How does movie theaters make money

The company had been under a cloud of skepticism amid tepid box-office results to startalong with nervousness surrounding its new subscription service, AMC Stubs A-List. However, some of that skepticism may have vanished after the report, which sent shares skyrocketing as much as One particular bright spot for AMC was the U. So what’s causing these eye-popping profits and U. After all, movie subscription service MoviePass is barely clinging to life. Could a subscription service really work without cannibalizing existing full-priced patrons? That’s theategs, but the real money is made on those egregiously priced buckets of popcorn. Last quarter, AMC earned a whopping While AMC may be taking a hit on its admissions profit per A-List subscriber, higher frequency means more sales of high-margin food and beverages.

What’s the average cost of making and selling a Hollywood blockbuster?

Narrator: So, I just saw the new «Spider-Man. Movie theaters are like theme parks or carnivals. Once inside, you play by their rules. And if you’re like me, you spend way more than you expect to. AMC isn’t really selling you a movie ticket. They’re selling you this food. You can’t get in here without spending money. It all starts with the ticket. Going to see a movie means you have to spend at least the cost of admission.

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But if you think that moviie is going to the theater, you’re wrong. The bulk of that ticket price goes back how does movie theaters make money the distributor. And if you want to see a higher-quality format, you have to pay a huge premium. But it doesn’t really matter how much your ticket costs, because if you’re going to a movie theater, chances are you’re buying some food. Narrator: That’s Kim Moon. She’s a marketing instructor at the University of Illinois at Chicago. And she’s right. Without concession sales, both AMC and Regal would not make theaaters profit. Moon: So, when you walk into a theater, you will see tons and tons of imagery, as it relates to food and beverage.

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So how do theaters make their money? Concession Margins. Theaters can stay in business because the profit margins on drinks and food is so high. Popcorn is likewise really cheap, and they also charge a huge markup for it. Their fixed costs with employees also leads to zero marginal costs for movie theaters in regards to selling concessions. Looking at the price discrimination graph below, Movie theaters markups in their concessions are reflective of second degree price discrimination, meaning that the theaters charge a different price for different quantities. Price discrimination is the action of selling the same product at different prices to different buyers, in order to maximize sales and profits. The tickets are a form of price discrimination as well for their are different ticket prices for certain age demographics. In the case above, the seller charges a higher per-unit price for fewer units sold and a lower per-unit price for larger quantities purchased hence why theaters still implement family deals to attract customer initiatives. Thus, high margins under a movie theater framework.

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From a distance, the movie business might look pretty glamorous. Celebrities and producers glide down red carpets, clutch their Oscars and vacation in St. Barts…just because they can. The public can be fickle, the industry is in flux, and just about any movie is an extremely risky investment, even a film starring big name actors and actresses. Major studios and indie filmmakers alike now spend much of their days looking for new sources of revenue, because ticket sales are no longer the be-all and end-all for films. This is in part because it costs far more to make and market a film than it seems. Romantic comedies or some children’s films need to promote themselves via TV commercials and media advertisements, and those costs add up quickly. For any type of film, whether a blockbuster or an indie production, things like tax incentives and revenues from product placements can help pay down the budget. If they’re given an incentive to shoot a film in Canada or Louisiana or Georgia, producers will usually hustle to do so. Still, there are a few tried and true ways that films can attempt to make money.

Higher food and beverage sales

The attention and interest generated by the article I put up the other day on Why Commercials Before Movies Is Worse Than Piracy continues to generate a lot of discussion and so the topic should. Who gets that money? 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. It can get even worse. This percentage will vary from movie to movie depending on the specifics of the individual leasing deal. Can you imagine that? That almost seems criminal. There is an obvious inherent problem with this arrangement. 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. Very true.

This is an article I have wanted to research and write for a long, long time. I finally had a moment to sit down and crunch the numbers — I hope it helps in the understanding of Hollywood economics. Almost as long as there have been movies, Hollywood has relied on huge-scale productions to bring in the big bucks.

The Extra-Terrestrial As the films have grown, so too have the spoils on offer. The starting point for working out the final costs of releasing a movie is to look at how much it cost the studio to shoot the film i. This includes….

Budgets have been rising in recent decades, well above inflation. In the following ten years this rose to The information available online is normally a mix of true figures which have leaked and educated guesses by industry experts. The studios often try to hide the true cost of a movie, in order to make themselves seem thriftier, smarter or more in control than they actually are.

I performed a quick check for the 29 blockbusters I have inside data on compared with their budgets listed on Wikipedia. Some of kake other costs involved in making and releasing a film include…. To give you a little more detail and context, below are some notes monney each of the main cost areas…. Judging the correct number of prints and units to manufacture is a key part of the planning done by the studios. If they order too few then cinemas and stores will have to turn away customers in the all-important first few weeks of release.

If they over-order then their costs increase and they are left with annoyed cinema owners and large quantities of unsold units. Giving these people a share of the income is a good way for the studio to hedge against poor box office performance and it also defers the moment they have to pay up. On the flipside, studios have got rather good at using creative accounting techniques to show that they made a loss on paper in order to get out of paying such fees.

Fortunately, Hollywood is rather good at squeezing every penny out of a movie, ensuring that the target customer is given many chances to pay to see it. Movies may start in cinemas but they are far from mqke only place they earn money.

Each stage at which a movie reaches a new type of platform i. Of the 29 Hollywood blockbuster movies I studied, 14 generated a profit and 15 lost money. Note: The following discussion of profit uses this formula: all revenue received by the studios from a particular movie minus all costs they internally mak to tyeaters production. The smallest movies within my dataset i.

Would you have made a smart investment? And I am sure this is a fairly low return for that kind of cash. The only problem is — how do you spot the moneg Hollywood currently employs the smartest, best informed and most profit-focused people in an effort to exclusively make profitable movies and yet half of their movies lose money.

In fact, their combined best efforts only produce a 3. Yes, but only by a very small margin. The average Metacritic score i. Similarly, IMDb audiences rated the profitable films an average of 6. However, we can say that, yes, movies with the biggest marketing budgets do seem to gross the highest amounts at the box office.

Added to this, studios are less likely to make missteps on their home turf as they can be on-hand to scrutinise everything to a greater extent. Well, it depends on which part of the process you look at.

Below you can see the origin of revenue and costs for the blockbusters in my dataset. As you can see, the majority of the money bow at the box office does indeed come from countries outside of the US and Canada. However, studios spend a higher proportion of their marketing money in North America.

This could be for a number of reasons including the higher cost of advertising in America, the temptation ttheaters spend more in the theateers which studio execs actually live in and because the US is often the first place a movie is released and the media enjoy reporting on huge opening weekends and decrying massive flops. Soes, they mean that only 12 of my 29 movies made money at the domestic box office, whereas 20 made money at the international box office.

Alongside this, the losses at the domestic theatrical market were much worse than internationally. So Hollywood looks to the international market with glee because…. Q4: Is there a rule of thumb for guessing which Hollywood blockbusters are in profit?

They reached this conclusion by studying the full financial records of the movies they were involved with and also checking their hypothesis with independent professional film financiers. Using this rule, I was able to correctly identify all of the profit-making films and correctly identify ten as loss-making, however, this system incorrectly marked five loss-making movies as being profitable. Not as reliable as one might have liked and way below the accuracy the BFI found when the rule is applied to smaller films but certainly interesting.

So there you have it — a rather long sorry! The biggest question some readers may have at this stage is — how did he get this data? I was also helped by a few well-placed friends in the industry who were able to fill in the blanks and confirm the veracity of some of the data points. I am completely confident that the information in this article is a true representation of how these Hollywood blockbusters make money.

The purpose of this site is educational and my sole intention is to help explain how our industry works. In monej past, I have been contacted by lawyers for various companies, trying to prevent the sharing of key data points relating to their business.

So far, I have managed to avoid lawsuits and also to avoid having to take any articles down, but if I were to offer the full figures as a download or mobie of how to do the same piecing together I have then I suspect I would get the wrong kind of attention. So, if you want to know any more about these movies, please add your question in the comments.

Very informative and great info as. Thank you, Stephen for some scintillating reading. When is someone offering you a book thexters Great work Stephen — thank you. And related to this can you demystify the roles, contributions and compensation for these various kinds of producers? Very helpful. Re the query on books sinceour volumes Global Hollywood and Global Hollywood 2 are more recent than the one. They are also available in Movir, Turkish, and Spanish. Stephen, please, please put all of this marvellous stuff in a book.

Thank you for this amazing work! Can you clarify here? Thanks. Marketing and avertsing are not included, save maybe for the on-set photographer and a publicist who shows journalists around the set. This is particularly important for things like tax incentives, which almost never include publicity and distribution costs when calculating how big the budget is.

Both have a reasonable claim to be correct. The budget is a real document created in pre-production which covers the cost of physically making the film. Before internet streaming as we know it now, Pay Per View PPV was commonplace, in hotel rooms and on encrypted satellite and cable channels. As VOD has grown up, the newer services have become their howw new window but the old way of accounting for the older services were retained.

So strictly, the idea of digital delivery of video on demand to the viewer appears within three windows! Just two questions about the average costs graph: 1. Instead of being included in costs? The opacity occurs for a number of reasons but most are to do with hiding embarrassing or unattractive practices, because they can and because there is no benefit from being open. Wow Stephen. Scary stuff. I want to break down the costs and show how they differ between products.

Thank you Steve for your informative article. The research that went into it must have been enormous as it covered so much of the movie business including distribution. I was really interested in the DVD sales figures and the overseas theatrical markets as the advertising would be. Thank you for your info!!! Michael L Edwards. Can you say the swing on that? Stephen, thank you for your informative detailed article. This is the sort of thing the internet would ideally be used for, instead of widespread trolling.

Keep up the good work. Thank you for the information and the analysis you have performed. The real numbers are never released, nor should. Nobody in the industry pays those numbers. At the end of the day, the important numbers and analyses come movei what the windows revenue figures are and their relationships. As for profits… do magicians reveal their tricks? Hey Adrian.

Glad you found it useful. This allowed me to compare the true cost to that of the public figure in this case from Wikipedia. Hi Stephen, thanks for the excellent analysis. Do you have any data to support or contradict these numbers?

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It’s huge! It’s gigantic! It’s the biggest box of Snowcaps you’ve ever seen! And it’s got a price to match. What is it with movie theater snacks, anyway? There’s got to be something wrong when a maie popcorn bag is the size of the average movie-goer’s head. What’s wrong is that you thought you were going to a movie theater. When you go to the movies, you’re really going to a candy store.

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We have movies just to get people in to buy popcorn and candy, where we make our money.