Movie Theaters Going Glam To Up Ante In Streaming Wars
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The pressure is on for movie theaters to compete against streaming platforms like Amazon, Netflix, Apple TV+, HBO Max and Disney+, all of which are investing billions in original content to be watched in the home or on the go.
Iconic director Martin Scorsese penned an opinion piece in The New York Times earlier this month saying streaming has become the primary delivery system for films, including his latest, The Irishman.
Developers apparently have yet to receive Scorsese's memo.
Movie theaters are a key piece of many new retail developments in the so-called retail apocalypse. Entertainment square footage has increased by nearly 45% at malls and by almost 69% at non-mall retail settings since 2010, according to JLL. Movie theaters were the top driver of that growth in terms of space occupied.
In mixed-use developments across the country, the retail anchor isn’t a traditional multiplex — it’s a luxury or premium theater that offers amenities like leather recliners or seat-side food-and-bar service.
“It’s a blanket statement to say they’re all luxury but, anecdotally, that’s all you’re seeing,” JLL Retail Research Manager Taylor Coyne said.
The premium theater sector has taken off in popularity in the last decade. Companies like Alamo Drafthouse Cinema, Studio Movie Grill, ArcLight Cinemas, iPic and Showcase Cinemas are among the premium movie providers popping up in new or repositioned retail centers this cycle.
Nearly 30% of all malls in the U.S. have added a movie theater this cycle, according to JLL. Developers and theater operators admit they could be fueling another tenant bubble in the place of fallen department stores, but they also feel safer operating a premium product against streaming services.
“There used to be limitations by film studios on how close movie theaters could be to each other,” Studio Movie Grill Senior Director Ted Low said. “Since those rules of engagement have changed, it does create the reality of oversaturation.”
Within 10 miles of Studio Movie Grill’s home office in Dallas, Low said there are three Studio Movie Grills, an Alamo Drafthouse Cinema, Cut! by Cinemark and Cinépolis. In Boston, the number of movie theaters in downtown Boston has doubled in the last two years. The newest offerings — a ShowPlace ICON and ArcLight Cinemas — are both premium theaters.
“Unless you have a killer location, there has to be something to set your theater apart,” Low said. “If you’re not offering some kind of elevated experience, you’re kind of behind the eight ball.”
But the luxury theater sector’s expansion has hit a bump in the road. One chain, iPic, filed for Chapter 11 bankruptcy this summer. Its CEO and founder told Variety the luxury theater chain’s financial trouble was a result of increased competition in the sector.
Analysts and competitors have said iPic was priced significantly higher than its competitors in the premium space. Tickets to Charlie’s Angels this Friday at an iPic in Houston run between $17 and $29 compared to $11 at a Studio Movie Grill, according to the companies’ websites.
Rather than go to the luxury extreme, ArcLight Cinemas focuses on a premium product that costs about $2 more than a traditional movie theater, according to the company’s chief marketing officer, Vince Szwajkowski.
Despite iPic’s bankruptcy, movie theaters are still seen as a strong tenant option for retail center owners and operators.
Luxury theaters can help bring more foot traffic to a shopping center to other parts of the year beyond the holiday shopping season, the International Council of Shopping Centers found in an August report on entertainment tenants’ impact on retail. The new breed of theaters also generates new revenue streams with private events and improved concessions.
“From a development standpoint, it’s great to put in a movie theater,” Szwajkowski said. “It creates a community gathering place, and it takes a lot of square footage from a project and allows people to put that square footage in a less desirable spot. You can’t put Nordstrom on the third floor of a mall.”
But luxury theaters can’t ignore the millions getting pumped into the movie industry from streaming providers enabling people to watch a blockbuster from their own couch. Amazon is expected to spend $6B this year on original content while Netflix’s budget is closer to $15B. Apple launched Apple TV+ with $6B slated for original content.
“If you look at what is happening in streaming, I think it is like the Wild West out there,” Szwajkowski said. “You now have every single company claiming they are also a streaming company. The competition that is happening for content is pretty crazy.”
With so much money going to streaming, it is rational to think the movie theater — luxury or not — is on borrowed time and developers should steer clear. But real estate players like Boston-based WS Development Vice President Brian Sciera and JBG Smith Senior Vice President of Retail Leasing Amy Rice aren’t turning away.
“We do a tremendous amount of homework, and that ultimately helps inform our overall merchandising retail strategy, so it’s complementary, not dilutive,” Rice said.
JBG Smith has plans for an Alamo Drafthouse Cinema at National Landing, the future home of Amazon’s second headquarters. The theater’s enhanced food and beverage program and premium screens will put it in an entirely different category than streaming, Rice said.
“I do have to believe that, at some point, people want to leave their home and have experiences,” she said.
Data suggests, in fact, that people who stream content are more likely to go to a movie theater, according to a Screen Engine/ASI Global Entertainment Tech Tracker survey.
U.S. customers who watched more than 13 movies on streaming in the last year also went to the movie theater for screenings 6.5 times on average in the same period, the survey found. Those who watched between one and 12 movies on streaming went to the movie theater a little more than five times. Consumers who didn’t watch any movies on streaming also attended a little more than five times.
WS Development has luxury theaters at four of its retail centers along the East Coast, three of which are in Greater Boston. The developer is confident in the luxury theater sector’s longevity, and Sciera said the firm is open to more deals.
“A bubble concern happens with any sector,” Sciera said. “That’s where, as a developer, you have to have confidence in your real estate and what you put around the theater.”
CORRECTION, NOV. 14, 12:20 P.M. ET: A previous version of this story misstated JBG Smith Vice President Amy Rice's name. This story has been updated.