Bastian Hill
Mr. Reuter
Economics B4
4, May 2015
Movie Theater’s Economic Role
Every state in America has a movie theater bustling with the latest films and the biggest fans. But other than a fun night out with friends, what do movie theaters do for us as an economy? It’s been argued for years that theaters have overpriced food or fees for tickets, but how they’ve been earning such a huge revenue is the advertisements before each screening. They’re hard to miss; you go to the theater to spend your income on a movie with no commercials but find yourself watching twenty minutes worth of them before the previews can even start. Just check out how many tickets have been sold in the past twenty years!
Movie tickets, which topped out at an average of $8.17 last year according to variety.com, are bringing in an incredible amount just on their own. But the big question is: Where does it all go?
For the most part, the money returns back to the studio that rented it to the theater and the producer of the film in question. A usual 70% of sales makes its way back to where it started, leaving the other 30% for the theater. Movie theaters seem to sustain their own personal economy rather than benefit the town it’s in in any other way than entertainment. Studies show that in 1948 - 67 years ago - tickets for the cinema cost only $0.36. If that price is adjusted for inflation it should be $3.56 in the present. But thanks to uneven distribution of wealth made on the profits of showing new films, movie theaters bump up prices between eight and ten dollars. Even then, most of the money nowadays is made from the advertisements before showings and, you guessed it, the concession stand.
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This generalized chart of theater concessions shows that not a single type of good sold, even on the low end profit margin side of things, brings in under 50% of profit. That’s way more than the theater generates from the ticket sales! And a large popcorn that costs $0.90 to make is being sold for $5.00 for this very reason. What we could be paying is $0.40 for a soft drink and $0.90 for a large popcorn, but alas, someone needs to benefit from this.
Studios and producers of the latest films are pushing to have theaters play dozens of advertisements before the movie; some even refuse to release it to them without playing a full reel of commercials first. But this creates a conflict of interest between the cinema and its customers. Of course no one goes to the theater to watch commercials they can see at home, so when they’re played for twenty minutes straight we as a community get a little irritated. As the number of advertisements played before a movie continues to increase, the rates at which tickets are being sold is actually decreasing. If balance can’t soon be achieved between the three contributors - the studios, the theaters, and the consumers, - it’s predicted that the ever popular Netflix is going to invalidate the appeal of going out to the movies altogether.
Works Cited
Kennon, Joshua. "The Economics of the Movie Theater Industry Will Be Interesting Over the Next 25 Years." Joshua Kennon. Joshua Kennon, 10 Aug. 2014. Web. 12 May 2015.
Fisher, Ken. "A Peek into Movie Theater Economics." ARS Technica. Ken Fisher, 5 Jan. 2006. Web. 12 May 2015.
Lang, Brent. "Average Movie Ticket Prices Increase to $8.17 for 2014." Variety. Brent Lang, 20 Jan. 2015. Web. 12 May 2015.
Your article was very intriguing. $10 doesn't seem like a lot of money, but when you put that together with the concessions stand purchases, it's evident the movies make a lot of money. I never thought about it before, but it's interesting to know where our money all goes--as you mentioned. I enjoyed your closing statement that Netflix might, over time, decrease people going to movies altogether. I agree, though, because A LOT of people have taken interest in it within the past couple years. The best part about it is that it's not anywhere near as expensive as going to the movies, and you can watch it anytime you want as much as you want. Overall, well done.
ReplyDeleteThis topic is really good considering most people in their life time will go to a movie theater at least once but most likely repeatedly. I am one of those people that love to go to the movie theaters with friends and family. The movie theater isn't necessarily a cheap place to go either. Movie tickets are expensive, along with food, drinks, candy and more. However, people still spend their money there to get the full experience. Movie theaters make so much money that helps improve the business for everyone: actors, writers, productions etc. It's a just like the invisible hand. Great job on your post!
ReplyDeleteThe solution to your problem? Smuggle food in. If the movie theaters really wanted to make more revenue they would check bags and have airport-like security. That way their profit margin would greatly increase. It would probably piss off the moviegoers but in the end its all about making money
ReplyDeleteWhat you said is very true. Food, tickets, drinks, basically anything at the movie theater is expensive. Due to the increase in ticket prices I don't go to the movies as much now and if I do I try to go on a Tuesday or Thursday when the tickets are only five dollars. It seems like almost all of our goods and services are over what the projected cost would be from a inflation calculator. Overall, this was a good topic I could definitely relate to the over priced movie situation.
ReplyDeleteI found your article to be very interesting, I mean ten dollars doesn’t really seem like a lot but when you put in into perspective even adjusted for inflation and combined with the cost of concession, it is obvious that movies and movie theaters make a lot of money. I also never thought about where all that money goes and I also liked your statement that with programs like netflix that cost $8 a month which is less than one movie ticket, might decrease the number of people actually going to see movies in the theater all together. Overall very well done.
ReplyDeleteI never have really even taken into account the economic effect of all of the advertisements and commercials before the movie even begins, so I really enjoyed reading this! It was interesting finding out that studios and theaters push for more ads but customer ticket purchasing decreases for the more ads that are shown. I also never knew that 70% of the profit from movies goes back to the director and the studio; maybe that's why they are all so rich. And the other 30% stays in the movie theater. I learned a lot from this but what I can relate to most is the overpriced food at the theater. I don't know how people can still afford to buy it! I know I always get cheaper candy and snacks ahead of time and then end up sneaking those in the theater in my purse. I know a lot of other people that do this too, so technically we'd be considered free-riders. While I think the prices for concessions and movie tickets are a little crazy and over-priced, the movie theaters have greatly benefiting from adding promotional days like $5 movie Tuesdays and Thursdays. Overall, I think movie theaters know how to run a smart business and I learned a lot from your post!
ReplyDeleteThis was a great topic considering just how many people go to the movies. $10 seems like a lot when being compared to what a ticket use to cost. Also, although not mentioned in the blog post, tickets prices are even more on opening nights or opening weekends. Just this last week I payed for a ticket to see a movie on opening night, and the price was close to $15. That added with concessions that are bought at the theater, is a lot of money just to watch a movie that will be in stores in a month or two.
ReplyDeleteDue to movies sucking lately, and Netflix and redbox being awesome, I feel like within the next year or so movie theaters are going to loose a lot of money. Personally, I only like going to the movie theater if I'm seeing a scary movie, because it's a lot more intense on a big screen. But, I would prefer to sit at home with my buddies and watch movies at our own pace. Why would I pay $10 to see a movie that I could easily wait for to come onto redbox and only pay $1.29? Don't get me wrong, I like going to movies once in a while, but truly, it's a giant waste of money.
ReplyDeleteI do see the point in the advertisements and the food and the movie it self it a little to high of the payment, but on Tuesdays and Thursday they do have a movie for only $5 but they dont make as much of profit on those days because its only half of the original amount. Usually I dont buy things at the movie I will just go to the dollar store and get $1 candies and bring it in the movie.
ReplyDeleteThis article is very interesting! I know that everytime I buy something from concessions at the movie theater that i’m being ripped off but I never realized just how much of a profit the theater makes from each item. $5.00 for something that really costs $0.90 to make is crazy! Movie theaters have definitely figured out how to push their customers to the spending max while still convincing them to buy concessions. I also never realized just how much money theaters make from showing ads before movies. I wonder if it costs more to show an ad before a movie on an opening night? I do agree that watching the ads before movies can become a bit tedious but I do not think that people while stop purchasing tickets to see movies because of the number of commercials shown before their movie starts.
ReplyDeleteAs the price of tickets and concessions are getting higher, people are making trade offs and are renting movies from red box or switching to Netflix. This method proves to be more economically friendly, as a month to have Netflix is less than the price to see one movie. This shows how seeing a movie is an elastic good. In order to keep up with the changing consumer demands, producers will have to consider having smaller budgets so that they can lower the price of movie tickets. In the future, we may be seeing more nights like the $5 movie night in order to draw customers in and keep business in the theaters.
ReplyDeleteGoing to the movie theater is something that I do somewhat regularly. I like seeing new movies on a huge screen but you bring up a good point that the advertising before theories starts is pretty ridiculous. I was also really surprised and how much inflation that ticket price had. If tickets were only $4 I'd probably go and see a lot more movies. Another thing I don't like about the theaters are the snack prices. It's crazy that they can be making 90% profit from their snacks. It's a good thing sneaking in your own snacks is really easy because I'm not paying $20 for a few snacks. I like watching movies in theaters but with these prices I can understand how things like Netflix could become people primary source for new movies.
ReplyDeleteEspecially when you have a movie that's like Unfriended, the suspense of having it over Skype and forcing everyone to watch each other die, really brought it to some people. The problem with some of the income of a certain movie is reviews.
ReplyDeleteThis was a really interesting article! I've noticed that every time I go to the movies, there's more and more commercials. I enjoy going to the movies, yet it's really annoying to have to wait almost half an hour for the movie to start. The companies make a lot of profit off of having the commercials, but if consumers get so annoyed that they don't go to the movies anymore, they'll lose all the profits. Companies should consider the opportunity cost of airing all these commercials before the movies, before they just air as many as they can.
ReplyDeleteThis was a very interesting article! When ever I go to the movies I always end up spending so much money on the ticket and the concessions. The chart of the profit amount from selling concessions was really shocking it is really surprising that movie theaters make over 50% profit on all of their food. Also I agree with the fact that their are too many commercials before the movie starts. Companies need to consider the opportunity cost of commercials because it may decrease the amount of people who go to the movies.
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