Of course, we all know the Dark Knight is breaking serious records at the box office (first movie to break $300 million in 10 days), but where does all that money come from and why did I have to pay almost $8 for popcorn?
The What I Learned Today blog has an interesting analysis of the economics of popcorn and how the movie-making business has drastically evolved over time. Essentially, prior to 1948, the movie studios were a one stop shop for the entire film business. They would make the movies, pay the actors, distribute the films, own the movie theaters, and collect all the profits. After that year a big antitrust ruling from the Supreme Court ordered they change up the plan quite a bit.
Nowadays, the studios must hire a distributor to get the film out to the theaters. These distributors take on the costs associated with making copies of the film and deciding which theaters get it and how many copies they get. The distributors often earn anywhere from 10 to 50% of all revenues.
The WILT blog describes in further depth how the movie theaters themselves get in on the game:
The distributor leases out the movie to theaters that promise to return a percentage of ticket sales. This percentage of the profit sharing scheme changes over the life of the lease. In the first two weeks, the theaters get between 0 and 25% of ticket prices and fork over the rest to the distributor. The next couple, they get more: about 50%. The last few weeks they get about 75% of the movie ticket sales. But who goes to see a movie four weeks after its release? This leaves the theaters with no option but to raise ticket prices and charge as much as they possibly can get away with at the concession stand.
So that’s where you get your $5 for a small soda and $4.50 for a small bag of popcorn (which are both roughly 3 or 4 servings sizes big anyway, so go figure). Many movie theater owners joke around about being in the ‘candy business’. Often, it seems like they are just showing these multi-million dollar summer blockbusters so that people will come in and buy some snacks.
But at least be thankful that this money-making scheme realizes that stabilized ticket prices are the only path to success. Nationwide, the average ticket price is still (surprisingly) $6.88 and it will probably stay around that level for some time. Theaters have realized that keeping prices this low allows both high and low income consumers to attend. Those with some extra disposable income may spend some of that cash at the prominently displayed concessions stand, while the others will avoid temptation and hang onto their hard-earned cash. Theaters also get paid for showing the previews for upcoming films. The studios pay each theater a certain amount per moviegoer that watched the previews.
The super early previews from local advertising (and the alwas annoying “The 20”) also bring in some additional revenue, as well as a huge groan from the crowd being forced to watch the horrible low budget local car dealership ad.
So I guess the moral of the whole story is, if you want to support your local movie theater owners, see a movie a month after it comes out and get fat off all the expensive snacks you buy. I’m pretty sure all your friends will still be quoting that ‘funny’ movie in a month’s time, right?
What I Learned Today: The Economics of Popcorn, July 25, 2008
CNN Money: Why Does That Popcorn Cost So Much?, March 12, 2002