Multi-Plex Conundrum or Why Do I Pay So Much For Concessions?

Friday at my viewing of "Evil Dead" I did something I haven't done in a while. I bought a Coke at the concession stand, not because I wanted to, but because I had a free popcorn coupon from CineMode (ask me if you don't know what that is). It didn't require me to buy the soda to get it, but I felt guilty for not buying something and just going up for my free popcorn. Then I realized the genius of offering the free popcorn. It gets people to buy concessions that normally wouldn't and probably gets people who would normally buy concessions to buy more than they normally would because of the "deal" they got.

Then I noticed all the people coming in with their own buckets and cups. Part of the deal where you pay a little extra for the bucket and cup then get discounted refills for the rest of this year. What does this do? Makes you get a soda and popcorn every time you come to the theater. It might even make you come to the theater a little more often to get your money's worth out of that offer. So aren't their margins reduced every time you come in for your "discount". Nope. The cup or bucket cost way more than the drink or popcorn you put into it and you've already paid the initial upcharge that covers that cost. Popcorn and soda are literally made for pennies, so maybe they "lose" 10 cents per refill after the first couple of times you use it (which after that, most people will forget they had them or forget to bring them), but that's still $2.90 in margin for each container that they might not have gotten before.
 

Don't they make a fortune from ticket sales?

Short answer is no. I'm gonna over simplify so you get the picture. See, the way the contracts between the studios, distributors, and theaters are structured so that about 95% of what is made in ticket sales the first week goes up the food chain and doesn't stay with the theater (this is through payment to actually show the movie and actual percentages of ticket sales that go to the studio/distributor). Then each week it gets reduced by approximately 5% (these numbers aren't exactly hard numbers and change per contract) so that the theater gets more. Now the first week the sheer volume of tickets usually grants the theater enough money to cover the cost of the overhead (like electricity and labor) for a particular movie, but the 2nd week usually ends up being a loss because of how drastically the volume of tickets drops on most movies. The 3rd week the theater will generally turn a bit of profit (that might offset week 2's loses) and by the 4th they might actually get to see a bottom-line profit (although it may not cover all the other overhead like rent and advertising).

Can't they do something else besides upping concessions?

They try. Corporate companies can rent out the theater for events (which rarely happens in most areas), you can have birthday parties at most venues, there's the "arcade", and companies pay for screen time before the movie starts. This is all well and good, but again, mostly pays for overhead. Plus, you can't guarantee any of these things other than the pre-movie advertising, so mostly those are just icing on the cake.


What about that 3-D Surcharge?

Despite what you think, the theater doesn't really profit from that. In fact, it may end up costing the theater more than a regular movie might. You see, you're not buying those glasses like you think you are. The studios pay for those. That's why you should recycle them at the end of the movie. You're gonna have to pay that surcharge no matter what. The surcharge goes towards paying off that expensive projector that they had to install to show 3-D and the maintenance on said projector. So why would the studios push 3-D if they're paying for those glasses? It is 2-fold: since the contracts are based on percentages and since the surcharge counts as part of the ticket they get a bigger chunk of money for each viewing. It also inflates the yearly gross numbers which makes business look better than it really is (which makes people head to the movies more because of mob mentality).

Let's break down "Avatar" a bit in a little bit of a thought exercise to show how 3-D can inflate box office numbers (numbers are from Box Office Mojo). Domestically "Avatar" brought in $760, 507,625 and the estimated number of tickets sold was 97,255,300. Let's say that only 1/2 of those tickets were in 3-D (I'd say the majority of people saw it in 3-D so this is probably a low estimate). So divide the tickets by 2 which gives us 48,627,650 3-D tickets with a low estimate surcharge of $3 (it's more like $5 in some areas). So 48,627,650 times $3 equals $145,882,950 added to the box office take. Even if you reduce the 3-D tickets to 1/3, you still end up with $97,255,300 added. And these are pretty low estimates. If half the ticket sales were 3-D, almost 20% of the box office was in the surcharge. Take that out and it doesn't seem quite as big of a juggernaut. With that, they can promote "Avatar" using the press without paying for it by talking how many records it is breaking, adding to ticket sales. Without all this, it might not have surpassed "The Dark Knight" from the year before and "Avatar" still isn't bigger than "Gone With the Wind" when adjusted for inflation

Sorry about all of those numbers. Hope you were able to follow.

So what does it all mean? Well, nothing is gonna change anytime soon. Costs of movie making continue to balloon and the studios need to recoup what they put in and theaters are a business so they need to make sure they add to their bottom line. That's just the world we live in.

Hopefully this gave you a little insight into how the business of a movie theater works and why concessions are the price they are.