At the movies

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An interesting insider's look at the economics of running a movie theater. From Slate Magazine:
The Popcorn Palace Economy
The thirsty moviegoer fuels the business.

Once upon a time, movie studios and movie theaters were in the same business. The studios made films for theater chains that they either owned or controlled, and they harvested almost all their revenue from ticket sales. Then, in 1948, the government forced the studios to divest themselves of the theaters. Nowadays, the two are in very different businesses. Theater chains, in fact, are in three different businesses.

First, they are in the fast-food business, selling popcorn, soda, and other snacks. This is an extremely profitable operation in which the theaters do not split the proceeds with the studios (as they do with ticket sales). Popcorn, for example, because of the immense amount of popped bulk produced from a relatively small amount of kernels�the ratio is as high as 60:1�yields more than 90 cents of profit on every dollar of popcorn sold. It also serves to make customers thirsty for sodas, another high-margin product (supplied to most theater chains by Coca-Cola, which makes lucrative deals with theater owners in return for their exclusive "pouring" of its products). One theater chain executive went so far as to describe the cup holder mounted on each seat, which allows customers to park their soda while returning to the concession stand for more popcorn, as "the most important technological innovation since sound." He also credited the extra salt added into the buttery topping on popcorn as the "secret" to extending the popcorn-soda-popcorn cycle throughout the movie. For this type of business, theater owners don't benefit from movies with gripping or complex plots, since that would keep potential popcorn customers in their seats. "We are really in the business of people moving," Thomas W. Stephenson Jr., who then headed Hollywood Theaters, told me. "The more people we move past the popcorn, the more money we make."
The article goes on to talk about the second business -- movie exhibition. There, the theaters get 50% of the ticket price but have to pay for expendables like salaries, bulbs, etc... The article talks about some work-arounds theaters use to save money -- using the bulbs way past their prime (very dim picture), opening the gap of the gate (the film jams less often but the focus is not as good -- this is done to allow the theater to have only one projectionist for several films). The third and final business is the pre-show advertising. Jen and I see some films on the big screen because that is the only way they should be seen -- King Kong and War of the Worlds were two examples. We also have a good collection of DVD's and sometimes really prefer to make our own popcorn at home...

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This page contains a single entry by DaveH published on January 7, 2006 9:37 PM.

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