Trends in movie ticket prices

I was looking at the box office numbers from last weekend supplied by Yahoo; the main stream media roll out these figures every week and quite often the headlines are about recordbreaking dollar totals for the films in release. Sometimes the fact that ticket prices have been raised is mentioned. I have wondered exactly how often and how much movie ticket prices have been raised. Well, a Google search turned up "Admissions & Ticket Prices: Two Popular Myths" in a theater industry trade publication.

Two pieces of data from that article:

Here are some U.S. admissions numbers over the past 35 years (in millions):

1970 920.6
1980 1,021.5
1990 1,188.6
2000 1,420.8
2001 1,487.3
2002 1,639.3
2003 1,574.0
2004 1,536.1

The author argued that since ticket prices for other entertainment such as pro sports had increased radically over the same time frame as the above chart, that movie ticket price increases have not been out of line. The chart is rather poorly conceived, however looking at it closely shows that admissions basically tracked population growth from 1980 to 1991; then increased somewhat faster than population growth. I attribute the increased admissions to the wave of fancy new stadium theaters that were built and the film production companies' shift in strategy to aiming for blockbuster hits. The chart and the data show that admissions stagnated after 2002. I attribute that to ticket price increases hitting the wall where casual moviegoers are deciding that ticket prices are too high.

Update: I located the following information at the site of the National Association of Theater Owners, or NATO:)...

Average U.S. Ticket Prices

Year	Price
2006	$6.55
2005	6.41
2004	6.21
2003	6.03
2002	5.80
2001	5.65
2000	5.39
1999	5.06
1998	4.69
1997	4.59
1996	4.42
1995	4.35
1994	4.08
1993	4.14
1992	4.15
1991	4.21
1990	4.22
1989*	3.99
1988	4.11
1987	3.91
1986	3.71
1985	3.55
1984	3.36
1983	3.15
1982	2.94
1981	2.78
1980	2.69
1979	2.47
1978	2.34
1977	2.23

Here is a chart of this pricing information:

Since ticket prices increased every year after 1994, it would stand to reason that ticket sales might stagnate.

Prospects for GAP as a clothing retailer

A really great analysis of the company can be found at "Can Gap Effectuate a Successful Turnaround?" The statement by the author that "You can’t be an edgy clothing retailer when you’re selling large volumes of goods to your desired market’s parents" should be carved into the wall of every Gap executive's office. I am in my late thirties and used to shop at Gap stores because they consistently had the basics, i.e. business casual and denim. When sales growth started to flatten because they had saturated the market with their stores, they started flailing around with more bizarre items and that pretty much turned me off. Their gimmick commercials with retread rock stars did damage to the Gap brand as far as younger shoppers were concerned, as well. Also, there is a limit to how much of the basics a clothing purchaser needs, especially those in their thirties and forties. You aren't growing physically(hopefully) so a few purchases of khakis, some polo shirts, and some denim jeans and shorts is going to last you a while. So I think that the Gap business is going to have to accept that it is a mature business and will need to be managed as a dividend-generating business. Based on that, I agree with the authors points of the signs of a Gap turnaround are:

1) Reestablishing the brand, with the first key being the company behaving as if it’s in touch with the customers it wishes to court.
2) A new attempt to court the female shopper in the 35-45 age range, only with them sticking with it this time around and getting the job done.
3) A stronger and more stable product mix that appears in tune with the Gap’s efforts to rebuild its brand.

as far as the Gap line is concerned.

I think that the Old Navy line should just be liquidated; long-term I don't think that the business model can survive against Target and Walmart. When your kids are shopping for discount clothes, they don't want to advertise the brand when they wear the clothes. Perhaps they could negotiate a deal to sell Old Navy branded product through Walmart's stores and eliminate the store overhead they have now.

Last time I looked, Banana Republic's prices were significantly higher for similar items that Gap's. I see BR as competing with Nordstrom. I suppose Gap's theory is that once you get to a certain income level you will shift to shopping at BR from Gap. That doesn't make any sense because it's shifting sales around within the company as a whole.

My answer to the question of "does the Gap actually understand its problems?" is that I don't think Gap management understands its problems and is basically throwing darts and hoping they hit something. I think the best course of action would be for a breakup of the company. Spin off BR as an independent company, liquidate Old Navy stores and cut a deal to market the product through an established big-box discounter, and focus on the Gap brand by reinforcing the denim and business casual product line and accept a position as a value stock rather than a growth stock.

US basic materials consumption Q1 2007

-apparent steel consumption fell an estimated 8.25%

-copper consumption was down 30%

-aluminum use was down 10%

-containerboard use fell 1%, printing and writing paper was down 2%, newsprint declined 12%, and lumber shipments fell 19%

Las Vegas casinos suffering from consumer woes?

The Sports Economist says:

"According to an article at ESPN.com, "MGM Mirage Inc.'s chief executive does not want the NBA All-Star Game to return to Las Vegas, saying Thursday that the casino's first-quarter earnings were potentially hurt by the rowdy crowd that turned out for the league's showcase game."

While none of us here at The Sports Economist would stoop so low as to say "we told you so", we did tell you so.

The article states that the All-Star game visitors crowded out Asian gamblers during the the weekend (which happened to overlap Chinese New Year.) Furthermore, the sports fans tended to spend less money at local businesses (like casinos) than regular visitors. "Crowding out" and "leakages" are two of the three primary reasons why us dismal economists tend to discount claims of large economic impacts from sporting events."

I am not sure what the motivation of MGM's CEO would be in blaming the NBA All Star game for an earnings decline other that it being a convenient excuse to white-wash what is likely the real problem for his casino. That problem being that cash-strapped Americans consumers are eliminating plans to visit Vegas because they're having a hard time making ends meet due to resetting mortgage loans and sky-high levels of credit card debt. MGM's people knew well in advance about the timing of the Chinese new year and the all-star game, and I find it very hard to believe that there are capacity constraints at the casinos. Especially for gamblers who wager large amounts. The casinos' technology allows them to monitor in excruciating detail the activities of everyone in their buildings, and I have no doubt that they would push aside small-time players to make room at the tables for every high roller they could get their hands on.


In addition, NBA players and their entourages are notorious for being big time gamblers; and they have large amounts of cash that they don't mind losing at casinos.


So I think that this claim that the All-Star game hurt Las Vegas is completely bogus.

Yet another sector with overcapacity

Thanks to Calculated Risk for pointing out a piece from the WSJ titled : Office Rents Increase As Demand Stays Cool:

Three tidbits from the post:
-Demand for office space in the U.S. remained sluggish in the first quarter ...
-developers will open 76 million square feet of new office space by the end of this year...
-CR estimates that current office space absorption rate is about 8 to 10 million square feet per quarter

So, given that the next three quarters will see a supply increase of 76 million square feet and absorption is 10 million square feet per quarter, that leaves us with excess supply of 46 million square feet at the end of the year.

Chicago Cubs to be sold...

The AP says that "Tribune Co. said Monday it plans to sell the Chicago Cubs at the end of the 2007 baseball season, putting one of its most valuable assets on the block as it simultaneously announced that real estate magnate Sam Zell was acquiring the media conglomerate.

Analysts have estimated that the Cubs could fetch $600 million or more. Tribune bought the team in 1981 for $20.5 million."

If the price were $600 million, that would be over a 2900% return on the original investment! Not bad for a perennial loser. I'm not a Cubs fan, but as a sports fan I think this is good news as the purchaser is likely (hopefully) to want to put a winning team on the field. The incompetence that has been displayed by the team's management under Tribune ownership has been nothing short of mind-boggling.

Greater Seattle metro housing market-condos

thehousingbubbleblog.com is a good source of compilations of reports from the mainstream media. This quote from the News Tribune gives food for thought:

“Downtown Tacoma’s condominiums have helped to transform a once-troubled downtown where few previously wanted to live. Today, a patchwork of exposed steel, scaffolding and cranes showcases a decade of marketing, recruiting developers and trying to convince buyers of the area’s merits.”

“Dozens of condo buildings have gone up or been renovated in the city’s downtown core. As of December, all six neighborhoods surveyed averaged 14 months of condominium inventory, which measures how long it would take to sell everything built and approved.”

“Buyers enjoy some advantage and prices don’t appreciate as quickly, said Deanna Sihon, the study’s author. Tacoma also is subject to a hesitation common in areas remaking themselves and having to overcome long-held perceptions, Sihon said.”

“‘People are being careful and almost waiting to see, gosh, is this renovation and this new place really happening?’ she said. ‘It is in Tacoma.’”

“‘I think everyone would like the strongest sales possible. You’d like to see them fly off the shelf, and they’re not doing that right now,’ said consultant J.J. McCament.”

“Since 2004, nearly 400 condos have been sold downtown with another 525 for sale and about 1,500 proposed.”

“A year ago, a hot market meant condo shoppers had to make rapid buying decisions, said real estate agent George Pilant. Not so now. ‘Buyers have so many choices they don’t feel a sense of urgency,’ he said.”

“But condos are a niche product that at higher inventory levels, he said, raise this question: Will good-paying jobs needed to sell such downtown housing continue to be created? ‘I suppose that’s where the gamble is,’ said Paul Turek, an economist with the state Employment Security Department. ‘In the Tacoma area, we have some high-paying jobs. Whether there’s enough to support the building of the condos remains to be seen.’”

I highlighted in bold some points that seem especially noteworthy. First of all is the fact that a number of neighborhoods have 14 months of condo inventory at current sales levels. That should mean decreasing prices if the builders' business plan called for selling each condo within a couple of months of completion, which I think is a fair assumption. Does a sale at a lower price than planned for (which means a lower rate of return on the investment) yield a better outcome than eating the carrying costs for the finished units for 14 months or longer?

Next, the article commented that downtown Tacoma hasn't been considered a residential area in the past. I don't think that factor should be a major roadblock longterm. Tacoma has similar geography to Seattle in that it is on the Sound, mountains are nearby, and the city is within reasonable distances of much of the rest of the metro area. I think that the status issue is a key, as the article quote seems to imply. If the early adopters(buyers) make the emotional investment in the downtown area, I think that would mitigate concerns from potential buyers and jump start the in-migration to the urban core.

With respect to the issue of high paying jobs, I would guess that a commute from Tacoma to Redmond couldn't be much worse than a commute from Belltown to Redmond.

More on the music industry

Following up on my recent post, it turns out that ArsTechnica has done some analysis of music industry trends just yesterday. The author points out that "legal downloads continued to grow, but so far the focus from analysts and the press has been on how legal downloads have failed to "fill the revenue gap" created by the shortfall in traditional CD sales. What deserves further examination, however, is whether legal downloads are causing that shortfall. We do believe that they play a significant role in the music industry's current situation." Further described in the story is the projection that "this quarter, 81.5 million CDs will be sold. While that's down 20 percent from the same period last year, digital singles sold by the likes of Apple's iTunes store grew 54 percent, to account for 175 million songs sold. In other words, the quantity of downloaded songs far outweighs the quantity of CDs sold as a whole." The remainder of the ArsTechnica story discusses the author's hypothesis that the massive decline in song revenue is due to the fact that since buyers can now purchase their music by the song, they are not bothering to purchase the "filler" songs that in the past made up the bulk of the content on albums/CDs.

This seems like a blinding flash of the obvious to me; since we can now preview songs before buying and can purchase songs one at a time, we are only going to buy the songs we like and will ignore the rest. The author states the question this way: "how often does a consumer opt to buy just one or two songs off an album rather than buy the whole thing? This phenomenon must affect the top of the music charts quite viciously. I know I'm reluctant to buy an album, especially anything approaching a "hit album," unless I know that there's more than 2 to 3 songs on it that I like." The answer to the question is "approaching 100%". There's no doubt in my mind that just about every adult American has bought a CD after hearing a song they liked and then were disappointed with the rest of the songs included. I personally have had the misfortune of purchasing several CD's due to a popular song only to find out that the style of the hit song was nothing like the artist's core style or any other songs on the CD. That means you, Goo Goo Dolls!

The conclusion I draw is that the incumbent music industry infrastructure will inevitably shrink to the point where the fixed costs can be supported by what consumers are willing to pay for music.

Bookstores and Borders' plans for restructuring

Marketwatch says that today "Borders Group Inc., lagging in an "increasingly competitive" industry, on Thursday outlined a reinvention strategy, with a plan to focus on domestic superstores, slash the size of its Waldenbooks chain and consider alternatives for its international business." One of the primary features of this restructuring involves " nearly halving its Waldenbooks chain to 300 stores from 564 by the end of 2008."

Waldenbooks stores are located in malls in rectangular spaces with stacks of bestsellers at the front backed by a magazine rack and then a few rows of shelves with genre inventory. I am an avid book purchaser and before Barnes and Noble re-invented the bookselling business Waldenbooks was one of the few places I could find a source of new reading material. Market conditions have changed now. I personally have walked by Waldenbooks sometimes but have never been tempted to go in. I expect to be able to sit in a comfortable chair and be able to read a few snippets of the books I am thinking about buying; and I expect the broad selection and variety of price points that can be found at Barnes & Noble and to a degree at Borders' eponymous stores.

I think that Borders should jettison the Waldenbooks concept altogether. Given that bookselling is a thin-margin business and mall rents are high relative to other types of retail real estate, exiting malls should provide a boost to gross margins. The capital tied up in these stores would be better invested in their superstores. I believe the reason that they are not closing all of the Waldenbooks stores now is due to mall leases that don't expire for a while. I'm not making a stock recommendation here, but I think that these moves will be positive for Borders.

Intel versus AMD: recent events

A few factoids:

From a Seeking Alpha post of February 1, "AMD gained control of over 25% of the microprocessor market for the first time ever in Q4, according to preliminary data from Mercury Research. Its 25.3% share is a 2% quarter-over-quarter increase. Intel's share slipped to 74.4% from 76% -- its lowest share in over a decade."

Next, William Trent has a good chart showing Intel and AMD's inventory trends recently:

It looks to me like Intel has a pile of pre-Core 2 Duo chips sitting in warehouses somewhere; while AMD has been selling its chips as fast as they can produce them until Intel released its newest chips.

Some commentators are indicating that AMD is looking at a cash flow problem due to its ATI acquisition and its need for investment in new plants.

A few quotes from an article at techtarget.com:

"If AMD is bothered by Intel's lead in getting quad core on the market, it never let on. The company appears to be pacing itself with a slow and steady tactic, biding its time as software catches up to the technology.

"The adoption of quad-core technology will lag until the software catches up, so we aren't too concerned about Intel's lead, or rather, their perceived lead," said Steve Demski, AMD's Opteron product manager. "It isn't as big as it's made out to be."

Intel claims the up-take on its quad-core technology has been good so far though, pointing to Sun Microsystems Inc.'s decision to offer Intel-based servers as a sign of success, Fields said.

Sun used to offer exclusively AMD chips for its x86 Galaxy line, but gave in to customer demands and announced it plans to offer Intel in January.

"(Sun) chose Intel because of the performance and energy efficiency of Intel's quad-core products that are available today, and our future products," Fields said.

Months prior to Sun's headline-grabbing decision to partner with Intel, Dell Inc. added AMD chips to some of its servers, ending the exclusive relationship it had with Intel in the server space.

"Intel did beat AMD out of the gate with quad core, (but) the expectation is that AMD's quad-core processors will be faster when they arrive," Haff said. "This is a game of technical leapfrog. Especially in the server space, quad core does deliver increased application level performance for most workloads, and that's what users care about."

When AMD releases its quad-core processors, it will feature significant core enhancements, and the company estimates a whopping 40% performance advantage over Intel's current quad-core offerings.

Intel is, predictably, skeptical of the projections.

"As for their 40% claims on their future product, Intel is walking the walk and we will let the competition talk the talk," Fields said. "We are ramping quad-core technology today that delivers leading performance across industry standard benchmarks."

AMD does have reason for its steadfast optimism, with a history of benchmarks placing its processors ahead of Intel's.

For instance, a recent review of AMD Socket-F Opteron processors against Intel's Woodcrest chips by AnandTech Inc., an IT hardware analysis and news company, showed that AMD's Socket-F Opteron excelled in the areas of power consumption and performance per watt by as much as 29%."

My take: there are two major issues for both manufacturers. Server virtualization is going to decrease demand for physical servers, and there is little incentive for consumer purchasers to upgrade their machines given the powerful nature of the chips that have been sold in the last couple of years.

List of industries currently with gross overcapacity in US

1. Automobiles
2. Semiconductors
3. Homebuilders
4. Mortgage originators
5. Building supply
6. Restaurants
7. Investment banking