Gaining Value....

Like a lot of people in the business of exhibition, my jaw dropped when those tricky folks at AMC announced they were going to create different pricing levels within their auditoriums depending on where you are going to sit. Now to be frank this has been happening for years overseas. Theaters in Hong Kong have done this for years .

People cried that this was wacky, a kick to the industry when times were tough, and perceptions were not exactly rosy. Announced last Monday, AMC's new program, called?Sightline, is already being implemented in theaters in New York, Chicago, and Kansas City, and will slowly roll out in the rest of the country over the remainder of the year. The Sightline gives you three tiers: Preferred Sightline, that gives you the middle seats directly facing the screen, Value Sightline, which offers a lower price for wheelchair-accessible seating and those in the front rows; and Standard Sightline, which are the balance of the seats.

Elijah Wood of? “LORD OF THE RINGS” fame? tweeted out “The movie theater is and always has been a sacred democratic space for all,” he wrote. “This new initiative by @AMCTheatres would essentially penalize people for lower income and reward for higher income.”

I do not think the best seats are the middle seats, Now I am from the Roger Ebert school when it comes to sitting in an auditorium, in Ebert’s own words, “Growing up, I always liked to sit somewhere in the middle, After I got the Sun-Times job I idly asked my optometrist where one should sit. 'Twice as far back as the screen is wide,' he ruled. To that advice I made a refinement: I prefer?an aisle seat on the outboard side of the aisle.”

I am of a similar mindset, plus as I get older a quicker access to a bathroom after consuming those behemoth soft drinks is a must. There is something about this announcement that did not ring true or accurate. I never sit in the middle.

I went to the? AMC website, wanting to learn more about this program, I scrolled up and down, I was looking for something and then this statement shouted out to me.

“As an added perk to our AMC Stubs A-List? members, reservations can be made in the Preferred Sightline seating at no additional cost.”

Okay the onion was peeling, this really wasn’t a play to get an increased valuation for an auditorium, it was a play to garner more subscribers. Why grab more subscribers…well now we are descending into the bowels of valuation accounting.?

There is a new form of accounting, called Customer Based Corporate Valuation, instead of a traditional top down approach to accounting, CBCV takes a “bottom-up” approach to valuation, they take the approach that all revenue must first derive from a customer, they also recognize that there are many types of customer. One of the key elements of this form of accounting is the ability to apply value well into the future of a subscription-based customer. If properly structured this can provide an offset to the impact of a rapidly rising and falling box office. This is a form of accounting that benefits subscription businesses, having a subscription that gives you? revenue producing customers over time.? It is a form used by all modern streaming services but was perfected by Cable companies, who had the ability to place $2700 on their balance sheet per subscriber as a result of this form of accounting.

It is accepted as being a fair, more equitable form of accounting, it is more accurate and far more thorough than traditional accounting methods. It considers the key value to any form of financial model.

Growth is being driven by the acquisition of subscribers, a subscriber retention impacts the revenue stability and allows the company to tie that recurring revenue into a form of consistent annuity value for the company which manifests itself on a balance sheet. Stability of revenues, because it indicated whether cash flows from new subscribers can be interpreted as? annuities that have the potential of paying in perpetuity. Customer lifetime value (CLV) is by far the most important metric for a subscription business. It indicates the total revenue potential from a customer. Of course, for a subscription business to be profitable, the CLV should always be higher than the customer acquisition cost.

In this Sightline announcement you see a veiled attempt at widening the base of subscribers. In the past MOVIEPASS attempted to aggregate valuation to itself at the expense of theaters. The execution faltered and as a result the lack of subscriber retention sunk them. It was never a data play, it was a subscriber valuation play. Now the Sightline effort was a bit ham-fisted and frankly I would have just come out and said, it’s really about attracting more subscribers, but AMC often works in mysterious ways.

The business of exhibition must have a level playing field against the accounting mechanics of the streamers. If the business’s strength is only based on the ebb and flow of Hollywood (ie drought of product) this business will always be vulnerable. Firmly establishing a subscribers model within your theater environment counter to some level the unfair accounting advantage streaming companies have.

Now if the Tax Code was changed to treat average monthly visitors to a theater as de facto subscribers that might be a more efficient and equitable solution.

But I don’t think given the spider’s web that is Washington that could happen anytime soon.