Why do American movie theaters still have Free Seating?

I have often professed my love for movies in earlier articles. In fact, I have a blog where I try to review them once in a while. New movies take longer to release here in Japan, and I eventually end up binge watching them when I am traveling oversees.

During my recent trip to NYC, I managed to catch 3 movies, each of them in an AMC run theater (AMC Empire and Loews). What stuck me besides the steep price of tickets in NY was the free seating system. Even if you order your tickets way in advance, through Fandango (strangely AMC, the second largest in US, does not have its own booking system), you are not preassigned a seat. Depending on the popularity/timing of the movie, people with tickets start queuing outside the gate, 30-60 mins before the showtime, to get the seat of their choice.

If you are late, you'll most likely end up occupying the obviously unpopular front rows, and separating from your larger group, as you try to find empty seats in the theater. 

This might seem perfectly normal to Americans, but places where I have lived before - India, Singapore and Japan (Tokyo), this is a rarity. As I sat watching these movies, I wondered why such an (assumingly) archaic system still exists, in the "Greatest" Country on Earth, where people obviously have a higher perceived value of time (and opportunity cost).

Is the disutility from queuing,  scampering and sometimes separating, offset by any gains to the theater or its patrons? Let's discuss more.

Customer U = f(Movie, Theater Experience, X...)

Theater U = Profits

The modern reservation system has quite a few perceived benefits. To the patron, it not only guarantees him a seat, but also gives him a choice to select where he wants to sit. If he can't find the right seats (or set of seats), he has the choice to forego that specific screening slot and try the next one.

For the theater, the system ensures good customer experience which in turn leads to loyalty and repeat customers. It can also help drive more confectionary sales, which is great for profits.

Modern booking systems can also ensure better seat allocation, ensuring no single seats are left unoccupied in more popular rows. In addition, receipts are all paid in advance.

The benefits seem so obvious, and I kept wondering what were the rational reasons behind American cinema theaters refusing to change. Broadway, infact has been offering seat choices (with differential prices) for a very long time. I came with some possibly explanations, mostly around theaters trying to maximize their profits.

1. Reservation systems cost money to build and maintain

Which is where Fandango and MovieTickets.com come in, however offering only convenient purchase options but not fixed seats 

2. More Ad eyeballs

In AMC, the first 20 mins are just advertisements and trailers. The queuing system ensures most patrons turn up early to watch their movie, thus watching all the ads. A fixed seating system could result in more late entrants. However, not sure if that affects AMC's bottomline.

3. More food and confectionary sales

- Since people turn up early, and queue longer, do they end up purchasing and consuming more in the theater?

4. Less ushers and operational cost

- A common feedback I received when I quizzed some staff, which I am not fully convinced of. Seems people often get lost while locating their fixed seats, and thus more ushers need to be deployed to assist the patrons to their respective seats.

5. Less empty seats per screenings -

 I haven't seen any research yet but I wonder if more people turn up on a particular slot in a hope that they have equal opportunity to get a favorable seat, than being turned off at the booking stage when they realize all the good seats have already been taken. However, a counter argument can be made that if a patron really wants to watch a specific movie, even if he skips the earlier screening, he will show up later before the movie ends its run. Hence, impact to the bottomline is not that pronounced (besides delay in potential sales). 

6. Why fix something that's been working all these years

Guess, the most common reason to avoid change.

So how do Cinema operators fare in US? I'll probably need a separate post to go into the details. However, on a high level, it seems Regal and AMC dominate the user share in US.

Regal has 7,342 screens across 576 theaters, and had a profit margin ~9.2% on $813M Revenue (Q3'13). AMC Entertainment holdings has 4,950 screens across 343 theaters, and recently went public (in Dec '13) with an estimated 5.6% profit margin on $696M Revenue (Q3'13). Theaters are facing increasing competition from online streaming services (like Netflix), BluRays and soon to be launched same-day theatre premiers at home.

RGC Profit Margin (Quarterly) Chart

RGC Profit Margin (Quarterly) data by YCharts

No matter what the rational reason is, Hollywood's Domestic Revenue was $7.08B in the first half of 2013, and sales continue to stay strong with 3D and IMAX offerings. However, each time, countless hours are probably lost to a ticket purchase system which refuses to change.