How do movie theaters make their money

Mobile Newsletter banner close. Mobile Newsletter chat close. Mobile Newsletter chat dots. Mobile Newsletter chat avatar. Mobile Newsletter chat subscribe. Prev NEXT. The theater negotiates the amount of the house allowance, or nut , with the distributor. This is a set figure to cover basic expenses each week. The percentage split for the net box office is set. This is the amount of box office left after the deduction of the house allowance.

The percentage split for the gross box office is set. The length of engagement is set typically four weeks. Here's the path a film usually takes to get to your local theater: A film is completed and sent to the studio that owns its rights. The studio makes a licensing agreement with a distribution company. Once inside, you play by their rules. And if you're like me, you spend way more than you expect to. AMC isn't really selling you a movie ticket. They're selling you this food.

You can't get in here without spending money. It all starts with the ticket. Going to see a movie means you have to spend at least the cost of admission. But if you think that money is going to the theater, you're wrong. The bulk of that ticket price goes back to the distributor.

And if you want to see a higher-quality format, you have to pay a huge premium. But it doesn't really matter how much your ticket costs, because if you're going to a movie theater, chances are you're buying some food.

Narrator: That's Kim Moon. She's a marketing instructor at the University of Illinois at Chicago. And she's right. Without concession sales, both AMC and Regal would not make a profit. Moon: So, when you walk into a theater, you will see tons and tons of imagery, as it relates to food and beverage. Narrator: Most movie theaters are designed so you have to walk past the concession counter.

The actual movies are tucked away, down long, dark hallways. But as soon as you get inside the theater, the food is bright, colorful, and, thanks to the glass cases, visible at every angle. You can see popcorn popping, stacks of candy, and giant soda machines. Kit Yarrow: The big, huge boxes serve sort of like a billboard effect. They're enormous and so calling out to you more than an appropriately sized box. When you open it up, though, it's about the same amount of candy in there as a small box that you might find at the drugstore.

Narrator: All of this is surrounded by TV screens that loop beautiful shots of soda and popcorn. Food is constantly grabbing your attention. Unlike a restaurant, where the food is prepared out of view, a movie theater makes everything right in front of you.

Yarrow: Visually taking over the space, they also are physically taking over the space. It is interesting to me how many movie theaters are willing to operate at a loss to increase ticket sales, in order to make as much of a profit as they can on solely their concessions. As the theaters continue to raise their prices on concessions, I am curious on what will be the highest price consumers are willing to pay for concessions before they forgo the process of buying concessions completely.

I have never seriously thought about the process of how individual movie theaters gained the ability to show certain movies.

The current leasing method between theaters and distributors must put a pinch on theaters to make profits in other areas i. But my real question is how do movie theaters who are not owned by larger groups, such as Regal or Carmike, stay in business? The costs incurred by these types of theaters must chip away at profits much faster than the larger theater chains. You ask an economies of scale question. What are the advantages of being part of a larger group? Can you lease a film at the group level, rather than the individual location level?

Are there real estate management and other operational benefits? Given the fact that theaters make most of their revenue from concessions, it is puzzling why they steadily raise ticket prices. Perhaps the distributing companies force them to charge a certain level for tickets because that is how they get their share of the revenue in this industry.

As Jordan mentioned above, it is interesting to see how movie theaters are willing to operate at a loss in order to increase ticket sales and generate more profit from concessions. Additionally, how much money do theaters lose on average from goods smuggled into the theater to avoid the prices at concession stands? There are so many factors that affect this model, and I think it could definitely be explored further in future blog posts. Television rights, video-on-demand, and streaming services are increasingly important sources of income for movie studios.

Some American films make more money internationally than they do in the United States. Article Sources. Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts.

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