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The Grouponing of Hollywood: indieWIRE Runs The Numbers for "The Lincoln Lawyer"

Photo of Dana Harris By Dana Harris | Indiewire March 21, 2011 at 1:56AM

Last week’s 48-hour Groupon/Fandango deal for Lionsgate Films’ “The Lincoln Lawyer” put Hollywood through a blitzkrieg grief cycle: Denial (Discounts on opening weekend?!), Anger (Lionsgate’s trying to buy the box office!), Bargaining (Maybe it’s really not that big a deal), Depression (“The Lincoln Lawyer” came in at no. 4, even with discount tickets) and now, Acceptance.
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Last week’s 48-hour Groupon/Fandango deal for Lionsgate Films’ “The Lincoln Lawyer” put Hollywood through a blitzkrieg grief cycle: Denial (Discounts on opening weekend?!), Anger (Lionsgate’s trying to buy the box office!), Bargaining (Maybe it’s really not that big a deal), Depression (“The Lincoln Lawyer” came in at no. 4, even with discount tickets) and now, Acceptance.

Meaning: Lionsgate may have been the first canary in the coalmine, but it’s far from the last. “Scores of movies will be tested over the next six months,” says Groupon president Rob Solomon. “I think we become a de facto form of distribution.”

Solomon says that Groupon has “been talking to a bunch of studios for about six months” about how Groupon can help them get butts in seats. (Full disclosure: Ted Leonsis and New Enterprise Associates are each a minority investor in Groupon and in indieWIRE parent company SnagFilms; Leonsis and NEA managing general partner Peter Barris are each a board member at SnagFilms and at Groupon.)

And let’s get another issue out of the way: Did the Groupon inflate the position of “The Lincoln Lawyer” in the boxoffice lineup? Given the weekend’s less-than-robust performance across all films, it's possible.

Lionsgate sold 190,000 Groupons at $6 each, for $1.14 million total. According to Lionsgate, exit surveys show of the 40,000 people who used a Groupon ticket this weekend, 89% said they wouldn’t have come without the incentive.

So there's 35,600 moviegoers -- who say they wouldn’t have been there otherwise -- counted at full freight. At the $8-per-ticket average, that’s $284,800 reported to the boxoffice – which, depending on the final figures, could be enough to make the difference between no. 4 (“Lincoln Lawyer,” $13.4 million) and no. 5 (“Paul,” $13.1 million).

That said, those who focus on the opening weekend miss the point. As a tool for creating inflated box office, much less bragging rights, Groupon would be a failure. However, that's not the intent: Groupon is positioning itself as a movie-marketing vehicle of choice and there’s reason to believe that some distributors – both major and indie – will take them up on it.

"The minute that the email went out," says David Spitz, Lionsgate executive VP of distribution, "that was the biggest part of the promotion."

There are 30 million Groupon subscribers in North America, across more than 200 markets. Their user base is evenly divided between men and women and skews toward well-educated people between 25-50, with women as the majority of the Groupon buyers.

"We have 750,000-1 million subscribers in big markets and a couple hundred thousand to 600,000 in smaller ones," says Solomon. "We can promote aggressively where you need the marketing the most. We have a lot of flexibility for the indie guys."

As a movie-marketing play, that can look like a pretty sweet buffet. Distributors could pick and choose the markets in which they can pitch their woo. There will be metrics. Women buy most Groupons? Great, since women largely decide which movies a couple will see. And when Groupon sends an email blast, it can create millions of impressions before the distributor spends a dime – as with all Groupon deals, the send is free. Once the user buys the Groupon, there’s a revenue share between Groupon and the company that offers the discount.

"It’s driving additional traffic to the theater," says Spitz. "They’re getting consumers who might not normally go to the cinema."

But what does all this goodness cost? Neither Lionsgate nor Groupon would disclose or comment on any financial specifics. However, based on the understood tenets of film distribution and Groupon distribution, here are some ways that such a deal might work. (Note: I have no first-hand knowledge of Lionsgate’s or Groupon’s actual splits. The following is an exercise is based on a working knowledge of where revenue shares take place.)

Lionsgate exhibitors participate at their full rate in this promotion. Presuming a 50/50 take between distributor and exhibitor on an $8 ticket price, an exhibitor could expect to receive $4. However, Lionsgate must first share the sale of a discounted $6 ticket with Groupon/Fandango.

Groupon does not comment on its rev shares, although prior partners have said it ranges between 30%-50%. Groupon recently removed its 30% option, but let’s say Lionsgate was able to get them to split the difference. That would give 60% to Lionsgate and 40% to Groupon/Fandango, which would give Lionsgate $3.60 of every ticket… which they would give to the exhibitors. In this scenario, they would also be responsible for subsidizing every Groupon ticket redeemed an additional 40 cents.

If that's true, here’s the math: Sold at face value (presuming an $8 average ticket price), 190,000 tickets would gross $1.52 million. Instead, Lionsgate would essentially pay exhibitors .40 for each Groupon ticket and collect nothing. That would be $76,000 out of pocket for Liongate -- and another $750,000 in “lost” revenue share?

Not necessarily, and here’s why: If you extrapolate Liongate’s extraordinary 89% recruitment figure across all its Groupon buyers (granted, a big if), about $1 million of the $1.14 million in Lionsgate Groupon revenue would never have come in.

More importantly, that leaves only 11% of Groupon tickets as "lost" revenue – buyers who were already sold and took advantage of the deal. That 11% equals 20,900 tickets – which, on an $8 ticket price, comes to a Lionsgate "lost" revenue share of $83,600.

Based on those calculations, Lionsgate’s total out-of-pocket cost would be around $160,000.

Also, Rotten Tomatoes gives “Lincoln Lawyer” a 79% audience rating; Cinemascore gives the film an A-. So let’s say that of the 35,600 people who say they would never have attended at full price, 80% go on to say nice things about the movie to their friends. If that’s true, Lionsgate’s $160,000 also includes the recruitment of 28,480 additional would-be fans who might spread opening-weekend word-of-mouth.

Furthermore, the moviegoing public has already paid $1.14 million for those tickets. According to Yipit, an aggregation service for daily deal merchants like Groupon and their competitors, the average redemption rate is between 80%-90%.

Again, let’s split the difference; 85%. If 15% of the buyers don’t use the Groupon, Lionsgate would get their portion -- in this scenario, $85,000 -- free and clear; they would only owe exhibitors if the ticket is actually redeemed (although Lionsgate would not receive the commensurate credit at the boxoffice turnstile).

That would put the cost to Lionsgate for this promotion at $75,000 -- probably not enough to to buy a full-page ad in the New York Times.

This would explain why Solomon is so bullish on the Hollywood possibilities. "We're good for opening weekends and this can extend shelf life of a movie – you have a movie out for four weeks and then you run a Groupon," he says. "Get another burst of users."

But even if all best-case scenarios proved to be true, the Groupon-Hollywood alignment is far from perfect. A large number of Lionsgate exhibitors were deeply annoyed by the promotion, since Fandango only has contracts with about 50% of exhibition outlets. If the market gets crowded with films angling for the Groupon treatment, there could be the much-feared dilution of value. And “The Lincoln Lawyer,” which is a well-reviewed movie with an audience that skews toward older women, seems like a particularly choice target; it’s still unclear how other genres would fare under Groupon

That said, Solomon acknowledges that “we’re in test and learn mode” and says Groupon plans to experiment with deals for movies of all sizes, with both national and microtargeted campaigns. Says Solomon, “We have a targeted list for every zip code in North America.”

This article is related to: New Media & Technology, Features







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