When Mike Sodano and Nancy Sabino decided to largely retire from their corporate event production business, they still wanted to keep their hands in something. But their choice, opening an art house cinema called the ShowRoom three years ago in Asbury Park, NJ, would almost seem more of a quixotic hobby than a burgeoning enterprise.

Art cinemas across the country are closing, even in cities like San Francisco. (Asbury Park boasts a population of 16,000 people.) Plus, more consumers prefer to download flicks instead of going to a theater.

And yet, Sabino and Sodano are expanding, moving across the street from their original single screen to open a three-screen multiplex in October. How have they managed to beat the odds? Because, beyond being hobbyists, the two are experienced entrepreneurs who realized that scale is often the difference between a successful business and a money sink. Only, there is an interesting twist. Unlike the usual argument of driving down costs, in this case, scale is necessary to maximize opportunities for customers.

How They Got Started

Sodano and Sabino liked downtown Asbury Park and noticed that while it had bars, coffee shops, restaurants, and galleries, the nearest movie theater was miles away. They figured an art house cinema was just what the area needed.

It might seem a risky move because it was. "Everybody's entertainment dollars can only go so far, and all entertainment venues are trying to get those dollars into their door," Sodano says.

After three years, although the ShowRoom is breaking even, there are some limitations to how much more revenue it can generate. One problem is that the cinema's primary customer demographic--Baby Boomers who grew up going to theaters--is aging. The theater does draw audiences in from as far as Philadelphia, but like any such business, a local clientele is vital. ShowRoom must broaden its customer base by putting on events like comedy or music shows, in addition to movies, that might attract a younger audience. At a one-screen facility, that means not having a movie for regulars on that night.

The customer demographic is also a problem on the refreshments front. Typically, selling candy, popcorn, and sodas provides a large portion of a movie theater's income. At the ShowRoom, it's only 35%. "That demographic is far more discriminating about what they want to spend above or beyond that ticket price," Sodano says.

Finally, a hit film is another difficulty. Aside from the odd cult movie, people will only go see a given film so many times. The longer a movie stays, the more customers are locked out by not having something else to see.

Expand or Perish

With only one screen, Sabino and Sodano are limited. That's why, after running the business case on spreadsheets, they've decided to expand. Although there is an initial investment, business expansion quickly becomes an incremental cost model and not a fixed cost one. The increased number of screens will allow a greater selection of movies, so regulars might see a big hit and then catch another film if the first is held over.

Larger facilities also means an opportunity to experiment with different things, such as partnering with local restaurants or offering matinees for mothers with young children who might be reluctant to go to a normal show, worrying about possibly disturbing other patrons. "Come out during the day so you can all commiserate together and no one will complain about a child crying," Sabino says.

For the ShowRoom, scaling the business isn't about finding a way to lower prices; it's about realizing more revenue opportunities and finding more customers. Could the same strategy work for your business?