Our undying devotion to simultaneous movie releases has earned us a small share of hate mail over the years, especially from folks in the movie theater business. Our complaining about the crowds, the inconvenience, and most importantly, the cost really gets on their nerves. They make all manner of excuses for what goes on in theaters. The high prices of concessions, we're told, stems from two factors. First, they say, movie theater employees earn more on average than your man at McDonald's, so you shouldn't expect the price to compare with Chez McDo. More importantly, they claim that the movie studios take all of the proceeds from ticket sales, leaving the theaters without a way to make money. The problem with all of this is that it's not true.
Edward Jay Epstein has written a brief article looking at just how the theaters make their money. As you might expect, it's not from begging, or charity. No, theaters have three major sources of revenue: the movies themselves, their concessions, and more recently, their onscreen advertisements. The concessions are a cash cow, and everyone knows it. The only other places on earth where prices are this ridiculous are airports, theme parks and four star hotels.
Popcorn reportedly makes 90 cents on the dollar, which means that the "large" popcorn they charge US$4 for cost them, at most, 40 cents. Soda products are the Original Ripoff™, but everyone has already been regaled with stories about how a $3 dollar Coca Cola costs 10 cents, or some such (the actual numbers are secret because companies like Coke negotiate private deals). Wash, rinse, and repeat for everything else they sell that you can stuff in your mouth. Bottom line: they make a killing off of concessions.
The one-two punch comes with what happens after you purchase your concessions. This is where the advertisements come in. While so many people are sitting there waiting for the movie to start (and hopefully eating their concessions), they get the pleasure of watching advertisements on the big screen. Captive, bored audience + seats all facing a big screen = advertising heaven. But this is where a conflict of interest arises, and Epstein explains.
And some advertisers are paying more than $50,000 per screen annually, especially to theaters willing to pump up the volume to near ear-shattering level so that seated customers will pay attention. Since there are virtually no costs involved in showing ads, the proceeds go directly to the theater chains' bottom lines. But to fit paid advertising into the gap between showings, multiplexes have to cut down on the length of the studios' coming attractions (which are free advertising), a decision that hardly pleases studios. (Often, getting the coming attractions shown involves the studios "leveraging our goodwill," as one studio executive explained. The studios will threaten to hold back a popcorn movie, such as the new Harry Potter or Star Wars sequels, unless the chain agrees to play a full reel of trailers.)
The advertising problem is getting so out of control that some communities are turning to the law in order to do something about it. Many people object to published movie "start times" being mere tricks to get people in seats for 10 to 15 minutes of advertising. Many are calling on theaters to publish true start times.
Finally, we arrive at the old standby, the movie ticket. In general, the theaters are splitting the total right down the middle, taking $6 of a $12 ticket (for instance). In many businesses a 50 percent mark-up on a product would be healthy, but Epstein claims that the theaters lose much of this potential profit to the costs of maintaining the theater. Or, of course, you could spin it the other way and say that they keep all of this revenue, but then lose part of their outrageous concessions revenues to maintaining the theater.
At the end of the day, most theaters are squeaking out a profit, even though ticket sales are declining. However, they also have to push the limits of their customers with outrageously priced snacks and barrels of on screen advertising to earn that profit. It's not hard to see why everything from on demand, to online movie services, to Netflix has the theaters in their sights, and plenty of people are rooting for them.
reader comments