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.
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.
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.
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
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.
“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%.
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!
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.
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.
Why is beer more expensive at the ball game?
I’m amazed that the authors think that good movies automatically have high attendance and bad movies do not.
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.
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…
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.
Hmmm, and an article from 2007 in the New York Times which states:
“Until several years ago, most of the grosses went to the studios initially, but theaters benefited more the longer a film played. As a result, megaplex owners had a financial disincentive to play a new movie on too many screens. Now studios and theater chains typically agree on a flat percentage split, no matter how long a movie plays.”
So it seems that the situation has in fact changed substantially in recent years, and is less inequitable than it used to be.
Not that it answers the original question, but it would be interesting to find out if youthful moviegoers are more likely to purchase popcorn than older moviegoers, or if dating couples are more likely to purchase popcorn, or families with children, and if so, does this skew the type of movies that exhibitors show, to attract more of this kind of customer, to maximize global revenue rather than attendance? A guy buying expensive popcorn to share with a date may be demonstratively buying a “gift” that is still inexpensive in absolute terms, and if the popcorn was too cheap it might lose its suitability for this purpose.
The price of popcorn at the movie theater is a monopoly price (you are not supposed to bring in anything from outside), so it is naturally higher. I’m sure that is not the complete explanation and there are many other explanations above.
It could be interesting to study the difference between US and European theaters.
I believe that to buy a theater ticket in the US, you actually have to go there. Because there are no assigned seats, you have no strong incentive to buy your tickets in advance.
Here in Europe (Prague, the Czech Republic), you can make reservations online (including picking the exact seats you want) and pay by credit card (you get a bar code sent to your cell phone that is scanned at the entrance instead of your regular ticket) – it is very easy to buy your tickets in advance and you have a strong incentive (better seats and sometimes lower prices) to do so.
I wonder how are concession sales different in these two situations and what is more profitable? For example, if you already have your tickets, you may be more willing to stand in line (you are not tired yet) and you could be more willing to spend money (because you did not have to buy expensive tickets just before that).
Steven Landsburg has talked about this question, and similar bundling issues, before:
http://www.slate.com/id/2135226/
Re: the revenue breakdown between movie makers and movie screeners, he made the point in a private email that if the revenue sharing were the cause of high popcorn prices, then the two parties would come up with a mutually beneficial alternative agreement taking into account concessions.
-Kevin
Sorry to barge in on your blog. Let me know if I’m dusty on my intro microeconomics, but isn’t popcorn prices high because it’s a complementary good to a movie? I.e., people associate watching a movie with eating popcorn, and so do not react as unfavorably and kneejerkedly when the price of popcorn go up? (Complementary goods like coke and pizzas, liquor in hotel minifridges, both of which vendors can charge high prices)
Two more notes. Doesn’t price discrimination have to include a choice? For example, a movie theater hands out popcorn coupons. Price discriminating customers would use them; those who don’t mind paying $5 would pay that amount.
I don’t know if shrouding is similar to bundling, in which case a movie theater would include the price of the expensive popcorn in the ticket price ($10+ $5 = $15), which movie theatres do not do.
I was the general manager of several South Florida multiplexes for AMC Theatres from ’86-93 and I can vouch for that “it’s the length of the concession lines” is almost always the right answer. Concession per head is *directly* affected by attendance. The higher the attendance, the longer the concession lines, the fewer people are willing to wait and possibly miss the start of their movie. Add to that the anxiety of getting a good seat during popular releases. I saw this repeated six nights a week for almost 8 years. The same title can have twice the concession per head on a weekday as it might during the weekend, regardless of whether the flick is considered “good.”
In the parlance of the biz, it’s called “opportunity to purchase”. A well-written performance schedule that doesn’t start the most popular movies all at the same time and that provides for second and third choices in the same or similar genres should the first choice sell out – THAT is how you best leverage your available staffing to increase opportunity to purchase.
On Mondays, the manager sits down with his list of upcoming releases and holdovers and through experience or by pure speculation he tries to craft a performance schedule that will cause the audience to appear at manageable intervals. And should they arrive to find their first choice sold out, a second, less hot title in that genre should be slated to start 10-15 minutes later, and a third or fourth movie in that genre shortly after THAT. For larger complexes with 20-30 screens, there are often at least three genre overflow chains driving the audiences to movies that they didn’t really intend to see that night. Of course, with the advent of multiple prints of the same title playing in the same theater, the overflow chain is somewhat of a dying art.
Predicting which movies will roar out of the gate is sometimes difficult to do and is heavily influenced by the nature of a particular theater’s audience demo (inner city, ‘burbs, college town, etc.) I once made the rookie error of scheduling Top Gun (opening weekend) and Crocodile Dundee (already a hit) to start at the same time, crushing our concession stand with over 1000 people in 15-20 minutes, a disaster which repeated itself every two hours for three days. Not very many people got their popcorn that weekend.
The “opportunity to purchase” issue was the single most important criteria by which my superiors rated my effectiveness. Slight dispensation was granted to managers saddled with an unfortunately high number of “art” or foreign films during a review period as those audiences tended to draw more seniors, which is another discussion entirely. On the flip side, higher concession performance was demanded for action/horror flicks that brought out the young males. But across the board, for any movie, concession per head was always at its highest on the lowest attendance nights, even when playing Oscar-quality movies that had sold out 20 consecutive shows over the weekend.
Movie goers are people who are used to paying high prices for things of dubious value. Movies, and snacks. Of course there are some good movies, but they are likely watched by many more people via dvd who forego the entire theater situation.
To the Czech guy above…of course you can buy your tickets online in the US. But no, we do not have seating arrangements.
Oh, and when I say everything perfecty, I mean everything. Instead of commercials before the main feature, they have short features and even cartoons, usually related in some way to the main feature. If you got to your seat any time during the hour before the “Walk the Line” flick starting time, you were treated to an hour of very rare clips of Johnny Cash .. including duets with Bob Dylan and Roy Orbison I had never seen. One reason the place sells out .. because people try to get there early. (Before ‘Shaun of the Dead’, they played an hour of Zombie movie trailers).
Bob
I’m not sure what year it was when I last watched a movie in an actual movie theater. What a miserable experience. The theater was so dirty that your shoes stuck to the carpet and the soundproofing was so poor that we heard more of the movie next door than the one we had paid to attend, which was a film version of a Jane Austen novel. The adjoining movie was something like a Bruce Willis epic. “Oh, my dear Mr. Westley, how indeed honored I am at your profession of esteem. I can only say in response …… EAT BULLETS, SUCKER!!! BAM BAM BAM!!! CRASH!!!!”
And they want us to pay Beluga caviar prices for their popcorn into the bargain? I don’t think so, not when by waiting a little we can enjoy the same movie in the comfort of our own home with a nice glass of wine and some real food.
I think this post is right on the money. I can’t stand getting over charged for my food at the theater. Especially, popcorn. It’s such an inexpensive good that when I hear the price come out of the cashiers mouth I feel like screaming WHAT!!!!! every time. So a couple of years ago I mad up my mind to buy popcorn before going to the theater. After many tries I found one online retailer who sells awesome varieties and they’re always on time with shipping which helps me time my movie dates. No, I get their best of popcornopolis gift basket at http://www.popcornopolis.com and I get a few options. I suggest everyone try it at least once. I get alot better quality popcorn for almost the same price and I don’t have to leave my home.
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One way to see this problem would be to think about a movie theater as a business that sells basically two things, tickets and popcorn. As a theater owner, I would keep the ticket price low to attract customers and have high prices for anything else inside the theater, in this case, popcorn. There are people who have a huge array of dish network bundles and don’t need to see the same movie again in a cinema but for the others, the wide screen lovers, a low ticket price will always seem like a good deal.
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