Cinema economy: Whoever loves cinema buys the damn popcorn

In order to make money, cinemas have to do more than show entertaining films. They also need to differentiate themselves from their competitors, who tend to show the same films. So it’s not surprising that cinemas have evolved at a rapid pace, evolving from nickelodeons (cheap but very social venues that screened movies in exchange for a nickel) to picture palaces (luxuriously decorated, air-conditioned opera houses that screened movies instead). have operas) and in the high-tech theaters that we frequent today.

All of these iterations have one thing in common: an underlying belief that a cinema is not just a place to see a film, but an integral part of the cinema experience itself. That sentiment is often heard these days, now that cinemas are in financial trouble are. Famous actors and directors often argue that their work should be seen on a giant screen, not a small one; in a dark room full of strangers, not at your house; and all while eating popcorn and drinking coke bought at the concession stand, not the supermarket.

Cinemas have long benefited from this highly marketable image. Unfortunately, it may no longer be enough to keep their current business models afloat. Increasing competition from streaming services like Netflix and Disney+, not to mention the fallout from the COVID-19 pandemic, has threatened the survival of cinemas. But while many viewers remain pessimistic, some cinemas — particularly independent ones — still have a few tricks up their sleeves.

The cinema business

Under the studio system that existed from the 1920s through the 1950s, every movie theater in the United States was owned by one of five companies: MGM, Warner Bros., Paramount, Fox, and RKO. Also known as the Big Five, these companies controlled all aspects of filmmaking: they hired the screenwriters, shot the scripts, edited the footage, distributed the reels, and showed the final cuts to paying audiences.

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The basis of this system crumbled in 1948 when the US Supreme Court, in order to control the market power of the Big Five, decided to separate the production and distribution of films from their showing. Today, if a cinema chain wants to show a film, it has to share a percentage of the box office with its distributor. This percentage ranges from 25 to 60 percent and varies depending on the film’s popularity, the number of days it is shown and the cinema’s bargaining power.

Let’s take a closer look at the balance sheets of one particular chain, AMC. In the first quarter of 2022, the largest chain in the US – as well as worldwide – reported total sales of $785.7 million, a significant increase from $148.3 million in the previous year. According to the company’s earnings report, 56% of total revenue came from ticket sales, 32% from concessions, and 12% from “other theaters,” a category that includes things like screen advertising, rentals, gift card fees, and arcade games.

These numbers suggest that AMC relies primarily on ticket sales. However, this is not necessarily the case. While the chain made significantly more money screening films than selling franchises, it should be noted that the cost of screening films was also much higher than the cost of producing and selling franchises. (According to earnings reports, the markup for concessions exceeds 400 percent, while the markup for ticket sales barely reaches 150 percent.) It is often said that chains use ticket sales to break even and concessions to make profits, and the earnings reports of AMC lend credibility to this statement.

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While chains like AMC and Regal make up the bulk of the market, they’re not the only type of cinema out there. Rating independent theaters is a bit more difficult as many do not publish their earnings. However, the Independent Cinema Office estimates that small theaters (3 screens or fewer) earn $544,000 from ticket sales and $113,000 from concessions each year. They seem to enjoy a much higher markup on tickets, perhaps because they have greater bargaining power with small retailers.

Strategies to survive and thrive

The last few years have been tough for cinemas. The COVID-19 pandemic has temporarily halted production of new films, including the much-anticipated blockbusters. When cinemas were not ordered to remain closed by the government, a large proportion of moviegoers stayed at home for fear of getting sick. Worse, the advent of streaming has completely turned the film industry inside out, with studios choosing to release movies like Black widow and Luke simultaneously or exclusively on their own platforms.

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Though their losses aren’t as severe as they were a year ago, cinemas are actively trying new and creative tactics to lure patrons at the height of the pandemic. Large chains invest enormous sums in the most modern technology. In April, AMC announced it would spend $250 million to install laser projectors from technology company Cinionic at 3,500 of its US locations. Cinionic’s projectors are said to deliver sharper images than standard digital projectors.

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Laser projectors are poised to enhance the cinematic experience just as 3D and IMAX did before. Also notable is the extent to which theaters are seeking studios and directors to make large spectacles that, due to their extensive use of special effects, look more impressive in the cinema than on a laptop or smartphone. Movies from Marvel or Lucasfilm, for example, come to mind, as does the 2009 hit avatar and its upcoming sequel.

Technology investments aside, cinemas are doubling down on their marketing. In September of last year, AMC launched its first-ever advertising campaign. (The campaign was produced at a cost of $25 million, directed by Academy Award-nominated cinematographer Jeff Cronenweth and starring Nicole Kidman.) For the past several decades, cinema chains have relied on studios to do most of the work—with their balls in the same basket did the marketing for them. Now that studios are prioritizing streaming, theaters need to start taking care of themselves.

Smaller theaters can’t afford to pre-order the latest technology. what she can Use social media to target niche audiences and build communities around their venues. There are now movie theaters that organize knitting clubs, meditation sessions, and dates with margaritas (apart from reclining seats, some venues offer “loveseats” for couples).

These initiatives may not be as outlandish as what people would have seen in the old picture palaces, but they leverage the same social and experiential qualities of the cinema experience – qualities that have defined cinemas since their inception.

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