Why is food so expensive in theatres?: originally appeared on Quora: The best answer to any question. Ask a question, get a great answer. Learn from experts and access insider knowledge. You can follow Quora on Twitter, Facebook, and Google+.
Answer by Doug Stone, President Box Office Analyst LLC
Let's get one thing out of the way. Theaters do not necessarily make most of their money on concessions nor do they keep virtually no part of the ticket sales.
On a percentage basis, certainly the gross profit percentage for sales at the concession stand is much higher than the gross profit percentage for tickets. One need only examine the publicly reported results for the major theatre chains for verification.
Take a look at AMC's annual report:
- Admissions Revenue: 1.765 Billion
Food and Beverage: .797 Billion Film Exhibition Costs: .935 Billion Food And Beverage Costs: .112 Billion Percentage cost of Film: 52.97% Percentage cost of Food/Beverage: 14% Gross Profit Film: .830 Billion (note that this is more than the total revenue from food and beverage) Gross Profit Food and Beverage: .685 BillionRead the statements for Carmike, Cinemark, or Regal and you will find similar results.
So that myth doubtless spawned by the belief that studios take some 90% of the ticket price? Mark it busted.
A little history may be in order...
Film deals with theatres were at one point (some 40 years ago) subject to a negotiation after the film had run its course in a theatre. At some point, distribution figured out that it could collect more by shifting to a policy wherein terms were set before the film played and not negotiated post play off. Ostensibly, the deals were based on an expectation of the film's performance. Naturally this was not always predictable.
Terms of the deal were typically based on a declining scale of returns to the distributor. For example, the studio might take 70% of the gross the first week, 60% the second week, 50% the third week etc.
At some point a clever distributor came up with the 90-10 formula which could mitigate (in a positive way for film companies) the surprise hit. They negotiated an allowance with the theatre owner of a set amount that was deducted from the gross of a film for the week. The film cost was then calculated on the basis of 90% of the adjusted gross (Gross - allowance) and compared with a minimum deal for the week.
For example, if the allowance was 2500 and the film grossed 10,000 and the minimum weekly terms were 70%, the calculation would go as follows:
90%(10,000 - 2500)=6750= 67.5% of the gross. If the minimum were 70%, the theatre would pay 7000. Were the gross 15,000 with the same allowance and minimum, it would be 90%(15000 - 2500) =11,250 or 75% of the gross. The theatre would then pay the 75%. This formula is the basis for the broad misconception that theatres pay upwards of 90% of the gross to the studios. It was simply never true.
Eventually, distribution patterns changed and more and more theatres were taken on the initial release of a film. This front loaded the box office toward the earlier weeks of release and made the old formulas for calculating rentals punitive for theatre owners.
Deals then shifted to what is more or less currently in place, wherein the final rental for a film is generally based on an aggregate percentage for the run of a film that is determined by a fixed scale of domestic box office. So if a film grosses maybe $100 million in North America, one might pay 55%. If it reached $200 million the deal might be 60%. Most distributor/exhibitor splits are now determined at basis this way.
Now as to why they charge so much for food and beverage?
Mostly because they can and most people do not hesitate to pay it. Note, I say most people. Certainly some don't and some are put off by high concession prices, but the calculus is that on balance less revenue is lost on those who don't buy because of high pricing than is gained.
This isn't just a blind shot at the bulls eye. Theatres, especially large theatre chains, test these things and analyze the crap out of them. So the point is that it makes them more money than would be spent otherwise.
Just for fun though, if you think concession prices at theatres are high, go buy a beer at your favorite NFL, MLB, NBA team's concession stands and see how they compare. Six dollar, twelve ounce Coors Lites were not uncommon even ten years ago. Fill your market test basket and then go to your local theatre, even a high priced one, and see who comes out on the bottom.
Our 2024 Coverage Needs You
It's Another Trump-Biden Showdown — And We Need Your Help
The Future Of Democracy Is At Stake
Our 2024 Coverage Needs You
Your Loyalty Means The World To Us
As Americans head to the polls in 2024, the very future of our country is at stake. At HuffPost, we believe that a free press is critical to creating well-informed voters. That's why our journalism is free for everyone, even though other newsrooms retreat behind expensive paywalls.
Our journalists will continue to cover the twists and turns during this historic presidential election. With your help, we'll bring you hard-hitting investigations, well-researched analysis and timely takes you can't find elsewhere. Reporting in this current political climate is a responsibility we do not take lightly, and we thank you for your support.
Contribute as little as $2 to keep our news free for all.
Can't afford to donate? Support HuffPost by creating a free account and log in while you read.
The 2024 election is heating up, and women's rights, health care, voting rights, and the very future of democracy are all at stake. Donald Trump will face Joe Biden in the most consequential vote of our time. And HuffPost will be there, covering every twist and turn. America's future hangs in the balance. Would you consider contributing to support our journalism and keep it free for all during this critical season?
HuffPost believes news should be accessible to everyone, regardless of their ability to pay for it. We rely on readers like you to help fund our work. Any contribution you can make — even as little as $2 — goes directly toward supporting the impactful journalism that we will continue to produce this year. Thank you for being part of our story.
Can't afford to donate? Support HuffPost by creating a free account and log in while you read.
It's official: Donald Trump will face Joe Biden this fall in the presidential election. As we face the most consequential presidential election of our time, HuffPost is committed to bringing you up-to-date, accurate news about the 2024 race. While other outlets have retreated behind paywalls, you can trust our news will stay free.
But we can't do it without your help. Reader funding is one of the key ways we support our newsroom. Would you consider making a donation to help fund our news during this critical time? Your contributions are vital to supporting a free press.
Contribute as little as $2 to keep our journalism free and accessible to all.
Can't afford to donate? Support HuffPost by creating a free account and log in while you read.
As Americans head to the polls in 2024, the very future of our country is at stake. At HuffPost, we believe that a free press is critical to creating well-informed voters. That's why our journalism is free for everyone, even though other newsrooms retreat behind expensive paywalls.
Our journalists will continue to cover the twists and turns during this historic presidential election. With your help, we'll bring you hard-hitting investigations, well-researched analysis and timely takes you can't find elsewhere. Reporting in this current political climate is a responsibility we do not take lightly, and we thank you for your support.
Contribute as little as $2 to keep our news free for all.
Can't afford to donate? Support HuffPost by creating a free account and log in while you read.
Dear HuffPost Reader
Thank you for your past contribution to HuffPost. We are sincerely grateful for readers like you who help us ensure that we can keep our journalism free for everyone.
The stakes are high this year, and our 2024 coverage could use continued support. Would you consider becoming a regular HuffPost contributor?
Dear HuffPost Reader
Thank you for your past contribution to HuffPost. We are sincerely grateful for readers like you who help us ensure that we can keep our journalism free for everyone.
The stakes are high this year, and our 2024 coverage could use continued support. If circumstances have changed since you last contributed, we hope you'll consider contributing to HuffPost once more.
Support HuffPostAlready contributed? Log in to hide these messages.