Building A Better Box Office
The theater building boom of the late 1990s is over, but POS (point of sale) upgrade opportunities abound for VARs in this $8.4 billion industry.
It's tough times for movie theater developers, but that doesn't mean theater POS (point of sale) integrators have any shortage of work. The past 10 years saw a nationwide buildup of mega movie complexes that have gone from mall-dependent, 6- or 8-screen venues to massive 20-plus screen campuses that are stand-alone main attractions. Instead of relying on the foot traffic generated by malls, the entertainment industry began to draw crowds on its own, and small retail and hospitality businesses began riding the coattails of the cinemas. But while the physical growth stage has ended and cinema complexes are tightening operations, the theater industry continues to grow in revenue. According to studies conducted by the Motion Picture Association of America and the U.S. Department of Commerce, Americans spent $8.4 billion on movie tickets at the more than 35,000 U.S. movie screens in 2001.
In the midst of these changes to the industry, the technology available to accommodate ticket and concession-buying movie patrons has advanced. And, the back end reporting needs of theater owners have become more complex. Enter the POS integrator's market opportunity.
Trevor Brooks has been in the movie business most of his life. For eight years he worked in theaters, in capacities that ranged from usher to IT manager. In 1999, he set out to develop and market a theater-specific ticketing and concession POS software package. He founded Chronicle Software, which has since merged with the Charlotte, NC-based Work Software Systems. Brooks is VP of theater operations, in charge of growing sales in the theater vertical and overseeing the development of theater-specific software.
Theaters Want Open Architecture, Bundled POS Systems
When Brooks started in the business, it was his intention to concentrate on the development and sales of software and let theater operators choose their own hardware. "We thought we'd let them buy the hardware and then we'd go in and install our software, but it didn't work that way. Our customers usually don't have much of an opinion on their hardware choices," says Brooks. Realizing the need to bundle a system, Brooks worked with POS hardware distributor BlueStar to create a standard hardware package, consisting almost exclusively of POSIFLEX terminals and peripherals, with the exception of Ithaca's POSjet 1000 receipt printer and Dell servers.
While some of his competitors sell closed-architecture, proprietary solutions, Brooks has found that the mid-market theater chains in which he plays desire open architecture systems. While closed systems might command higher margins for the VAR, it's generally less expensive and more flexible for the end user to choose open systems. "If an end user wants to mix and match the peripherals, they have any number of options," Brooks says. Replacement parts for the systems he sells are available off the shelf, and any standard computer service technician can service the hardware. In the end, Brooks changed his approach and developed a standard bundled, yet open solution running on a Windows platform.
Brooks makes it a point to take advantage of his vendor's depot service and three-year warranty, and he has begun signing end users on to the vendor's on-site service contract. These vendor services, says Brooks, allow him to focus on selling new accounts and improving his software, while ensuring existing customers get service direct from the vendor when it's needed. "Supporting hardware consumes time and resources, and we don't want that to detract from our primary goal, which is to develop software," says Brooks.
Demonstrate Improved CPC, Win A Contract
Low-margin movie ticket sales alone do not make theaters successful. The sale of high-margin refreshment items to a steady stream of moviegoers is the recipe for success. As a matter of fact, theaters pay movie studios, from which they actually rent the films, anywhere from 50% to 90% of their revenue from ticket sales. Volume and add-on sales are the keys to the game. But with old technology, mid-market theater operators can't serve the volume of customers needed to be profitable. "While the building boom is on the downturn, the technology in existing theaters is antiquated," says Brooks. "We're moving our customers from mechanical cash registers and even manual punch systems to PC-based POS. We're integrating high-speed debit and credit processing terminals, gift card and loyalty programs, online ticket sales, and self-service kiosks." Theater owners will buy all of the above in the name of speed and convenience. The faster the moviegoers are through the ticket lines, the more likely they are to buy refreshments in the concession line. The faster they're through the concession lines, the more likely they are to make it to their seats in time for the movie. Slow them down in either line, however, and the theater loses the opportunity for add-on sales. Patrons come for the movie, not the popcorn. But the popcorn, believe it or not, is where the profit margins are. Movie theater success is based on what the industry calls CPC (concession per capita), which measures the average amount of money a patron spends in the theater on top of ticket sales. Theaters with long waits for snacks and refreshments will see a lower CPC than cinemas with quick customer service.
Sophisticated, Networked Reporting Required
Because theaters rent films from movie studios at different rates, and because tickets are sold at different rates as well, back end reporting functionality is an important aspect of the POS system. "A VAR looking to penetrate this niche must know what kind of information the theaters are responsible for providing to the studios," says Brooks. The movie studio commands a percentage of each ticket sold, but that 50% to 90% is dependent on variables such as the budget of the film, how long it has been on the market, its popularity, and what category of ticket is sold. In order to ensure it's paying the correct rental rate to the studio, the theater must provide detailed reports on ticket sales - reports that take all of these variables into account. The studio dictates that every ticket has a unique serial number, and each ticket rate - adult, child, senior citizen, matinee, etc. - has its own serial number batch. This allows the studio to track ticket sales, but it's the responsibility of the theater to comply. That makes back end reporting a major point in Brooks' sales pitch. "You need to demonstrate what they get in terms of financial reporting," he says. Theaters must account for profit made on every ticket sold. Further, Brooks says theaters want this reporting in real time. "If you can give this data to them in real time, you can show them how to take advantage of reporting and use it to manage their business," he adds.
While some theaters manage reporting with standard accounting software like AccPac, Brooks cites an Internet-enabled POS network, interfaced with a database package, as something that makes the operator's business easier to manage. "A database that's integrated with the front end saves doubling up on data entry. At the POS, our software can record all the data, capture all the serial numbers, and spit out reports on how much money was made in each ticket segment for that film," he says. His company is currently developing a back end booking component that will plug those numbers in and determine how much the theater owes the studio for each movie. This function is currently handled by a third party's software. The software Work Software Systems is building for back end reporting to studios will produce reports for specific date ranges, allowing both theater and studio to see details on earnings as they relate to the ticket sales and rental rate variables mentioned above. The database will be located at the theater's corporate office and will tie into the POS system at each theater via the Internet. "Through Work Software Systems' networking infrastructure, data is sent in real time from the POS and processed, producing a report that basically says 'cut a check for x amount to x studio,'" says Brooks. He expects this product to be available by the third-quarter of 2003.
With an Internet connection between concession POS stations and the database, reporting on refreshment sales becomes available as well. Empowering customers with knowledge of sales trends on their highest-margin items is a sure way to gain the attention of that elusive theater owner.
A VAR Looking For VARs
Brooks says he's a VAR by necessity. "If it weren't for the fact that I want to serve the customer directly, rather than entrusting our software to someone else's care, we would be strictly a software developer," he says. He hasn't ruled out selling his software to VARs through the distribution channel, but he won't sell it to just anyone. "It's my name on the line, and I want to control the services. That's my biggest concern about selling software through the channel," he says. In the meantime, Work Software Systems is looking to expand its ticketing and concession software and offer it to any vertical where a ticket is printed and snacks are sold. For now, Work Software Systems needs the channel, and it appears the channel could use more of Work Software Systems. It's kind of like popcorn and the movies. You just can't have one without the other.