Forecast of Doom: Theaters Ride Out a Sluggish Summer Box Office Start
In “Indiana Jones and the Dial of Destiny,” Harrison Ford’s character must reclaim an antique calendar that Nazi henchmen pilfered so they could travel back in time and change the outcome of World War II.
Movie theaters showing the octogenarian’s latest flick may also wish they could travel back in time to the days when feature films regularly hauled in hundreds of millions of dollars. “Dial of Destiny” could struggle to earn back its $295 million budget after earning only $82 million domestically over Independence Day weekend, a modest sum below forgettable sequels like Star Wars’ “Solo” and “Transformers: Rise of the Beasts.”
Several other blockbusters loom later this summer — some analysts believe “Barbie” could earn $400 million — while the fall promises highly anticipated offerings from Martin Scorsese, Ridley Scott and David Fincher as well as “Dune” and “Hunger Games” sequels that could turn theaters’ fortunes.
But movie theaters are facing an uncertain future. The pandemic temporarily closed cinemas, delayed film productions and steered viewers toward streaming services. By 2022 there were only 71 movies that opened to wide release compared to 112 in 2019.
This year, theaters are finally free of COVID-19 restrictions and their ticket sales figures are increasing. Box office revenues in the second quarter of 2023 reached 82 percent of 2019 levels, according to an analysis by B. Riley Financial, representing the highest quarterly box office figure since the pandemic started. Even bankruptcies that struck Alamo Drafthouse and Regal Cinemas’ parent company Cineworld haven’t dispelled the notion that the industry is recovering.
The United States lost about 3,000 screens since the pandemic hit but it’s still at a healthy 40,000 screens, with half owned by the country’s largest movie chains: AMC, Regal and Cinemark. But the public may not want to see Indiana Jones playing at 6 p.m., 6:15 p.m., and 6:30 p.m. for very long.
“We’re over-screened. Realistically, 10,000 screens could disappear in the next five years,” Michael Pachter, an analyst at Wedbush Securities who tracks entertainment retail, said. He believes eight-screen theaters could be the sweet spot while larger theaters remain empty. “The movie theater lifeblood is having something every week, and if there are 100 films this year, only two a week is not enough to support a 16- or 32-screen multiplex.”
Some scaling back has already occurred. In February, Regal Cinemas announced it would close 39 theaters, including its Court Street and Union Square locations in New York City, after shutting down a dozen theaters in September 2022. (In June, Related renegotiated a new long-term lease with Regal to keep the Union Square megaplex open.) In other locations, upstart cineplexes have taken over leases of defunct theater sites. At a Regal in the River Oaks neighborhood of Houston, the landlord let the theater chain keep the top floor and converted the bottom floor to sports concepts like indoor golf and darts games.
Yet it’s not so easy to convert theaters to other uses since they’re so specially designed to screen flicks, Pachter said.
“They have no windows, the floor slopes, and there’s a lot you have to change,” Pachter said. “There isn’t much you can do with a box to make it appealing for someone else.”
Developers aren’t eager to open new theaters, so movie companies are investing more in the theaters they already have. That includes plusher seats, beefed-up sound systems, and tastier (and more expensive) concessions. Advanced reservations for seats is now the norm, and AMC is even rolling out tiered ticket prices based on the seat’s location.
But the theaters that may be best positioned to attract audiences in the coming years and take over the homes of shuttered theaters are those that offer dinner and alcohol within the premises.
“Consumers like to be able to combine an evening out in one spot,” Phil Contrino director of media and research of the National Association of Theater Owners, said. “Being able to have dinner while we watch a movie is a much more efficient use of time. People now are spending more as they’re going back to the movies. They want a beer, a full meal, and snacks on top of it.”
Perhaps it’s not surprising that Alamo Drafthouse, a pioneer in dine-in cinemas, announced plans in 2021 to open five new theaters in New York, Washington. D.C., and St. Louis, after its bankruptcy filing that same year. Look Cinemas, which has locations in seven states, opened a seven-auditorium flagship at the former Landmark Theater site on West 57th Street in May.
“Look’s dine-in business model and specialty programming sets them apart from many of Manhattan’s other theaters, making them a real destination,” Jody Durst, president of The Durst Organization, said. “Our 57 WEST location is ideal for a movie theater, being part of a large and growing local residential community that appreciates the arts.”
One reason for dine-in theaters’ success is that they can draw as much revenue from food and beverage sales as they can from box office receipts. About 60 percent of revenue for Star Cinema Grill, a Houston-based dine-in chain, comes from its dining options. That can be used to make additional investments in screens, sound systems and seats.
“We’ve invested a lot in technology to make the experience exceptional for customers and we’ve stolen audience share from Regal, AMC and Cinemark,” Kristen Barker, a principal at Edge Realty Partners who has Star Cinema as a client, said. “It would be challenging to get financing for a ground-up theater but we can go into a mixed-use development, take 40,000 feet on a second floor, and if they have enough other retail coming into a development they can finance that.”
The most popular multiplexes are anchor tenants in shopping complexes that provide other entertainment options nearby, even if the theaters aren’t offering dinner and drinks themselves.
Sandy Sigal, CEO of landlord NewMark Merrill Companies, believes customers are increasingly veering toward making one stop for all their entertainment needs, and the best locations have complementary options.
“Theaters play off the restaurants and shopping that make people feel comfortable,” Sigal said. “Mixed-use is becoming much more prevalent. Everyone is figuring out they have to play together as tenants.”
Even with sluggish box office numbers during the Fourth of July, the movie industry is getting back to a period where there’s enough programming for everyone, compared to last year’s outings, National Association of Theater Owners’ Contrino said. But now, it’s more up to the theaters themselves to get butts in seats.
“It depends on every single area and how they connect with their community,” Contrino said. “It’s a matter of marketing. Theaters can’t just market the movies that are playing, they have to market the experience they create. That’s what the most successful theaters do.”