From trivia nights to college classroom rentals: How theaters are surviving without new movies

October 26, 2020

When movie theaters were asked to close this spring due to the coronavirus pandemic, many cinema operators were under the impression that their venues would be reopened by the end of June.

Larry Etter, senior vice president at Malco Theatres, which operates nearly 40 theaters in six Southern states, said the company first planned for a 60-day closure. But as the weeks progressed, and movie studios pushed back the release of more and more titles. Expectations shifted along with the new calendar.

By the end of May, August was being eyed as the time to hire back employees and fire up the popcorn machines. The industry had lost the big movie-going weekends of Memorial Day and July Fourth, but Labor Day would bring the release of "Tenet."

"So we had this moving target and when you have a moving target of an opening date, it's really hard to figure out what to do," Etter said.

Malco and many other theater operators did reopen, but the Christopher Nolan film disappointed at the box office, and studios once again postponed a number of films. So now, eight months into the pandemic, there's not clear path for theater owners.

"Our biggest challenge is we really don't have a timetable," Etter said. "If we had known April 1 that we wouldn't open until November, we could have started [earlier] on ancillary revenue programs to keep us afloat."

Movie theaters big and small are hauling in less than a quarter of the revenue that they were generating last year. For many, bankruptcy looms. The largest cinema chain, AMC Entertainment, and B&B Theatres, the sixth largest cinema chain, have both warned of this possibility. Studio Movie Grill, a Dallas-based dine-in theater chain, filed for Chapter 11 bankruptcy protection over the weekend.

"We will never be profitable under the circumstances we are under right now," Etter said. "What we have to do is, we have to stay in business. We have to keep paddling."

Movie theater operators told CNBC that they have felt strung along by studios and government officials. Inconsistent guidelines across state lines and the continued postponement of new films have left them financially vulnerable.

The combination of capacity restrictions, reluctant patrons and so few new films, cinema operators have had to adapt and become creative in order to make money. For many, that has meant making private theater rentals less expensive, offering more classic films and turning the side of their buildings into drive-ins.

'Anything and everything'

National Amusements, which owns the Showcase Cinemas circuit, is working with local libraries to show films that are based on books and with museums to play documentaries that are tied to exhibits, Mark Malinowski, vice president of global marketing for Showcase Cinemas, said.

Then there are the smaller players who have transformed parking lots into concert venues, traded blockbuster opening weekends for trivia nights and negotiated deals with local colleges to rent out the space for in-person learning.

"We've made the commitment to keep our doors open, keep our people working," Jason Ostrow, vice president of development at Texas-based chain Star Cinema Grill, said. "Their sole purpose is to innovate and find ways to drive business however they can."

For Star Cinema Grill, trivia nights, theater rentals and showcasing live sporting events is helping to keep the lights on. The company has even rented out a theater to a local high school for its homecoming festivities.

"Just anything and everything that we can do, we are just giving the green light to our team, whereas in the past, we would probably say no to a lot of things," Ostrow said.

The company actually loses more money being open than it does being closed, but closing is out of the question, Ostrow said. In shutting the doors again, Star Cinema Grill would have to rehire and retrain managers for its locations, a process that takes a lot of money and time. It is unlikely, he said, that managers at the current locations would stick around and wait for the chain to reopen.

Star Cinema Grill is making less than 25% of the revenue it hauled in last year, Ostrow said. It isn't paying rent, after working out a deal with its landlords to pay a percentage of its gross sales instead. This is a common solution that cinema owners and landlords have agreed to during the pandemic.

"So far we have been able to work with them and that's why we can still operate," he said.

Alamo Drafthouse, which currently has around 40% of its theaters open, around 18 locations, is in a similar situation with landlords. The company's revenue is between 15% to 20% of prior years, CEO Shelli Taylor said, which would not be enough for the company to break even after rent.

For the most part, however, the theater chain is not paying rent. It's paying its landlords a percentage of its total revenue.

Personal theater rentals has been a successful alternative for Alamo Drafthouse and account for 30% of its top line. Guests can choose from action flicks like "Jurassic Park," 'Wonder Woman" and "The Matrix," family friendly fare like "Shrek," "Despicable Me" and "How to Train Your Dragon," as well as classics like "Goonies" and "Gremlins."

Earlier in the year, many worried that these older films would would not drive significant traffic to theaters.However, over the Halloween season, operators have been quick to praise "Hocus Pocus" as a catalyst for ticket sales.

"'Hocus Pocus' is just a favorite and we are thrilled that it was rereleased and people are coming out for that one," Taylor said. Since Oct. 2, the Disney film has rung up more than $5 million in ticket sales at domestic cinemas, according to Comscore data. This is the first time that "Hocus Pocus" has been rereleased since its debut in 1993.

Filling the 'dead time'

Once the Halloween season wraps up, "Hocus Pocus" will go back into Disney's film vault, available only on streaming or DVD. With only three major blockbusters slated to hit theaters before the end of 2020, cinemas will continue to offer up legacy titles like "Star Wars" and "Jaws," but will also offer up a number of holiday titles come late November and into December.

Classic films can only drive so many ticket sales, however.

That's why Malco Theatres has agreed to rent its auditoriums to the University of Memphis, starting in January. The university will use at least two Malco locations for spring semester classes between 8 a.m. and 12 p.m. during the week.

The university wanted to offer more in-person learning, but its campus facilities could not accommodate socially distanced learning, Etter said. The arrangement allows Malco access to the rooms during the evenings and weekends, when moviegoers are most likely to visit. It has made a podium available for teachers at the front of the theater as well as projection equipment.

"That's dead time anyway," Etter said. The company has 37 locations open. Twenty are operating with either limited show times during the week or are only open on the weekend.

The company has been looking for ways to use its facilities for other things and is even in talks with a local high school for a deal similar to the one with the university.

Malco Theatres is also venturing into the consumer products world by selling its own line of popcorn at Walmart and Kroger stores in the regions where it operates. The packaged popcorn is due to hit shelves around Thanksgiving.

"These are tough times for cinemas right now," Alamo Drafthouse's Taylor said. "However, the need for socialization and getting out of your house and experiencing life, that's just not going to go out of style."

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