Star Wars and Disney's Demands

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Episode Transcript

Speaker 1 (00:03):
Walt Disney Studios has some pretty steep demands for movie theaters,
wanting to show Star Wars The Last Jedi. How does
movie theater economics work? I'm Jonathan Strickland, and this is
text up daily. When it comes to accounting, very few
businesses are as opaque as the entertainment industry. You've probably

(00:24):
heard tales of blockbuster films packing in a seemingly endless
series of sold out houses only to show a financial
loss on paper. Things are slightly less mysterious on the
movie theater side of the equation, but it's still a
tiny bit confusing. The mouse House is about to put
the squeeze on movie theaters, perhaps even removing the incentive

(00:46):
for smaller theaters from even carrying the next Star Wars film. First,
Disney is demanding a sixty five percent cut of ticket sales.
This is pretty high. The average split between movie studios
and theaters tends to be between forty to according to
the Wall Street Journal. Really big hits, ones that are

(01:06):
most likely to pull in lots of crowds, may tip
the scales at six share for the studio. Disney wants
a bigger slice of the pie in return for granting
theaters the honor of showing the last Jedi. But that's
just the start of Disney's demands. The studio also wants
theaters to promise to show the next Star Wars movie
in the largest auditorium spaces for at least four weeks.

(01:30):
So if your local movie megaplex has an auditorium that's
larger than the others, that's where Star Wars will live
for a month. If a theater doesn't play ball, that's
take of the ticket sales jumps up to seven d percent.
There are other requirements to go along with these, including
Disney's demand that all marketing materials for the film must
be held back until Disney gives the all clear. You

(01:52):
could say that the studio is trying to control the
experience as much as possible to make it ideal for
the audience, but it's definitely being some theaters the wrong way.
It's particularly tough on smaller movie houses and less populated markets.
A four week obligation to show the same film in
the largest house could lead to lost revenues for a
small theater that only has a few screens. That could

(02:15):
prompt some theaters to skip Star Wars completely. And the
Star Wars. Fans who live in those areas may find
that they have to travel far, far away to catch
the flick. So this leads us to a question, what
are the economics of running a movie theater? How do
theaters make money these days? There are three main sources
of revenue for movie theaters. One is ticket sales. You

(02:36):
may have heard that ticket prices outpace inflation. According to
box office Mojo's figures, that's not always the case. It
sometimes is. There are stretches during which the ticket prices
have surged ahead of inflation, But sometimes buying a movie
ticket is a comparative bargain, taking inflation into account. At
any rate back in a ticket to the Moving Pictures

(02:59):
would set you back a single shiny quarter in today's money,
that's about three dollars fifty seven cents. So if you
wanted to see The Seahawk during its initial run, it
would set you back less than four bucks. But let's
take a big leap to nineteen sixty seven, when a
movie ticket cost a dollar twenty. Adjusting that for inflation,
it would cost you about nine dollars today in some markets,

(03:22):
that's still a bargain. Here in Atlanta. An adult ticket
to a first run movie I'm using for Ragnarok as
the lynchpin here, it would set you back fifteen dollars
forty cents. The average ticket price in the United States,
according to the National Association of Theater Owners, is eight
dollars in four cents, so in nineteen sixty seven, the
average price for a ticket required more purchasing power than

(03:44):
the average price in two thousand and seventeen, though both
of those figures are almost half of what it would
cost me to see a movie dag Nabbit. Movie theaters
get to keep a percentage of those ticket sales, and
the rest goes to the movie studios. So that's the
first source of revenue for movie theaters. The next big
source is one anyone who has gone to the movies

(04:05):
is familiar with, concessions. It's no secret that theaters make
incredible bank on selling cheap snacks for comparatively high prices.
One estimate I saw set a theater makes nine cents
for every dollar spent on popcorn, a n profit margin
is pretty darned impressive. Soft drinks are another big source
of revenue, though the actual figures aren't public information. Since

(04:27):
big companies like Coca Cola strike deals with movie theater chains.
You probably heard that theaters make more money on concessions
than ticket sales. That's absolutely true. The third big source
of revenue for movie theaters is advertising. This has caused
some friction among the movie going public. Some people have
even brought lawsuits against movie theater chains, arguing that the
start times advertised for films don't indicate when a movie

(04:50):
actually begins, but rather when commercials start advertising. Companies pay
handsomely for that screen time. Having a captive audience staring
at a big screen is worth a lot. We're talking
maybe fifty dollars per year per theater for some of
these deals. Make enough of those deals and that turns
into some serious cash. That being said, movie theaters have
overhead that eats into revenue. That includes paying utilities, taxes,

(05:14):
fees on space, and employee salaries. If Disney's move is
a sign of things to come, will that mean higher
ticket prices? Not necessarily, but it might mean you'll see
more ads in theaters, and that concession combo could set
you back a bit more. There's no business like it,
no business I know. That's all for today to learn
more about movie tech, as well as all other technology topics.

(05:37):
Tune into The Tech Stuff podcast. Each episode is a
deep dive on a particular subject, including some of the
most influential companies and people in tech today. I'll see
you again soon