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Is AOL reeling as cinemas defect?

AOL's Moviefone is losing deals with major theater chains. But the online service, which boasts the majority of box office traffic, says the real moneymaker is advertising.

On Jan. 1, Robert Bucksbaum took ownership of the Crest movie house in Westwood, Calif., saving from developers a storied theater built and frequented by Hollywood legends.

That's when his troubles with AOL Time Warner's Moviefone service began.

Even after the sale went through, Moviefone continued sending checks to the theater's previous owner, Bucksbaum said. To fix the problem, Moviefone took Crest's ticket sales offline, according to Bucksbaum, and he spent the first several months of the year trying unsuccessfully to get it reactivated.

Ultimately, he gave up and designed his own online ticketing application.

"Moviefone has screwed up my system so many times," said Bucksbaum, who in addition to running the Westwood Crest operates a box office tracking company called ReelSource. "They promised they would set up my system, and they never did. I've given up because they give you a different person every time you call, and they transfer you over and over again. It was a nightmare dealing with them."

Bucksbaum and other theater owners blame their troubles with Moviefone on what might be considered AOL's holistic corporate strategy, in which online ticket sales are but a small part of a business oriented around entertainment content and advertising. In fact, Moviefone generates 90 percent of its revenue from advertising, according to Jupiter Research.

AOL acquired Moviefone in 1999, in a deal then valued at $525 million.

In an interview with CNET News.com, an AOL executive did not respond directly to Bucksbaum's complaints, but defended the company's corporate focus with a contention shared by analysts: Selling tickets online for movies--as opposed to more lucrative ticket sales by Ticketmaster or Tickets.com for large sporting or live music events--is no way to get rich.

"We see the moviegoing experience as not just about ticketing, but getting the consumer interested," said Steven Yee, AOL Time Warner's vice president for AOL Movies and Moviefone. "Ticket sales are only a small portion of our overall revenue because the number of people using ticketing services online or by phone is relatively small."

Traffic numbers show that AOL Time Warner is succeeding in drawing people to its site, despite losing to competitor Fandango the rights to exclusively sell tickets for major theater chains like Loews and, this week, United Artists.

Among ticket sales sites catering to moviegoers, Moviefone is the clear traffic winner, with 5.9 million unique visitors in the month of March, according to ComScore Media Metrix. Movietickets.com is a distant second, with 2.3 million visitors, and Fandango third with 1.7 million.

AOL Time Warner cites its loss of the Loews contract as an example of how little actual ticket sales contribute to its bottom line.

"Interestingly enough, since they left, our traffic has continued to increase," Yee said. "What that says to me is that the ticketing function is only one part of why people come to Moviefone. To be honest, that was a concern at the time, but it didn't bear itself out in reality."

Big screens in small towns
Yee explained that while online ticket sales are a good business in cities like New York and San Francisco, and for what are called in the movie industry "tent pole," or "event," films like the "Matrix" or "Harry Potter" series, they serve a limited purpose for theaters in less densely populated areas across the country, where suburban multiplexes rarely sell out.

A Jupiter Research analyst echoed this analysis, citing figures that put the percentage of moviegoers who prefer online sales at a miniscule 2 percent. One percent preferred to buy tickets by phone, Jupiter found, while the rest wanted to buy them in person at the box office.

"There's been a lot of hype about the opportunity for online movie ticket sales, and there have been some successes," said Juliana Deeks, a Jupiter analyst in New York. "But for the most part, the online movie ticketing business is an advertising business, not a ticket sales business."

But for Santa Monica, Calif.-based Fandango--founded in 2000 by a consortium of theater chains dissatisfied with AOL's system--online movie ticket sales is more than a vehicle from which to sell advertising. It is also more than a way for theater chains to bring in more business, said Arthur Levitt, Fandango's chief executive.

According to Levitt, a former Disney executive, Fandango's three-year-old business is profitable, with ticket sales tripling year over year from 2001 to 2002. This year so far, before blockbuster releases including "The Matrix Reloaded" and "X2: X-Men United," sales have increased 60 percent over last year.

More than half of Fandango customers return to the site to buy more tickets. Fandango also continues to swipe exclusive online ticket-selling contracts from Moviefone.

The United Artists win--not unexpected because the chain belongs to Fandango co-founder Regal Entertainment Group--brings Fandango's share of domestic theaters set up for online ticket sales to nearly 70 percent by adding nearly 200 theaters, according to the company.

"We have an extremely robust business selling movie tickets in advance," Levitt said. "We do a good business in ad sales as well, but the lion's share, the wide majority, is from ticket sales."

Fandango has survived its share of travails. The year of its launch, in the wake of an overbuilding spree that affected numerous theater chains, five of its seven founding companies filed for Chapter 11 bankruptcy protection.

Last year, Fandango sued AOL and Loews' Canadian holding company, alleging that they had violated Fandango's exclusive agreement with Loews. That suit was settled, with Fandango prevailing on the issue of exclusivity, in November.

"We're like the little company that could," Levitt said. "We came from nowhere and are starting to deliver on the mission of revolutionizing the way people buy tickets to the movies. We will, over time, reap the financial rewards of that."

Whether the business of selling movie tickets requires a revolution remains a matter of debate. While most consumers prefer to take their chances showing up in person at the box office to buy tickets without paying an online-ticketing service charge, and AOL prefers to focus on advertising revenue, owners of theaters and theater chains insist that online sales are the key to higher profits and the picture of things to come.

Century Theatres, a chain with 900 screens in 11 states and a founding member of Fandango, on Tuesday sold 12,000 tickets to the 10 p.m. showing of the "Matrix" sequel, which is playing at about 50 of its theaters. Century Chief Executive Raymond W. Syufy says that's more than 12 times what the chain would have sold before offering online tickets.

"Matrix" fever
Fandango as a whole has reaped its own "Matrix" rewards this week. The company said "The Matrix Reloaded" has broken records for its prerelease ticket sales and that theaters are adding new shows as a result.

ReelSource President and Westwood Crest owner Bucksbaum agrees that online ticket sales have given all of Hollywood a badly needed boost.

"It's been a favor to the industry," Bucksbaum said. "The reason we're seeing such huge numbers for the opening weekend is that people can have the assurance of having a ticket for an event movie."

Fandango's sales numbers this week also demonstrate the degree to which the event films dominate the online movie ticket sale business. The "Matrix" sequel has accounted for 97 percent of the company's sales this week so far, with "X2" accounting for 1 percent and three other titles--"Daddy Day Care," "Holes" and "The Lizzie McGuire Movie," accounting for tiny fractions of a percent of sales.

Nevertheless, Syufy said Century's experience as a Fandango founder has surpassed expectations, especially after what Syufy described as a disappointing relationship with Moviefone.

"AOL is interested in getting a bunch of eyeballs to the site, so they don't really care about selling movie tickets," Syufy said. "Moviefone was sold to AOL, a huge, huge company with lots of priorities, and it was difficult for them to provide service to us exhibitors."

As for Bucksbaum, who never got his Moviefone service reconnected, the service he designed has taken the concept of online movie sales one step further. If you go to catch a flick at the Crest, you can reserve not only your ticket, but your seat.

"This is the wave of the future," Bucksbaum predicted. "You're going to be seeing theaters everywhere using this function."

According to AOL, you probably won't. The company said Moviefone had tested a similar seat-reserving service a few years ago and that it flopped because users considered reserved seating an erosion of the "democracy" of the moviegoing experience.

Fandango, however, is developing a prototype of such a service and plans to launch it this June.

"Fandango is owned by the movie exhibitors, and as such their expectations and our opportunities are greater," Fandango's Levitt said. "The founders came together because they wanted to control their own destinies, so they are much more involved and prone to experiment with new things."

Levitt gave as examples Fandango's system for printing tickets at home, as well as plans to let theatergoers buy their concessions online before the show and to pick them up on an expedited line. The company this week also expanded its relationship with automated telephone customer service company Tellme, launching a 1-800-FANDANGO number in part to compete with Moviefone's longstanding telephone offering.

Meanwhile, even online ticketing's biggest fans recognize its limitations. Bucksbaum owns a second theater, the 225-seat Reel Cinema in Wofford, Calif.--population 2,800--where he has no intention of setting up an online ticketing system.

"I don't think the town has a computer yet," Bucksbaum said.