Once upon a time, attending the local movie theater was an ex- perience that most Americans shared on a regular basis. For example, in 1929, the year of the first Academy Awards, an average of ninety-five million people--about four-fifths of the ambulatory population--went to movies every week. There were more than twenty-three thousand theater, many of palatial size, like the six-thousand-two-hundred-seat Roxy in New York. In those days, the major studios made virtually all the movies that people saw (over seven hundred feature films in 1929). The stars, directors, writers, and other talent were under exclusive contract, and, in addition, the studios owned the theatrical circuits where first-run movies played. This regime, which allowed the major studios to exert total control over movies, from script to screen, came to be known, and feared, as "the studio system"; it more or less ended in 1950, when the United States Supreme Court upheld antitrust decrees ordering several of the major Hollywood studios to divest themselves of their theater chains.
Today, in a world with television, video, the Internet, and other home diversions, weekly average movie attendance is about twenty-seven million, or slightly less than ten per cent of the population. As a result of this diminishment, many larger theater either closed or divided themselves into smaller auditoriums under one roof. (There are only a third as many theater sites today as there were in 1929, but there are more screens--over thirty thousand.) These multiplexes afforded theater owners significant economies of scale. They could also show a greater variety of films, tailored to different, if smaller, audiences. And as smaller theater closed the chains expanded; today, the fifteen largest North American chains own approximately two-thirds of all the screens. These large chains, and their centralized film bookers, are the principal gatekeepers for the American film industry. They are responsible for determining what movies most Americans see.
Earlier this year, to learn how the chains exercise this responsibility, I accompanied Thomas W. Stephenson, Jr., who heads Hollywood Theater, to Sho West, the annual event (this year at Bally's Las Vegas) in which movie distribution and exhibition executives meet over four days to discuss plans for releasing and marketing upcoming films. Stephenson, who collects abstract art as well as multiplexes, had an eighteen-year career in investing and investment banking before he entered the movie business, three years ago, by founding his Dallas-based chain. It now has seventy-seven theater and four hundred and seventy-four screens in six Midwest and Southwest states. With just a trace of a Southern drawl, he told me, "Our plan is to build about a hundred screens a year for the next five years," in other words, to become one of the major players in the movie industry.
On the way to Las Vegas, Stephenson, an energetic, peppery-haired man in his early forties, gave me a quick course in the economics of his business. Of the fifty million dollars customers paid for tickets last year, he said, Hollywood Theater kept only twenty-three million; most of the rest went to the distributors. But, he continued, since it cost $31.2 million to pay the operating costs of the theater, his company would have lost $8.2 million if it were limited to the movie-exhibition business. Like all theater owners, though, he has a second business: snack foods, in which the profit margin is well over eighty per cent. Last year, Hollywood Theater made a profit of $22.4 million on the sale of $26.7 million from its concession stands. "Every element in the lobby," Stephenson told me, is designed to focus the attention of the customer on its menu boards."
Stephenson was willing to let me tag along to meetings in Las Vegas on the condition that I not directly quote or identify those with whom he met. When we arrived, he decided to skip the reception hosted by independent distributors. "I personally enjoy watching many of the low- budget films that come from independents," he said, "but they are not a significant part of our business." In fact, according to Stephenson, ninety-eight per cent of the admission revenues of his theater in 1997 came from principal Hollywood studios----Sony, Disney, Fox, Universal, Paramount, and Warner Bros. These companies supplied his multiplexes not only with films but with the essential marketing campaigns that accompany them. (Occasionally, to be sure, independent films do succeed in winning a mass audience, as, for example, --The Full Monty-- did; but, as Stephenson put it, "We don't count on them.")
The organization of the marketing campaigns begins months before the release date, use the most sophisticated methods available to target demographic groups, and intensify their activity in the final week, often with saturation television advertising, in order to capture "impulse" moviegoers. Stephenson and other theater owners rely on them to muster, if not to create, the audience for a film's crucial opening weekend. The campaigns require massive resources. The major studios spent, on average, $19.2 million in 1997 to advertise each of their films, a sum that would be considerably higher if it included the advertising provided by fast-food restaurants, toy companies, and other retailers in promotional tie-in arrangements that can amount to many times what the studio itself budgets. Rather than attend the large reception, therefore, on our first night we dined with the representative of Coca-Cola, a company that exclusively "pours" the soft drinks in over seventy per cent of American movie theater, including Stephenson's. Soft drinks are an important part of the movie business. All the seats in Stephenson's new theater, and most other multiplexes, are now equipped with their own cup holders, a feature that theater executives consider one of the most ground-breaking innovations in movie-theater history. With cup holders, customers can not only handle drinks more easily in combination with other snacks but can store their drinks while returning to the concession stand for more food. Hollywood Theaters, which now offers an oversized plastic cup with unlimited refills, sold slightly in excess of eleven million dollars-- worth of Coca-Cola products in 1997, of which well over eight million was profit.
Although most of ShoWest's official functions take place in convention halls and hospitality suites, much unofficial business was done in the sprawling coffee shop. It was there early the next morning, that I joined Stephenson for a breakfast meeting with an analyst from J. C. Bradford & Co., an investment firm. Acquisitions were in the air; Kohlberg Kravis Roberts had just bought and consolidated two of the largest theater chains. Stephenson, as he made clear at the outset, planned to partake in this industry consolidation by acquiring state-of-the-art multiplexes. Since he planned to finance this aggressive expansion by selling part of the his company to public or private investors, he needed the services of investment bankers who, in turn, needed a --story,-- or convincing rationale, to raise the money.
Stephenson's story centered on stadium seating, in which every row of seats is elevated about fourteen inches above the row preceding it, allowing all customers to have an unimpeded view of the screen. While the seats take up more space, Stephenson said, "Our focus groups show that people now seek out theater with stadium seating and will drive as far as twenty miles to find one that has it." Attendance increased between thirty and fifty-two per cent where he had installed such seating. Stephenson would repeat this story to four other investment bankers at similar kaffeeklatsches over the next two days.
A little later, Stephenson moved to a different table to meet with two of the top executives of another major chain. He had told me beforehand that he wanted to buy five of their multiplexes and sell them an equivalent number in different locations, or "zones." In the movie business, the country is divided into zones which contain anywhere from a few thousand to a few hundred thousand people; the major distributors license their films to only one theater owner in each zone. Just over two-thirds of Stephenson's theater are in such exclusive zones, and he wanted to increase this number.
These talks ended inconclusively, and in the late morning I accompanied Stephenson to the convention hall, where we took assigned seats in the grandstands. Stephenson, along with thirty-six hundred other attendees, was there to see the first major studio presentation, Sony's --product reel. Sony's top executives sat on a dais, as if addressing a shareholders' meeting. Jeff Blake, the president of Sony's distribution arm, said that last year Sony films had brought a new record gross into American theaters: $1.2billion. Indeed, Sony accounted for nearly one out of every four dollars spent on movie tickets in 1997.
Vanna White, the television personality then conducted a mock "Wheel of Fortune" game in which every clue referred to films coming from Sony this year, including "Godzilla" and "The Mask of Zorro." As Vanna White announced each title, actors from the film in question rushed onto the stage----among them such stars as Michelle Pfeiffer, Julia Roberts, Nicolas Cage, and Antonio Banderas. All of this was followed by excerpts from the films. A highlight of sorts came when the stage suddenly filled with dancers costumed as characters from Sony's movies.
Robert Goulet played the part of Jeff Blake and sang, to the tune of "The Impossible Dream":
A private meeting held after ward, in Sony's Las Vegas conference room, was far more grounded in reality. A top Sony executive immediately set the tone by observing that the presentation had cost Sony four million dollars (a gross exaggeration, it turned out) and then quipped that next year, instead of hosting the event, Sony would just send a ten-thousand-dollar check to each of the chains' film buyers.
It became apparent at this meeting that the negotiations did not concern whether a chain would show Sony films on their prescribed release dates that was taken for granted. At issue was the terms under which they were to be played and positioned against the films of competing distributors--for instance, the number of screens they would be shown on in a multiplex, the guaranteed length of each film's run, the amount of free advertising there would be in the form of trailers and lobby displays, and the division of the box-office receipts.
For example, regarding "Godzilla," the executive outlined the enormous marketing campaign, supported by worldwide licensees of three thousand "Godzilla" products, as well as promotional tie-ins with such retail partners as Taco Bell, Sprint, Swatch, Hershey's, Duracell,Kirin beer, and Kodak, which were designed to drive a huge and voracious audience of teen-age boys to their theaters. This particular audience, as he described it, was not concerned with the quality of the film, or even whether it was in focus, as long as there was action and popcorn. He joked that the theaters' potential popcorn sales should persuade them to agree to give Sony a larger opening-week cut. Joke or not, the implication was not lost on Stephenson's film buyer, although for the moment he successfully resisted Sony's suggestion. (As it turned out, the "Godzilla" campaign succeeded in "driving" people to pay seventy-four million dollars to see the poorly reviewed lizard in its opening, Memorial Day weekend.)
The next private meeting, in the hospitality suite of Twentieth Century Fox, was more relaxed. After offering Stephenson a soft drink, the Fox executive discussed the strategy for the summer season, which provides the largest audience for theaters. Indeed, of the nearly 1.4 billion tickets sold in 1997, some five hundred million were for the summer season, when, as the Fox executive put it, "Every day is a school holiday." (Another two hundred and thirty million were sold in the so-called holiday season, between Thanksgiving and New Year's.)
This summer, Fox was facing competition from a number of catastrophe films, such as "Godzilla," "Deep Impact," and "Armageddon," which early tracking polls showed were attracting the attention of large numbers of male teens. These polls I saw, which were conducted by the National Research Group, had divided respondents into five demographic "quadrants"--under twenty-five, over twenty-five, male, female, and a racial category--and asked about their awareness of, and interest in, upcoming films. On the basis of these data, along with other research supplied by the company, the major studios can avoid simultaneously competing in the same demographic categories and dividing up their opening-weekend audiences. Even in March, the Fox executive reckoned that competitors' films, particularly "Godzilla" and "Armageddon," would dominate two crucial quadrants--male and under twenty-five--in the early summer. He therefore opted to counter-program, which meant scheduling romantic comedies, such as "Hope Floats," that would appeal to the female and over-twenty-five quadrants.
Although the Fox people had an easier style than their Sony counterparts, they wanted the same limited commodity: the chain's better screens, play dates, and in- theater advertising. So did the four other distributors Stephenson met with during Sho West. By his count, in four days he watched brief excerpts from some fifty films. "They all tend to blur together," he said, and plots were never described. Instead, the accompanying pitches identified them in such jargon as "Clearasil" (coming-of-age), "genre" (teen-age horror), "romantic comedy" (love story), "ethnic" (black characters), "franchise" (the carbon-copy sequel of another film), and "catastrophe" (volcano, comet/asteroid/monster, loud sound effects). The Holy Grail was a film like "Titanic," which appealed to all five quadrants.
The last and longest meeting was with Disney's distribution arm, Buena Vista; its senior executives were eager to spend an hour or so discussing marketing plans with Stephenson. While they voiced some concern about the proximity of July's "Armageddon," in which the earth is on a fatal collision path with an asteroid, with Paramount and DreamWorks' "Deep Impact," in which the world is on a fatal collision path with a comet, they had an ingenious scheme for differentiating their product. Holding up a rectangular box, their executives explained that it contained a kit that would help theater managers to build a mock asteroid. Disney planned to distribute this package to theaters playing "Armageddon" and award prizes to theater managers who used it to create the most forbidding cosmic rock. The theme would then be amplified through such stunts as end-of-the world parties hosted by local disc jockeys.
Later, Stephenson, along with several of his top executives, toured the trade-show pavilions located in two giant tents behind Bally's, where delegates to ShoWest were somewhat greedily sampling popcorn, jelly beans, chocolates, licorice, frankfurters, nachos, and other snacks, many of which claimed innovative new flavors and aromas. Others were getting a look at the non-consumable products at the booths, such as loudspeakers, projectors, ticket rolls, cleaning equipment, marquee letters, plastic cups, and remote ticketing systems, such as MovieFone.
As we walked around, a theater executive, who was assessing different popcorn-topping oil, said that salt was the secret to financial success since it drives customers back to the concession stand for drinks--where they buy more popcorn. Stephenson stopped to try an oversized Wetzel's pretzel, which comes in flavors that include cinnamon, garlic, or pizza. According to the representative, the Wetzel's, though about three hundred calories, would appeal to diet-conscious non-popcorn-eaters, such as women who wait on the concession line with their boyfriends. This, of course, is a domain where the theater owner is in control. "We are in a very high-margin retail business," Stephenson said.