Why then do theaters let 88% of their seats sit idle? The reason is simple, they have a price floor set for tickets that is above the market's equilibrium price, thus creating a surplus. If the theaters can fill those seats with ticket and concession sales at a level that covers their marginal costs, their profits are sure to increase it is basic microeconomics 101. 88% of seats sit empty and the industry still makes $40 billion dollars per year. The Deal Flicks CEO points out that 88% of theater seats sit empty. ![]() In the video the interviewer states "the model makes perfect sense," and it does. Firms maximize profits when they increase supply until margin revenue equals marginal costs, and firms like Priceline (PCLN), Hotwire, Expedia ( EXPE ), eBay ( EBAY ), Amazon ( AMZN ), Deal Flicks and others all help firms and individuals to do just that maximize profits. ![]() A hotel can let a room sit vacant, or rent it out for a nominal fee, and as long as that fee is greater than the cost of maid service (and maybe some stolen towels and soap) its profits will increase. As long as the airline covers those almost negligible marginal costs with the price of the ticket, their profits will increase. "A little of something is better than all of nothing," the cost to the airline of letting an additional passenger on board is basically a small bag of peanuts, a can of coke and a slight, most likely immeasurable decrease in mileage per gallon due to the extra weight. The cost to the airline is basically the same if the jet is full or if the jet is empty, which is why auction-type pricing applications are so successful when applied to the airlines industry. If a jet is scheduled to fly from New York to San Francisco, the majority of the costs involved are in flying the jet from coast to coast. The reason for this is that the majority of their costs are fixed or sunk and relatively substantial, whereas the marginal cost of the service they provide is almost negligible. Certain industries like the airlines, hotels and theaters have a cost structure that is ideal for auction/name-your-price applications. If you ever wondered what your professor was talking about when discussing marginal revenue and marginal costs, this is the perfect example. What I love about the concept Deal Flicks is based upon is that it is right out of an microeconomics 101 text book. This video titled, " Dealflicks: Priceline For Movie Tickets" explains the concept. The same " name-your-price" solution that has revolutionized the hotel, airline, insurance and yard sale industry is coming to your local theater. That concept is flexible pricing for movie theaters. “More people are going to the concession stand, and they’re buying more things when they get there.Every once in a while you discover an idea that is so obvious that you hit yourself in the forehead and shout "Ugh.why didn't I think of that!!!?" The idea is so simple it should have been obvious to everyone, but it is just now coming to the market. “Clearly, guests returning to our theaters are eager to participate in the full theatrical experience,” Adam Aron, CEO of AMC, said on an earnings call. Per-patron food and beverage revenue at AMC (which courted individual investors just a year ago with offers of free popcorn) jumped from $4.76 in the first quarter of 2020 to a record $7.37 in the same period in 2021. Theaters are less in the movie business than they are in the popcorn business, since the film industry takes such a big percentage of the box office returns.Īt one point, movie theaters were making as much as 85% of their profit on concession sales.Īudiences who are returning to theaters are chowing down, too. It’s a movie-time staple, but the costs are inflated a ridiculous amount, which patrons don’t mind paying. ![]() Popcorn is an enormous profit driver for theaters. And the tight labor market is making it harder for some theaters to adequately staff concession stands. The liners of popcorn containers that keep the grease from coating people’s pants as they hold the bucket or bag on their lap are getting harder to find. One company is already paying growers more to encourage them to keep the popcorn corn planted. That’s not an immediate problem, but could become one as we get deeper into summer. The Wall Street Journal reports that farmers are growing less popcorn these days, focusing instead on soybeans or other types of corn, which they can sell for more money. Supply-chain issues with popcorn could bring about a concession crisis that cuts deep into their profit margins. But when it comes to the snack supply, theater owners are worried.
0 Comments
Leave a Reply. |