Abby Wannow
Mr. Reuter
Econ
16 November 2015
Movie Theater Revenue: Where Does it go?
With the soon to be released second part of Hunger Games: Mockingjay Part Two, movie theater owners must be licking their chops thinking of the amount of money they will be raking in on opening night. In fact, alone The Hunger Games opened to an astounding $155 million at the domestic box office, the third-best debut of all time and that’s just the first movie, there are three more after that (McClintock). While it seems like the revenue movie theaters will make on opening nights will increase sharply, that isn’t case.
In the USA, movies are more than just a pastime, they are an experience and finding a movie theater to watch it in isn’t hard, they aren’t scarce. In fact, in the US alone there are more than $40,000 movie theaters (NATO).This private good is only available to the people who are willing to spend $10 for a movie, and fortunately for the movie scene, that is a lot of people. While every entertainment decision includes trade-offs and opportunity costs, the value of $10 seems trivial and little. To avoid these costs, theaters will provide special offers like $5 Tuesdays and Student Thursday. These offers cause a decrease in movies demanded on days like Monday and Wednesdays because of customer expectations, customers know the price will be less the next day. However usually, because many find new movies inelastic, they are continually spending the money on a ticket even as the price rises. This inflation of prices doesn’t seem as shocking until you look at the previous prices of tickets. In 1960, a movie ticket was only $.15 and in 1980, it was $2.50. With these prices, the price of a movie ticket should be only about $7, yet this isn’t case. These overpriced tickets are due to the fact that movie theaters are a monopoly. At the time, movie theaters are the only place you can watch new movies, there is nowhere else you can watch a new movie on it’s release date and for the first few months after that. Because of this monopoly, theaters are able to charge consumers as much as they want for a ticket without losing demand.
Since the price of movie tickets have risen, movie theaters must be making a much larger profit right? Wrong. Most of the money made from ticket sales goes right back to the movie studio. During the film’s opening week, the studio usually takes 70 to 80 percent of gross box office sales. That means if a movie ticket is $10, the studio is taking $8 and leaving the theater with only $2. However, by the fifth or sixth week, the percentage the studio takes will likely decrease to about 35% (Lobb). So how are movie theaters making enough money to stay open? Pricey concessions. Without the concessions, most theaters couldn’t stay in business. Theaters are charging $8 for a small popcorn that you could buy at the grocery store for $1.50. This proves that not only movie theaters are a monopoly, but the food you buy inside them are as well. Because the food inside is the only food you can buy, suppliers are able to hike up the prices and consumers will still buy it.
When new movies are released like Hunger Games: Mockingjay Part Two, theaters will go into frenzy mode. When the Hunger Games is released, consumers tastes will change and most people will only go to the theater to see this new movie causing an increase in demand. To avoid a shortage of seats, movie theaters will create a higher equilibrium point. Because there will be an increase in demand, the movie theater will need to match this by creating an increase in supply. Thus, while theaters need to employ more workers during huge releases and work longer nights, they are essentially not bringing in much more money. So when you feel guilty about spending the amount of money you did at the concession stand, just remember you are what is keeping the theater open.
Works Cited
Lobb, Annelena. "How a Movie Theater Makes a Buck." CNNMoney. Cable News Network, 12 Mar. 2002. Web. 17 Nov. 2015.
McClintock, Pamela. "Box Office Shocker: 'Hunger Games' Third-Best Opening Weekend of All Time." The Hollywood Reporter. 25 Mar. 2012. Web. 17 Nov. 2015.
"Number of U.S. Movie Screens." NATO. Web. 17 Nov. 2015.
I really enjoyed this piece. The attention grabbing introduction paragraph sucked me right into reading the rest of this. I did not know that move theaters only get about 20% of the revenue from the actual movie itself. I was aware however that they jack up the concession prices, because simply they can. Not being allowed to bring in your own stuff, really puts a monopoly on the move theater when you want to go see a movie. It'll be interesting to see how much profit the movie theater generates from this new movie coming out. Also boys basketball game, Tuesday, November 24th at 7:00 pm. Be there.
ReplyDeleteFirst off it is obvious that movie owners are not licking their chops at the new the Hunger Games, considering Katniss Everdeen is washed after going through the spin cycle a few times, but rather they are looking at the monumental Star Wars movie release December 18th and they have been all year. But yes you are true as the movie business in Wisconsin especially is a monopoly the only other movie theaters besides Marcus theaters I can truly name off is the one in Mayfair and there's one in Johnson creek, and there's one in Whitewater that is going to fall apart any second. And also yes since movies aren't released to the public right away people are forced to go to theaters or watch them illegally.
ReplyDeleteWhenever I think of the movies, I too think of overpriced tickets and a rip of deal at the concessions. I would normally think this is the case, but based on what you said, they really won't take in much money unless prices stay high. I never took into account how much money the studios take back. I believe that it is indeed necessary to raise the prices of both the tickets and concessions. However they shouldn't be so pricey they you spend half your paycheck every time you go. If they lowered their ticket prices to $8 for the movie opener and than a little lower later on, they might not make a profit off these tickets but the trade off will be that more people will come see movies and therefore buy more of the concessions. Because the big profit comes from the concessions, you might as well maximize the sales. More people will want to come because the tickets are cheap, and then because they feel they have saved money, they will buy more concessions.
ReplyDeleteWhenever I think of the movies, I too think of overpriced tickets and a rip of deal at the concessions. I would normally think this is the case, but based on what you said, they really won't take in much money unless prices stay high. I never took into account how much money the studios take back. I believe that it is indeed necessary to raise the prices of both the tickets and concessions. However they shouldn't be so pricey they you spend half your paycheck every time you go. If they lowered their ticket prices to $8 for the movie opener and than a little lower later on, they might not make a profit off these tickets but the trade off will be that more people will come see movies and therefore buy more of the concessions. Because the big profit comes from the concessions, you might as well maximize the sales. More people will want to come because the tickets are cheap, and then because they feel they have saved money, they will buy more concessions.
ReplyDeleteFirst off it is obvious that movie owners are not licking their chops at the new the Hunger Games, considering Katniss Everdeen is washed after going through the spin cycle a few times, but rather they are looking at the monumental Star Wars movie release December 18th and they have been all year. But yes you are true as the movie business in Wisconsin especially is a monopoly the only other movie theaters besides Marcus theaters I can truly name off is the one in Mayfair and there's one in Johnson creek, and there's one in Whitewater that is going to fall apart any second. And also yes since movies aren't released to the public right away people are forced to go to theaters or watch them illegally.
ReplyDeleteI was a bit confused when you said that there was $40,000 Movie theaters. While you do talk about movie theaters being everywhere and that they have a monopoly, I don't this is necessary the case. First if you are saying that they have exclusive rights to show movies, that is wrong as Netflix is starting to get some movies available on their selections. Also you need to keep in mind that all of the theaters don't work for the same company, they are competing against each other.
ReplyDeleteThe monopoly that movie theaters have is definitely what keeps them in business. Movies are always released in movie theaters before they’re released on DVD. However, I have noticed lately that people are waiting to see some movies at home rather than in the theater. They wait until the movie is available on Redbox or Netflix or any of those television channels that charge you a small to see it. This might cause a slight dent in the demand for movies, but no one can argue with the fact that people want to see movies (such as Mockingjay Part 2) right when they come out so that they’re not “left behind” due to the fact that they chose to wait until it came out on DVD or somewhere else. Most of the time, people feel a sense of urgency to go see a film like that because everyone else is too. I do still believe that movie theaters will continue to keep their monopoly on the new movies they play and the food that they charge higher prices for as well, because it’s what keeps them in business and making money.
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ReplyDeleteBecause there are so many movie channels or things like Redbox that charge you barely anything to watch a movie, there could possibly be a slight decrease in a demand for movies that aren't as popular so people wait to watch them. However, for the popular movie series such as The Hunger Games, people get tickets as soon as they come out and line up at the door to get good seats--this will significantly increase the demand for movies and movie theaters. Movie theaters will continue to keep the prices high for both movies and the food/drinks they sell in order to stay in business and make money. In addition, what probably also really increases the demand for movies is 5 dollar Tuesdays and Thursdays where the movie ticket is half off and there is free popcorn. From experience, Tuesdays and Thursdays are always super packed due to this amazing deal which bumps up the revenue and money making for these theaters.
ReplyDeleteI like how you mentioned how both the movie theater as a place and the food inside of it it acts as an monopoly. This is a very true statement because, like you said, a movie theater is the only place you get to see the new movies. This also has to do with advertising and marketing. People are being showed commercials on the TV and social media advertising to get people to the movie theaters to watch the new and exciting movie. This is not only beneficial for the movie producers or studios but also for the movie theaters too because more people buy their food and purchase the tickets. My question is what would happen if the ticket price of a movie increased to $15. Would people still go see movies even with this expensive price? Would they be forced to pay this price because movie theaters are a monopoly? Or would people rebel and not go to movie theaters to watch the new movies and just wait a few months till it comes out on DVD?
ReplyDeleteI didn't realize that movie theaters would go out of business without the concessions. This means that the price of movies and concessions will always remain high. There is an increase in demand for movies on Tuesdays and Thursdays because of the $5 Tuesdays and student Thursdays. The other days there is a smaller demand because of the price and people are waiting for redbox to have the movies so that they can see them. Even though this may take more time for the movies to become available. That way they have the smaller price for the movie and the food cheaper.
ReplyDeleteYou analyzed this really well; you had so many vocab words! I had never thought about popular movies as inelastic goods before, but dedicated fans feel as though they need to see a movie as soon as they possibly can. I never knew that movie theaters kept such a small percentage of the price they sell their tickets at, but now the pricey concession stand makes a lot more sense - since theaters like the Majestic have such a huge and fancy facility, they need a lot of money to keep it running. They need money to clean the theaters, the lobby, the concession stands, and to keep the electricity running (which would be a very high bill for a movie theater). By adding the Bistro, they are able to make even more money by selling dinner food at extremely expensive rates and by not having to pay the servers as much due to tipping.
ReplyDeleteI don't believe that the movie theater industry is a monopoly. Sure, only theaters can release the movies as early as they do, but there is still competition between the different theaters themselves. Different theaters with different owners could compete by having deals on their movies or changing their prices to seem more appealing than the other. For example, Marcus theaters are not the only theaters in existence. There are others you can go to, such as the iPic theaters, that are competing with Marcus.
ReplyDeleteThe way the movie theaters run themselves is definitely in a monopolistic manner. They are able to tremendously increase their profits by not only banning outside food and drink, but also by radically increasing the prices of their goods. Also, some theaters not offer extra sources of revenue like the Big Screen Bistro, which not only brings in money for the movie ticket, but also serving an overpriced meal. The cheap nights like $5 Tuesdays and Thursdays increase the quantity demanded, and offer students on a budget the opportunity to go see these movies for a lower price, but the theater still makes a lot of profit in food sales. As prices continue to rise in movie theaters, they will become more and more of an elastic good and have decreased sales, which could lead to increased prices on those loyal consumers in order to have the same amount of profit as before.
ReplyDeleteI agree with Olivia, I never realized movies were inelastic goods. I'm sure there still are some people who refuse to go to the movies because of the steep price of tickets and concessions though. I also found it interesting how you described both the place and food as a monopoly. If prices continue to increase, do you think someday another firm could arise to create an oligopoly?
ReplyDeleteI hadn’t realized a movie theater is a monopoly. This revelation explains high prices, as you mentioned, with concessions and tickets. Also, for Pewaukee we really only have two options, Majestic or Hillside. And even with two options, they’re both actually owned by the same company, Marcus Theaters, which further strengthens the movie theater monopoly. However, even with high prices, the long wait for newly released movies creates a larger marginal benefit for the consumer who cannot wait any longer to see the film than the marginal cost of $10 and pricey snacks.
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