MOTION
PICTURE
EXHIBITION

The exhibition business can be condensed into two main issues: playing pictures (film booking) and finding and maintaining theatre sites (operations).

For any theatre chain, expansion is a major decision. Site selection involves forecasting population trends and analyzing markets that can absorb more screens. For example, once an area of a city is targeted, you examine economic and demographic issued, such as population density, home ownership, income, age, education and occupations, in an effort to zero in on college-educated young people and families, the core movie going audience (and our future customers). When considering a site, you also review its proximity to competing theatres ("clearance") and access to complementary retail. Since distributors divide cities into exhibition "zones", or retail trade areas, another issue is whether a given proposed multiplex site will have easy access to prints (copies of motion pictures).

After a site is selected, there are at least two ways to proceed. One approach might find you purchasing the land, or entering into a long-term ground lease and building the multiplex out of cash. The more typical approach might be to enter into a standard build-to-suit lease, wherein a developer would provide the financing and construction and either you would build, or the developer would build to your specifications. Costs including legal, architectural and pre-opening (commonly referred to as "soft costs"), as well as furniture and fixtures (seats, screens, concession stands, wall coverings, booth equipment, carpeting, etc.) are usually borne by the theatre owner, in either case.

In the feasibility stage the theatre design is created, identifying the number of seats, screens and general configuration of the complex. This is usually done with the help of outside architects, always making sure it is compatible with adjacent retail. A set of plans is drawn up, and a contractor is chosen based on competitive bids. Construction typically takes five to six months, depending on the complexity of the building, with an extra month or two to "fixture" a multiplex. For maximum impact, theatre openings are generally targeted for the peak seasons of summer or Christmas.

Primarily, the costs of operating a theatre are comprised in three categories: direct operating expenses, film rental (the amount of box-office receipts belonging to distributors) and theatre rent.

Once a multiplex opens, attention turns to operating expenses. Direct operating expenses include payroll (usually around 10% - 12% of revenue), payroll taxes, concession (or food) costs, advertising (5%), repair/replacement costs, maintenance, utilities, film delivery (from the exchange to the theatre), supplies, xenon bulbs, postage and telephone, overnight mail, travel, union health and welfare payments and taxes-licenses-insurance costs.

The largest revenue source, of course, is the box-office receipts, followed by concessions; arcade income from electronic games or other machines; theatre rental to outside groups; and revenue from slide presentations, which may include some local advertising. Together, these represent the "total theatre gross". For ease of illustration, the preceding items are included under "concessions" in the following breakdown: