inglourious basterd
11-25-2005, 05:14 PM
I looked up the answer myself. It is interesting because as the average production price is rapidly increasing it is becoming increasingly rare that a film can profit off box office revenue alone. (Profits are coming from DVD sales these days)
The article below is called "Why is my popcorn so expensive" and it comes from http://www.moviegeek.homestead.com/files/featdeal.htm
If you want the cliffs notes version, check out the bolded areas of the articles below.
Moviegeek Feature:
"Why is my popcorn so expensive?"
So you decide to go to the movies. You buy your ticket, surprised that it seems to have gone up another twenty-five cents since the last time you were here. (In the big coastal cities, you might pay eight or nine dollars, or up to ten in Manhattan; in smaller Midwest towns, the average is around seven bucks. Matinees, of course, are cheaper.)
On your way into the theatre, you think about getting a snack, a popcorn and soda, maybe some Milk Duds. You stop at the concession counter, and look up at the prices: Three dollars for a Coke? A six-pack doesn't cost that much. And they want a buck and a half for the M&Ms you can get for sixty cents at the corner store. All told, including tickets and food, the cost for two people to attend a movie can top twenty-five dollars. It's enough to make you stay home with the VCR, and many people, in fact, do exactly that.
Why on earth does the theatre feel the need to gouge you on the food? As if you didn't already pay enough for a ticket to a movie you're not sure you'll like that much anyway, they have to then charge four times as much for a paper bag full of popcorn and a little salt and oil as it cost them to make it. What gives?
The answer comes back, as it often does, that it's simple economics. No, it's not supply and demand, where the captive audience, officially prohibited from bringing in "outside food," will pay whatever the theatre charges. Instead, the basic reality is that this is the only way the theatre can make money.
There are two major sides to the cinema game: the distributor and the exhibitor. The distributor is responsible for making all of the physical prints of the film, delivering them to the cinemas, printing the posters, running the TV ads, and so forth. Often, with Hollywood movies, the distributor is the studio that actually made the film, but this isn't necessarily the case, such as with independent films that are "acquired for distribution."
The exhibitor, on the other hand, is the cinema owner -- the one responsible for installing the screen, projector, and sound system, for putting in the seats, for establishing the box office and ticket-sale system and concession stand. The exhibitor pays the electric bill, the labor costs for the cinema staff, the property taxes, and so forth.
The exhibitor also rents the movie, the physical reels of film, from the distributor. A deal is struck whereby the exhibitor pays the distributor a flat fee (the "rental"), plus a share of the ticket revenue (the "box office"), and the distributor sends the exhibitor a copy of the movie to be shown in the exhibitor's auditorium. When the movie quits making money, or when a contractually agreed period has expired, the exhibitor returns the film to the distributor.
Seems like a fairly straightforward arrangement, doesn't it? Unfortunately, there's a small wrinkle.
The reason the exhibitor can't make money just showing movies is that the distributor's cut of the box office is very, very steep at the beginning of a picture's run. The deals are usually arranged so that the distributor's cut decreases over time; that way, a film with "legs," i.e. a movie that continues drawing audiences for a long run, will eventually pay big bucks to the exhibitor. However, if a movie spikes early and falls off fast, the distributor takes the lion's share, and the exhibitor loses money on the deal.
The percentages are worked out case by case; there are general guidelines and precedents, but no hard-and-fast rules. Films projected as blockbusters, naturally, have the most leverage for establishing deals favorable to the distributor, while smaller movies will take what they can get.
During the month before Godzilla came out, for example, the distributor, Sony Pictures Entertainment, was making noises about wanting eighty percent of each and every ticket. Up to that time, most big movies were getting between seventy and eighty percent, but allowed the exhibitor a small overhead exemption for basic expenses, like utilities, the building lease, and so on. For Godzilla, however, Sony tried to float the idea of cutting the overhead allowance, and asking for a flat eighty percent right off the box office. The exhibitors grumbled mightily, but they didn't have a lot of leverage, given the film's omnipresent publicity and its high "want-to-see" ratings based on audience research. But then they actually got a look at the movie, at their advance exhibitors' screenings, and the grumbling turned into outright refusal: They realized the movie would be a turkey, and Sony's bargaining position disappeared.
Similar behind-the-scenes manipulations take place prior to other high-profile premieres, of course. Although nobody's willing to discuss the details, you can be sure that 20th Century Fox and Lucasfilm were pretty much free to dictate their terms to the exhibitors for the release of guaranteed moneymaker Star Wars Episode One: The Phantom Menace. Although some quality-of-presentation conditions were confirmed in advance (e.g., the theatre had to be outfitted with the latest sound systems, the movie had to open in the largest available auditorium and stay there four weeks before being moved to a smaller screen, etc.), the box-office percentage payouts were never officially made public. But it doesn't take a genius to figure out that they must have been extraordinarily rich for the distributor. And this will only get worse, with the exhibitor's share getting smaller and smaller, as the bar continues to be raised for big "must-have" event movies.
Another important factor is the distributors' relatively new "wide release" strategy, which has become the standard in recent years. When a major film comes out, it's not unusual for it to open on upwards of two thousand screens nationwide; the really big movies, like the latest James Bond, may top three thousand. The strategy here is for the distributor to saturate the marketplace, and to get everyone who's going to see the movie to do so within the first week or two. This guarantees the distributor the maximum possible profit from the film's total box-office return -- but it stiffs the exhibitor.
This is why when a movie with "legs," a movie that continues pulling in viewers, will play for literally months, while a less successful film will disappear relatively quickly. To illustrate, let's take a look at a couple of examples. We'll assume a relatively straightforward arrangement, where the distributor and exhibitor split the box office 75/25 the first week, after which the cut slides along a straight line for, say, eight weeks. At that point, the balance has reversed, with the distributor and exhibitor going 25/75, where it generally levels out.
Now let's apply that model to a couple of recent box-office bonanzas -- Titanic and The Sixth Sense. Both films were smash hits from the get-go, and kept drawing audiences, week after week. The first couple of weeks, the distributor makes a lot of cash, while the exhibitor sees very little. However, as the film continues playing, and the audiences keep coming, the exhibitor starts to see more and more of the take. Even if attendance falls off, the exhibitor's share continues to increase. A smart exhibitor, then, will want to keep a true hit in the theatre as long as possible, so as to maximize revenue. If, after eight weeks, the audience is half the size it was at the beginning, it's still more profitable for the exhibitor; a little quick math demonstrates that 75% of half is still more than 25% of everything. Attendance at this point would have to fall below a third of its initial level for the film to be less profitable for the exhibitor than it was at the outset. And if you watched the movie section of your local paper, you saw that both Titanic and The Sixth Sense kept playing, week after week, even after other movies had come and gone. As I write this, The Sixth Sense is still playing on a couple of screens in my area, even after months in release, and only a few weeks prior to its home video premiere.
Contrast this with movies that make a lot of money very quickly, and then fall off drastically, either due to a limited one-shot audience, or from negative word of mouth. Respective examples might be Pokemon and Wild Wild West. With the first, every kid in the world went the first week, sometimes more than once, in order to get the trading cards and to be part of an undeniable pre-teen cultural event. However, once they'd done that, there was no more audience, and the film's box office plunged in the second week like driftwood off a waterfall. Similarly, with Wild Wild West, the ubiquitous and insistent marketing drew large crowds the first week; but then, with audiences describing it as a stinker, there was no repeat business, and those who hadn't seen it suddenly lost interest. Again, revenue dropped steeply the second week; it didn't exactly crash and burn, but it certainly wasn't the money machine the studio was expecting, taking an excruciating four weeks to pass the hundred-million mark, after which it dropped off the radar. Unsurprisingly, then, both films disappeared from cinemas fairly quickly, as they didn't just start out unprofitable for the exhibitors (as do all movies) but stayed that way.
The importance of the exhibitor's tiny slice of the pie in today's marketplace should be obvious, and with it the justification for the inflated prices at the concession counter. To be sure, the exhibitor has other means of increasing the profit margin besides charging five bucks for a bucket of popcorn. One cost-cutting practice is to use the same set of reels to show a film on two different screens; each reel is approximately twenty minutes long, so by staggering the showtimes, the exhibitor can save the price of a rental by swapping the reels back and forth between two or more auditoriums. (Lucasfilm explicitly forbade this in its conditions for exhibition of Phantom Menace.) It's hard on the film, causing scratches and pops to accumulate much faster than normal, and it doesn't save a lot of money, but every little bit helps.
Another important factor the exhibitors and distributors must consider during their negotiations is the length of the film. A shorter movie, like Inspector Gadget at 80 minutes, can obviously be shown more times each day on a given screen than, say, The Green Mile, at 188 minutes. (Add 10-15 minutes for previews, plus 30-40 minutes between shows for cleaning and pre-seating.) Obviously, if the movie's a bomb, it doesn't matter how many additional shows per day you have, but revenue for a successful film can be significantly impacted by the removal of even one daily showtime, let alone two or three. And of course, fewer showings doesn't just mean fewer people buying fewer tickets -- it means fewer people spending money at the concession counter. Over the last few years, average runtimes of Hollywood movies have been getting longer and longer, and exhibitors have been feeling the crunch.
So obviously, they look for every possible means of maximizing their margins. One obvious method is the selling of "preview time" to advertisers; if you've seen any number of movies in the last year, you've most likely had to sit through a soft-drink or automobile commercial. You may also have noticed people handing out free goodies, like newly released brands of candy or gum, to audiences leaving or entering the theatre; food companies pay the exhibitor a small fee for promoting their products in this way.
And, of course, they charge an arm and a leg for soda, snacks, and whatever else they offer at the concession stand. It's not their fault, really; if they didn't, they wouldn't be able to stay in business. If you want to blame anyone, blame the distributors: Because they keep making longer and more expensive movies, and run them for shorter release periods, they have to gouge the exhibitors out of their fair share of the box-office revenues; the ever-shrinking profit margin forces the exhibitors to do whatever they can just to keep themselves afloat.
And that, my friends, is why your popcorn is so expensive.
inglourious basterd
11-25-2005, 05:25 PM
If you want the cliffs notes version, check out the bolded areas of the articles below.
Why Box office totals hardly matter:
Article comes from slate.com
Gross Misunderstanding
Forget about the box office.
By Edward Jay Epstein
Posted Monday, May 16, 2005, at 2:55 PM ET
Listen to this story on NPR's Day to Day.
The media, by treating the box-office grosses released on Sunday afternoons as if they were the results of a weekly horse race, further a misunderstanding about the New Hollywood. Once upon a time, when the studios owned the theaters and carted away locked boxes of cash from them, these box-office numbers meant something. But nowadays, as dazzling as the "boffo," "socko," and "near-record" figures may seem to the media and other number fetishists, they have little real significance other than to measure the effectiveness of the studios' massive expenditures on ads.
To begin with, the Sunday numbers are not actual ticket sales but "projections" furnished by Nielsen EDI, since the Sunday evening box office cannot be counted in time to meet the deadlines of the morning papers. Variety, to its credit, corrects the guess estimates on Monday with the actual weekend take. Yet even these accurate numbers leave in place four other confusions about who earns what.
First, the reported "grosses" are not those of the studios but those of the movie houses. The movie houses take these sums and keep their share (or what they claim is their share)—which can amount to more than 50 percent of the original box-office total. Consider, for example, Touchstone's Gone in 60 Seconds, which had a $242 million box-office gross. From this impressive haul, the theaters kept $129.8 million and remitted the balance to Disney's distribution arm, Buena Vista. After paying mandatory trade dues to the MPAA, Buena Vista was left with $101.6 million. From this amount, it repaid the marketing expenses that had been advanced—$13 million for prints so the film could open in thousands of theatres; $10.2 million for the insurance, local taxes, custom clearances, and other logistical expenses; and $67.4 million for advertising. What remained of the nearly quarter-billion-dollar "gross" was a paltry $11 million. (And that figure does not account for the $103.3 million that Disney had paid to make the movie in the first place.)
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Second, box-office results reflect neither the appeal of the actual movies—nor their quality—but the number of screens on which they are playing and the efficacy of the marketing that drove an audience into the theaters. If a movie opens on 30 screens, like Sideways or Million Dollar Baby, there is obviously no way it can achieve the results of a movie opening on 3,000 screens. And how do studios motivate millions of moviegoers—mainly under 25—to go to the 3,000 screens on an opening weekend to see a film no one else has yet seen or recommended? With a successful advertising campaign.
Studios spend $20 million to $40 million on TV ads because their market research shows that those ads are what can draw a movie's crucial opening-weekend teenage audience. To do that, they typically blitz this audience, aiming to hit each viewer with between five to eight ads in the two weeks before a movie's opening. The studios also spend a great deal of money testing the ads on focus groups, some of whom are wired up to measure their nonverbal responses. If the ads fail to trigger the right response, the film usually "bombs" in the media's hyperbolic judgment. If the ads succeed, the film is rewarded with "boffo" box-office numbers.
Third, the "news" of the weekend grosses confuses the feat of buying an audience with that of making a profit. The cost of prints and advertising for the opening of a studio film in America in 2003 totaled, on average, $39 million. That's $18.4 million more per film than studios recovered from box-office receipts. In other words, it cost more in prints and ads—not even counting the actual costs of making the film—to lure an audience into theaters than the studio got back. So while a "boffo" box-office gross might look good in a Variety headline, it might also signify a boffo loss.
Finally, and most important, the fixation on box-office grosses obscures the much more lucrative global home-entertainment business, which is the New Hollywood's real profit center. The six major studios spoon-feed their box-office grosses to the media, but they go to great lengths to conceal the other components of their revenue streams from the public, as well as from the agents, stars, and writers who may profit from a movie.
Each of the major studios, however, supplies the real numbers to its trade association, the MPAA, including a detailed breakdown of the money they actually receive, country by country, from movie theaters, home video, network television, local television, pay television, and pay-per-view, which is then privately circulated among the six studios as "All Media Revenue Report." (To see these private data click here.)
These numbers tell the story. Ticket sales from theaters provided 100 percent of the studios' revenues in 1948; in 2003, they accounted for less than 20 percent. Instead, home entertainment provided 82 percent of the 2003 revenues. In terms of profits, the studios can make an even larger proportion from home entertainment since most, if not all, of the theatrical revenues go to pay for the prints and advertising required to get audiences into theaters. (Video, DVDs, and TV have much lower marketing costs.)
This profit reality has transformed the way Hollywood operates. Theatrical releases now essentially serve as launching platforms for videos, DVDs, network TV, pay TV, games, and a host of other products. Even so, the box-office totals are losing their traditional influence. Up until a few years ago, the results from the U.S. box office largely drove secondary markets, especially video. If a film had a huge opening, the video chains would order 200,000 or more copies (at $60 or more apiece wholesale) for rentals. But this buying formula ended when consumers began buying DVDs at mass retailers. By 2004, Wal-Mart was accounting for more than one-third of the studios' revenues in video and DVD.
For merchandisers like Wal-Mart, DVDs are a means to lure consumers, who may buy other products, into the store. The box-office numbers are of little relevance (especially since it's teenagers who create huge opening weekends, and they cannot afford to buy more profitable goods like plasma TVs). Instead of box-office results, merchandisers look for movies with stars such as Tom Hanks, Julia Roberts, or Arnold Schwarzenegger, who have traction with their highly desired older customers. For example, whereas the sophisticated mind-bending love story Eternal Sunshine of the Spotless Mind had a dismal seventh-place finish in the box-office gross sweepstakes—earning a mere $8.1 million for the theaters during its opening weekend—thanks to the presence of recognizable names like Jim Carrey and Kate Winslet, it did extremely well on DVD, selling more than 1.5 million copies during its first week in the stores.
Edward Jay Epstein is the author of The Big Picture: The New Logic of Money and Power in Hollywood. (To read the first chapter, click here.)
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