So how do they make their money?

June 16, 2009 2:21 AM

Our local cinema offers monthly subscription. How do they make their money?

Here in the UK many cinemas offer monthly passes. Mrs Mutant and I sign up at our local as their pass is sold month to month so there is no costly annual contract and, most importantly, we break even on the £17 cost after seeing just three movies.

So how does the money side work? In my ignorance I've assumed that production and distribution companies making the movies get a cut from each ticket sold, with the cinema keeping all revenue from refreshments.

But some months we've seen as many as eighteen movies (summer blockbuster season!), which would mean those making the movies would get far less than if the tickets were sold at full face value.

And nobody is asking us for our details when we purchase refreshments, so clearly those making the movies aren't getting a cut of this revenue stream.

Seems like someone is getting squeezed here. Who is it?

posted by Mutant to work & money (20 comments total)

I've assumed that production and distribution companies making the movies get a cut from each ticket sold, with the cinema keeping all revenue from refreshments.

I dont' think this is how it works generally. I thought the Cinemas pay a flat fee to get the film and perhaps a per person screening royalty rate. (but not the full admission price).


http://en.wikipedia.org/wiki/Film#Venues

The movie theater pays an average of about 50-55% of its ticket sales to the movie studio, as film rental fees.[11] The actual percentage starts with a number higher than that, and decreases as the duration of a film's showing continues, as an incentive to theaters to keep movies in the theater longer.
posted by mary8nne at 2:45 AM on June 16

A friend of mine who was involved in running a small independant cinema (also in the UK) told me they paid a fixed price per week for a film, plus a percentage of takings. On that basis, profits would come from a mix of ticket sales and refeshments. I would guess that the distributor gets a much smaller cut (if anything) from monthly passes.

It's all about statistics though, isn't it? How many monthly pass holders watch more than three movies a month? How many of those pass holders now feel they can afford to buy the expensive refreshments because they didn't pay to see the movie? And how likely is it that a frequent monthly pass user will occupy a seat in a full house that would have been taken by a conventional ticket purchaser had they arrived earlier?

Having been involved with one or two small organisations/clubs where there was a membership fee, I think the under-utilisers tend to easily subsidise the minority who take full advantage of their membership.
posted by le morte de bea arthur at 2:46 AM on June 16

The cinemas make most of their profit margin at the concession stand. Movies are an excuse to get you in the door for a few hours.
posted by Dagobert at 2:55 AM on June 16

You could also say that monthly-pass holders are less likely to see a film in another cinema.
posted by Edwahd at 3:08 AM on June 16

When I had a monthly cinema pass I noticed my tickets did have a value printed on them, even though I was paying monthly. Maybe they use that price to calculate the percentage that goes to the distributor? It was lower than the regular adult price.

I was always surprised that they did monthly passes, as they were such a good deal for anyone going to the cinema on even a semi-regular basis - I only had to see four or five a month to be getting a good deal. I figured they made their money back on increased refreshment sales, and the number of people who took out the 12-month minimum contract and then didn't go that many times, like gym memberships. I also used to go and see films at odd times so I could fit more in, so they weren't losing anything by having me fill a seat in a half-empty screening.
posted by penguinliz at 3:26 AM on June 16

I have one of these passes too. My theory, and it's only a theory, is that not only do they make more on refreshments that way as you'll definitely be coming in the door, but also if you want to go to see a film with a friend, you are more likely to take your friend to the cinema where you already have a monthly pass. Therefore they're going to get your friend's cash.

The big chain cinemas started offering these passes a few years ago in Paris, mainly (I think) in an effort to squeeze out the smaller cinemas altogether. Now in Amsterdam and London many smaller cinemas offer a monthly pass as it's really the only way they can even hope to compete with the big chains.
posted by different at 3:58 AM on June 16

Just as a data point, I had a similar membership about six to eight years ago, and they suddenly changed over to having it as an annual thing - I think there were both direct debit and once-off payment options - which obviously catches the thing of interest dropping off/ebbing like any other annual contract. I had assumed the refreshments and captive audience were bringing in the money, and there were enough screens that a full house was rarely more than an opening weekend issue (with a few near-empty screens at off-peak times being more likely), but I guess there was still more to be made in the longer commitment.

Living in a town where there's usually one Angels & Demons-esque blockbuster and two films about dogs on at a given time, I'm a little envious.
posted by carbide at 5:07 AM on June 16

Well think about it. Whether or not you actually see a movie makes no difference to the bottom line of a theater. An empty seat costs just as much as a full one.

My guess is that they're trying to make some money off unsold inventory, plus they can oversell. Many people with passes may not even go see a movie three times in a month.
posted by delmoi at 5:09 AM on June 16

Yeah, I definitely think it's the 'gym membership' model. I had one of the first of these kinds of passes, ten years ago from Virgin Cinemas. It was £14 a month, no contract, and it was fantastic. I kept the pass for a few years and it got me through some pretty tough times, economically, because for a pretty paltry fee, you basically had a months entertainment.

Then they brought in yearly contracts, and I ditched it. I guess they've now figured out they'd probably sell more of the things if they offered them without a year's commitment.

I think delmoi has it though - they're getting £17 of guaranteed cash out of you, and you're getting a good experience out of it, so you're more than likely to give them another £17 next month. You're taking advantage of it, massively (and good on you!), but it makes zero difference to the cost of running the cinema if your bum is on a seat or not. They still need to heat, light and provision the place, pay the projectionists and ushers and counter staff regardless. And if you're going regularly, they reckon you're probably going to a) spend more than you would in a given year without the pass, because hey, after the third one it's free, right? b) bring full-price paying friends along and c) maybe buy some popcorn, where their real margins are.

Over the course of a year, we're talking about £204 worth of revenue to them, as a baseline, not counting the a) b) and c) above. In a normal year, without a card, you might go to the movies maybe, I dunno, once or twice a month? Call it £10 a ticket (normal for London) and that's £120 - £240 revenue. Which would you rather take, £204 of semi-guaranteed, up-front revenue or that range of possible revenue? Plus you can probably kiss goodbye to a good 50% of your popcorn n' hotdog money, as people will walk straight past muttering about just having spent £10 on a ticket.
posted by Happy Dave at 5:27 AM on June 16 [2 favorites has favorites]

I worked for movie theaters in the US for five years. Although there was no subscription model, it was indeed the concession stand that made up the bulk of the revenue. And the stringency with which concession supplies were audited was something fierce. We counted every cup, candy, and popcorn bag at the end of the night. The only thing we ever gave away free were small dixie cups for water. The containers cost more than the content (popcorn and soda), and that was bottom line that counted. We could eat popcorn and drink soda all day, as long as we didn't use the cups that were for sale.
posted by kimdog at 6:14 AM on June 16 [1 favorite has favorites]

Happy Dave nails it succinctly and I will add that businesses really like subscription based revenue. It is known quantity and helps with future planning.
posted by mmascolino at 6:29 AM on June 16

The cheap, free and flexible nature of it gets your bum into a seat that would probably be otherwise empty and making them no cash at all, they just hope you'll be eating expensive popcorn when you attend. They are happy to have that seat filled even at a greatly reduced price because it's highly unlikely that every screening will be a sell out, or close to it. Cinemas are just snackbars with big screens to distract the customers for a few hours.
posted by fire&wings at 6:47 AM on June 16

I'd think that they'd assume you'd bring a friend (or two) to see the movies with you.
posted by gwenlister at 7:14 AM on June 16

This sounds like an awesome idea. I wish we had something like this in the US. I would go to the movies a lot more. In fact I might even buy something to eat as well. Good idea too bad no one would do that over here.
posted by Mastercheddaar at 7:16 AM on June 16

Firstly, movie theaters make way more profit on concessions than ticket sales, which are often regarded as a loss leader.

Second, here in the U.S. at least, theaters operate on a model that scales the ratio of their revenue vs. the distributor based on how long the movie's been out. Opening weekend, most of the ticket sales go to the distributor. The theaters get to keep most of the revenue from movies that have been out for a while, and have smaller crowds.

I can't say for sure how the subscription model factors into that, but I can easily see it giving the theater an edge, since they're barely getting any revenue anyway from new releases.
posted by mkultra at 7:34 AM on June 16

Concession stand Items are at least 80% profit. I would imagine this would hold true with being the money maker at most places.

This is at a medium sized chain in US. The film rent usually starts out at like 80-90% of the ticket costs goes to the film company the first two weeks of a show. Then they slide to be more even between the theatre and the film company each additional week. Also, the bigger you are, the better percentage you can negotiate.

I am curious if the subscription model would even work with how crazy the film companies get with counts here in the US.
posted by Amby72 at 9:31 AM on June 16

I used to work for a very very large US theater chain who's headquarters was in town. Generally speaking, the margins on tickets are crap. Once you factor in labor, rent, film rental fees, and other fixed costs, it's a losing game to charge significantly more than the theater a few blocks away.

Likely, you show your monthly free pass and they issue you a ticket; the theater covers that cost in hopes that you'll continue shopping at their concession stand. This is where I worked, mostly. Lemme tell you about margins on concession: food is high markup, but soft drinks are even higher. The most expensive part is the cup! Which has advertising on it. The math is easy (but very old and specific to my nation and theater): a large soda for $4.00 costs maybe $.06 == HUGE MARGIN. Even if you just buy a drink, that's profit they don't have to share. Throw in some popcorn (with a custom movie promotional paid for by the film studios) and you've more than covered costs.

So yes, film companies are getting the squeeze here, but really, they've earned it. George Lucas negotiated a special contract term in film rentals for Star Wars: Episode I: no free employee tickets. I hear that was less about maximizing personal profits and more about claiming the Highest Box Office Revenues Ever title (held by Titanic). Plus, they've been moving DVD releases sooner and sooner after box office release. And Netflix isn't helping matters; probably your "theater subscription" was conceived as a way to compete with that. Plus, film studios may not even care. Lower margins can be made up for in volume, after all.

Oh, and here's a special bonus for you financial / economists: the Federal government exempts Movie Theaters from overtime pay restrictions.
posted by pwnguin at 10:02 AM on June 16 [1 favorite has favorites]

yes, there are weird loopholes in the federal tax code about movie theaters, but I believe it has something to do with the size of the business.
posted by Amby72 at 1:05 PM on June 16

Thanks for all the input guys; I guess I can go along with the argument that they're hoping to make up for any revenue shortfall from concessions.

So it seems from a money standpoint, the cinema pays a generally declining fee (by viewing/daily/weekly) to the distributor, in the hope that a combination of single ticket sales, subscription ticket sales and concession stand revenue allows them to break even or turn a profit on each movie.

Please clarify if necessary, but in any case thanks!

(We're off to cinema this afternoon to see the eighth movie on our three week old monthly pass, and yes, we do purchase bottled water and popcorn. Wine for evening movies! So seems like we're helping out this family owned cinema, which was actually the root cause of my query, didn't want to see these folks close down ... )
posted by Mutant at 1:31 AM on June 17

Well, I wouldn't say they turned a profit. Despite the very high margins I spoke of, I repeatedly heard that the theater as a whole was losing money once rent is factored in, and the industry as a whole is basically treading water or losing money. Think of it this way: if showing films is so easy a few bored college students can put on Student Union showings for campus, the barrier to entry is pretty damn low.
posted by pwnguin at 3:34 PM on June 17