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Wednesday, August 16, 2017

Popcorn is cinemas sweet spot not movies

This is a companion post to the analysis of the $10 MoviePass announcement, and what that (and other schemes I also discuss) means for the distribution and exhibition industries.

From a business point of view, cinemas are only partly about films. "When we bought [Odeon]," Guy Hands of private equity group Terra Firma famously said, "the management team really believed they were part of the film business. I had the difficult job of explaining to them that they were in the popcorn-selling business." (Oliver Thring, Guardian 2012)

With the emergence of NATIONAL movie passes, not just schemes within individual chains (Curzon and Kineopolis being being two examples), the revenue model of the film industry faces a huge shake-up with a disruption of the traditional models of renting 'prints' and passing some share of ticket revenues back to distributors (depending on the movie).

That hideous diabetes/clot-encouraging popcorn is set to become the main revenue stream for cinemas - movies could become a loss-leader, just as budget airlines seek to make money from flight 'extras' and in-flight sales more than the actual seat purchase - very bad news for distributors.

That process is arguably already here though...

The pic above is from a Guardian article on an American cinema-goer launching a doomed lawsuit against the US cinema chain for charging $8 for a coke. From the same article:

Cinemas are obliged to split money from ticket sales with the film studios, but get to keep almost all the cash they make from selling food. That means that the "concessions" (popcorn, sweets and the like) make up 20% of a cinema's revenue but 40% of its profits. A box of popcorn is around 85% profit to the cinema, and salty foods of course encourage people to buy more soft drinks, increasing receipts further. "Without the hefty concession profits," declared an article in Time a few years ago, "there would be no movie theater business".

Time noted the 85% mark-up cinemas make from their concession stands back in 2009, and the spread of the banning of customers bringing their own drinks or snacks in - you may have had the experience at some point of being forced to hand over just such before being allowed through by the usher, such as at the Kirchberg Kinepolis, the bag-checking now taking on an airport vibe to ensure we're all safe from avoiding being ripped off.

If you're a business/economics student, you'll find this analysis of the economic arguments for/against high charging interesting.

Business Insider gave a similarly blunt assessment of the industry to that of Time's earlier declaration in this 2015 article (which noted growth in US cinema chain AMC's concessions revenues alongside falling ticket revenues)
Movie theaters are not making money on movies, they are making money on food.
Fortune magazine also discussed this, noting a $100m fall in ticket revenue for AMC from 2013 to 2014 to $1.8bn, while concessions revenue rose to $0.8bn - and the profit ratios of the two figures are wildly different, with much of that ticket revenue going back to distributors.

So, while its easy to focus on the economics of production and distribution, when considering exhibition you need to add popcorn and drinks ('concessions') to key factors alongside the release window, streaming rivals, home cinema, event cinema, digitisation, piracy, 3D/IMAX, and perhaps the decline of the star system and franchise model too...

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