Buying a Movie Theater: What to Check Before You Sign

Cinemas do come up for sale — single screens when an owner retires, small circuits, occasionally a building whose last operator failed. Buying one is buying three things at once: a lease or a property, a set of ageing equipment, and a set of relationships with distributors and an audience. Only the first is easy to value. This is the due-diligence list we would want a buyer to work through before signing.

Where cinemas are listed

Few cinemas are sold through a public listing. Most change hands through business brokers, commercial property agents, and word of mouth inside the trade — regional exhibitor associations and film buyers often hear first. Asking a film buyer which venues in a region are quietly for sale is one of the most productive calls a would-be buyer can make.

1. Verify the box office, not the pitch

Ask for three years of distributor settlement statements, not a summary spreadsheet. Settlements are produced by a third party and reconcile to the ticketing system, so they are the hardest numbers to dress up. From them you can rebuild admissions, average ticket price and film rental paid by week — and see how much of the business depended on a handful of titles.

• Admissions trend, year on year, against the national market — is this cinema outperforming or bleeding share?
• Effective rental rate, which tells you what the programme really costs.
• Spend per head on concessions, and the gross margin behind it.
• Revenue outside tickets and concessions — hire, events, advertising, memberships — which is often the difference between a viable site and a marginal one.

2. Read the lease like it is the business

For a leasehold cinema the lease is most of what you are buying. Check the remaining term and renewal rights, the rent review mechanism, the permitted use clause, repair and reinstatement obligations — a full repairing lease on an old building can transfer the roof to you — and whether the landlord's consent is needed to assign it. A cinema with three years left on a lease and no renewal right is worth a fraction of one with fifteen.

3. Date every piece of equipment

Much of the world's digital projection was installed in one wave between roughly 2009 and 2014, and a great deal of it is now at or past the end of its design life. The virtual print fee arrangements that funded that conversion have largely ended, so the next replacement will be paid for in full by whoever owns the cinema.

4. Ask what the relationships are worth

Film supply does not transfer with the keys to the building. Ask who books the films today — the owner or a film buyer — and whether that buyer will continue. Ask about clearance: whether a nearby competitor is routinely granted titles first. A cinema that gets new releases a week late in its zone has a structural problem that no refurbishment fixes.

5. Check what you actually own online

This is the item buyers most often miss. Find out who owns the website domain, the social media accounts, the mailing list and the customer data — and whether any of it sits inside a ticketing supplier's contract rather than with the business. A cinema whose audience relationship lives in a vendor's system can find, on the day of sale, that its customer list does not come with it.

Check the software contracts as well: box office, point of sale, website and apps. Are they assignable? What are the notice periods, and what does exit cost? A three-year contract with a supplier you intend to replace is a line in the price, not a detail for later.

6. Licences, staff and the neighbours

• Licences — premises and alcohol licences may not transfer automatically; some are personal to the licence holder.
• Staff — in many countries employees transfer with the business on their existing terms.
• Competition — any new multiplex with planning permission within driving distance, and what it would do to your admissions.

The first ninety days

Buyers who do well tend to do the same few things early: meet the film buyer and the major distributors in person, fix the booking journey on the phone before anything cosmetic, start collecting customer contacts from the first week, and set up the reporting they will need to see whether it is working. A refurbishment can wait a year. An audience you know nothing about cannot.