How Movie Theaters Make Money: The Role of Concessions

Movie theaters are a significant part of the entertainment industry, offering a unique combination of visual and auditory experiences. However, many people often wonder how these theaters manage to make money, especially when it comes to movie ticket sales. This article delves into the various revenue streams that keep movie theaters operational, focusing primarily on the critical role of concessions.

The Economics of Movie Theater Revenue

While movie theaters do earn revenue from ticket sales, this income is not as straightforward as it may seem. A significant portion of a theater's income comes from concessions, which includes snacks, drinks, and merchandise sold inside the theater. Let's explore this in more detail.

The Impact of Ticket Revenue on Movie Theaters

When a new movie screens in a theater, it typically follows a specific trajectory in terms of money earned from ticket sales. Over a period of four weeks, a higher percentage of ticket sales is retained by the movie studio, while the theater's revenue share gradually increases. Here's a breakdown:

Day 1 through 7: The movie studio retains 95% of the ticket sales. Day 7 through 14: This timeframe sees the movie studio's share drop to around 80%. Day 14 through 21: The share further decreases, with the movie studio retaining around 55-60% of ticket sales. Day 21 through 28: By the fourth week, the movie studio's share is down to around 50%.

Interestingly, most moviegoers choose to watch new releases within the first week. Therefore, the theater's percentage of revenue peaks during the second week, around 20%. By the end of the fourth week, the revenue share becomes more equitable, with both the movie studio and the theater earning comparable percentages. However, there are exceptions, such as highly successful movies that continue to draw audiences. For instance, Top Gun: Maverick is a prime example, as it still runs in theaters, generating significant revenue.

The Importance of Concessions

Given the reducing revenue from ticket sales by the end of the movie's run, concessions have become a vital source of income for movie theaters. The following demonstrates the substantial contributions of food and drinks to the overall revenue:

For instance, a theater chain that transitions to digital projection in 2014 had to generate a minimum of $80,000 in revenue per screen from concessions. This requirement was made even more challenging by the fact that there were only three screens. This underscores the critical importance of concessions in theaters' financial success.

Other Revenue Streams

While concession sales play a significant role, movie theaters also derive income from other sources, including ticket sales, membership income (if applicable), food and drink services, and advertising revenue. Each of these components contributes to the overall financial health of the theater.

Conclusion

In conclusion, movie theaters rely on a combination of ticket sales, concessions, and other revenue streams to make their operations sustainable. While the initial portion of a movie's run may be dominated by high ticket revenues, the latter stages heavily depend on concessions for a significant portion of the income. Understanding these revenue sources can provide a clearer picture of the economics behind the movie theater industry.