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For a decade, Moviefone has ruled the market for purchasing movie tickets online or over the phone. But now a coalition of six movie-theater chains and two venture capitalists is building a Web portal designed to mount a serious challenge to Moviefone, now an America Online subsidiary.
Loews Cineplex Entertainment, Regal Cinemas, General Cinema Theatres, Edwards Theatres, Century Theatres, and Cinemark Theatres have teamed up with venture capitalist General Atlantic Partners and private technology investment firm Accretive Technology Partners. The octet announced a $35 million initial funding round on Mar. 8 for Theater Services, the working name for the portal's holding company. The plan is to offer exclusive rights to ticket sales online or via phone or wireless devices at 12,000 screens across North America -- all controlled by the six chains.
The strategy is a rocket fired squarely at Moviefone, the 10-year-old company that virtually monopolizes the phone and Web-based movie ticket sales industry. According to Moviefone, 300 million Americans last year used its services to either buy tickets or find movies -- almost 20% of a market that accounted for $7 billion in ticket sales last year, plus additional billions in merchandise sales.
ALIENATED AUDIENCE?
The chains are taking a big risk. For one thing, they could provoke the wrath of Moviefone and AOL, which can be considerable. Witness AOL's hardball tactics in blocking attempts by Microsoft and Yahoo! to link up with AOL's popular Instant Messenger service. For another, customers already used to using Moviefone would have to learn a new system and a new brand. That could alienate some who just want an easy way to conveniently buy a ticket or to find out a movie time.
"It just would seem odd to me that they wouldn't be interested in allowing those loyal consumers to purchase tickets to their theaters [through Moviefone]," says AOL Moviefone COO Adam H. Slutski. He attributes the move to slumping box-office sales: "The theater industry is suffering financially. They are looking to create value anyway they can. And that could mean dot-coming themselves."
But slipping attendence due to the paucity of big hits is only part of the problem. The chains are starting to see a future where ultimate control of their inventory could slip away. According to Moviefone, 5% of people who bought tickets through the service used the Web in 1999 (most still use the phone). That's a tiny fraction -- but it's nearly double the 1998 total of 3%.
CUSTOMER ACCESS.
Besides, the movie chains think they can improve the user experience. "We think this will be the first place people will go to look for movie information and tickets. It's an important thing for us to do as a company [in order to] have direct access to our customers," says Mindy Tucker, a corporate vice-president at Loews Cineplex.
Loews & Co. might also be interested in recouping the $1.00 to $1.50 service charge that Moviefone levies on users for ticket sales. Those surcharges represent only a sliver of Moviefone's $30 million in 1999 estimate gross revenues. (After the AOL buyout last year, the company refused to break out figures.) The majority of that came from advertising sold on Moviefone's portal and from sponsorship deals with American Express and the New York Times. While $30 million isn't much now, as the Web grows, revenue from those sources could balloon. Both the chains and AOL see movie portals as a franchise to leverage other moneymakers.
Finally, AOL's deal with United Artists to tag-team the movie-merchandising effort concerns other chains, fearing they'll get short shrift through Moviefone. "They're worried that the UA theaters will get marketed better than the Loews Theaters, which is a legitimate concern," says David Card, a senior analyst with Jupiter Communications.
A TRUCE?
The Theater Services consortium knows it has to add more chains to its roster to compete with Moviefone. Most likely, the group will also need more cash to build a new brand against the entrenched Moviefone name. For now, Moviefone feels it holds most of the cards. Although Slutski says he would be glad to talk with the upstart, "I don't see this as a major threat to our business. We are the leader by far in the field."
Of course, both sides could decide to settle this through collaboration. According to Accretive Technology principal Martin Muoto, the ideal outcome would be a joint venture with AOL. Otherwise, several of the theater chains will have to phase out existing agreements with Moviefone and strike out on their own. "We are hoping to create a partnership," Muoto confirms. This epic struggle could yet avoid a typical cataclysmic Hollywood ending.
By Alex Salkever in New York EDITED BY DOUGLAS HARBRECHT
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