In a competitive market, why is movie theater popcorn expensive?
economics.stackexchange.com
economics.stackexchange.com
2. In addition, there's no way to compare concession prices easily before making that choice; once the potential buyer of popcorn, even assuming they're looking at the popcorn prices before buying a ticket, has seen those prices, they need to add the relative travel time to speculative estimates of other theaters' popcorn prices.
3. Lastly, they collude, and all the prices are about the same. Good luck getting somebody to let you run their movie in your theater-killer that leads on concession prices. Vertical integration was a term invented about the movie theater industry; contracts are in place.
If there is only some token competition on popcorn prices and there is research showing that that usually doesn't happen in real markets, then that is a pretty strong suggestion they are colluding.
Theaters bid for the right to show movies, it's an up front cost to then. This cost is recouped primarily through ticket sales. Revenue beyond that is derived from sales of concessions.
This is why big players like Cinemark dominate the landscape. Through economy of scale (# of theaters && screens) they can drive attendance and concessions. Very much a volume approach and so they show they movies that have a broader appeal.
Indie chains like Landmark have fewer locations and screens, but they target metro areas with people who are more into "niche" films. They usually end up charging a bit more for concessions but they make their money through a loyal customer base. So for them it's important to be seen as stewards of good artistic movies.
Yeah, I used to drink the Kool Aid big time. : )
But really, it's hard for all movie theaters, but particularly the art houses.
(That's why the Stanford in Palo Alto is such a treasure. It has wealthy backing and so you get a cheap ticket and cheap concessions. Seeing movies there is a real experience).
I say this because I found, by googling, that the studios get 100% of gross sales for opening week of a big release. Then this percentage goes down over time.
I've never heard of 100% gross to the distributor (studio), about 85% is the highest I've heard of, and that was for super-high demand premiere weekends. I think most blockbusters are closer to 70% on opening weekends. But it's all case by case, with a number of factors at work. There can be minimum run length guarantees (this many weeks on this particular screen), which can sometimes be conditions for getting other movies from the same distributor. Each deal really is individual.
The rule of thumb is about 55% of box office goes to the distributor over the entire run of the film. The distributor then takes a cut before the rest is passed on to the production entity. Of course, it's often the case that the distributor and the production entity are two divisions of the same studio, so welcome to the accounting games.
I had a friend who was assistant to the president of distribution at one of the giant studios. He would tell me that the dist. head would be able to discuss individual theaters and even screens with the big chains. They knew the demographics, seating capacity, all of it. The exhibition could be negotiated on a very fine level of granularity.
I'm 100% unsure of what you mean here. What peers?
I said it somewhere already, but will repeat myself - "Treat yourself, not bloat". This is a secret to good experience with movie theaters (and with most things in life, actually :))
"There’s only one problem with home cinema: it doesn’t exist. The very phrase is an oxymoron. As you pause your film to answer the door or fetch a Coke, the experience ceases to be cinema. Even the act of choosing when to watch means you are no longer at the movies. Choice—preferably an exhaustive menu of it—pretty much defines our status as consumers, and has long been an unquestioned tenet of the capitalist feast, but in fact carte blanche is no way to run a cultural life (or any kind of life, for that matter), and one thing that has nourished the theatrical experience, from the Athens of Aeschylus to the multiplex, is the element of compulsion. Someone else decides when the show will start; we may decide whether to attend, but, once we take our seats, we join the ride and surrender our will. The same goes for the folks around us, whom we do not know, and whom we resemble only in our private desire to know more of what will unfold in public, on the stage or screen. We are strangers in communion, and, once that pact of the intimate and the populous is snapped, the charm is gone. Our revels now are ended."
I think it's interesting even if you don't agree with him (he's as much a part of the "old guard" as anyone I guess, as a grumpy snobbish Brit writing for the NYer, and therefore is has something invested in the nostalgia of going to the theater, even if not a monetary investment).
http://www.newyorker.com/arts/critics/cinema/2011/11/07/1111...
Amazing the answers you get when you throw a bunch of economist at the question who know nothing about the industry.
(Me? I hate the stink of popcorn. I'd pay extra to go to a cinema that didn't sell it.)
Popcorn & soda is where theatre chains make their money. From what I recall the marginal cost of each soda was about $0.25, popcorn is even less.
Otherwise I would have (as a theater owner) slashed my ticket price by 99% and doubled the cost of popcorn. Still a win for the moviegoer and theater owner.
One of the things I'll never forget is the trainer telling us one day, "We're not in the movie exhibition industry. We're in the snack concession industry. We just use movies to get the patrons in the door."
The reason is that, in the movie industry, the Hollywood studios have almost all the power. When the original Batman came out and lines were around the block, the company actually lost money on ticket sales (after theater costs). That's because Batman cost the theaters 90% of the gross ticket sales.
If the theaters were really making big profits the companies would have margins -- and stock prices -- akin to Apple's. They don't. Check the stock listings: they have a marginal business.
(This being because people habitually think about food only after they have gone through ticketing and are committed to the movie- and some theaters also disallow outside food)
If you don't believe this theory, then ask yourself why is food sold after ticketing, rather than before?
I think most if not all of the theaters I've been in didn't require a ticket to reach the concessions counter in the lobby, so you could if you wanted buy food there and just leave like any other walk-in fast food place. (Of course the ticket place has been the closest place relative to the parking lot but I don't remember it ever blocking further access.)
The reason for theater non-competitiveness and high food prices has more to do with non-competitiveness in Hollywood, I think. Theaters typically take only 20% or less of the ticket price with the rest going to studios, in some cases depending on the movie (such as Star Wars Ep 2) the studios can demand up to 100%, for the first week or two. (They get more as time goes on but then less people go to see it so it's moot.) Rising costs to make the movies also hits the theaters as studio agreements demand more money. Theater owners are in the candy business, not the movie business.
At most theaters in Los Angeles, you can go to the concession stand without buying a ticket, and some theaters such as the Arclight actually have nice restaurants and wine bars that cater to people who aren't going to movies at all. That said, I'm not sure who would pay $6 for popcorn and $5 for a soda when not forced to because that is the only option allowed in the theater.
It is the same with beer. You can get beer for $0.50-$1 per bottle at a grocery store, but it is $3-$5 at most bars. Even if California law allowed it, I wouldn't go into a bar for a $5 beer and then take it home. I would only drink the $5 beer in the bar because that is the only option allowed inside.
The movie theater business is a surprisingly low profit business. Net income accounts for less than 3% of revenue (http://www.google.com/finance?q=NYSE:RGC&fstype=ii)
Theoretically the prices on concessions are already the lowest point possible for the theaters to still make a profit. In essence, all the demand side stuff the authors mention is correct, but they mistook what the actual marginal cost was.
In this particular episode (http://www.channel4.com/programmes/hestons-mission-impossibl...) he goes to a large multiplex to see how he can create alternatives to popcorn. He produces some amazing concepts but the bottom line is popcorn is too profitable to strike off the menu; less than a penny to produce a bag of popcorn that retails for £3-£4. Even the paper bag the popcorn comes in cost more to buy than it does to make the popcorn.
PS: Link may only work in the UK.
All I remember is that the concessions are ridiculously expensive, the theaters show you ads before the movie, and often Hollywood films have subtle advertisements in the movie itself.
This is why I rarely go to movies. I don't like feeling ripped off.
Re cinema advertising. In the UK, the cinemas only start to fill up after the adverts are over.
We have about 10 minutes of adverts followed by 10 minutes of trailers. The seats start to fill up while the trailers are on. A lot of people take it as a given that the film will start 20 minutes after the advertised time and so plan accordingly.
I can't understand how this is allowed by the ASA (in the UK). Why is it you can't advertise the ticket price as £8 when it's really £12 but you can advertise the start time as 7pm when it's really 7:20pm; it's not like they didn't know the start time.
This is well in line with my own pet theory of the free market, which says that people's brains can handle optimizing on one or _maybe_ two things when making a product decision, and anything else is overwhelming. For a theater, that's what movie you want to see, and what price you have to pay. Anything beyond that and you have to start making spreadsheets, and it's not worth it to anybody. So beyond the price and the main desirable quality of the product, producers aren't really forced to compete, because nobody will call them on it.
Instead of just proposing theories with nothing backing them up, like the answer that's being voted down, the top post refers to people who have actually modeled the problem and checked that their theories explain the data.
I absolutely love this answer. I think it explains to a T the best way to extract value from a social network - and Zynga is proving it more than anyone.
The cost to join a social network is some amount of personally identifiable information. The value you get out of joining is that you will be able to contact, keeps tabs on, and enjoy various types of media with people you're interested in (friends on Facebook, celebs/friends/thought leaders on Twitter).
However, the cost to joining the social network is lower than the cost that some people (higher type customers) are willing to pay, so social networks and their app makers seek to extract the surplus by charging for various types of digital content (ironically, sometimes movies - http://news.yahoo.com/blogs/technology-blog/now-playing-face... ).
Zynga takes this to an even greater level by offering you a chance to play with your friends for free, and then charging higher type customers for additional content.
In both of these cases, the value provided to the customer is directly correlated to the number of people using the service (you know, Network Effects, http://en.wikipedia.org/wiki/Network_effects ), but to those higher type social butterflies that need to show off their good taste by buying kitten icons or can't watch a movie online without their friends watching with them or need to be able to school their friends at Mafia Wars, they are willing to pay more than others and will pay a great deal more than their friends for a similar experience.
One last thought: the "activities with celebrities" marketplace is incredibly fertile. Night clubs pay celebs big money if they party on the premises. Celebrity golf events bring in big cash for charities. It seems like Twitter is perfectly positioned to cash in on this phenomenon, and I have no doubt that their are some higher-type Twitterers that would pay big money in a scarcity situation to play Mafia Wars with Shaq.
Doesn't this answer the question right here?
People don't do that. Everything we know about cognition and human decision making (from neuro scientists, not from economic philosophers) tells us that humans are not rational actors making decisions using game theory.
All the answers certainly show the descriptive power of economic philosophy, but since the same group could be just as convincing about "why movie theatre popcorn is so cheap" I'm not sure what the point is of debating these things in a framework without any predictive power.
And when discussing movie theatre popcorn I think it's pretty clear that the irrational or arbitrary aspect of human rationality is in play here. The discussion on stackexchange is silly, you mentioned anchoring effects yourself.
As others have pointed out, probably price of popcorn is not a big factor when choosing theaters. People don't have it in mind, or don't expect to buy popcorn (but then are suckered by the butter smell). It may come down to whether people are responsive to popcorn price; showing times and proximity are probably bigger factors.
Even if people were responsive to popcorn price deltas of ~$2, perhaps theater owners know that none of them has a unique ability to compete on popcorn price. Theater X can cut their prices, but theater Y can always respond and match it. As long as the cut is being matched, the theater does not "steal" any customers, and is only shedding revenue.
Two theaters can compete all the way down to marginal cost; what, $1 for a bag of popcorn? Let's say theater X has even better popcorn technology: it can produce popcorn for $.90, $.10 cheaper than anyone else. Still, theater X is not incentivized to sell their popcorn cheaper, since it is doubtful theater-goers will choose a venue based on $.10 off popcorn.
So with a little foresight, perhaps theaters realize none of them would profit by competition on popcorn prices. That's the other answer being kicked around: collusion.
http://www.google.com/search?q=movie+theaters+make+money
Someone really dropped the ball giving out those answers. That thread is pure intellectual masturbation.
It's widley known that ticket prices barley cover the expenses and fees associated with getting and showing those movies...
In general, movie theaters don't make money on movies. They make money when someone comes in and buys the very expensive popcorn, drinks, and candy. Which then maybe nets you a profit that keeps the doors open.
Also, gas stations are about the same... They don't make money on gas. They make 70-90% of their profit when someone comes in and buys the cigarettes, lotto tickets, and products.
Also, the numbers involved here are pretty low. I don't know many people who would drive across town for a theater with cheaper popcorn, even if such a theater existed.
Thanks mates!
Popcorn is especially easy to sell because of its low-volume-to-nourishment ratio. You can buy candy at a corner store and sneak it in pretty easily, but popcorn? It's less annoying just to pay the high price than to bring a large bag of popcorn in. Same goes for those disgustingly large sodas.