Economics Of The Movie Theater – Where The Money Goes And Why It Costs Us So Much

Boxoffice-LineThe attention and interest generated by the article I put up the other day on Why Commercials Before Movies Is Worse Than Piracy continues to generate a lot of discussion (and so the topic should). One of the recurring emails I’ve been getting from a lot of people is the question about why it costs so much to go to the movie theater(in light of the commercials and ad revenue the industry is making for itself), where does the money go and how do we make this stop?
Much of what I’m writing here now is a lot of paraphrasing from a chapter in my abandoned book project from a few years ago. But here’s the gist:

1) Who Gets What From Your $10 Ticket?
Ok, so you walk up to the box office and drop down your $10 to buy your ticket. Who gets that money? A lot of people assume (as did I at one point) that the movie theater keeps 50% of it, and the rest goes off to the studios. That’s not really true.

Most of the money that a theatre takes in from ticket sales goes back to the movie studio. The studio leases a movie to your local theater for a set period of time. In the first couple of weeks the film shows in the theatre, the theatre itself only gets to keep about 20% – 25% of the green. That means, if you showed up to watch Bridget Jones’ Diary on opening night, then of the $12 you put out for a ticket, the movie theatre only got to keep between $2.40 and $3.00 of it.

That’s not a lot of money, especially when you think about how much bigger and elaborate theatres are these days. It’s not cheap running one of these places. It can get even worse. This percentage will vary from movie to movie depending on the specifics of the individual leasing deal. For instance, 2 movie theatre managers told me that for Star Wars Episode II: Attack of the Clones, the studio took 100% of the box office take for the first week of release. Can you imagine that? They had to over staff and have above normal capacity flood into their theatres… and they got to keep $0.00 from the ticket sales. That almost seems criminal.

Now, as you move into the second and third weeks of release, the percentage starts to swing to anywhere from 45% – 55% that the theatre gets to keep. It gets better after the fourth week when theatres generally can keep up to 80% or better of the ticket sales. There is an obvious inherent problem with this arrangement. I don’t know about you, but when I finally get around to seeing a film that’s already been in the theatres for 4 or 5 weeks, I’m usually one of the only people in the place. It doesn’t do the establishment a lot of good to keep 80% of the ticket sales when only 14 tickets are sold per show. And with more and more and more movies getting released every week, the length of time that a movie stays in theaters is shrinking. Bad news for the movie theaters.

Movie theaters are then forced to really make their money off concessions. One theater manager said “We’re not in the movie business… we’re in the candy business”. Very true. So if you ever wondered why a $0.15 bag of popcorn is costing you $5, and a $0.08 cup of Coke is running you another $4… it’s because the economics of the industry system is so screwed up that the concession stand is where theaters have to make most of their money.

2) The Cost Of Making The Movies
With the cost of today’s movies getting higher and higher, the studios leverage their position with the theaters to squeeze more and more out of the arrangement mentioned in point #1. 10 years ago they weren’t paying Chris Tucker $25 million dollars for one movie… for 3 months work… a hack… CHRIS TUCKER… $25 million. Superman Returns did NOT need to cost $200 million to make. Spider-Man 3 did NOT need to cost $250 million to make. These numbers are astounding when you consider that just 7 years ago they would have called you mad. The pace of costs is far outpacing the requisite inflation… and there is really no excuse for it.

This is directly tied to how much you and I pay at the box office, and thus tied to why popcorn has to cost so much, and thus tied to why we see commercials. The higher the costs go for for making films, the higher my costs will be to enjoy a night at the theater. Sure, Transformers made tons of money… but the studios have to squeeze us for everything they can get to make up for their flops… their films that DON’T make money.

And people always wonder why I get so pissed off whenever I think about Chris Tucker getting $25 million. Because ultimately that money (at least in part) is coming out of my wallet.

3) The Organism of the Studio/Theater Relationship
To really make sense of all this, you have to step back and look at the Studios and the Theaters as one industry entity and view it from the perspective of how the parts work together to truly get a grasp on how big and out of control the problem is. You can’t just try to blame the Studios… nor can you just blame the Theaters. You have to look at them both (in this situation anyway) as one industry… how it functions… and ultimately how it affords its mistakes and inefficiencies at our expense.

The studios spend too much money making movies (and make too many movies), they squeeze as much box office revenue as they can from the Theaters thus forcing the theaters to charge us high ticket prices to make what little they can from each ticket, gouge us at the concession stand to make ends meet and show commercial after commercial after bloody commercial to pad some profit.

Do you see what happens? Look over #3 again. Ultimately, the studios don’t have to learn from their mistakes, theaters don’t have to manage themselves smarter… because as costs and losses and expenditure add up… they just keep passing off the bill to us. We pay for their mismanagement and spiraling costs. Why should they change anything or fix anything when they know that we’ll just get a cash advance in order to pay more to make up for their mistakes.

We pay for their mismanagement with our high ticket prices.

We pay for their mad decisions with $6 bags of popcorn

We pay for Chris Tucker’s $25 million paycheck with our time watching in-theater commercials.

All the while the industry continues happily along its downward spiral feeling no ill effects of their stupidity… because they’ve taken those ill effects and shoved them up our rectums for US to deal with.

4) The Solution Has To Start With The Theaters
If this insanity is ever going to stop… if change in the economics of going to the movies is going to ever happen, I’m convinced it will have to first start with the theaters. Movie theaters have to better organizes themselves and collectively stand up the the Studio system and REFUSE to let 80% of the box office dollar for a films first week of release go flying out the door to Hollywood. By not standing up collectively, the movie theaters act as complicit enablers to the studios behavior.


a – Studios would be forced to SERIOUSLY look at their own economics and financial responsibility. There would be no more $25 million dollar pay days for B string actors

b – Theaters would actually start making some money on… you know… MOVIES

c – With added revenue from the actual box office, the pressure on theaters to add more ads, to raise ticket prices, to jack up popcorn costs… would be at least a little bit alleviated.

It has to be a collective effort by the theater owners or else the studios will just refuse to give their movies to the stubborn theaters and give all the business to others. If the Theater Owner associations collectively said “no”, the studios would have no choice but to start to fix their leaky boat

5) Why Not Going To The Theaters Won’t Fix The Problem
Some people will say “Well then let’s not go to the movie theaters until we force them to change”. That will NEVER work, because as I’ve demonstrated above, when there are financial losses, the current industry system just takes back those loses from those who are buying the tickets. They’ll blame piracy for the dip in thater attendance and raise prices even more. It’s a systemic problem.

And if you think you’re safe from these rises and gouges because you just watch movies at home on DVD…. guess where the systemic problem will strike next once they’ve bleed the theater goers as much as they possibly can? DVDs and HD discs will suddenly start costing $60 a shot and Hollywood will pressure Washington to pass tax laws on Big TVs to pay a fee to the studios for each unit sold, thus raising prices there too.

You see… the answer to all the current systems problems is to take more from us. Thus, the system itself has to change, the the theaters are the ones who have to start it.

Just some late night ramblings. Take it as you will.

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  • barry

    I wouldn’t give Hollyweird a red cent for these movies. I hope piracy puts them out of business for good.

  • disqus_bsZTppCUMm

    My problem is you kinda contradicted your self. You said first few weeks they keep up to 25% but a the a few paragraphs later you say up to 55% so what is it then 25 or 55%

    • 1992 – 2012

      He wrote that in the first “couple” of weeks the theaters keep up to 25% and in the second or third week the keep swings up towards 50%. Obviously there is an overlapping period in that second weeks time frame and is most probably conditioned upon contracts and how the movie is doing up front. I don’t see the contradiction though.

  • Get to Work People

    I go and see about 2 movies a year because they do not have the quality movies to warrant paying that much.
    I would go see 5-6 movies a year if they were somewhat better. But it seems like they just slap them together (even though they spend $150-250 million making them).

  • Stefan

    Hey John. Enjoyed your ramblings. ;) I was wondering if you’ve given any thought to the lack of money going back to the Studios after a new agreement is revamped. (I would suggest a 75% return straight through the run but I know absolutely nothing about the economics although I would imagine they can come to an agreement in that regard.)

    I would think if the Studios didn’t have the resources they bring in now they would be forced to make smarter descisions on the movies they greenlight. I would suggest that they would be more likely to turn out the same blockbusters they do but it would make them more hesitant to OK something new. If this was in place 20 years ago we might very well have missed out on Tarantino. To create the cutting edge they have to be allowed to have these failures or we jeopardize the evolution of cinema. I believe the Studios budget themselves with this in mind as well. It would be interesting to hear a bit about where the money gets allocated by the Studios themselves. (I know, I know, Chris Tucker – but he did make them a boatload of money anyway)

    Liked your article!

  • Joe

    In Australia we pay about 16.00 for a movie at the bigger complexes -more for 3d movies – My local cinema is the cheapest on the Gold Coast and charges 7.50 up to 5 pm weekdays and then 10.00 after and on weekends. If you get their loyalty card (which is free) you get a free movie for every 6 you pay for. Drinks are .5.50 large coke and 5.00 popcorn, I get my drink at Hungry Jacks next door and walk it in. The cinema also makes money on its posters and displays that you can make a bid on. I made a bid for a huge, wall sized Hunger Games poster on canvas and got it. I love movies and will see at least 40 a year. . Movies are the one place a single person can go on their own and not feel weird not having a partner.I prefer a smaller complex as the larger ones sound system is often too loud, especially for action/adventure movies (I often bring ear protection so I can hear the movie without damaging my hearing).

    • Jeff

      Its about the same in Southern California. $12.50 for a primetime ticket, $11.00 for a big ass popcorn and soda.

    • Sanjay Narang

      In India the shows are priced at $2-$5 in towns depending upon the time of day and day of week.. the theatre makes more money from the food stalls than from the ticket itself. In bigger cities tickets are sold for $3-$10. On an average a person at the theatre spends $1(few spend $10, some spend $5 and many don’t eat at theatre) on food apart from the ticket.
      The money as we see is made mostly from the food they sell rather than from ticket sales, so giving the studios upto 90%of sales will not really hurt the exhibitors.

  • Yelnick McGwawa

    You will have an easier time finding pure energy than you will finding multiple corporations willing to work together for the common good.

    • Jeff

      Also, its kind of illegal for corporations to come together and agree on stuff most of the time.

  • kristin says just the opposite. They say the theater makes the greater percentage during the first few weeks and then the percentage drops down. So who is right????

    • James

      Well it’s usually safe to bet against CNN, but what sounds more reasonable; the theater is keeping The Avengers showing for 3 months because they’re barely getting anything for those last 2 months, or Disney/Marvel probably milked all the earnings out of the first few weeks and they need to make their money back?

  • Devin_MacGregor

    Exactly. To number 5, I always laugh when I hear this because right now Summer sales are down so they are blaming piracy while using Expendables 3 as an example. The problem is you are talking about people who make well into 6 digits who are out of touch that an 8 dollar matinee with a 15 dollar popcorn and a soda price tag are a tad high for a family of 4. So they opt to not go to the movies and wait to rent it from Redbox which will cost them less than $2 dollars plus they can go to the 99 Cent store and buy candy and a box of 3 bags of popcorn or a dollar each. DVD sales have gone up in the last 14 years with a slight dip in 2008 but these same suits cannot figure out why. Many of those flops in the box office make money one the DVD distribution side which is hardly talked about. Not to mention on the pricing is the extra 5 dollars you get charged for 3D. So that is 8 dollars for the matinee PLUS 5 dollars if it is 3D. If it is AMC Prime well that is another 5 dollar charge for having motorized recliners and 20,000 watts of sound or whatever. I used to go to the movies a lot. Twice on Saturday and then again on Sunday. Now I might go once a week if that.

    On top of that they will layoff the very people who work in their own DVD division that brings them this extra cash from bombed movies. I support a DVD division of a major studio. It is pretty funny. I remember once listening to a marketing manager say how come their blu ray sales are not climbing. Hmmm, 29.99 price tag verses the $10-14 non blu ray version. Oh but we have all these extra features on the blu ray. Yeah but most people just want to watch the movie. So they started to offer all versions on the same higher price. One of the versions is the digital copy to put on your iPad or laptop etc.

    Physical media is going away btw. Studios want to do all digital meaning that you will have to subscribe to a service to lease the right to watch it for a limited time like VUDU or you will have to subscribe to their personal channel to one time watch the movie or like VUDU, lease it for a set amount of days. They think they have to compete with Redbox, Netflix, VUDU, etc.

  • Wow, people replied to a seven year old blog post…. as am I…. =.=;