Economics of the Movie TheaterThis article is actually written by John, from www.themovieblog. I forgot to cite (oops, plagiarism). Just wanted all of you to read it. I don't agree with everything...especially on point #5 (I bolded my stuff) I don't know if he was being sarcastic or not. Anyway...Thanks Kevin, I was too lazy to cite and write this intro haha.
I woke up early this morning (4am) since I fell asleep early last night so decided to find information about the economics of the movie theaters. I wrote to a writer at the San Jose Mercury News a couple months ago, but never got a reply back. Article: http://www.mercurynews.com/ci_8376213
The movie blog article:
1) Who Gets What From Your $10 Ticket?
Ok, so you walk up to the box office and drop down your $10 to buy your
ticket. Who gets that money? A lot of people assume (as did I at one
point) that the movie theater keeps 50% of it, and the rest goes off to
the studios. That's not really true.
Most of the money that a theatre takes in from ticket sales goes
back to the movie studio. The studio leases a movie to your local
theater for a set period of time. In the first couple of weeks the film
shows in the theatre, the theatre itself only gets to keep about 20% -
25% of the green. That means, if you showed up to watch Rush Hour on opening night, then of the $12 you put out for a ticket, the
movie theatre only got to keep between $2.40 and $3.00 of it.
That's not a lot of money, especially when you think about how much
bigger and elaborate theatres are these days. It's not cheap running
one of these places. It can get even worse. This percentage will vary
from movie to movie depending on the specifics of the individual
leasing deal. For instance, 2 movie theatre managers told me that for
Star Wars Episode II: Attack of the Clones, the studio took 100% of the
box office take for the first week of release. Can you imagine that?
They had to over staff and have above normal capacity flood into their
theatres… and they got to keep $0.00 from the ticket sales. That almost
seems criminal.
Now, as you move into the second and third weeks of release, the
percentage starts to swing to anywhere from 45% - 55% that the theatre
gets to keep. It gets better after the fourth week when theatres
generally can keep up to 80% or better of the ticket sales. There is an
obvious inherent problem with this arrangement. I don't know about you,
but when I finally get around to seeing a film that's already been in
the theatres for 4 or 5 weeks, I'm usually one of the only people in
the place. It doesn't do the establishment a lot of good to keep 80% of
the ticket sales when only 14 tickets are sold per show. And with more
and more and more movies getting released every week, the length of
time that a movie stays in theaters is shrinking. Bad news for the
movie theaters.
Movie theaters are then forced to really make their money off
concessions. One theater manager said "We're not in the movie business…
we're in the candy business". Very true. So if you ever wondered why a
$0.15 bag of popcorn is costing you $5, and a $0.08 cup of Coke is
running you another $4… it's because the economics of the industry
system is so screwed up that the concession stand is where theaters
have to make most of their money.
2) The Cost Of Making The Movies
With the cost of today's movies getting higher and higher, the studios
leverage their position with the theaters to squeeze more and more out
of the arrangement mentioned in point #1. 10 years ago they weren't
paying Chris Tucker $25 million dollars for one movie… for 3 months
work… a hack… CHRIS TUCKER… $25 million. Superman Returns did NOT need
to cost $200 million to make. Spider-Man 3 did NOT need to cost $250
million to make. These numbers are astounding when you consider that
just 7 years ago they would have called you mad. The pace of costs is
far outpacing the requisite inflation… and there is really no excuse
for it.
This is directly tied to how much you and I pay at the box office,
and thus tied to why popcorn has to cost so much, and thus tied to why
we see commercials. The higher the costs go for for making films, the
higher my costs will be to enjoy a night at the theater. Sure,
Transformers made tons of money… but the studios have to squeeze us for
everything they can get to make up for their flops… their films that
DON'T make money.
And people always wonder why I get so pissed off whenever I think
about Chris Tucker getting $25 million. Because ultimately that money
(at least in part) is coming out of my wallet.
3) The Organism of the Studio/Theater Relationship
To really make sense of all this, you have to step back and look at the
Studios and the Theaters as one industry entity and view it from the
perspective of how the parts work together to truly get a grasp on how
big and out of control the problem is. You can't just try to blame the
Studios… nor can you just blame the Theaters. You have to look at them
both (in this situation anyway) as one industry… how it functions… and
ultimately how it affords its mistakes and inefficiencies at our
expense.
The studios spend too much money making movies (and make too many
movies), they squeeze as much box office revenue as they can from the
Theaters thus forcing the theaters to charge us high ticket prices to
make what little they can from each ticket, gouge us at the concession
stand to make ends meet and show commercial after commercial after
bloody commercial to pad some profit.
Do you see what happens? Look over #3 again. Ultimately, the studios
don't have to learn from their mistakes, theaters don't have to manage
themselves smarter… because as costs and losses and expenditure add up…
they just keep passing off the bill to us. We pay for their
mismanagement and spiraling costs. Why should they change anything or
fix anything when they know that we'll just pay more to make up for
their mistakes.
We pay for their mismanagement with our high ticket prices.
We pay for their mad decisions with $6 bags of popcorn
We pay for Chris Tucker's $25 million paycheck with our time watching in-theater commercials.
All the while the industry continues happily along its downward
spiral feeling no ill effects of their stupidity… because they've taken
those ill effects and shoved them up our rectums for US to deal with.
4) The Solution Has To Start With The Theaters
If this insanity is ever going to stop… if change in the economics of
going to the movies is going to ever happen, I'm convinced it will have
to first start with the theaters. Movie theaters have to better
organizes themselves and collectively stand up the the Studio system
and REFUSE to let 80% of the box office dollar for a films first week
of release go flying out the door to Hollywood. By not standing up
collectively, the movie theaters act as complicit enablers to the
studios behavior.
WHAT WOULD HAPPEN IF THEATER OWNER ASSOCIATIONS REFUSED TO GIVE ANY
MORE THAN 50% OF OPENING WEEK BOX OFFICE MONEY TO THE STUDIOS? I'll
tell you what would happen:
a - Studios would be forced to SERIOUSLY
look at their own economics and financial responsibility. There would
be no more $25 million dollar pay days for B string actors
b - Theaters would actually start making some money on… you know… MOVIES
c - With added revenue from the actual
box office, the pressure on theaters to add more ads, to raise ticket
prices, to jack up popcorn costs… would be at least a little bit
alleviated.
It has to be a collective effort by the theater owners or else the
studios will just refuse to give their movies to the stubborn theaters
and give all the business to others. If the Theater Owner associations
collectively said "no", the studios would have no choice but to start
to fix their leaky boat
5) Why Not Going To The Theaters Won't Fix The Problem
Some people will say "Well then let's not go to the movie theaters
until we force them to change". That will NEVER work, because as I've
demonstrated above, when there are financial losses, the current
industry system just takes back those loses from those who are buying
the tickets. They'll blame piracy for the dip in the attendance and
raise prices even more. It's a systemic problem.
And if you think you're safe from these rises and gouges because you
just watch movies at home on DVD…. guess where the systemic problem
will strike next once they've bleed the theater goers as much as they
possibly can? DVDs and HD discs will suddenly start costing $60 a shot (Which obviously won't happen)
and Hollywood will pressure Washington to pass tax laws on Big TVs to
pay a fee to the studios for each unit sold, thus raising prices there
too. Being sarcastic? I get the concept...farfetched? i don't know.
You see… the answer to all the current systems problems is to take
more from us. Thus, the system itself has to change, the the theaters
are the ones who have to start it.
I guess there's always Ebay and Netflix.
On another note:
Start buying Netflix stocks guys. I bought some Netflix today, down 23%. Earnings are good. The future does not look "as" good according to analysts, but still good though. Overreaction? As Cramer would say, "BUY BUY BUY!"
What you need to know when buying stocks that have fallen is to buy broken stocks, not broken companies. Invest wisely.
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The article I wrote to the San Jose Mercury News about movie theater concession pricing....she didn't respond back =(
Hi Lisa,
I enjoyed your article and I thought it was interesting, but I'm kind of confused by the use of this statistic:
"If movie popcorn were
free, Gil estimated, each ticket would cost at least 25 percent more —
boosting the price of a $10 show to $12.50."
I mean, I get why its used, but I would rather know how much a ticket would cost if Soda was....say $1.50 and Popcorn is $2
I
am guessing the Theaters are actually making MORE money on $4 drinks to
5 people than $1.50 drinks to 25 people, or heck even 50 people. I guess more people buy $4 soda than I thought.
After they buy a cheap drink, wouldn't they want to spend some money on popcorn if it was more affordable, like $2?
I guess the question is really, does price discounting truly maximize profits? (Unless theaters don't really care about maximizing profits).
I mean, if you have 50 kids trying to sneak in drinks and snacks from
the Safeway across the street, you lose. Why not have the kids buy the
drinks at
the Theater for cheap. Soda cost like, 5 cents really, especially
fountain drinks. And who wouldn't want FRESH popcorn? Popcorn is cheap too (probably a bit more expensive due to ethanol). Popcorn nowadays
is stale because why? Because it is $6 and NO one buys it! Would you pay $6 for stale popcorn?!
What about $4 for candy? I can go to Costco and buy a whole box for $4. I know they go to Costco too and buy the same box. Evil.
Well, I guess the Theaters know better than I do.
I certainly don't thank the popcorn buyers for keeping the popcorn prices high since I'd like to buy some popcorn more often.
I think millions of Americans would also. So instead of buying popcorn practically never now, I would buy one every time i go to a movie.
- D
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