Annoying but potent

Regal says theater ads boosted profits

Those pesky ads in theaters aren’t going away any time soon — they’re too lucrative.

Mammoth movie theater chain Regal Entertainment, the country’s largest, said revenue and profits jumped last quarter on higher ticket prices, in-house advertising and the recent acquisition of Hoyts Cinemas, which boosted attendance year over year.

“As inventory tightens up in television, we will benefit,” next year, predicted co-CEO Kurt Hall, in a rare exhib earnings conference call where advertising was almost as big a topic of conversation as box office. Hall was referring to the fact that political and Olympics-related ad spending are expected to crowd the TV airwaves and ad market in 2004.

Regal, based in Knoxville, Tenn., and controlled by Denver financier Philip Anschutz, said pro forma net profit grew 22% to $44.2 million. Revenue jumped 10% to about $630 million. Figures, for the latest quarter, include Regal, United Artists and Edwards Theaters. With the addition of Hoyts in March, Regal now owns more than 6,000 screens, or 17% of the national total.

Admissions revenue rose 10% to $426 million as attendance gained about 3% — including the new screens added by Hoyts — and ticket prices were up 7%.

Concession revenue was weak, gaining only 1.8% to $161 million. Chief financial officer Amy Miles said the quarter was particularly skewed to PG-13 and R-rated movies, which bring in less concession coin. R-rated pics made up 32% of revenue for the period compared with 13% the year before, she said.

Revenue classified as “other,” more than half of which is made up of in-theater advertising, soared 65% to $43 million. That business — at Regal it’s overseen by the Regal CineMedia unit — has proved controversial with movie studios and fans, as it forces theatergoers to sit through commercials. But it’s a lucrative niche for many exhibs and will continue to grow, said Hall and Regal’s co-CEO Mike Campbell.

Campbell said during the call he was upbeat about 2004 box office prospects after a flat 2003. Next year’s offerings include the latest “Spider-Man,” “Harry Potter” and “Mission: Impossible” pics.

“We would expect attendance to rebound a bit in 2004, maybe not to 2002 (record) levels. But, in a good year that could happen,” Campbell said.

In line with the industry’s ongoing push to shutter underperforming theaters, Regal closed down seven of them with 58 screens during the quarter.

As exhibs trawl for fresh cash, Hall said Regal continues to pursue incremental revenue opportunities by using theaters for non-film events like business meetings, concerts and even church services.

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