EEE: Entertainment Concepts, Investors and Consumers Focus on the Bottom Line

by Hayden Spiess

Los Angeles — With interest rates and inflation being what they have been, it’s no surprise that money was one of the top concerns – and topics of conversation – among panelists at InterFace Conference Group’s Entertainment Evolution Experience (EEE), which was held at the J.W. Marriott at L.A. Live in Downtown Los Angeles on February 6 and 7. 

“The commonality is we’re all here to make money,” said Paul Kurzawa, COO of CenterCal Properties and moderator of the “Converting Experience to ROI — Making Sense of Sensory in Real Estate Today” panel. “How do we make sense out of the sensory?”

Travis Cloyd, CEO and Worldwide XR and senior fellow of Thunderbird School of Global Management and an “Everything We Know About the Future of Entertainment is Wrong” panelist, noted there was a big difference between creating entertaining content and the traditional business model. This is especially true when it comes to gross profits versus net profits.

“We gross some of the highest profits in the industry at 40 percent to 50 percent with entertainment,” Cloyd notes. “Net profit is more like 3 percent, but that money stays within the ecosystem where we focus on the development of content. How to explore content is massively shifting. It’s the beginning of the fifth industrial revolution, really, so it’s a different type of financing model.”

Determining the Payoff

Numerous panelists noted calculating ROI was one of the biggest challenges with today’s entertainment concepts. After all, the technology can be expensive (and sometimes untested) and many aspects of the entertainment concept may be free, while rent is certainly not. 

“If it’s not going to make money for two years, many will ask ‘why will this be worth it?’” said Sarah Vasquez, founder of SV Management Consulting and an ROI panelist. 

Clifford Warner, chairman of Mycotoo and an Everything We Know panelist, argued that even if a concept is free, you can get a strong ROI through items other than money. 

“When people gather, there’s valuable data to collect,” he explained. “That isn’t touched when it comes to revenue stream, but we should have a revenue stream just on data collection.”

Whitney Livingston, president of Centennial REC and an ROI panelist, added that decisions should be driven by data whenever possible. However, that data comes (and goes) fast, meaning the decisions for today may not be the decisions of six months from now. Additionally, concepts and their investors must know how to analyze this data if they stand a chance of acting on it successfully.

“Make sure you know how to understand and make it actionable,” she said. “Empower teams to use research and make a business case to pitch to your capital. Deliver results, and the capital will trust you the next time you come to them with a recommendation.”

Fellow panelist Gerald Divaris, Chairman and CEO of Divaris Real Estate, noted there are also creative ways to determine ROI. This was the case at Town Center of Virginia Beach where Divaris and his team was hoping to attract Lego as a tenant. The company needed some persuading, so Divaris first set out to bring the traveling Lego Americana show to the center. 

“They charged $100,000 to put on a show for two weeks, which included Lego exhibits at different blocks around Town Center,” he said. “The displays were so interesting that you were compelled to walk all blocks.”

Divaris paid $80,000 toward the fee, while the city picked up the remaining $20,000. He also realized that the Barnes & Noble at Town Center sold Legos, which allowed Divaris to measure an actual uptick in sales as a direct result of Lego Americana.

“The Lego boxes ranged in price from $10 to $700, so for me, the ROI was that,” he explained. “After doing two shows in two years, we persuaded Lego to open a store. They now have lines around the block.”

Kurzawa noted that free or nearly free items should also be valued for their strong ROI. This includes water bowls outside of stores, as well as allowing dogs inside malls.

“Filming has been a fantastic way to make money as well,” Vasquez added. “We got lots of money for ‘Wonder Woman.’”

In addition to money, there’s also the time investment to consider, said Caitlin Maloney, senior director of creative for Original X Productions and a “Core Fundamentals of Developing and Building Successful Location-Based Retail Entertainment” panelist. 

“You have to go out and see stuff,” she said. “Go do stuff. Figure out what’s local to you and go do it. The only way to understand these concepts is to experience them like a consumer.”

Fellow panelist Ty Granaroli, executive vice president of themed entertainment for Paramount, added that you can learn a lot about what’s working and what’s not from this exercise. He cautioned, however, that these concepts shouldn’t be experienced with other industry experts who have a proclivity for overanalyzing and viewing things through a business lens rather than from an engaged perspective. 

“Give it a chance and go with people who might actually enjoy it,” he said. 

Experiences for the Masses

Michael Beneville, CEO of Beneville Studios and a “Future” panelist, made the point that much of today’s entertainment concepts – particularly those rooted in the digital world – aren’t created for the wealthy. Instead, they’re created for the masses, which includes individuals who have to save all year for their one vacation, who can’t afford to take an entire family to Disney or who will never have the opportunity to experience some of the beautiful places that the wealthy regularly get to enjoy.

“This isn’t being invented for wealthy people who wake up and see a beautiful world,” he said. “It’s for the millions of people who don’t.”

Warner noted that the working class comprised his largest client base, making it crucial to have a mix of free activities that may draw them into a center, as well as paid entertainment that can attract them once they’re there. 

“Make sure that market has something to come to and something to do,” he advised. “They will spend $20 for their kids to play for two hours.”

Movies is another inexpensive form of escapism, though the number of theaters is dwindling. There’s only about 35,500 movie screens in the U.S. right now, per media company Comscore. There was more than 41,000 in 2019.

“We have just come through a very difficult period, and for most investors right now, investing in theaters still has an ‘X’ on it,” said Greg Silvers, Chairman and CEO of EPR Properties and a “Film & Finance: Will These Tools be Available to Exhibitors to Continue Their Recovery and Growth?” panelist.

Fellow panelist Eduardo Acuna, CEO of Regal Cineworld Group, added that it hasn’t been an easy road for theaters with COVID, streaming and the current lack of financing. 

“It’s been a tough few years and a tough few months ahead of us because of the actor’s and writer’s strikes,” he said. “But we’re selling more food than ever. Food sales are important to all of us. When you combine food sales with box office sales and think about the margins those command, we’re not that bad. We’re pretty good in some instances.”

Acuna added that Regal was converting more seating into recliners, as well as improving the food offerings. Fellow panelist Mark Gramz, president of Marcus Theatres / the Marcus Corporation, also saw food and beverage as a big opportunity. He noted 63 percent of his theaters offered bars or lounges where patrons can watch sports. The theaters also offer Bingo on Wednesdays.

Theaters may be a mainstay of shopping centers, but Greg Bartoli, founder and CEO of PopStroke and a speaker on the “Power Panel: CEOs’ Perspective of Retail Entertainment” panel, noted that not every new and novel entertainment concept will make it today. 

“The entertainment sector is growing by about 10 percent to 15 percent a year, especially with Generation Alpha,” he said. “My concern if you’re a REIT, developer or landlord is that not everything needs a concept. We’re getting oversaturated. There will be big, big winners and others that will fly by night.”

Bartoli said that three to four concepts tried to copy Topgolf, for instance, and “they all failed.” 

The good news for existing entertainment concepts is they can use their space for different events and themes. This keeps the costs down and variety up.

Dan Pelson, COO of AREA15 and a “Reimagining Real Estate: Maximizing Asset Lifecycle While Creating Immersive Environments” panelist, noted a “Shrek rave” has been particularly popular with guests. Caruso’s the Grove in Los Angeles hosted the movie premiere of “Taylor Swift: The Eras Tour” in October. The event was so popular that they had to close down the center, ironically preventing any sales from occurring.

“Not everything has to have a cash register attached to it,” said Jackie Levy, Chief Financial and Revenue Officer at Caruso and a “Power” panelist. “We got over 11 billion social media impressions from that movie premiere. We had more impressions than people existing in this world.”

Here’s one more form of ROI to consider, particularly if a consumer-facing cash register isn’t involved.

Nellie Day

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