Tech Industry

Movie theaters challenge AOL Moviefone with online deals

AOL's decision to stop charging fees for tickets purchased online from its movie guide service is being viewed by some as a move to fight off two new challengers.

America Online's decision to stop charging fees for movie tickets purchased at AOL Moviefone.com is being viewed by some as a pre-emptive move for the online giant to fight off two new challengers.

AOL has been the 800-pound gorilla of online movie ticket sales with its Moviefone.com site, securing contracts with major theater chains to sell tickets for their shows. But new sites owned by those very theater chains are now entering the market and will compete with Moviefone.com.

Today, MovieTickets.com--a Web site owned by a consortium of theater chains including AMC Entertainment--launched a site that will allow customers to purchase tickets online without having to pay a service fee. The consortium represents 5,000 screens. Another group led by Loews Cineplex Entertainment, which has 12,000 screens, will launch their ticket sale Web site this summer.

Moviefone.com announced yesterday that it was dropping its $1 to $1.50 service fee on tickets bought on the site. The move was coincidental to the launch of MovieTickets.com, according to Moviefone's chief executive officer Andrew Jarecki.

Although Jarecki said the fee elimination was planned before MovieTickets.com's launch, MovieTickets.com doesn't buy it.

"They did it to stay competitive with us," said Mitchell Rubenstein, the firm's chief executive. "They didn't want us to go one day at a better price than they offered. We have the greatest respect for them, and we are not ruling out a relationship with AOL from a distribution or marketing standpoint, but Moviefone is a direct competitor."

According to analysts, the prize is more than $1.5 billion in theater tickets sold in the United States every year. For a long time, Moviefone has held a monopolistic grip on advance ticket sales through its contracts. But the Internet and its ability to reach consumers directly has prompted owners to question why they could not sell tickets to customers over the Web and keep the profits Moviefone used to pocket, analysts said.

"MovieTickets.com is about theater owners charting their own path," Rubenstein said.

Jarecki said Moviefone.com has long-standing contracts with several major theater groups, including AMC, Loews Cineplex, and General Cinemas, all of which are members of one of the competing consortiums. Moviefone.com also has a contract with United Artists Theaters, which operates almost 2,000 screens.

"Most of our contracts with these chains go on for years," Jarecki said. "We have good agreements and good relationships with these companies. First and foremost with them is selling tickets, so why would they cease doing business with a firm that can deliver 300 million customers."

Jarecki would not discuss what happens when the contracts end.

Since acquiring Moviefone last February for $400 million, AOL has folded it into its Digital City community, which offers local news and entertainment, and held it up as one of its prize offerings.

It has also withstood a strong challenge from ticket-selling stalwart, Ticketmaster, Jarecki said. In 1994, Ticketmaster and General Cinema launched their own company to challenge Moviefone, but it was shut down.

"We survived that and we're going to survive these challenges as well," Jarecki said. "There's room in this space for more players, but I think these other guys are going to find that this is not their core competency. This is not the focus of their business. They are going to find that it's very expensive."

MovieTickets said it plans to make money through a variety of revenue sources, including ticket sales and advertising. It never intended to charge a service fee. Jareki said that it will be tough for a start-up to compete that way.

"None of the (new competitors) have a brand and any traffic, " Jarecki said. "People don't just come to your site. People come when they've learned to trust you. Brand is everything. If I'm them though, I'm asking myself what's my business model."