The Last Picture Show? Movie Theaters Could Be Strategizing Themselves Out Of Business

Movie theater operators are spending billions and trying everything to lure reluctant customers back to the cinema.

Beers with blockbusters, dinners with dramas and recliners with romances are just a few of the ways operators are attempting to supercharge theater real estate and turn standard fare entertainment into a full-blown experience.

Operators are betting big on pricey upgrades of some theaters, with the eight largest theater chains in the United States and Canada announcing plans last September to invest more than $2.2B to add new bells and whistles to theaters of all sizes over three years. AMC will invest $200M in upgrades this year as Cinemark pumps in $225M. 

But at the same time operators are reinvesting in select theater real estate in the best markets, most are simultaneously slashing their footprints elsewhere.

Since the start of the pandemic, market leader AMC closed 192 venues and opened just 62, a net reduction of 130 locations. Regal Cinemas has closed about 40 locations, and Cinemex Holdings USA, the owner of the CMX Cinemas movie theater chain, is reportedly also considering selling assets or closing locations.

The number of total screens in the U.S. has decreased by about 5,691, or almost 14%, since 2019.

Movie theaters are spending more even as viewers show up less and venues dwindle. And industry watchers say that if theater owners aren’t careful, their strategy of upgrading with one hand while axing locations with the other could imperil their existence.

“You see them contorting themselves into ‘We're not entertainment, we’re experience,’ but the key value of the experience is the entertainment,” said New York-based retail consultant Kate Newlin. “It becomes kind of oxymoronic, but I think that's the strategy.

“They want to bet on the big experience box,” she added. “They want to get to, ‘Wow, this is the draft movie house, and I can have a beer.’ [It] becomes old news once everybody else catches up. So now it’s no longer a differentiator. How do they keep chasing must-have experiences?”

In 2024, revenue from box office ticket sales came in 23.5% below prepandemic averages, according to David A. Gross, who runs the FranchiseRe movie consultancy.

Because one of the industry’s key metrics in the U.S. is ticket sales, and the price of a ticket has risen in line with inflation, a decline in ticket sales means theaters are down over 30% in foot traffic, Gross said. 

Declining attendance presents a unique problem for movie theater owners, who make most of their money on food and beverage revenue, as most of the ticket price goes to the distributor, said David Greensfelder, managing principal at Greensfelder Commercial Real Estate.

Theaters are “popcorn palaces” that are leveling up their F&B offerings to try to get more revenue from that side of the business even as foot traffic falls. 

“Instead of being six or seven bucks for a popcorn and a few bucks for a drink, suddenly it's 30 bucks a person between drinks and dinner,” Greensfelder said. “It's going to a popcorn palace on steroids.” 

The upgrades touted in the $2.2B investment from major theater chains include adding top-shelf laser projection technology and immersive sound systems, installing more comfortable seating, upgrading food and beverage offerings, and creating family entertainment options such as arcades and bowling.

Operators that are upgrading their theaters to lure back customers wouldn’t do so if they didn’t think they’d get a return on their investment, Greensfelder said.

Many of the major operators are publicly traded or have significant amounts of debt with lenders breathing down their necks, so they have to show a certain level of productivity to those stakeholders.

“The chains are being very, very deliberate,” he said. “If they're doing it, they're doing it because, frankly, it pencils.” 

But the piecemeal approach theater operators are taking to closing underperforming theaters could undermine the very practice of going to the movies, Newlin said. A whole generation may grow up simply staying home and catching the latest blockbusters, not traveling to go see them. 

“They'll look at the ROI in Parsippany and Des Moines and Arlington, Texas, and they'll say, ‘Oh … we're making more money over here, let's close that one,’” Newlin said. “Little by little, what they'll do is they'll erode the habit.”

Operators are also battling intense headwinds driven by the increased accessibility of streaming and a generally lukewarm reception to most new movie offerings that has led to plummeting foot traffic.

Streaming reduces the urgency for audiences to visit physical locations, Russell Glen Co. CEO Terrence Maiden told Bisnow in an email. For a theater to be a viable component of a development, consumers need a compelling reason to choose an in-person experience over home viewing.

While theaters have historically been strong anchors for mixed-use developments, the current market leans toward emerging concepts like pickleball, golf experiences and other interactive social venues, Maiden said.

Investors and lenders see the value in incorporating entertainment into those developments, but they’re less interested in movie theaters today. 

“These alternatives are often perceived as lower-risk investments due to their growing popularity and strong customer engagement,” Maiden wrote. 

Maiden said his company’s focus has moved away from targeting theaters as anchor tenants largely due to the “lack of significant expansion plans from major operators like Cinemark, AMC, and Studio Movie Grill.” Though theaters still play a role in select markets for Russell Glen, it is more strategic in evaluating their long-term viability within its developments, he said. 

Additionally, the release schedule and production pipeline for new movies that drive traffic to theaters is not “fully healthy,” Gross said. The sector is still recovering from the dual effects of the pandemic and the entertainment industry’s labor strikes, and studios are still trying to come up with a formula for movies that works and end up as good investments. 

The investments will ultimately need to convince people to get off the couch and go to the theater to be successful, Newlin said. But as the moviegoing experience becomes commodified and there’s less novelty to the experience, people could easily migrate to alternatives. 

“They're swimming upstream against a current of consumer behavior that says I’d really rather not go out,” Newlin said.

The pressure of that uphill climb could easily end badly for theater real estate desperate to turn a profit. Domestic ticket sales came in at $8.7B to close 2024, falling 3.3% over the year before. Dine-in options, bar options and luxury upgrades may only carry it so far, especially if its real estate keeps shrinking, Newlin said.

“If you don't know the business you're in, then you're just going to keep throwing stuff at the wall and say, ‘Yeah, but what if we had strippers? But what if we had a sous chef? What if we had a cooking demonstration on the screen, and then comes the dinner?’’’ she said.

“You'll see it, it will be bad for them. But you lose the habit, the joy, and they boost the prices up in order to make the kind of return that Wall Street requires of them.”