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Theaters

We have years of experience in this industry for the valuation of the business, equipment and real estate. Let us help you with our valuation consultation in all areas of the valuation of movie theater businesses. Below is a brief synopsis of the industry.

Description of Business

This category includes commercially operated theatres primarily engaged in the indoor exhibition of motion pictures. Drive-in theaters are not included in this classification.

General Industry Information

Initially, the majority of movie theaters were owned by the dominant movie producers. Government intervention ended this practice in 1949, in an effort to curb monopolistic activity. Until the 1970s, the majority of movie theaters featured one screen. The emergence of multiplexing assisted the industry in achieving sustainable cash flows. A trend of over-construction began to plague the industry, causing a flood of screens during the 1980s. As a result of this activity, owners were forced to cut prices to remain competitive.

The revenue sources for movie theaters include ticket sales, concession sales, and advertisements. Typically, production companies receive a fraction of ticket sales. Concession sales and advertisement revenue belongs exclusively to the movie theater.

Current leaders in the industry include Regal Entertainment Group, AMC Entertainment Inc, and Cinemark USA. Combined, these top three companies controlled approximately 33% of the industry’s 36,000 movie screens in 2004 (source: NATO). The industry is notably sensitive to changes households’ disposable income, which is affected during periods of high unemployment and interest rates.

Red Flags and Risks

Threat of competition has become more pronounced, causing problems for many in this business. The movie theater industry has had to contend with increased competition from the cable networks, particularly with their roll out of digital optical fiber networks and the availability of better quality and more channels. Additionally, owners of theaters have had to face ever increased piracy problems. The equipment used by movie theater operators needs to be maintained and repaired just like any other equipment. A buyer should look for any equipment that may not be functioning properly and discount for obsolete machinery. Similarly, buyers should consider the benefits associated from purchasing a theater with advanced technology.

Publications

Please see the Valuation of Movie Theaters for the most comprehensive booking on the subject in the industry.

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