GUEST EDITORIAL: Sugar and Spice and Everything Nice: The Real Way Movie Theatres Make a Profit

Image: https://unsplash.com/photos/A0FgI6AFjng

Sugar and Spice and Everything Nice: The Real Way Movie Theatres Make a Profit

by Lewis Robinson

Everyone loves going to the movies! Even in the midst of a booming digital age when you can watch pretty much anything you want on your phone, people still throng to the movie theatre. Why? There are a lot of complicated psychological explanations for this behavior, but basically, people want a group event. Human beings are communal creatures after all. Your local movie theatre is in no danger of going out of business. People will always want to share the opening of the next big blockbuster with a crowd. But if you think all those ticket sales are what translates to big money for a theatre, you'd be wrong. Here are some surprising insights into how a movie theatre makes a profit.

Ticket Sales

Do the theatres make money on ticket sales? Sure they do. But not as much as you might think. Movie theatres have to pay a distributor a percentage of their ticket sales. What's the percentage? Well, that depends. The longer a movie plays at a theatre, the larger percentage of the ticket sales the theatre makes. That percentage starts off surprisingly low, usually around 20%. That's right, the distributor takes as much as 80% of the ticket sales! If a movie is really good and sticks around at the theatre for an extended period of time, the theatre can eventually work itself up to around a 50% cut of the ticket sales. 

On the other hand, ticket sales are probably the easiest money that the movie theatre can make. The studios and distributors make movie promotions that run on TV and online. From the theatre's point of view, the movies sell themselves. No need for a complicated sales management strategy here. So the profit may not be huge, but it is pretty effortless.

Trailers and Advertising

Another stream of income for a movie theatre is the trailers they show prior to the main event. Studios bear the expense of making the trailers, and they pay the theatres to show them. It's passive income for the theatres, which explains why you now have to sit through 20 minutes of trailers before you get to watch the movie you came to see. It's also the reason why movie theatres routinely advertise that their movies are going to start at least 15 to 20 minutes earlier than they actually do. Theatres are paid for the trailers based on the number of people they can prove were in the room to watch them, so the earlier they can get you in your seat the more money they make.

Concessions

This is it, the golden ticket! Some theatres report that they make nearly 80% of their profit off of the sale of candy, snacks and drinks. These items cost only pennies when purchased in bulk, and the theatres price them well above value. That spells out a major stream of income for the movie theatre. 

This is where a theatre will employ a sales strategy. It is no accident that you must walk directly through the lobby to get to your movie, or why you usually have to go back through the lobby to use the restroom. There's a reason why the lobby is literally filled with the delicious smell of hot buttered popcorn; there are fans pumping that aroma right at you.

The fact that all the food at the theatre is mega-sized has a strategy behind it as well. You can almost justify spending seven bucks on a soda when it's the size of a bucket. The larger sizes don't cost the theatre that much more and they entice customers to buy. To make the cost of candy more palatable, theatres package them in super-sized boxes as well; but, on average, the movie theatre packages hold about the same amount as the smaller packages at the store.

People are not going to stop going to the movies no matter how much the concessions cost or how long the previews run. It's just too much fun! But maybe you can be a little more comfortable with being a few minutes late. And it wouldn't hurt to have a snack before you go.