OOH in Depth: Movie Mogul

You might say that Kurt Hall has movies in his blood. He’s been involved with exhibitor-related businesses for over 20 years. And like many a celluloid hero, he experienced a defining moment back in 2002, when he became president and CEO of Regal CineMedia as well as co-chairman and co-CEO of the newly formed theater chain Regal Entertainment Group.

Regal CineMedia was tasked with building a cinema ad business at a time when the concept was still nascent in the U.S. And Hall notes that there were some significant challenges right from the get-go.

“The first issue was [cinema advertising] was too difficult to buy. The lead times were too long, and it was too difficult to place,” Hall recalls. “Digital really fixed all that. The ability to distribute via satellite allowed us to execute the advertising very similar to the way it was done on television.” Another major hurdle was developing a ratings system, which Regal CineMedia and other like-minded companies developed with the Nielsen Co.

Flash forward to 2005. Regal CineMedia has become National CineMedia, a joint venture among Regal, AMC Entertainment and Cinemark USA — the three largest theater chains in the U.S.

Hall now has a triple-whammy of titles — president, CEO and chairman of NCM. And the company has evolved into kind of like a teenage behemoth, with 16,800 screens in the system. Those results earned it the top spot on AdweekMedia’s first Out-of-Home Hot List.

“NCM runs a great business. They’ve got 50 percent margins, and they have no capital expenditures to speak of,” says Ben Mogil, a media and entertainment analyst for Thomas Weisel Partners (which works with NCM through its investment banking services).

Hall says NCM still has work to do to chip away at some significant impediments and explore new growth options before adjectives like “mature” are applied to the business. “There’s still a very high percentage of media buyers that either don’t know a lot about cinema or still don’t believe in it for one reason or another,” Hall says, adding that packaged goods and quick-service restaurants are two sectors that haven’t fully embraced the medium.

NCM also has had to deal with a local advertising slump, notes Mogil, although he adds the company has performed better than other local media sectors during the recession. Hall enthusiastically notes that the local segment is making a huge rebound.

One of the major national struggles NCM faces right now is the desire by many clients to have the kind of ubiquitous coverage that TV affords. So adding even more theaters and more markets to the NCM network distribution is key.

A quick way for NCM to achieve greater reach would be to buy the next largest cinema ad network in the U.S., Screenvision (No. 5 on the Hot List), suggests James Dix, vp of equity research media at Wedbush Securities. In a recent earnings conference call, Hall acknowledged that NCM was interested in a possible merger, but has not been invited to the negotiation table. Meanwhile, NCM continues to cut into Screenvision’s market share, but at a cost. As long as they keep competing, NCM’s sales team could be subject to downward CPM pricing pressure, Dix notes.

Bottom line, if NCM can crack its two major nuts — expanding the network and the client base — “the rest of the business takes care of itself,” Hall says.

That said, Hall has some other compelling preoccupations. For example, NCM has invested in RMG Networks (No. 6 on the Hot List), which provides OOH ad opportunities in fitness centers and on airplanes. Hall, who’s on RMG’s board, views the company as an “incubator to see where digital out of home will go.”

There’s also room to offer more creative integrated advertising solutions for clients, exploiting NCM’s lobby opportunities, pre-show “First Look” program advertising, online and mobile avails as well as sponsorship of big-event shows within NCM’s Fathom enterprise. Dix notes that 3-D advertising has huge potential, if NCM is able to charge more for it than standard avails. And Fathom, NCM’s event division, also holds greater promise, he contends.

Hall reports that Fathom is growing “very rapidly” with a slate that includes sports events, like the May 1 live welterweight matchup between Floyd “Money” Mayweather and Sugar Shane Mosley. But if Fathom showcases 3-D versions of NFL football or other major league sports, it might create an even bigger business, Dix says. Hall loves the idea but has reservations: “Whether or not a business model can be created to do it profitably, when you’re competing with TV networks that can afford to pay hundreds of millions of dollars in rights fees, we’ll have to wait and see. I have questions about that.”

NCM ran its first 3-D ad, from Samsung, in April, but there needs to be a critical mass of screens capable of 3-D before its value becomes more apparent, Hall explains.

One thing NCM won’t do is create movie intermissions to run more ads, as is done in Europe. “I think the respect we have for the consumer is very, very important,” Hall says. “In many respects, we’re sort of the uninvited guests.”