Mar 8

Theater Wars Light Up The Big Screen Globe St.

HOUSTON—A new generation of experiential movie theater concepts is departing with industry conventional wisdom and beginning to change mixed-use development calculations, says Baker Katz in this EXCLUSIVE.

HOUSTON—While going to the movies has always been an opportunity to enjoy some escapist entertainment, in recent years, movie theater brands have upped the ante by introducing a range of highly experiential concepts. New and renovated theaters offering luxurious amenities along with full dinner and bar service are popping up across the Southwest and particularly in Texas, say Jason Baker and Ben Brown of Baker Katz in a recent theater property analysis, exclusive to GlobeSt.com.

This explosion of experiential and amenity-laden movie theater concepts was initially driven by several new independent brands, but the success of the format has prompted larger brands to contribute new theater concepts, often reformatting existing theaters in an attempt to deliver a similarly elevated experience. These developments are exciting for moviegoers, but a closer look at the experiential theater trend has some interesting and potentially important implications for mixed-use developers and the movie theater industry, Baker Katz reveals.

Experiential/luxury theater concepts are booming. This is in response to the growing popularity of experiential retail and a craving for varied entertainment destinations as well as a way to enhance a theatergoing experience that was losing ground to a wide array of home television and movie entertainment. From opulent leather seats and powered recliners to full menus, cocktails and seat-side service, this new generation of theaters turns catching a movie into a social event. Consumers can enjoy a glass of wine, quality food and a movie in a comfortable environment that is different from the utilitarian setting in many traditional theaters. Names such as iPic, Studio Movie Grill, Cinépolis, Alamo Draft House and Star Cinema Grill are all prominent in Houston.

Established national names such as AMC and Cinemark are renovating existing theaters to introduce luxury elements such as more comfortable seating, better food and full bar service. Incredibly, removing seats (sometimes reducing the number of seats by a full 75%) frequently leads to an increase in profits. With much of the infrastructure already in place, the ROI on a repurposed theater is significantly higher than a new build, making this an increasingly popular option, say Baker and Brown. As always, the profit-maker is not the ticket sales but the food and beverage. The familiar adage about a theater simply being “an excuse to sell popcorn” still holds true, and those margins get even more attractive when alcohol and a full menu are added into the equation.

The success of these concepts has proven out and these theaters have been established as viable and popular anchors for shopping centers and mixed-use developments. Developers, owners, operators and fellow retailers like the strong synergy that luxury theaters deliver to a project, says the Baker Katz analysis. Initial concerns about competing with restaurants for dining dollars have tended to be overblown, and strong performers more than make up for it in terms of driving additional traffic and contributing to a project’s destination status.

As with any retail segment, the theater business is all about market share and approximately 75% of the national market has been controlled by three groups that are constantly jockeying for position—Regal, Cinemark and AMC. These three brands seem to have established a cordial relationship, with what appears to be an informal understanding to not build within 3 miles, give or take, of another theater. But, the influx of independent operators and experiential brands is apparently changing this dynamic, says Baker Katz. The shakeup may have started in Houston, where iPic signing a lease in the River Oaks District led to a legal conflict with Regal.

Today, new competitors are flooding into the market and the rules have changed. Experiential theaters have created competition and also created new opportunities, as brands look to expand into new spaces and new markets.

Going forward, it will be interesting to discover which theaters get specific films, especially as competition becomes fiercer. If two theaters are showing the same big film in close proximity, experience and pricing will be the ultimate differentiators. Regardless, national chains are clearly going to have to adapt to what these experiential newcomers are doing, and there may be mergers and acquisitions in the not-too-distant future. Creative arrangements like the one between iPic and Netflix to show new Netflix original movies at iPic theaters may also become more common. With innovation, experimentation and experiential horsepower on the rise, industry analysts and experts are as optimistic about the future of the industry than at any time in recent memory, Baker Katz concludes.

Baker Katz is a Houston-based real estate firm specializing in tenant representation and development and an X Team International partner.

article View original article here