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Saturday, June 20, 2015

When You Buy a Cinema Ticket, Where Does Your Money Really Go?


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At the risk of sounding like a disgruntled old fogey, I remember the days when it didn't cost an arm and a leg to go see the latest summer blockbuster; when theatergoers weren't asked to shell out a whopping $16 for a movie, and another $5 for a small-ish bag of popcorn.
But hey, I (vaguely) remember my high school economics classes, too. I understand that inflation is, like, a real thing, and prices are destined to climb ever upwards.
Charts, y'all.
Charts, y'all.
But with movies costing as much as they do, have you ever wondered who's pocket the money from your cinema ticket actually ends up in - the theater owner's, your favorite actor's, the sweaty dude's who tears your ticket in half at the entrance?
Well, the answer is kind of all three, but I'm going to break down who takes what cut, so the next time you head to the cinema you know exactly where your hard earned cash is going. As they say in every gritty detective drama ever: follow the money.

Box Office Economics

A preemptive salt grain serving: Remember, these are all (informed) estimates. The intricacies of the industry's financial underpinnings are still somewhat shrouded in secrecy, with private companies understandably hesitant to disclose their internal business operations. With that being said, the following breakdown is - more or less - representative of a typical movie opening.
For the purposes of practicality (and my chronic dyscalculia), let's assume the average ticket price to be a nice, round $10. You might be surprised to hear that most of that money is never seen by the theater you see the movie at, instead going straight to the movie studio.
i.e. these guys.
i.e. these guys.
On opening weekend, the theater only gets to keep a mere 20% - 25% of the money, meaning they only made around $2 per ticket when Age of Ultron was first released, the other $8 scooped up by Marvel.
In some exceptional cases, they don't get any money at all! Theaters claimed that when Star Wars Episode II: Attack of the Clones was released, the studio took 100% of the box office takings during the first week, so they were effectively working for free. As we will see, they are literally relying on your gluttony to sustain themselves in this period.
After the opening weekend, studios tend to be more generous. By the fourth week the theater usually takes around a 70% - 80% percent cut of each ticket.
But remember - this is like a free bar suddenly deciding to start charging for drinks at 2am, when only the dregs of drunken patrons are left and no one needs - nay, can even look at - a beer. If you've ever been to a movie a month after its initial release, you'll know that the number of theatergoers in a screening has been significantly reduced to just a sprinkling of late arrivers. What good is taking most of the ticket revenue when three quarters of the seats are empty?
Knowing this, it's easy to see why movie theaters have to push concessions so hard - sometimes it's the only thing they're being paid for!

Can I Get a Mortgage with That Popcorn?

It's no secret that the price of popcorn in theaters is astronomically high, having about an 800% mark-up on its actual cost-value. Popcorn, quite simply, is the reason cinemas are still in business. Dennis Lombardi, Executive Vice President of Food Service Strategies at WD, said:
There's probably 85 percent profit just on the cost of [concessionary] goods.
And if people stopped buying it:
Our patrons would be paying significantly more for their movie tickets.
But before we completely vilify the cash-hungry studios for pushing up prices, it's worth taking a moment to consider where their, admittedly large, share of the ticket revenue goes.
Let's say they take 60% of your $10. Of that $6, $1 is usually spent on distribution costs, i.e. delivering the movie to theaters, or through VOD services.
It depends on the movie, but about $2.50 will be spent on marketing a film. This is usually the largest outgoing for a studio and, generally speaking, the worse the movie, the more they need to spend on advertising.
Even though you might go see a movie solely to see your favorite star in action, actors are only given around 5-8% of the ticket price (but I wouldn't feel too bad for those perfectly sculpted specimens). Of course, some actors are able to wangle a percentage of a movie's gross takings.
These are not the seats you are looking for.
These are not the seats you are looking for.
Alec Guinness, a.k.a. Obi-Wan Kenobi, famously negotiated 2 and ¼ percentage points of Star Wars' total profits, which has netted him about $80 million to date. Now that was a truly impressive Jedi mind trick.
Finally, about $1 - $2 is spent on recouping the production costs form making the movie in the first place.
Now, that leaves around just 5% ($0.50) for the studio per ticket, so you can see that they really aren't profiting all that heavily either.
Of course, there's the long tail in a movie's post-release revenue stream to factor in, supplemented by DVD releases, streaming rights and (in some cases) merchandise. $1 of box office translates into about $1.75 of total revenue over a decade, according to the Wall Street Journal.
So there you have it! Now you know where that cinema ticket price is going, and why cheap corn becomes so inconceivably expensive when heated up.
Are cinema tickets too expensive?

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