Australian cinemas are going the upmarket premium route, with better seats, screens and food, to compete against streaming media.
Citi analyst Sam Teeger says ASX-listed group's Village and Event Hospitality are competing with other cinemas, such as Hoyts, and non-traditional competitors, such Netflix, by premiumising .
"This includes refurbishments, increased focus on higher margin food and bev (not sure how much more expensive popcorn can go though) and introducing socially competitive games," he writes in a note to clients.
Teeger expects these refurbishments to generate better returns.
Consumer of content has been changing with more consumers staying at home and using subscription video on demand (SVOD) such as Netflix and Stan.
Cit's analysis of US peers indicates cinema refurbishments could result in Event and Village taking market share, increasing concession sales, and improving theatre utilisation.
If Event refurbishes 20% of its traditional screens within the next two to three years, this could result in an attendance uplift of 30% per refurbished screen. Citi estimates this has potential to increase by 8% upside to Event's 2024 earnings.
If Village adopts the cinema refurbishment strategy it could represent 7% upside to its 2024 earnings, assuming a 10% lift in ticket pricing.
"Village plans to target millennials who are generally less price conscious compared to teenagers and pensioners," Citi says
The expanded entertainment offering is likely to include competitive sports -- table tennis, bocce, shuffleboard -- and an extend food and drink offering.
Village is also introducing a new lay back, relax style seats at its new Clayton cinema complex in Melbourne which is likely to open in mid next year.
At a strategy presentation last month, Village said a higher ticket price would be supported by a "premium brand" campaign.
The health of cinemas lies a lot with the movies being show. A hit can make all the difference.
In the six months to June this year, the Australian box office finished down 5% on the same period last year.
In the half year to December, Village, which alos has theme parks, posted a 2.2% rise in revenue to $526.48 million. Net profit was $2.4million.
Over the same six months, Event Hospitality & Entertainment, including its hotels, had $673.3 million in revenue, up almost 2%, and profit of $67.5 million.
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