To fill more seats, AMC Entertainment (AMC) is taking a bunch of them out. The Wall Street Journal reports that the movie theater chain is spending hundreds of millions of dollars to install fully reclining La-Z-Boy-style loungers in more than a third of its auditoriums. That will mean fewer chairs, but AMC is betting it will also translate into higher ticket sales.
The company has already had success with the idea: Attendance at its 37 previously “reseated” theaters has increased 80 percent, indicating that people can be lured away from their couches and video streaming services with the promise of a big screen and comfy chairs. Similarly, box office revenue was up more than 60 percent at those theaters, AMC Chief Executive Officer Gerry Lopez told the Journal. That’s uplifting news for the U.S. film industry, which has seen domestic ticket sales remain little changed over the past 10 years, according to the Motion Picture Association of America.
Movie theaters have long resisted variable pricing—offering discounts, say, to box office flops or titles that have been around for a while—for fear that customers will take a wait-and-see approach to going to the movies. But AMC’s experiment illustrates the flip side of variable pricing: People may be willing to pay a premium for amenities such as beer and freshly prepared food, which Alamo Drafthouse Cinema, an Austin (Texas)-based chain, has successfully integrated into its business. In fact, Lopez says the attendance spike could also be attributed in part to the dine-in menu options offered at some of AMC’s venues. To compete with services like Netflix (NFLX) and Amazon Prime (AMZN), theaters will have to serve up more than popcorn-and-soda combos.
Over the next five years, AMC will spend more than $600 million to convert 1,800 of its 5,000 auditoriums, focusing its efforts on the places that need the most help attracting audiences. In other words, the cushy seats won’t make their debut in New York or Los Angeles anytime soon.
The company says it doesn’t expect to increase ticket prices in the next year, but once other movie theaters raise their admission fee by 25¢, AMC says it could bump tickets at the reseated venues by about $1. The Journal writes that pricier ticket sales could help AMC negotiate with Hollywood studios for a bigger cut of the revenue.
Customers may at first bristle at the premium, but Lopez, a former Starbucks (SBUX) executive, says he’s optimistic that they’ll outgrow the sticker shock, much as they did with the $4 latte.