The Popcorn Palace Economy
The thirsty moviegoer fuels the business.
By Edward Jay Epstein
Posted Monday, Jan. 2, 2006, at 2:20 PM ET

Once upon a time, movie studios and movie theaters were in the same
business. The studios made films for theater chains that they either owned
or controlled, and they harvested almost all their revenue from ticket
sales. Then, in 1948, the government forced the studios to divest themselves
of the theaters. Nowadays, the two are in very different businesses. Theater
chains, in fact, are in three different businesses.

First, they are in the fast-food business, selling popcorn, soda, and other
snacks. This is an extremely profitable operation in which the theaters do
not split the proceeds with the studios (as they do with ticket sales).
Popcorn, for example, because of the immense amount of popped bulk produced
from a relatively small amount of kernels‹the ratio is as high as
60:1‹yields more than 90 cents of profit on every dollar of popcorn sold. It
also serves to make customers thirsty for sodas, another high-margin product
(supplied to most theater chains by Coca-Cola, which makes lucrative deals
with theater owners in return for their exclusive "pouring" of its
products). One theater chain executive went so far as to describe the cup
holder mounted on each seat, which allows customers to park their soda while
returning to the concession stand for more popcorn, as "the most important
technological innovation since sound." He also credited the extra salt added
into the buttery topping on popcorn as the "secret" to extending the
popcorn-soda-popcorn cycle throughout the movie. For this type of business,
theater owners don't benefit from movies with gripping or complex plots,
since that would keep potential popcorn customers in their seats. "We are
really in the business of people moving," Thomas W. Stephenson Jr., who then
headed Hollywood Theaters, told me. "The more people we move past the
popcorn, the more money we make."

Second, theater chains are in the movie exhibition business. Here they are
partners with the studios. Although every deal is different, the theaters
and the studios generally wind up splitting the take from the box office
roughly 50-50. But, unlike the popcorn bonanza, the theaters' expenses eat
up a large part of their exhibition share. They pay all the costs necessary
to maintain the auditoriums, which includes ushers, cleaning staffs,
projectionists to keep the movies in focus, and the regular replacement of
projector bulbs that cost more than $1,000 each. The way they can squeeze
out more profits from this business is to cut expenses to the bare minimum.
Not uncommonly, theater owners delay changing projector bulbs even if they
do not produce the specified level of brightness on screen. Or, rather than
using a separate projectionist for each film, multiplexes use one
projectionist to service up to eight movies, an economy of scale that saves
seven salaries. While these projectionists are able to change reels for one
film while other movies go unattended, this practice runs the risk that the
other films might momentarily snag in the projector and get burnt by the
lamp. To prevent such costly mishaps, projectionists slightly expand the gap
between the gate that supports the film and the lamp, even though this puts
a film slightly out of focus. This is often considered an acceptable
trade-off to the financially pressed chains. "I've never heard a teenager
complain about PQ [picture quality]," one movie chain executive said. "If
they find it too dark, they still have the concession stand."

Third, the theaters are in the advertising business. They sell on-screen
ads. And some advertisers are paying more than $50,000 per screen annually,
especially to theaters willing to pump up the volume to near ear-shattering
level so that seated customers will pay attention. Since there are virtually
no costs involved in showing ads, the proceeds go directly to the theater
chains' bottom lines. But to fit paid advertising into the gap between
showings, multiplexes have to cut down on the length of the studios' coming
attractions (which are free advertising), a decision that hardly pleases
studios. (Often, getting the coming attractions shown involves the studios
"leveraging our goodwill," as one studio executive explained. The studios
will threaten to hold back a popcorn movie, such as the new Harry Potter or
Star Wars sequels, unless the chain agrees to play a full reel of trailers.)

To keep their people-moving enterprise going, theater owners prefer movies
whose length does not exceed 128 minutes. If a movie runs longer than that,
and the theater owners do not want to sacrifice their on-screen advertising
time, they will reduce the number of their evening audience "turns" or
showings from three to two, which means that 33 percent fewer people pass
their popcorn stands. Even so, if a long movie promises to bring in a big
enough audience‹a promise King Kong made but did not deliver‹the theaters
will play it. Indeed, the ultimate test for the popcorn economy is: Will a
movie attract enough consumers of buckets of popcorn and soda to justify
turning over multiple screens to it? Theater owners know that the popcorn
audience is mainly teens. And, since the observation of teen test audiences
over many years has demonstrated that they prefer action to dialogue, expect
a salty, supersize portion of amusement-park movies this year.

Edward Jay Epstein is the author of The Big Picture: The New Logic of Money
and Power in Hollywood. 

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