A week after Regal announced that it plans to convert 25% of its screens to luxury seating, AMC has provided details about its plans for reseating. While the Chinese-owned exhibitor is not committing to a particular screen percentage target, the ambition is great for the cinema chain that in many ways kickstarted luxury reseating trend amongst the major exhibitors. AMC also continues to stress that reseating is only a part of its overall enhanced guest experience.
While attendance and box office was down for AMC in the forth quarter of 2014 (by 4.3% and 4.5% respectively), as well as for the year as a whole in line with the rest of the industry, the exhibitor managed to eek out an overall increase thanks to better concessions spend. AMC’s food and beverage (F&B) revenues per customer increased by 13.5% to $4.46 in the last quarter of 2014, a record high for the company.
Speaking at the Q$ 2014 earnings call (transcript by Seeking Alpha), CEO Gerry Lopez reminded the analysts listening in that when the reseating initiative was started three years ago it was not universally well received. “I don’t think I can use over an open line some of the adjectives and some of the names that we were called for this notion of taking two-thirds of the seats out of an auditorium,” he said. Yet today, “we’re seeing the same things that you are seeing which is everybody’s announcing them and everybody is doing them.”
At the end of the 2014 calendar year AMC had refitted or installed luxury recliner seats in 598 screens across 53 theatres, which represents an increase of 51% on the previous year. The reseated theatres are said to have delivered an increase in admissions of 13.8% on a per screen basis, compared to an average industry decline of 4.3%, in the last quarter of 2014.
Looking at the year as a whole, AMC claims that reseats delivered a 25.3% increase, compared to an industry slump of 5.6%. Taken together reseats thus delivered an 18 and 31 point outperformance for the quarter and the year.
Other Aspects of the Improved Guest Experience
Yet Lopez stresses that luxury seats are only one of the aspects of the guest experience that patrons value, pointing to the 21.5% improvement in internet ticketing (representing 14.3% of all AMC cinema tickets sold), of which over a quarter (26.2%) were sold on amctheatres.com, which only became available in the last twelve months. The other tickets were sold on platforms such as Flixster, movietickets.com and Fandango.
There is also the launch of the MoviePass ‘unlimited’ viewing service in the two test markets of Boston and Denver. The AMC Stub loyalty program had also attracted 2.4 million paying (!) members, whose movie attendance outpaces regular moviegoers by 13% and a whopping 20% in F&B spend.
AMC’s 4.6 million Facebook ‘likes’ and nearly 260,000 Twitter followers outnumber the combined total of its three largest competitors (Regal, Cinemark and Carmike).
F&B has been the other major focus of AMC’s efforts, with AMC having 16 dinning theatres and 89 MacGuffins restaurants operating as of the end of 2014. These is a doubling (45% and 62% increase respectively) on a year earlier.
The exhibitor had announced in Q3 that it was accelerating a “meaningful proportion” of its USD $39 million capex to deploy a further 40 MacGuffins, 20 Freestyle machines and 44 digital menu boards. Given the increase in F&B spend it is clearly an investment yielding results, though the exhibitor was also awarded USD $5.1 million in state sales tax refund, which improved the numbers.
Despite all these and other initiatives ranging from own-brand PLF to YouTube promotions, Lopez emphasised that AMC is in no way resting on its laurels.
In 2015 we’ll either be launching or testing new guest experience initiatives in pricing, mobile platforms, e-commerce loyalty programs, crowd sourcing and sight and sound all geared to further improve the guest experience and maintain relevance with our guests. Wherever guests are consuming movie information is where we want to be and where they should be able to purchase an AMC ticket. These are initiatives that differentiate AMC from other public and private companies in our sector, initiatives that present the complete package to our guests and build on the success of what guests have enjoyed at last few years at AMC. These were designed to keep our guests again and again to the movies and they are not easy for our competitors to replicate. This is what allows us to deliver results even when the box office does not cooperate.
Ripping out 2/3 of Seats, Yet Attracting More Visitors
So AMC is clearly doing much more than swapping seats and (eventually) increasing ticket prices. The company thus claims to be relaxed about competitors also installing luxury seating. Even going so far as calling some of his competitor’s seating efforts ‘half-baked’, Lopez emphasised:
“When you ask us, if we worry about other [indiscernible] imitating us in recliners and we answer it’s just a seat, you need the complete package it is continuous innovation that we are talking about others don’t have it, to us it’s a way of life.'”
Yet the reseating is clearly at the core of the company’s strategy, since reseating also helps drive uptake of AMC Stub, increases F&B spend and generates greater loyalty, not to say taking away audiences from other nearby theatres. There is a reason why AMC represents only 8% of screens in the US but garnered 21% of the total box office in the last 12 months.
So let’s look closer at the reseating strategy.
AMC sees reseating as a “transformational” change for movie patrons, that underpins the 30 to 40 point outperformance of the market as a whole. Most significantly, while other exhibitors are starting to implement their own reseating strategies, AMC highlights that it has moved on to version 2 (already in deployment) and version 3 (working on) of its reseating, making the transformation a moving target.
Looking ahead to 2015 AMC is putting serious money behind this strategy, but also seen a significant contribution from its landlords to help this effort. As outlined by the company’s CFO Craig Ramsey:
Looking ahead to 2015, we expect to invest approximately $320 million to $340 million with landlords expected to contribute approximately $65 million to $85 million resulting a net cash outlay of approximately $250 million to $260 million.
The accelerated spend of a significant portion of this capex means that AMC claims it will have a ‘first to market’ advantage in many of its sites. With three years’ worth of experience in some locations, AMC estimates that jut over half of the increase comes from “market share of shift”, i.e. patrons switching form other multiplexes, while 40%-45% is “pure organic growth.”
The point about landlord contribution means that reseating is to some extent dictated by the schedule of lease rentals, coupled with landlords’ willingness to contribute to the cost of overall refurbishment and upgrades.
As such, AMC does not view the reseating as a repeat of the 1990 ‘arms-race’ where costs of building new megaplexes and installing stadium seating and digital audio in older multiplexes led to large scale bankruptcies in the US exhibition sector. AMC claims to be focused on productivity (ie. revenue) per customer and seat and metrics associated with that, rather than looking over its proverbial shoulder at what its competitors are doing.
Creating a ‘Lift’ by Introducing Scarcity
AMC typically switches out all seats in a theatre undergoing reseating, rather than a hybrid approach of mixed types of seats. The exhibitor typically also then has a reserve reseating policy, with no change in ticket prices for the first 9 to 12 months. This in turn often creates sell-outs, particularly on weekend or for popular films, which creates a sense of ‘scarcity’, which in turn creates ‘urgency’, which in turn conditions people to book ahead or to go and see a film during a weeknight showing.
It also means that when AMC creates a ticket ‘lift’ it can be more aggressive in terms of putting the ticket price up by a dollar (USD $1.00) rather than a quarter (USD $0.25). Meanwhile, AMC closely monitors that satisfaction score amongst patrons and finds that it not only remains constant but improves as people see that they are getting more value.
AMC thus sees around 30 weekends per year sold out in a reseated auditorium, whereas before the conversion it would see two to four weekend sold out. The ‘scarcity’ and sell-out aspect is also seen as feeding into the higher internet use for ticket buying.
On the other hand dine-in theatres present a different degree of complexity because of the food logistics demands of meeting guest expectations, which is partly why AMC has not been rolling it out as aggressively as its reseating program.
In conclusion, Lopez puts seats at the heart of AMC’s enhanced customer experience, but only as part of a well rounded arsenal. It may not be the arms-race of the 1990s, but it is still a fierce battle for hearts and wallets:
So it’s not just the seat, it’s not just the one thing it’s actually action on so many of these fronts that we think sets a completely tone now than it did in the year — there is an arms race, you are now bringing all these bullets to the battle good luck, because it’s going to take more than one trick or two trick, it’s going to take a whole bag of tricks.
Even though cinema attendance and box office will grow significantly in 2015 compared to the previous (abysmal) year, US exhibitors know that over the longer term they face a static or stagnant market and competing for each customer and extracting maximum value from them will be the key to profitability.