Movie Theaters: In Desperate Need of Innovation

2011 was the worst year for US box office attendance since 1995. Some will write this off as a poor crop of blockbusters that otherwise would have dragged people to the theater. A closer look at the numbers shows that, in fact, less and less people go to the movies each year.

What’s going on here? Are movies getting worse? Well…maybe, but the real culprit is the explosion in competition for leisure time and our attention. We have HD TVs, on-demand, Netflix, HULU, Amazon, iPads, iPods, iTouches, xBoxs, Boxee Boxes…it goes on and on. The appeal of the silver screen just isn’t what it used to be. Filmophiles claim there is no substitute for the big screen, and, while I may agree with them, attendance figures don’t lie. People just don’t see as much value in going to the movies as they used to. And yet, the cost of a move ticket keeps going up – nearly 4% a year over the last 10 years.

So how do you deliver more value in a highly competitive environment? You can keep things the same and cut prices…which doesn’t look likely, or you can innovate. The basic movie-going experience hasn’t changed much in nearly 90 years. Yes there have been enhancements such as stereophonic sound, multiplexes, stadium seating and digital distribution, but these are incremental innovations, not radical innovations.

A quick review for those who don’t speak consultantese:

An incremental innovation will involve modest technological changes and the existing products on the market will remain competitive. A radical innovation will instead involve large technological advancements, rendering the existing products non-competitive and obsolete. (based on Abernathy and Clark, “Conservative vs. Radical Innovations”)

The closest thing to come to radical innovation in the last ten years might be 3D. However,3D obviously has not stemmed the decline in overall sales and 3D ticket sales themselves have declined as a portion of total sales over the last couple of years. Clearly 3D is not the innovation that is going to save the industry.  So let’s look at what else might be out there.

There are three major categories of innovation

1)      Product innovation: changes that add value to the product itself or an entirely new product

2)      Process innovation:  changes that add value to the way the product or service is designed, manufactured or delivered

3)      Business model innovation: changes to the underlying business model

I’d say theaters could use a healthy dose of new ideas in all three categories. They have made some progress recently in process innovation, being dragged kicking and screaming in the 21^st century by replacing physical film reels and projectors with digital copies that could be delivered via satellite. Other than 3D and IMAX, the product itself really hasn’t added much new value. Some of the independents like IFC and Magnolia are playing with the business model, but in general I haven’t seen much there either.

Everyone is going to have different opinions on what will revive the theater, and that is the point. Personally, for me going out to the theater is for the experience and that experience seems to get worse and worse each year. Sad and stale décor, undertrained and unenthusiastic staff, cheap yet overpriced concessions…I could go on but I already feel like a curmudgeon. My point is the experience is subpar and the only reason I submit myself to it is that the theater has an exclusive distribution window on new releases.  In the age of broadband and bitorrent, that exclusivity means less and less.  Without some real innovation that brings new value, I predict you will continue to see declining attendance rates.

The industry needs fresh ideas and my hope is that some senior people at Regal and AMC are hard at work on this.