Movie theaters have five methods of making money. The theater's income sources are preview ads, concessions, ticket sales, memberships, and more.
Preview ads get played right before a movie. Theaters do these ads for anywhere from 15 minutes to 30 minutes. Movie theaters have these customers sitting in a theater, and the loud ads are playing. The customers have nothing to do but check their phones. Even then, there's a loud ad with a screen glaring at them and shining a light in their face. They will soon look up from their phones. I have experience with seeing the effectiveness of these ads.
I used to live with someone, and they watched a lot of TV. When Deadpool was coming out, we went to see a movie. Before this, they've seen the Deadpool ad on TV hundreds of times. We're at the movie theater, and the ad for Deadpool plays. Then, after the ad finishes, they turn to me, and they ask me, "hasn't he played that role before?" They were paying enough attention to ask me a question about the ad they've seen a hundred times. Now at the theater, they're finally noticing it.
At the same time, the ads shown target the audience well. Most of the ads fall into three categories. The ads are movie trailers for future movies or other movies at the theater. The other ads are local. At my movie theater, the ads that play are ads for the restaurant next door. They want people to leave the movie and think about that restaurant next door.
Some movie theaters do not allow outside food. People know whether their theater does or not. They do not bring any food to the movie theater. But if they want a snack during the movie they will buy it at the theater. The theater makes money when people buy their food. How does the theater maximize its profit? By having a high volume of food. The high volume allows them to lower the unit cost of the food. Then, they charge a high price.
For example, the amount of popcorn they make in a day is 50 scoops. Then, one large bag is one scoop. They charge four dollars for one scoop. The cost of making the one scoop is ~25 cents. The theater does this with every concession that they sell, such as candy and soda.
A movie theater has to split the amount of revenue from ticket sales with the movie studio. The split is uneven. The revenue percentage depends on when the movie got released.
For example, the opening weekend of "Once Upon a Time in Hollywood," the movie theater made 1% of ticket sales. The movie studio made 99% of the ticket sales. As time passes, the movie theater makes a higher percentage. The week after opening, the theater might make two percent then five percent the week after. The percentage goes up every week. In 1997, the Titanic was out for many months. The theaters were keeping a high percentage of the tickets. For the theater, Titanic might have become more profitable than the summer blockbuster.
For memberships, customers sign up. The customers get discounts on tickets or free food. When I was a kid, the membership gave us a medium-sized popcorn every time we showed the card.
The memberships are valuable to the theater. The tickets were $10 per person. In my family, there are three people, that's $30. If the theater was making 10% on the movie we saw then they made $3. They spent 10 cents on the medium-sized popcorn. That's a 30x return on the membership program for one movie.
These sources of revenue may have been unique to some theaters. But some have them.
An arcade is an option for customers to play before the movie or after. The movie theater does not have to split with anyone. An arcade is low maintenance; they are not spending much money to maintain the arcade. They have to clean it up a few times a day and maintain the machines.
When someone buys a gift card, they are pre-paying for those movies. The theater gets that money right away. Sometimes even people don't use gift cards or leave money on the card. That's free money that the movie theater is getting.
Some theaters might have an activity to promote the movie. These activities might be face painting or selling merchandise related to the movie. A theater will have to split the revenue from activities with the studio. The money needs to get split because the studio owns the licensing rights. These activities are for kids' movies.
How Movie Theaters Will Change
Movie theaters are one business that got impacted by the Coronavirus. The theaters will have to make changes because their customers need to be indoors. Raising ticket prices will not increase the amount of revenue much. The ticket prices do not make a difference because most of the money goes to the studios. A movie theater could make more money by charging more for concessions.
Another option is the theater could keep the prices but decrease the concessions' sizes. Instead of a jumbo-sized pack of candy, the theater can charge a jumbo price for a large candy pack. A theater can charge more money for the preview ads displayed before the movie. These are sources of income that do not get split with anyone. The price increases will make a difference.
The number of tickets sold will take a hit. While the theaters are the same size, the number of people allowed in the theater gets cut.
Another option is to figure out how to make the theater into a drive-in. They will be able to stay open and respect the social distancing guidelines.
Theaters might have to start working with streaming services. Working with streaming services is a source of revenue that has to get split with someone. But the more revenue theaters have, the chances of going out of business decrease.
Movie theaters have a diverse set of income sources. They will have to adapt in the future to avoid problems. It will be interesting to see how they change.
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Previously published at https://revenueresearch.co/movie-theater-revenue.html
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