Hint: Movies have very little to do with it
With Netflix and all of its competitors seemingly having taken over the world in recent years, have you ever found yourself wondering how movie theatres manage to pull in a profit?
If it weren’t for the need to date, I don’t think I’d have found myself at a cinema anytime during the last decade. Physically going to a cinema to see a movie is a lot less convenient than just pulling up a beanbag and watching Netflix, yet we still find ourselves going through the effort.
In spite of Netflix, cinemas are still thriving in the new decade. But how? With companies like Disney throttling cinemas to get larger and larger cuts of the box office for their movies, how are cinemas not going under?
The answer is that if cinemas were actually relying on box office sales, they would have gone under by now.
Disney juggernauts such as Avengers and Marvel franchise films can actually cost a cinema money because of Disney’s enormous cut of the ticket price, on top of their insane demands.
Disney demands the biggest screens for their films, screening seasons that stretch far longer than a film is popular, and enormous amounts of merchandising and advertising.
Screening a movie such as ‘ The Avengers’ is a financial gamble for a cinema, but they’d never risk not offering a movie that so many customers want to see. Because of this, cinemas have to rely on other ways of turning a profit.
TIME magazine has reported that over 85% of the money a cinema takes in is earned by the concession stand.
I cannot overstate how little a cinema is paying for the snacks you buy before watching a movie. Beverages such as Coke are bought in enormous quantities and shipped to the cinema in syrup form.
Cinemas pay rock bottom prices for syrup, and each bag can stretch a really long way. Once the syrup is added to the soda fountain machine by a member of staff, the machine will cut the syrup with water while it carbonates the beverage at the same time.
This process is why a fountain soda tastes a lot fresher than a pre-bottled one, but it’s also why it’s so cheap for the cinema.
Depending on which cinema, it can cost under a dollar for a bag of syrup, and that bag can be turned into dozens of drinks. After each drink is sold for prices that can exceed $10, the cinema makes big bucks.
The popcorn model works the same way. It’s shipped to the cinema in enormous bags of kernels that work out to mere cents per pound. Those kernels are heat-popped into far larger pieces of popcorn that fill up a bucket with relatively few kernels. The profits are enormous for the price being charged.
Popcorn and soda are the most popular choices among customers, as well as the most profitable. Cinemas encourage us to buy other items by bundling them into family packs. They’ll add snacks to family packs that are less likely to be sold otherwise, making sure that stock is always moving.
The cinema is willing to try any sale or bundle that ensures you eat during the movie. It’s now commonplace for cinemas to sell tickets in the same place you buy snacks, further enticing you to buy.
Some cinemas will even project the smell of fresh popcorn with vents and fans to provide further encouragement to buy.
Cinemas enlist the help of advertising agencies to find commercials to play before the start of the film, then split the profits with them.
Playing product commercials is an earning staple of cinemas ever since they were first built, and can be stacked for extra profits. For discerning customers, it’s somewhat easy to see when a cinema is hurting for cash by judging how many commercials they need to stack before each film.
This doesn’t include the studio mandated film trailers that play immediately before the film starts, these are given to the cinema as part of the screening contract.
Playing the film itself is the least profitable way for a cinema to earn its money. Each film is leant to the cinema for the period of time discussed during contract negotiations.
The percentage of box office revenue kept by the cinema will vary based on the studio who made the film. Juggernauts who control most of Hollywood (such as Disney) can demand most or all of the money earned during the first week or two weeks of the films screening. Lesser studios can’t ask for deals that are so steep.
Unknown directors are entirely at the mercy of the cinema and may only keep a small percentage.
The longer the cinema agrees to plays the film, the higher the percentage of earnings they can negotiate to keep.
The studio will always make the highest percentage during the first two weeks of screening. During the third and fourth week, the cinema will start to earn more. Each week after that means mostly profit for the cinema, although the amount of people interested in the film will be far less.
Studios will negotiate the best deal for them, trying to find the balance that will earn the most money possible, without forcing the cinema to turn the movie down.
Showing the movie often comes with strings that includes merchandise, marketing and screen choices. Managing a movie theatre requires a lot of negotiating and haggling, so it’s not for the feint of heart.
When you rationalise it, a cinema business is really just a snack food shop that also shows movies. Making money is just a matter of convincing people that watching a movie without eating is unthinkable.
So… popcorn anyone?