The world’s largest exhibitor Regal has announced plans to convert 25% of all its screens to luxury seating. The move mirrors similar efforts by other large chains such as AMC and Marcus Theatres, and is an attempt to extract more revenue from patrons as cinema attendance declines in the United States.
The announcement came during Regal’s Q4 2014 earnings conference call when CEO Amy E. Miles gave an overview of plans for capital investments “to enhance the customer experience in 2015,” covering several areas including seating, concessions/F&B and more.
Regal installation of luxury recliner seats has been going on for some time, but was said to have gained ‘significant momentum’ in the last quarter of 2014. Significantly, a large enough installed base of luxury seating now exist to make meaningful year-on-year comparison in terms of revenue generated from premium seating.
Converted screens were said to be producing box office revenue growth in excess of over 40% for the first six weeks of 2015. While some of that can perhaps be attributed to the surprise success of “American Sniper”, one film alone cannot shift all converted screens. Overall box office was said to ‘only’ be up by around 10% in the same time period.
The success of the first wave of premium seating has led Regal to accelerate its conversion program, with 40 multiplex sites representing 500 screens scheduled to have their seats swapped out in the coming year. Ultimately Regal expects to outfit at least 25% of their screens with luxury seating.
Miles also discussed the “ low-cost, low-risk investment” to upgrade food and beverage offerings to offer greater food menu options and alcoholic beverages. Though not mentioned in the conference call, the latter may be “low risk” but still requires approval or local regulations to be amended and relaxed, which requires political action at the county or district level. This means that cinemas can only ‘convert’ to alcohol serving once they have local permission to do so, while the pace of rolling out luxury seating is Regal’s decision in conjuncture with the landlord. The “enhanced menu” will be rolled out to a further 65 locations in 2015, while Regal will offer some type of alcoholic beverage in around 80 properties.
Regal’s CFO David Ownby expanded on what the capex would entail in 2015 (transcript of the con. call by Seeking Alpha). “In light of the customer-focused initiatives Amy outlined earlier in the call, we expect our 2015 capital expenditures, net of asset sales and landlord allowances, to be between $135 million and $145 million.”