Motion Picture Theaters, Except Drive-In

SIC 7832

Companies in this industry

Industry report:

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

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 DVDs.

Motion picture theaters remained a significant contributor to the film industry in the early twenty-first century. Although videos/DVDs surpassed theaters as the biggest contributor to film industry revenue, the United States' 42,390 movie screens (as of 2011) created the initial market for a film's future formats. After disappointing revenues for years, domestic box-office receipts rose steadily in the second half of the first decade of the 2000s and early 2010s, reaching $10.6 billion in 2011. Worldwide, box-office receipts totaled $32.6 billion that year.

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 were usually negotiated in terms of box-office revenue in which movie studios charged a percentage of the box-office receipts.

Total theater receipts were derived from three sources: admissions, concessions, and screen advertising. Although it accounted for a much smaller percentage of revenues than ticket sales, concession income was a favorite of cinema operators because it commanded a high profit margin that was not split with movie studios. Concessions and screen advertising were also avenues for growth. On-screen ads included live-action spots and slide-show-type reels that promoted 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. 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 technical quality and popularity of films 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 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, and 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, and 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 in the first half of the century was dominated by a handful of companies known as "the five majors": Paramount, 20th 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."

Attendance fluctuated from 60 million to 90 million per week in the late 1940s before a significant period of decline. From 1946 to 1953, 853 indoor theaters were built, but 4,696 were permanently closed as television siphoned 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, 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 abundant free 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 the same period, the number of movie houses declined from 14,716 to 9,150.

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

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 20th 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.

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. However, 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 as the number of screens increased from 17,675 to more than 23,500 between 1980 and 1987. An opposing industry trend found Hollywood releasing fewer feature-length films. The number of films produced annually peaked in 1987 at 515 but sank to about 470 in 1989. The net result of these two trends was that theater owners had to offer larger cuts of box-office 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.

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.

"Expansion madness" gripped the U.S. theater industry in the early 1990s. The number of screens increased 7 percent, from about 24,000 in 1991 to nearly 30,000 by the end of 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 generated 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.

Motion simulation theaters were developed in the 1990s by Omni Films International Inc., Imax Corp., and Iwerks. 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.

The number of movie screens in the United States increased from 30,000 in 1996 to 35,000 in 1998, with another 5,000 expected to be built. 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 533 million in 1998 to nearly 610 million in 1999, a 14 percent increase.

By the early years of the first decade of the 2000s, digital technology was being adopted in many movie theaters. According to the Motion Picture Association of America (MPAA), Texas Instruments reported that the number of digital cinema screens increased steadily between 1999 and 2001, rising from 12 to 45. However, by 2003 this number mushroomed to 182, and in 2004 the number of digital screens almost doubled to 328, according to Variety. 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," explaining: "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 movie going usually drops off."

Digital technology was firmly ingrained in the market by the middle of the first decade of the 2000s. Digital Cinema Implementation Partners, a company jointly owned by the top three theater companies of Regal, AMC, Cinemark, worked in conjunction with major studios Warner and Universal in 2007 to develop and release a digital delivery system that revolutionized theater offerings. The system allowed near-total flexibility in what movies were shown on screens and when they were shown, from last-minute additions for sold-out shows to short runs of art-house offerings.

Box-office receipts continued to reach record levels each year during the early years of the first decade of the 2000s, rising from $7.67 billion in 2000 to $9.49 in 2006. Along with revenues and box-office receipts, average ticket prices continued to increase, growing from $5.65 in 2001 to $6.55 in 2006. The number of indoor movie screens also increased steadily, reaching 38,143 in 2005.

After declining slightly in 2005 to $8.1 billion, domestic ticket sales climbed steadily over next three years, reaching a record high of $9.8 billion in 2008. International ticket sales also experienced steady growth, rising from $14.3 billion in 2003 to $18.3 billion in 2008. However, much of the growth was based on increased ticket prices, which averaged $7.14 in the United States by 2008, and not increased attendance. In 2008 ticket sales of 1.3 billion were the lowest of the decade, down from a decade-high of nearly 1.6 billion in 2002.

During the end of the first decade of the 2000s, the landscape of U.S. theaters continued to shift to multiplexes and megaplexes (theaters with 8 to 15 screens and with more than 15 screens, respectively). Most new theater openings were multiplexes or megaplexes, and most theater closings were single screens or miniplexes (two to seven screens). As a result, the number of theaters remained relatively stagnant, but the number of screens grew to 40,194 by 2008. Multiplexes and megaplexes account for nearly three-fourths of all movie screens in the United States. Specifically, in 2008 single screen theaters accounted for 4 percent; miniplexes, 22 percent; megaplexes, 28 percent; and multiplexes, 44 percent.

Theaters were not only becoming larger, but they also were preparing for the inevitable advent of the digital age, with more and more theaters becoming digital. In 2008 alone, digital screens worldwide increased 33 percent to 8,614, which was more than 25 times higher than just five years earlier. In the United States, 842 digital screens were added in 2008 to bring the U.S. total to nearly 5,500.

Another trend at the end of the first decade of the 2000s was for theater owners to supplement income by renting out auditorium space to start-up churches for Sunday morning worship services. For example, in 2009 National CineMedia, which managed rentals in 1,400 theaters nationwide, had 180 churches under one-year contracts to rent theater space for church use, up from just three in 2003. Most churches used the theaters as a stepping stone to building a permanent structure, but more congregations considered portability as a viable and permanent option, and theaters provided them with the seating and stage for large gatherings.

Current Conditions

According to the Motion Picture Association of America (MPAA), 1.2 billion Americans paid an average of $7.93 a ticket to go to the movies in 2011. There were 42,390 movie screens, about 65 percent of which had made the switch to digital. Of those, 32 percent also had 3-D capabilities. Although the cost for converting to digital was around $75,000 per venue, many large theaters were making the switch in order to keep up with consumer demand for ever-more high-tech offerings.

The future of the industry looked positive in the early 2010s. According to a 2012 report by IBISWorld, "While competition from alternative services like video on demand remains, demand from moviegoers will remain steady." The report also stated that "positive trends in consumer spending and a revival in demand for discretionary services like movie attendance will benefit the industry over the next five years."

Industry Leaders

Leaders in the motion picture theater industry in the early 2010s included Regal Entertainment Group, AMC Entertainment, Cinemark Holdings, and Carmike Cinemas. Regional markets were influenced by a number of other chains or local establishments.

Based in Knoxville, Tennessee, Regal Entertainment Group (REG) was formed when investor Philip Anschutz obtained control of Regal Cinemas, Edwards Theatres, and United Artists Theatre Co., all of which were headed for bankruptcy. REG also owned Hoyts Cinemas Ltd.'s theaters. The REG group of theaters was the world's largest motion picture exhibitor in 2012, with 6,700 screens in 540 locations across 40 states. REG posted 2011 sales of $2.6 billion and employed 20,728 people.

Headquartered in Kansas City, Missouri, in 2012 AMC Entertainment, Inc., operated about 5,200 screens in some 360 theaters. In 2004 Marquee Holdings, Inc., purchased AMC for approximately $2 billion, and the company went public in 2007. Since 1995 AMC has specialized in building megaplexes containing 14 or more screens. These entertainment complexes featured 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 2011 AMC realized sales of $2.4 billion and employed 18,300 people.

With over 5,000 screens in 450 theaters worldwide, Cinemark Holdings, Inc., was the world's third-largest theater chain. With locations primarily in small cities and suburban areas, the company went public in 2007. In 2011 revenues totaled more than $2.2 billion and the company had 22,000 employees.

Carmike Cinemas, with headquarters in Columbus, Georgia, operated more than 2,200 screens in about 240 theaters across 35 states. Carmike traditionally concentrated on secondary markets (cities and towns with populations of fewer than 100,000), although it began to make some tentative forays into larger metropolitan areas. The company grew mostly by acquiring existing theaters and circuits until 1998 when it launched an effort to build screens, expand small complexes, and renovate its older theaters. In 2000 Carmike filed for Chapter 11 bankruptcy protection, from which it emerged in 2002 after closing nearly a third of its theaters. In 2011 the company's sales were $482 million, and it employed 6,276 workers.

Workforce

Motion picture theaters employed approximately 77,800 workers in 2009, a majority of them part time. Toward the end of the first decade of the 2000s, each establishment had an average of 20 employees, a far cry from the 1920s when elaborately uniformed workers met the patrons' every need and a New Orleans theater 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.

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