2. Where Are Advertisers? At the Movies Those on-screen ads before the movie bring in big bucks for National CineMedia and other movie-ad sellers By Jon Fine, May 14, 2009 This year has been characterized by advertisers slamming the brakes on spending across virtually all online and offline media. Yet even within this scarred landscape, there are thriving patches of grass. I guarantee, though, that you cannot guess what's built a strong case for being a media business darling of 2009 thus far. National CineMedia (NCMI) is the biggest U.S. movie theater advertising company. That is, it produces programming for theaters that shoehorn ads into the space between the time you take your seat and the start of the coming attractions. "Across most media, '09 is going to be a down year," says CineMedia Chairman and CEO Kurt Hall. "We are in one of the fortunate areas that is new and growing.“ These ads appeal to many other constituencies for the same reasons that make movieheads grit their teeth: Viewers are alone in the dark with a massive and all-but-unignorable ad message spread out on a sailboat-sized screen. "The mindset of people watching movies is much different than the mindset of people watching TV," says Tim Chaney, director of advertising at Kia Motors America, which just concluded a cinema advertising campaign for its new Soul subcompact. "TV becomes a lot of background noise." At the movies, "you've got people in a more relaxed frame of mind, coming to be entertained." And audience resistance to movie ads has steadily declined, he says. NO FAST-FORWARD, NO MUTE There's also a brute fact about this business. "Cinema is one of the only places where the consumer can't make [an ad] go away," says Hall. And, says analyst James Marsh of investment banker Piper Jaffray, movies also attract a younger audience "that TV has had difficulty reaching." (One of National CineMedia's top ad categories is the U.S. military, which obviously is only concerned with reaching young men and women.) And a healthier-than-expected year for movies, with box office attendance and revenue both up in the double digits, means that in many cases cinema ad firms are "overdelivering"—more people are seeing the ads than the advertisers paid for, says Marsh. (This is not a claim many TV networks can make.) If TV networks continue to command premiums for shrinking audiences because of a scarcity of inventory—there are only so many spots available on American Idol, after all—it's a game cinemas can play, too. Movie houses still keep ads to a (relative) minimum, which, analysts say, also works in their favor. And one simple reality doesn't hurt either: If you believe, as I do, that one reason marketers stick with television is because they love to imagine their product starring on TV—well, then, isn't it even better if their products become movie stars?
3. As if crushing debt, the recession, Netflix and Redbox weren't enough, Blockbuster Inc. has a new foe: the booming box office. That's according to Jim Keyes, chief executive of the struggling but still massive DVD rental chain, who on Thursday blamed much of his company's weak performance last quarter on the growing number of people watching movies in theaters and not their living rooms. "We estimate nearly 3 million more people are going to the movies each week in 2009 [than 2008]," he said on a conference call with analysts. "This has been pulling traffic from Blockbuster stores." The 14% rise in movie ticket sales this year hasn't hurt Netflix, which gained nearly 1 million subscribers last quarter and saw revenue grow 21% from the previous year. It's tough to ignore Blockbuster's own problems, most notably the cash shortage and looming debt repayments that forced it to cut its inventory of new DVDs by 20% during the first quarter to preserve cash. Revenue fell nearly 20% to $1.12 billion from the same period last year, while net income was down nearly 40% to $27.7 million. Both figures were significantly below investor expectations, which sent Blockbuster stock plummeting 23% in after-hours trading to 88 cents. "The main issue is that same-store sales were worse than expected and there's a concern about how long it will take them to get back on track," said Arvind Bhatia, an analyst at Stern, Agee & Leach. Keyes promised that Blockbuster's stores would be fully stocked and aggressively marketing the value of rentals since the company eased its liquidity concerns last month by renegotiating a revolving line of credit that was set to expire in August. The so-called revolver now won't end until September 2010, though Blockbuster had to reduce the available credit to $250 million from $350 million and accept a higher interest rate to get the extension. Keyes pointed to a number of initiatives that could improve performance later in the year, including a strong lineup of films such as "Star Trek" and "Fast & Furious." Blockbuster is also looking to sell products like "movie-themed sunglasses" and Blu-ray players in stores, to grow its Netflix-like DVD-by-mail and digital download businesses, and to roll out more than 3,000 Redbox-like kiosks through a partnership with manufacturer NCR. The Dallas company is also looking to slash $250 million in costs through store closures and other initiatives. All that won't matter unless Blockbuster can improve the terms of its debts, which stand at $922.5 million. Keyes described the renegotiated line of credit as "a bridge to the future when the cost of capital is not as punitive." Bhatia said it essentially gives the company a year of breathing room. "I think they can focus on operations for the next 12 to 15 months," he explained. "But they will not have the same flexibility they did before unless the capital markets improve dramatically.” Blockbuster sales drop 20% in first quarter The DVD rental chain says more people are watching movies at theaters, pulling traffic from Blockbuster stores. Profit plummets 39%. By Ben Fritz May 15, 2009
4. The Movies: America’s Favorite Entertainment Destination Source: MPAA 2007 Entertainment Industry Market Statistics, Billboard Magazine November 2007, Crain’s New York Business January 2008 Attendance Concerts: 51 Million Shows: 12 Million Sporting Events: 198 Million Movies: 1.4 Billion
11. Cinema is One of the Most Engaging Ad Environments of all Major Media Consumers pay attention to ads in cinema at a rate of 2.5 times greater than television * *Source: Jack Myers Media Business Report, "Jack Myers Emotional Connections Survey of 8,000 Americans on Audience Attentiveness to Advertising" as cited in JackMyers.com "Daily Data," as cited March 18, 2008, NCM Attitude and Recall Test, April 2008;
12. Cinema Ads Drive Purchase Intent Cinema ads are TWICE as effective as television ads driving consumers to consider purchasing a product being advertised Source: Myers Publishing/OTX, October 2006, NCM Primary Studies May 2003 – June 2007