Film-Tech Forum ARCHIVE: Tickets vs Concession Profitability for the 4 biggest chains

This is topic Tickets vs Concession Profitability for the 4 biggest chains in forum Ground Level at Film-Tech Forum ARCHIVE.

To visit this topic, use this URL:
https://ft-forum.com/ft/cgi-bin/ubb/ultimatebb.cgi?ubb=get_topic;f=5;t=002888

Posted by Mike Frese (Member # 4361) on 02-22-2015, 10:28 AM:

So we still want to promote the idea that movie theaters do make much money off of ticket sales?

Regal
Average ticket price: $9.07
Cost of Movies: 53.1%
Net per ticket : $4.25
Per Cap: $3.83
Cost of Concessions: 13.2%
Net Concession income per person: $3.32.
56% of the operating profits come from ticket sales

Cinemark
Average ticket price: $6.79
Cost of Movies: 53.5%
Net per ticket : $3.16
Per Cap: $3.63
Cost of Concessions: 15.9%
Net Concession income per person: $3.05
51% of the operating profits come from ticket sales

Carmike
Average ticket price: $6.98
Cost of Movies: 54.6%
Net per ticket : $3.17
Per Cap: $4.35
Cost of Concessions: 11.7%
Net Concession income per person: $3.84
45% of the operating profits come from ticket sales

AMC
Average ticket price: $9.47
Cost of Movies: 52.8%
Net per ticket : $4.47
Per Cap: $4.29
Cost of Concessions: 14.4%
Net Concession income per person: $3.67
55% of the operating profits come from ticket sales

Oh......which chains have more big screens and fancier seating? Looks like people are paying for those.

Sources of information: Most recent 10-Q SEC filings

Posted by Lyle Romer (Member # 1266) on 02-22-2015, 11:02 AM:

You are WAY oversimplifying the financials. You are not quoting operating profits, you are quoting gross profits (sales-cost of goods sold).

There are a lot more operating costs involved in showing the movies than there are in selling concessions. All of the projection and sound equipment CAPEX must me amortized over tickets sold which cuts into the "real gross profit."

Then you have the lease (or mortgage) and payroll to pay for. The gross profits are used to pay for these expenses and then get you to a net profit.

If you take the concession sales out and tried to operate solely on ticket sales, you'd be hard pressed to stay in business for 6 months.

Regal reported a net profit of $105.6 Million on $2.99 Billion in revenue. That's a 3.5% margin. If you remove the approximately $700 Million in gross concession profit, they would have LOST $600 Million.

Wal-Mart, which is a low margin business, had an approximately 5.7% margin.

I don't know what you set out to prove with your post. Nobody ever said that exhibitors don't get any income from ticket sales. They are only profitable because of concession sales.

Look at it this way. If Regal took out concession sales, they'd have to make up $3.32 per patron in gross profit. This would require increasing the ticket price by $7.08, making the average ticket price $16.15 to make the same profit.

Posted by Terry Lynn-Stevens (Member # 7349) on 02-22-2015, 12:37 PM:

quote: Mike Frese
Oh......which chains have more big screens and fancier seating? Looks like people are paying for those.

Why not post Cineplex Canada's numbers? Their CPP is somewhere close to $5.50 per person.

Posted by Mike Blakesley (Member # 26) on 02-22-2015, 02:46 PM:

I think the whole "movie theaters make all their money on concessions" belief arose from the "90/10" deals that are still existing in the industry. Some people were led to believe that the theaters were paying 90% of the ticket sales to the film companies, so it's just logical for them to think that most of the profits come from concessions.

What they miss is that the 90% only applies to the gross after the house allowance is deducted, which results in the more realistic 50 to 60% actual cost to the exhibitor.

But the fact does remain that if you took the concessions away, most theaters wouldn't be able to stay afloat.

Posted by Justin Hamaker (Member # 2165) on 02-22-2015, 04:08 PM:

What's interesting is my theatre has significantly lower concession prices, yet our concession per capita is significantly higher than any of these. However, I am not willing to make a direct correlation between lower prices and higher per cap because our other theatre has the same concession prices and their per cap is more in line with AMC's.

Posted by Mike Frese (Member # 4361) on 02-22-2015, 04:16 PM:

Relax Lyle. I have never said that theaters should NOT be selling concessions but that they need to be honest with the public.

Mike B. is talking about what my main point is: The continued allowance of letting people believe that movie theaters HAVE to charge high prices on concessions since they do not get to keep much of the ticket grosses. I have seen many theater owners in the crowd sourcing initiatives say the same thing.

I see new stories on a regular basis mentioning that belief.

I was only looking at where the profits are coming from.

BTW, Capex is a pretty small amount for the big chains. Most only spend between 6-8% of their revenues. The landlords are fitting a good part of the bills for the re-seating initiatives that the chains are undertaking right now.

Terry -I do not care about Canada for this project. Your population is what 10-15% of the US? And your currency is different too. Sorry man.

Posted by Lyle Romer (Member # 1266) on 02-22-2015, 08:24 PM:

quote: Mike Frese
The continued allowance of letting people believe that movie theaters HAVE to charge high prices on concessions since they do not get to keep much of the ticket grosses. I have seen many theater owners in the crowd sourcing initiatives say the same thing.

They don't HAVE to charge high prices on concession items but if they don't then they will HAVE to charge more for tickets in order to make the same (or any) profit. Plus, if you cut the concession prices in half and you double sales (which won't happen but for argument's sake let's say you do), you will make less profit. This is because your margin goes down.

quote: Mike Frese
The landlords are fitting a good part of the bills for the re-seating initiatives that the chains are undertaking right now.

You have obviously never run a business that involves a lease with a landlord. Landlord's don't just foot the bill for something. They will give "Tenant Improvement" money but in return, they will increase the rent, increase the guaranteed term length or both. The expense might not show up directly in CAPEX but I can assure you that the theatre pays for those upgrades.

Posted by Mike Blakesley (Member # 26) on 02-22-2015, 09:34 PM:

quote: Mike Frese
I have never said that theaters should NOT be selling concessions but that they need to be honest with the public.

Mike B. is talking about what my main point is: The continued allowance of letting people believe that movie theaters HAVE to charge high prices on concessions since they do not get to keep much of the ticket grosses.

I don't think there's any big conspiracy by the movie industry to hide the facts from the public. I don't remember any article from NATO, for example, that makes the "90% of tickets go to the studios" claim. It's always from some semi-connected source, like Entertainment Weekly.

But it is a fact that theaters need concessions to survive. It wouldn't make any sense for NATO to put out a big article explaining that the 90% thing is somewhat of a misconception -- all it would do is confuse people.

Posted by Andrew Thomas (Member # 7000) on 02-22-2015, 11:25 PM:

We have made some pretty detailed posts about how movie theaters make money. We are always truthful, that tickets do generate profit, but each dollar you spend at the concession stand generates more profit than each dollar you spend on tickets.

I've explained per-cap on concession, where we are, where we want to get.

And we have seen a gradual increase in our per-cap each quarter we have been open (finishing our 5th quarter next month). And we are soon to add some "premium" food options that we expect to help continue that growth.

Posted by Jesse Skeen (Member # 586) on 02-22-2015, 11:55 PM:

For theaters that show advertising, where does the revenue from that factor in?

Posted by Justin Hamaker (Member # 2165) on 02-23-2015, 01:31 AM:

Jesse, ad revenue is just part of the equation. You have to remember that many theatres are heavily leveraged in debt right now with the digital conversion. Ad revenue just helps pay the bills.

While it may be false that 90% of box office revenue goes to the studios, the reality is the percentage is constantly creeping up in the studio's favor. If I remember correctly, my theatre was about 56% in 2014. It's also almost universal that theatres are paying an aggregate percentage rather than a sliding weekly scale. There is very little advantage in playing a movie that few extra weeks to take advantage of the more favorable percentages.

Posted by Steve Guttag (Member # 268) on 02-23-2015, 06:40 AM:

And quite the contrary. If you look at the numbers for the VPF plans...one is "rewarded" for more titles played so there is a "desire" to move movies in and then move them out with a VPF payment for each new title. Furthermore, presuming a new movie will do more business than an older one, that is more people to go past the concession stand. Certainly there are exceptions and good movies will still hang on but the incentive for running a movie longer as attendance drops has dramatically reduced.

Now in the post VPF world, the need to swap movies out strictly on that incentive will go away but a theatre will still do what it can to get as many people past that concession stand (or ordering off the menu in the theatre).

Posted by Matt Fields (Member # 3211) on 02-23-2015, 06:53 AM:

Steve -

Studios seem to be trying to fight that by wanting more weeks upfront.

I have a small four screen and used to be able to book most movies on a two week deal, almost everybody is three weeks now.

I have no VPF deal, but doesn't seem to matter.

Posted by Mike Blakesley (Member # 26) on 02-23-2015, 09:26 PM:

I haven't noticed an increase in the 3-week requirements around here yet, but it could be because we're one screen. I think the last 3-week deal we had was the most recent Hunger Games movie. I guess with 4 screens it's not surprising they want 3 weeks from you.

I'm dreading the Star Wars movie... Wouldn't be surprised to see them wanting 4 weeks on that.

Posted by Manny Montes (Member # 5639) on 02-24-2015, 02:04 AM:

As others pointed out, changing the 90% number is just confusing to the public. As is they still complain ever after being explained that majority of box goes to the studios.

In addition you've got the idea that by lowering concession prices you will sell more, it just doesn't pan out that way. I think that you've got a set % of people that won't visit the stand no matter how cheap it is, they just don't need to eat for those 2 hours, or perhaps don't like popcorn, soda, etc (yes, they exist).

I think as movie theaters continue to improve, home theater improves, etc we're going to see a fundamental shift in the industry, where less theaters operate (not saying the sky is falling, but I doubt the current theater count can be sustained), but the ones that do will be decided by guest service, not just amenities. I've seen it first hand as well as through research that guests now are as discerning as ever and their prior experiences rank highly depending on how they feel their treatment will be. Especially now with digital and being able to interlock in weird ways we could never do with film. If I look online AMC and Cinemark both have almost the same showtimes, so convenience is becoming a smaller and smaller part of a guest decision on where to go.

Posted by Mike Frese (Member # 4361) on 02-25-2015, 07:16 AM:

This is what I know:

People in the United States and Canada (according to NATO) are going to the theater 24% less often than they were 10 years ago. To me that is a very bad thing.

We operated our theater based on the idea that people will come more often and buy concessions if prices are more reasonable. Meaning not charging to where you earn 85+% gross margins. Our per caps where just as good as most everyone else. Our numbers year over year were better than the chains that I followed in the general area. Did we earn less gross profit per person on concessions that charging what the big chains do? Sure but we could handle an increase in 15-20% more people quite easily without increasing our labor.

Could that be taken to a wider scale? Who knows. I know Andrew charges much lower prices than the national average too.

Now on to leasing: To Lyle- I have negotiated a number of leases with one being in the position of power in the deal since this was a theater space that had been sitting empty for a while. I thought I did very well on that negotiation. Now most of the bigger theaters do have some power as finding a replacement tenant for a theater is pretty hard to do. Most rent structures for key tenants (and theaters usually fall into this group) are usually for a small base rate plus a % of sales.

But let us look at the real numbers from RGC: rent as a % of revenue from 2007 to the first 9 mos of 2014 when revenues were down double digits: 12.6, 13.1, 13.1, 13.6, 14.3, 13.6, 13.6, 14.4. So the two highest years were with big drops in box office for that time period: 2011 and 2014.

Someone mentioned film rental. Here are the film rentals for RGC from 2007 till last year: 53.1, 52.6, 52.5, 52.5, 51.8, 52, 52.3, 52.7. Creeping up? Sure but still lower than what they were in 2007.

Anyway, keep on encouraging high cost of concessions in a industry that is seeing 24% less people.

Posted by Mike Blakesley (Member # 26) on 02-25-2015, 10:16 AM:

You're assuming that it's just the cost of concessions that is making attendance go down. It's not. There are many other factors that we can't do anything about, such as the short video window, the improvement in home theater quality, the quality of the movies we get, etc.

My own personal opinion is that it is the video window more than anything that is causing the attendance erosion. If people knew that the video wouldn't be out for six or eight or ten months or more, attendance would bounce back up.

Posted by Terry Lynn-Stevens (Member # 7349) on 02-25-2015, 11:43 AM:

How much do you honestly think a longer window will increase your sales? Do you think it will extend the run or just boost the open 10 days?

Posted by Mike Blakesley (Member # 26) on 02-25-2015, 12:35 PM:

Well it doesn't matter because there's no way the studios are ever going to increase the window. That boat has sailed, as they say. But as has been pointed out, people are going to the movies less frequently these days. There has to be a reason why that is, and I don't think it's JUST the concession or ticket prices. If a movie has appeal to you, you'd be more likely to see it in a theater if you knew the video wasn't coming out for a long time. The way it is now, and we all know how "time flies," most people perceive that a movie hits video just a couple months after theatrical (even though the actual number is more like 14 weeks).

It's impossible for a young person like yourself to comprehend how it was "back in the day." When I first got in the business there was no video, no cable TV, no HBO, and of course no internet. The only way to see a movie was in your local theater, until the network TV "movie of the week" would play it (with commercials and edited, of course). And your TV had a 25" screen, or smaller.

With so many other ways to see movies these days, and those other ways being made available closer and closer to the theatrical debut, it's no wonder attendance is eroding. I don't know why the "suits" think this is such a mystery.

Posted by Terry Lynn-Stevens (Member # 7349) on 02-25-2015, 12:50 PM:

I am little older than you think, I am probably closer to your age as a matter of fact. Anyways, admissions in 1987 were 1.09 billion whereas in 2013 they were 1.34 billion, there has been a decrease since 1998-2005 but people are still going to the movies, these numbers are according to NATO. There is just way more up front available seats and screens which kills longer runs.

Posted by Mike Blakesley (Member # 26) on 02-25-2015, 01:31 PM:

I would guess where the erosion shows up is when you take moviegoing frequency as it ties to the population. There are 80 million more people in this country now than in 1987. I haven't had time to look up the figures and do the math but that's just my guess.

Posted by Marcel Birgelen (Member # 6801) on 02-25-2015, 03:09 PM:

Also keep in mind that the number of movie screens in the US has seen a steady increase in the last 25 or so years.

I guess it's interesting for the industry as a whole where this is heading. The "video window" will most likely only further erode away. It will be interesting what kind of impact this will have on the multiplexes around the globe.

There has been an enormous building boom of multi- and megaplexes in the last 20 years. Most of them were constructed with utter minimalism in mind. As they are becoming technologically challenged and even outclassed by the average home cinema and are also slowly losing their monopoly on first run movies, it will be interesting what those big chains will do to keep them relevant.

Personally, I still think there is plenty of market for movie theaters, as going to the movies is more than just watching a movie. It's also a social thing. But I'm not sure the future of the movie theater is an uninviting black box with a few rows of seats and something akin a white drywall in front of you.

Posted by Justin Hamaker (Member # 2165) on 02-25-2015, 03:52 PM:

The shrinking of the home video window is a relatively new thing. I started working in theatres in 1996. At that time it was still typical for a movie to take the better part of a year to show up on VHS. I think the rapid growth of DVD in the 2000's was the biggest factor in shortening the window - at least initially.

If you stop to think about it, in 2000 the internet was still far from ubiquitous. Most people were still on dial-up connections and streaming options did not exist. Smart phones were still almost a decade away. And VHS was still the primary home viewing platform. All these other options which have been providing entertainment alternatives to the movie theatre have come to maturity and popular use within the last 5-10 years.