advertising revenue. It also launched a partnership with Flix Brewhouse, a cinema that offers movie goers in-house craft brews. With its co-founder and CEO Mitch Lowe—a former Netflix executive and president of Redbox—MoviePass is likely in good hands to usher in a new type of in-theater experience, breathing new life into brick-and-mortar movies, especially with Lowe’s knowledge of video-streaming competitors. But the movie theaters that partner with MoviePass should take the opportunity to learn all they can from the tech-driven subscription service instead of relinquishing all logistical tasks, which could come at their own expense in the long term as MoviePass expands and potentially enters the brick-and-mortar movie space itself.

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