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Why is popcorn so expensive at the movie theater?
There is now some data for the price discrimination hypothesis:
Looking at detailed revenue data for a chain of movie theaters in Spain, Wesley Hartmann ... and Ricard Gil ... compared concession purchases in weeks with low and high movie attendance.
The fact that concession sales were proportionately higher during low-attendance periods suggested the presence of "die-hard" moviegoers willing to see any kind of film, good or bad--and willing to purchase high-priced popcorn to boot. "The logic is that if they’re willing to pay, say, $10 for a bad movie, they would be willing to pay even more for a good movie," said Hartmann. "This is underscored by the fact that they do pay more, even for a bad movie, as is seen in their concession buying. So for the times they’re in the theater seeing good or popular movies, they’re actually getting more quality than they would have needed to show up. That means that, essentially, you could have charged them a higher price for the ticket."
Should theaters flirt with raising their ticket prices then? No, says Hartmann. The die-hard group does not represent the average movie viewer. While the film-o-philes might be willing to pay, say, $15 for a movie ticket, a theater that tried such a pricing tactic would soon find itself closing its doors.
"The fact that the people who show up only for good or popular movies consume a lot less popcorn means that the total they pay is substantially less than that of people who will come to see anything. If you want to bring more consumers into the market, you need to keep ticket prices lower to attract them." Theaters wisely make up the margin, he says, by transferring it to the person willing to buy the $5 popcorn bucket.
Here is more. The data are the data, but this doesn't strike me as a very general explanation. Specifically it requires that the high-value movie demanders are also the high-value popcorn demanders. If anything I would expect the casual movie fans to be the ones who want to buy the concessions; the seasoned moviegoer will have some other, better plan worked out in advance. For other explanations for high popcorn prices, you might look at the research on "shrouding," or consider that ticket revenue is shared with the studio but concession revenue usually is not.
Posted by Tyler Cowen on February 24, 2008 at 03:19 AM in Economics | Permalink
Comments
I'm gonna admit, it's my fault prices are high. My friends and I would sneak all sorts of goodies in, go in with an oversized jacket, walk out with a full stomach.
For the same price as the $6 popcorn at the theater, you walk across the street to the Jack in the Box and get 12 tacos.
I see the people who buy at the theater are the same people who get suckered into the "impulse buy" items at the checkout at grocery stores.
Posted by: Daniel Nicolas at Feb 24, 2008 4:44:31 AM
"ticket revenue is shared with the studio but concession revenue usually is not."
That very last part of your summary is key - therefore making popcorn, unlike the cited article's definition, the actual
primary product for the cinema owners - not the movies. I hardly ever go to the movies, and when I did it would usually
be on rainy days when others would have the same inspiration to both be out of the house and stay dry (as in hmmm, well
there's walk around the mall, go bowling, or try to find a movie worth sitting through that happens to fit the time slot
for being out and about). And when the word 'cinema' is mentioned, the almost-synonymous word 'lines' pops into my head
as well - given that I first wait in line to get tickets, then in line at the concessions stand, then in line for the
ticket-takers (some who can be like Gestapo if you then head down the wrong side because you had time to requestion what
movie you are most inclined to sit through for two hours), then lines for the restrooms (here's where I always feel ladies
get the very short end of the stick - that it's obvious theirs should always have three times as many stalls as the mens at
public-going places). By far the worst line though is the concession one - and how it's configured can help or hinder folks'
deciding if they're going to wait and get something before the show (and may also - rather than just the rediculous price
mark-ups - determine the level of cheaters violating several establishment's written rules of not bringing in snacks bought
elsewhere, tucked in deep in their underwear (again I'm envisioning the Gestapo's scrutinizing eyes - ready to yank me out of
the line and up against the firing squad's wall in that deep dark corridor that's supposed to have two more theaters - per
their advertised multiplex/cinemax #s - but is never lit ... hmmmm). The degree of autonomous full-servicing that each order
taker/cashier has affects greatly how much extra time it takes to move the line - and waiting for popcorn is usually a shared
station. There's definitely an art to knowing how best to increase the efficiency rate of concession buying - but paying a
minimum wage teenager is usually not going to result in his/her being incentivized to be more clever in acquiring the skills,
whereas if they tried better-paid full-timers who's learn the art of moving the line - they may see that the revenue grows to
a level far outweighing the extra labor costs. All I know is I despise lines - and most places line restaurant chains that
could have us holding a buzz/light box (no idea what they're called) for 45 mins. almost never render a total satisfaction
rating that the extra time warranted ... did I say that right, time for some java). When I was young, a lot of our movies had
intermissions that no doubt boosted concessions sales ... not sure if they had concede them (pun coincidental) to the powers
of Hollywood, but I'd think bringing intermissions back into practise would yield a lot more popcorn revenue. BTW, another
reason I dread cinemas - horrible java (they should put in Dunkin Donuts and Starbucks ... I'm brewing the latter now).
Posted by: TomG at Feb 24, 2008 5:44:30 AM
Maybe it's the Alchian and Allen theorem? The people who go weekly are having their date night with a babysitter at home, and they are thus willling pay up for the complete experience with popcorn. Or any other category of people whose time is too valuable to worry about sneaking tacos in.
All the young, single movie buffs i knew in my 20's were either on AMC discount watching programs or just renting lots of videos, so I'm doubtful that seasoned movie fans are even in the theaters.
Posted by: DK at Feb 24, 2008 7:31:04 AM
Alternative explanation: If you expect the film to be only so-so, you have a stronger incentive to enhance the experience by a bucket of popcorn.
Posted by: LemmusLemmus at Feb 24, 2008 8:33:37 AM
Yes, for the actual movie-goer it all depends on his/her/they're (the group dynamics/incentive structure becoming all the more
unpredictable) marginal utility at that outing ... if in idle mode, where wasting time watching a so-so flick isn't all that
big a deal - then enduring it to its conclusion doesn't mean much (and if enhancements like munchies help to offset the pain,
all the more likely the hard kernals will pop a bit more). If on the other hand there are sufficient alternatives to putting
up with a god-awful movie - such as a Barnes & Noble across the street (which along with its Starbucks is hard to beat) - then
things the opportunity costs of staying put go up substantially. And if you're trying to impress a date on how clever you are
at choosing the right ones to see, then ... wait, scratch that - there could be very good reasons why folk choose stupid ones
to go to afterall ... never mind ;)
Posted by: TomG at Feb 24, 2008 9:04:58 AM
As pointed out already, the important differentiator is the quote "ticket revenue is shared with the studio but concession revenue usually is not." I used to go to a large movie theater in the Chicago suburbs that charged a low, flat rate for tickets, regardless of time of day (in 1998 it was less than $5). However, their concessions were more expensive than other theaters in the area. When asked why they did that, they provided the above explanation. When asked how the movie producers handled the notion that they were getting less money per ticket, they pointed out that all of their theaters were larger than anywhere else, so on scale, the movie producers were seeing a goodly amount of revenue, plus they got the added benefit of increased attendance numbers. People were also far more willing to take a chance on a so-so movie at a low price point, which provided additional revenue that may not have otherwise been realized. Quite ingenious, really.
BTW, I just looked online and that theater does not seem to do single flat pricing any more. Instead, they have what appears to be 3 tiers based on time of day (morning, afternoon, and evening) with prices ranging from $5 to $9.75. So much for the good ol' days. ;) That's still cheaper than most large city theaters, though.
Posted by: Ben at Feb 24, 2008 10:14:16 AM
As mentioned above, lines need to be considered very heavily here. Often if there is a short or no line I'll get some candy or something from the stand. But, if there's a long line or it's close to starting time I'll skip it. Of course there's longer lines at more popular movies and I'm likely to be there closer to the starting time because of lines to get tickets, get in, general crowding, etc. So, in my case this explains a very larger percentage of the difference. I expect it's a pretty larger part of the explanation over-all.
Posted by: Matt at Feb 24, 2008 10:43:47 AM
I'm with Matt and Tom on this one. If the concession line is long, the time adds to the price paid. If there is low attendance (short lines) you only pay the posted price so you buy more.
Posted by: asparagus at Feb 24, 2008 10:58:11 AM
"Why is popcorn so expensive at the movie theater?"
Uh, because the theatres can charge that much.
And, the margins are awesome. The average gross margin on a concession sale is 87%.
Posted by: Dave Barnes at Feb 24, 2008 11:22:15 AM
I'm surprised you haven't got to the heart of the matter.
According to a long-established revenue sharing formula, when a movie first comes out, pretty much every penny of the ticket revenue goes to the movie studios and hardly any goes to the theater. For subsequent weeks, the theater's share of ticket revenue gradually grows, but the problem is nowadays everyone goes to see a movie in the opening weekend. This revenue-sharing formula is a relic of the past, when the same movie would run for months with sustained ticket sales and long lineups (this was still the case when Star Wars first came out for instance). Studios have consistently refused to even consider altering this to something more equitable for the theaters in the modern era where nearly all ticket sales are front-loaded in the first week or two.
As a result, theaters make nearly all of their revenue from concession sales. The movie itself is simply a vehicle to bring people in, in order to sell them popcorn. Movie theaters simply couldn't survive on ticket revenue alone: they hardly get any.
Such misaligned financial incentives also explain why movies are still shipped to theaters in the form of bulky expensive film prints rather than electronically in digital form. It would save studios a lot of money (making several thousand film prints and shipping them is very expensive), but would cost theaters a lot to install new digital projectors, with no way to recoup the investment.
Posted by: at Feb 24, 2008 11:24:19 AM
Somewhere in the old section of Philadelphia is an artsy movie theater that, in 2006, was charging the standard price for movie tickets ($9-$10) that theaters in big cities charged. Its concession stand was a Starbucks-like coffee shop: coffee, tea, scones and muffins for $2; lattes for $3 and up; perhaps also some decent imported chocolate bars. It's probably appropriate to describe the offerings as nearly identical to what is available at intermission of the opera or a theatre.
It was fantastic. Food I wanted to eat (not a big fan of movie theater popcorn; the only concession I usually ever get is a small diet coke), at a price that was at worst $0.25 or $0.50 higher than what it would have been outside of the theater.
Now if I could only find a place in Chicago or DC that allows me to watch my movies with a civilized cup of tea!
Posted by: Amanda at Feb 24, 2008 11:33:03 AM
What about variable ticket pricing based on how popular the film is? The theater could break it into bands of pricing, or just say the max price is $10 and go down from there.
I'm surprised there hasn't been more of a call for 90 minute films instead of these 3 hour epics. With 90 minutes the theater can show twice as many films and, potentially, get twice as much concession stand revenues.
I've always thought there's a market for 45 minute long short films that can be seen over a lunch break. Gets people out of the office for a bit and fills up the theaters during a down time. Maybe a serial done in this fashion? Each week a new one comes out.
Posted by: BlogReader at Feb 24, 2008 11:33:40 AM
I agree that it could be a capacity issue. Bigger crowds, longer lines, slower service, more people skip the popcorn.
Plus how much does popcorn sales vary by gender and "date" nights. What types of movies sell more popcorn: action, chick flicks, gross out ...
I hated the sound of people chewing on various items when I am watching a good movie. If I really don't care for the movie, I'm less concerned. I was, once upon a time, a heavy consumer of movie tickets but the crowds seemed to get increasingly rude. I now watch at home, plus I'm married.
Posted by: DanC at Feb 24, 2008 12:28:17 PM
I endorse the line theory.
I've never understood why theaters are the way they are on concessions. I mean, it's bad enough that I'm paying $9 for a drink and popcorn. But do I need to way 10 minutes to do that? That kind of service is insulting. And obviously it's worse the more crowded the theater is. They're paying the kid behind the counter $7 bucks an hour or so. Yet at the big cineplexes I sometimes visit, they'll usually only have one of the two concessions stands open, and not all of the registers open. What are they waiting for to open the others up? A busy Saturday night would seem the right time.
Posted by: Thomas at Feb 24, 2008 12:38:44 PM
There are a decent number of people who think movie theater popcorn is significantly better than non-movie theater popcorn. Many people are willing to pay a price premium to get this specific type of popcorn.
I'm sure this only a partial explanation, but it is worth pointing out.
Posted by: GU at Feb 24, 2008 1:49:42 PM
It may not be this way in Spain, but in the US most box-office revenue (as much as 80% or more in the first week) goes to the studios rather than to the theater itself. In fact, the majority of theater revenue comes from concessions. As such, theaters have very little incentive to raise ticket prices. Even if doing so would maximize ticket sales revenue, the theater loses too much in popcorn sales to make it worth while.
Posted by: Jon at Feb 24, 2008 2:32:25 PM
Why is beer more expensive at the ball game?
Posted by: jorod at Feb 24, 2008 3:02:34 PM
I think it has to do with the value and cost of a good seat. I wonder whether you'd see different behaviors in cinemas with assigned seating (not uncommon in Europe, or at least they used to not be) vs. cinemas with open seating.
The popcorn lines aren't usually all that long, even at the worst of times. But by the time you are confronted with them, you've already paid your money -- more per minute than for most other legal entertainment -- and committed to the movie. The value your receive for that money is predicated on your getting into the theater on time, and to a slightly lesser extent on your getting a good seat.
This also suggests a reason for the disparity in popcorn sales between periods of high and low attendance.
During periods of high attendance, it's much more likely that people will be going to the movies as part of a group of at least two, and often more. These groups, including your own, naturally will want to sit together, which effectively reduces the capacity of the theater as you wind up with marooned single seats here and there.
As your party size increases, the number of sufficiently-large blocks of decent seats decreases, and this number decreases more rapidly as showtime approaches.
Further, when the theater is full the number of good seats in blocks of any size decreases, because some of the seats are going to be behind tall people, in front of kicky children, next to people who can't fit in one seat, etc.
So at periods of high attendance, you wind up with a resource ('good' seats) that's more scarce to begin with, and which gets even more scarce with time. You can spend your time in obtaining a better seat, or in obtaining popcorn.
The UCSC press release says that people who buy tickets other than at the box office tend to buy more popcorn; this may be because they save time not waiting in line to buy tickets and don't have to prioritize seat-selection quite as much.
What you'd really need to see is the concession sales volume vs. minutes before showtime. If I'm right, you'd see no significant difference in sales to people who show up early, and a sharp drop in sales to people who show up closer to showtime and who need to get hold of those seats. If this is true, it would suggest that rather than showing bad movies, the cinema operators should have guys walk around the theaters selling popcorn and Cokes before the movie starts. I've seen this done, but it's not common.
Posted by: Tino at Feb 24, 2008 3:31:01 PM
I'm amazed that the authors think that good movies automatically have high attendance and bad movies do not.
Posted by: Trey at Feb 24, 2008 4:53:00 PM
This person is so wrong that they posted anon so they could not be contacted. Please... do your homework before you post. The first people out of the ticket price are always the exhibitor, and usually at a rate of 45% of ticket sale price. Or its a 4 wall rental agreement that the studio pays per screening and this sits around 200-600 per show depending on what the film is and how long the rental is.
As for the popcorn bit...they need include popcorn in the price and mark up the premium goodies like licorice, and truffles. If the exhibitor could get 6 bucks per person with a ticket price of 12 bucks that included popcorn and soda you would see big lines at the theater again.
"I'm surprised you haven't got to the heart of the matter.
According to a long-established revenue sharing formula, when a movie first comes out, pretty much every penny of the ticket revenue goes to the movie studios and hardly any goes to the theater. For subsequent weeks, the theater's share of ticket revenue gradually grows, but the problem is nowadays everyone goes to see a movie in the opening weekend. This revenue-sharing formula is a relic of the past, when the same movie would run for months with sustained ticket sales and long lineups (this was still the case when Star Wars first came out for instance). Studios have consistently refused to even consider altering this to something more equitable for the theaters in the modern era where nearly all ticket sales are front-loaded in the first week or two.
As a result, theaters make nearly all of their revenue from concession sales. The movie itself is simply a vehicle to bring people in, in order to sell them popcorn. Movie theaters simply couldn't survive on ticket revenue alone: they hardly get any.
Such misaligned financial incentives also explain why movies are still shipped to theaters in the form of bulky expensive film prints rather than electronically in digital form. It would save studios a lot of money (making several thousand film prints and shipping them is very expensive), but would cost theaters a lot to install new digital projectors, with no way to recoup the investment."
Posted by: david geertz at Feb 24, 2008 5:17:34 PM
What about those who buy the popcorn buy the drink and therefore use the restroom which costs money to maintain?
I dont know. This wreaks of Landsburg, Armchair Economist. I love it.
Posted by: bpp at Feb 24, 2008 7:14:23 PM
I thought I'd chime in with a little theater cost/revenue analysis, given that I study the movie business. For the theater chain that I have data for, the margins on concessions are very large -- for every dollar of concessions revenue, only about $.16 of it goes for cost of goods sold and labor. However, don't let that make you believe that theaters make all their money on popcorn. If you look at the amount of box office profit (revenue earned minus what they have to pay back to the distributors of the movies), it's just about as much as concessions profit.
Posted by: Dave at Feb 24, 2008 7:25:52 PM
And I thought I'd correct the person who posted a few posts before me. The most any theater ever pays for a movie the first week is 70% of the box office revenue. While that's not a lot, it's more than "hardly any." And more movies these days are going to straight aggregate deals, where the rental rate is constant for the live of the movie, usually at around 52%. Again, about half the money the theater gets is from tickets and half is from concessions. It's amazing what a little actual data will reveal...
Posted by: Dave at Feb 24, 2008 7:28:34 PM
Hmmm, some sources say the revenue share between distributors and exhibitors is about 80% to 20% over the first two weekends, while some other sources mention a roughly 50% split overall without going into detail. I was unable to find again the original reference, which was from some years ago. Is it possible that modern theaters with high-capacity stadium seating gave theater owners more clout in dealing with distributors? Has the revenue-sharing situation changed from what it was, say 10 years ago?
By the way, way back when, ticket sales for Star Wars peaked in the 11th week, something which would be unthinkable today.
Posted by: at Feb 24, 2008 9:48:55 PM
And another paper from 2001 describes revenue sharing as follows: "For example, the modal contract for one exhibitor across more than 100 movies was for the distributor to receive 60%, 50%, 40%, and 35% respectively of the box office receipts in each of the first weeks of a movie's run. However, if the box office surged beyond a certain pre-specified level, then the distributor would receive 90% of all receipts".
This would seem to imply that for blockbusters, the distributor does indeed get the lion's share of the revenue.
Posted by: at Feb 24, 2008 9:59:24 PM
