How Do Movie Theaters Make Money

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If you are a fan of going to the movies, you may be wondering how the movie theater business even works.

Although the business may seem quite simple, there is quite a bit that is actually involved in the movie theater business.

Whether you are looking to start a movie theater or simply curious as to where your money is going, we have all the information that you will need.

In this full breakdown of how a movie theater business works, you will find out how movie theaters make money, why prices seem to continue to rise, and how you can get the best value the next time you head to the movies.

How Does The Movie Theater Business Work?

Movie theaters are built around the idea that when a show is released to the market, the movie theater has the right to allow people to see this show.

The interesting thing about it is that the movie theater does not actually purchase the movie that they are showing, but instead, they put together a deal with the production companies that made the movies.

Essentially, the movie theater has to give a portion of each ticket they sell to the production company of each movie.

For some very high-end movies that are new to the market and highly anticipated, the amount the movie theater has to pay back is quite a bit.

Of course, as you can imagine, the higher production costs associated with movies today have led to movie theaters having to pay quite a bit more on each of their ticket sales.

The term that is normally used for this process is "split the gate," so the distributor will come up with the percentage of each ticket that they want for their own profit, and the movie theater will take the rest.

For many movies, the number will be right around half of the price of the ticket.

For instance, if your ticket is $10, $5 will go to the distributor, and $5 will go to the movie theater.

As you can imagine, for a movie theater to give away half of its revenue right off the bat can be quite difficult.

Therefore, movie theaters need to consider other ways to make money.

The approximately half of your ticket cost that goes to a movie theater is only going to cover their overhead.

Depending on the location, upkeep, size, and staff requirements, sometimes it is not even enough to keep the doors open.

This is where the concession stands come in.

The price that people pay for the concessions in a movie theater is the only way that a movie theater can make a profit.

Let's take a deeper look into the expenses and review sources for a movie theater.

Expenses For A Movie Theater

Movie theaters have quite a few expenses.

The more you pay for the movie at a particular theater, you can imagine that they are likely spending that money on the overhead and expenses.

Some movie theaters have been around for 40 years and have never had an update done to them.

Others are state of the art with new seats, designs, and even better picture quality.

You will notice that these newer and higher-end theaters are going to be much more expensive, and that is simply because they cost more to run.

Here are some of the main expenses that a movie theater business needs to consider and prepare for.

Movies

The movies are not owned by the movie theater.

When a new movie comes out, a distributor handles a negotiation between the movie theater and the creators of the movie.

This negotiation will have quite a bit to do with the number of people waiting for the release, the overall costs to produce the movie, and how much the movie creators are expecting to make.

The movie theaters are in a difficult position with this.

This is because, if a theater decides the split on a movie is too high, and they won't make enough profit, they will lose quite a bit of money.

When people look to find the latest releases, they want somewhere that they know will have all the newest and best movies.

Theaters that only take the movies with higher splits are going to risk losing quite a few customers.

Instead, the best thing to do is to take on all the movies and negotiate the best deals that you possibly can.

Staff

The staff that works at a movie theater is another large expense.

Staff members are needed to sell concessions, clean, run the movie behind the scenes, and manage the overall success of the movie itself.

The movie theater staff is not necessarily the highest-paid among other careers, but there is still enough that these staff members need to be paid to make it a large burden on the movie theater owners.

One of the things to remember is that the movie theater staff is also having to work some odd hours.

This makes it challenging to recruit people and sometimes because of this, the expenses for staff get relatively a bit higher.

Lease/Building/Equipment

Most movie theaters sit on leased land.

The expenses to purchase the land and the building would often be too much for those who are just getting started in the movie theater business.

Therefore, it makes sense for the land to be leased.

Of course, leased land and building costs are going to be quite a significant expense for a movie theater.

In addition, the equipment used to view the movies is also going to cost quite a bit of money.

The higher-priced equipment is often leased to help cut down on costs, but in the end, when leasing equipment, there is usually interest involved, which makes it a bit more challenging to keep costs down.

Energy Costs & Utilities

One of the main reasons that a movie theater business does so well in the summer is that it is a cool place to escape from a bit of the heat outside.

Most movie theaters keep their temperatures very cool in the summertime and comfortably warm in the winter.

To get this perfect temperature and comfort indoors, there is quite a bit of money that will go into the energy costs and utilities for the movie theater.

With the size of the buildings, the number of people using them, and the lighting, sound, etc., there is quite a bit of electricity and even water used at a movie theater.

Therefore, the energy costs and utilities are expected to be relatively high.

Insurance

When a movie theater turns out the lights for the movie to begin, it can get quite dark in the theater.

This makes it difficult for people to move around and get from one area to another.

Of course, there are going to be occasional issues with people taking a stumble because they couldn't see where they were going.

Therefore, a movie theater must carry a large liability insurance policy to protect itself from being sued.

People will easily sue a movie theater if something happens to them while they are attending a movie.

Of course, the insurance costs are also in place for protecting the business and the assets as well.

In case of a storm, power surge, or something similar, the high-end audio and video equipment needs to be properly protected.

Especially since most of this equipment will be leased, most of the leasing companies are going to expect that you pay for the insurance costs related to the equipment.

Movie theaters are responsible for those costs should something go wrong.

Marketing

Chances are you have more than one movie theater in your local area.

These theaters will compete to gain as much business as possible.

For a theater to be able to show that they are better than another theater, quite a bit of marketing needs to be involved.

Therefore, ensuring that a marketing professional who properly understands the movie theater business works out a plan is going to be a high expense for a movie theater.

There will be advertisements in the local neighborhood and sometimes even coupons.

Although these seem like they are a great way to get people to come in, the overall costs of these programs are also going to be quite high.

Anytime a movie theater sets up something where a certain number of tickets sold will equal a free ticket, they continue to cut into their profit margin more and more.

Marketing is one of those necessary evils that will give movie theater owners no choice, but it must be done.

How Do Movie Theaters Manage To Make A Profit?

As we mentioned with movie theaters having to give away half of the money that they make, it is quite difficult to make a profit.

Of course, the concern of all movie theaters at first is to keep the doors open.

However, most owners will not choose to stay in the business if they can't also make some kind of a profit.

The movie theaters make almost all of their profit from the concessions that they sell you.

Have you ever looked at the pricing of a Snickers bar in the movie theater as opposed to one in the grocery store?

At the grocery store, you may pay $1.00 for an item, but at the movie theater, you can expect to pay $3 to $5 or more.

This is because the movie theaters need to make a profit.

Most of the products sold in a movie theater will have 100% markup on them, leaving plenty of profit in the formula.

The interesting thing about this concept of the markup on the concessions and the pricing that they cost is how it is going to be impacted by the movies themselves.

When a movie theater makes a deal on the split for the movie coming into the theater, they have to consider how many people will enjoy this movie.

Sometimes a top-billed movie which received a lot of hype turns out to actually be terrible.

The issue here is that not only will people ignore the movie and not come and see it, it also means fewer people to purchase concessions and to make the movie theater profitable.

So much of the money that a movie theater makes comes down to whether or not the films that are being put out are actually good.

There won't be much a movie theater can do if the movie is a flop and they simply can't bring customers in.

As you can imagine, this does make the movie theater business a bit risky and certainly more out of an owner's control than they would probably like.

Then, of course, you have to consider those who come to a movie and refuse to purchase the snacks and drinks.

It is really no surprise to anyone that the pricing at a movie theater for snacks might be considered a rip-off.

Therefore, people will bring in their own food and drink and try to hide it as they make their way through the concession area.

This, of course, helps the consumer, but the movie theaters will likely not stay in business when this happens.

If you love going to the movies and enjoy having a movie theater in your town, it is worth supporting them by buying a tub of popcorn or a soda each time you head out to the movies.

How Much Can Movie Theaters Charge Customers?

As we have gone through all of these expenses related to owning a movie theater, it may now make more sense as to why you pay so much each time you head to the movies.

There is really not much that movie theater businesses can do to keep costs down simply because their expenses are so high.

Many years ago, heading to the movies might have cost you $1 or $5 for your tickets.

Some theaters even had discounts where kids could get in for free at certain showings.

Today, things have changed a bit, and most of the tickets are between $8 and $20.

The higher-end ticket prices are typically for brand-new releases at a higher-end theater.

Some of these theaters have become much more involved and higher-end in the last few years.

Those who are interested in enjoying these theaters need to be willing to pay quite a bit more.

There are sometimes discounts where, if a movie time tends to be slow, the theater may offer reduced pricing.

This can happen quite a bit for morning movies, or matinees.

Since people are typically at work and not able to attend, the movie theater accepts lower pricing and makes it possible to attend the movie at a lower cost.

The idea here is that, even if people are paying a bit less to get in, it is more profitable to at least have people in the theater.

Most of the refreshments in a movie theater are going to cost between $2 and $6.

You won't get very far when it comes to food and drink, even with spending more than $20.

The overall costs of attending a movie are quite high, and people are becoming more and more interested in watching movies for less at home and saving all that extra expense.

How Much Profit Can A Movie Theater Make?

As you can imagine, it will take a long time for a movie theater to make a serious profit.

For a new movie theater that has just opened, the amount of profit that they make will be very minimal for the first few years.

Movie theaters take a while to get going and to bring people in from the local community.

This will lead to higher marketing costs and an overall higher expense for the first few years of operation.

Typically, the movie theater business owners can start to see some profit after a few years.

Once a movie theater is established, you will see profits between $50,000 and tens of millions of dollars.

Depending on where you live and the popularity of movie theaters, you may have seen smaller chains, large chains, and then also independently operated movie theater businesses.

The size of the theater and its reputation will play a significant role in the pricing that you pay to attend one of these movies.

For those who are looking to make millions of dollars in the movie industry, it is undoubtedly popular but not necessarily something that will happen quickly.

Being able to make large sums of money in any industry will take a lot of time, effort, and hard work.

What Is The Future Of The Movie Theater Business?

The movie theater business has continued to decrease in size through the years.

Most years are seeing almost a 20 percent reduction from year to year.

The reason behind this has quite a bit to do with on-demand services for people to watch movies at home.

Although the releases will not be quite as new, there are quite a few benefits to watching a movie in your own home.

In addition, when you sign up for a streaming movie service, you will notice that you get access to thousands of movies for the price of one movie theater ticket.

If you are someone who likes to watch a lot of movies, this could be a reason to consider staying home as opposed to heading to the movie theater.

The movie theater business took a bit of a hit with the COVID-19 pandemic as well.

Those who were used to going out for dinner and a movie found that they had to cook at home and watch something on their own television.

Many movie theaters had no choice but to close their doors.

As we mentioned, the profit margins are pretty narrow, and if people are not there to watch the movies, the theater can't survive.

It's hard to understand the full scope of where the movie theater business will head in the future.

There are still plenty of people who are interested in getting the latest releases on the market and being able to enjoy time in the theater.

Even with increasing prices, people are still buying tickets.

Conclusion

We hope you now have a better understanding of how the movie theater business works.

This is an interesting industry, and it can be very tough to get involved in.

If your town does not have a movie theater, you can always start small and see if the concept will work.

If you find success, you can look for a large building or land to lease.

In the end, the major movie theater chains tend to do the best because they have a system and the infrastructure in place to be profitable.

How Do Movie Theaters Make Money

Source: https://www.thecoldwire.com/how-does-the-movie-theater-business-work/

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