Jon Reiss

Cinema Profitability Part 4

This is Part 4 of Jon Fougner’s guest series on Cinema Profitablility – today he focuses on the marketing.

Marketing

The last time you went to a movie, how did you decide where to see it? If you’re like most Americans, you simply went to the nearest theater showing it. (Of course, if you’re reading this, you may be a cinephile and therefore a bit more discerning in your choice!) That’s even less brand loyalty than you might show in where you buy commodities like gasoline.

The cinemas have historically deferred to their vendors, typically owned by large media companies, to advertise their products. (Of course, the cinemas have done the crucial re-marketing work of on-site merchandising for the products, in the form of movie trailers, but I doubt that those trailers do much to engender loyalty to the particular cinema (chain) in which they’re shown.) That’s extraordinary; even in verticals where the manufacturers typically buy a lot of media, such as auto, CPG, and QSR, the retailer typically advertises as well, both to complete the bottom of the demand generation funnel and to take share from competing demand fulfillers.

It’s extraordinary, and it may have to change. The good news: many of the needed tactics don’t require paid media. A few are laid out below.

The Big 3 should build low-touch customer relationship management systems anchored by e-mail. A few of the places to capture e-mail addresses from:

• online sales,
• ticket kiosks,
• face-to-face ticket and food sales (when customer lines are not prohibitively long),
• social media,
• and even the studios, whose e-mail lists sometimes go wasted.

Around each e-mail address, build a CRM profile, including:

• first and last name,
• gender,
• home address,
• preferred genres,
• preferred screening times,
• preferred screening days,
• average purchase size,
• price sensitivity (e.g., coupon redemption behavior),
• and viewed trailer history (for data analysis once the advertised film comes out).

Send customers highly-customized e-mails, measuring success by value of tickets sold. (This measurement requires conversion data from the online POS, which should be a show-stopping negotiating demand in any agreement with a 3rd party broker.) Some of the blocking and tackling of optimizing these e-mails is obvious. For instance, the preview field in a major Webmail provider like Gmail shouldn’t tell people to unsubscribe:

And, for instance, no clickable film title (in the screen below, “A Single Man”)…

…should land on a page whose above-the-fold content makes no mention of it:

Some of the fruits hang higher, but tips from entertaining decks like DJ Waldow’s will help spot them. Most of the benefit, however, will come from relentless testing, likely through an e-mail marketing agency.

The promotional engine of this CRM system should be a loyalty program. Unlike AMC and Regal, Cinemark doesn’t even appear to have a loyalty program in the U.S.:

The program should leverage game dynamics, such as points collection, leveling up, social status, rewards, and randomization. As CRM gold standard Harrah’s knows, variable positive reinforcement is key. AMC owner Apollo co-owns Harrah’s and could choose to share some of its CRM playbook. The rewards should be meaningful. At a 58% weighted-average gross margin with 90%+ wasted admissions inventory, it’s hard to understand why AMC spends less than 1% of revenues from loyalty customers on their rewards. (For 10 ticket purchases = $83, you get 1 small popcorn, with COGS less than $83 x 1% = $0.83.)

The company’s website will serve several purposes: loyalty program, e-ticketing, gift cards and more. Modeling the value of users’ interactions with these features is the first step towards prioritizing amongst them and optimizing for the highest value conversions while culling all else. Today, if a user visits the Big 3 sites, she’ll experience:

• an emphasis on products rather than her needs,
• clutter,
• irrelevant banner ads,
• text in all capital letters,
• unconventionally small text,
• unconventional hyperlink colors,
• inscrutable text color schemes,
• unconventional background colors,
• links whose landing pages have no apparent correspondence to the link text,
• unclear calls to action,
• search parameters pre-filled to show 0 results,
• altogether empty search results without helpful suggestions,
• overcomplicated registration flows,
• missing standard navigation to home (clickable logo in upper left),
• broken mouse-over ajax interfaces,
• unnecessarily narrowly constrained clickable areas,
• and e-mailed passwords (!).

Experts like SiteTuners.com offer consultation and testing in order to identify and remedy problems like these.

END OF PART Four  Tomorrow:  Marketing 2 and Margins

Guest Post by Jon Fougner: Cinema Profitability

I had the fortune of meeting Jon Fougner, who is the Principal, Product Marketing Monetization at Facebook at Sundance this year (he was showing filmmakers how best to use Facebook to connect with audiences). He works with the ads engineers and Product Managers to define products that will be successful in the marketplace. I mentioned Think Outside the Box Office and he said «Hey, I wrote this white paper on how movie theaters could be more profitable if they would experiment more, especially with online and social tools. Would you like to take a look at it?»  I immediately jumped at the chance to read it and publish it with my good friend Ted Hope.   The original is 4000 words – so we have broken it into 5 sections which we will run consecutively through the beginning of next week.   Jon will be appearing at the American Pavilion at Cannes on May 13th as well as the Produced By Conference in Los Angeles on June 4th.  He’s at facebook.com/jfougner.  Note that this draft was written last year; its qualitative and quantitative descriptions of the landscape are still fairly accurate, with at least one key exception: AMC has since revamped their loyalty program.  And as Jon predicted in April 2010, Blockbuster’s equity capital was wiped out.”

Here is Jon’s Post:

Introduction/Abstract¹

The role of film exhibition in our imagination dwarfs its role in our economy. Dolby surround sound, residual awe of movie-going as children, proclamations of Hollywood’s sway — all this industrial light and magic create the illusion that movie theaters are a big industry. In fact, cinemas represent only 0.1% of the $14 trillion U.S. GDP. State lotteries rake in 4 times as much. Ticket sales barely outpace inflation, and wispy margins bounce around the single digits. Whether family- or sponsor-owned, their mandate has been to spit off cash.

The result is a space that has attracted an anemic level of innovation, led by three scaled chains: Regal, AMC, and Cinemark. Together, the “Big 3” control 43% of the U.S. market. I say “together” because the three tend to act as consortia and exhibit (no pun intended) parallel behavior. Some adjacent innovation offers hope. For instance, as Avatar demonstrated, the studios’ development of 3D may prove one of several sorely needed silver bullets. But most adjacent innovation — in particular, high-resolution flat screens for home viewing, and Internet-based distribution vehicles to supply them with video — is an existential threat to the cinemas.

I believe that, without innovation, at least 1 of the Big 3 exhibitors risks losing its equity capital² in the next five years. To be sure, their plight facing looming debt maturities is not as dire as Blockbuster’s. What’s more, there is a lot of low-hanging fruit. What I lay out below is an array of product, channel, marketing, and (in less detail) cost control tactics to get the ball rolling. More important than any one of these tactics, however, is the overall strategic mentality: to think more like a technology company. They need to embrace the scientific method to experiment, analyze, and iterate. They need to distribute to the edges of their employee base permission, responsibility, and incentive for delivering great products (think Starbucks or Nordstrom) and generating new ideas (think Best Buy or Google). And they need to move fast.³

Here’s a summary of where they stand⁴:

Footnotes

¹ My employer is Facebook. This article represents my thoughts, not its. Thanks to Zakia Rahman, Colin Darretta, Harry Chotiner, and Jared Gores for providing helpful comments on a draft. The usual disclaimer applies.

² In the case of Apollo-owned AMC, it’s possible that, instead, value will be transferred from debt holders to equity holders, as was the case with Harrah’s, which Apollo and TPG own.

³ Some of these insights may be applicable to smaller cinema businesses, too.

⁴ Does not yet reflect 4Q 2009.

END OF PART ONE  Tomorrow:  Products