Why Are Movie Theaters Struggling To Make Money?
Is the end of cinema truly nigh? Just a few years ago, such a notion would have been laughed off as nonsense, but as ticket prices have steadily increased while the overall movie theater business has tanked, it’s become a legitimate question.
The cinema industry has had its ups and downs before, but the current downward trend looks like it could be permanent. For generations, movie theaters have enjoyed a virtual monopoly - anyone who wanted to see a new film when it came out pretty much had to do so at a theater. However, with streaming services like Netflix and Amazon Prime along with various On Demand outlets, that monopoly no longer exists.
People still love watching movies, but even when they actually go to a theater, the multitude of discount movie-viewing options like Moviepass have created a cutthroat market traditional movie theaters might not survive. Unless theaters can rapidly innovate, there’s a very good chance future generations won’t understand what it means to “go to the movies.”
US Ticket Sales Hit A 25-Year Low In 2017Photo: Saniya Motiwala / Wikimedia Commons / CC BY-SA 3.0
One doesn’t need to dig too hard to find the primary reason movie theaters are rapidly becoming less profitable - people are simply buying fewer tickets than they were before.
The domestic box office hit a 25-year low in 2017 pulling in roughly $1.2 billion in ticket sales. Attendance continued to decline through the first quarter of 2018, despite Earth-shattering hits like Black Panther and Avengers: Infinity War.
There are a number of factors influencing this drop in admissions, but it’s clear theaters aren’t having an easy time drawing in movie-goers.
Only A Portion Of Ticket Sales Actually Go To The TheaterPhoto: 293.xx.xxx.xx / Wikimedia Commons / Public Domain
The downward trend in ticket-purchasing is a compounding problem for movie theaters, as they only receive a percentage of ticket sales to begin with. When you purchase a ticket, the majority of your money goes to the studio that produced the film. Theaters often take in as little as 20% of the revenue raised by films from major studios, and that drops even lower during opening week when studios bring home up to 90%.
Theaters rely on mass quantities of ticket sales to see a real return, and this has often been cited as the reason why concession food is so overpriced - theaters need to maximize concession sales in order to turn a profit. However, fewer ticket sales directly translates to fewer concession sales; a core issue threatening the future of theaters.
With Fewer Ticket-Buyers, Theaters Have Been Forced To Diversify
Some theaters have decided to diversify their business strategy in an attempt to survive the decrease in customer interest. After several disappointing quarterly reports, Cineplex decided to open a series of standalone arcade-bars called Rec Rooms in 2016, but its still unclear whether this venture will pay off in the long run.
Theaters have also tried to offer a more diverse range of movie-going experiences, including special live events, VIP rooms that serve alcohol, and 3D or 4D options, albeit at a higher price. Through these additional revenue streams, theaters are pulling more money out of each customer. While all these premium options can help theaters bring in more money, there's still the core issue of low ticket sales to contend with.
Streaming Services Have Taken A Major Chunk Of Movie BusinessPhoto: Netflix / Wikimedia Commons / Public Domain
By far the largest factor in the downward trend in ticket sales is the increasing prevalence of streaming services. Going out to the theater requires a lot of comparative time and energy, and many individuals have found they prefer the comfort and ease of Netflix.
While Netflix is probably the name most frequently cursed in the offices of Cineplex and AMC, they’re only the most prominent of a burgeoning streaming market that includes Hulu, Amazon Prime, and HBO Now. Audiences have quickly become familiar with the notion of having new-ish movies delivered to their living rooms with minimal effort, and their motivation to get out and see brand new films in theaters has suffered because of it.
Ticket Sales Are Now Almost Entirely Based On BlockbustersPhoto: KaterBegemot / Wikimedia Commons / Public Domain
Audiences have made it clear they don’t mind waiting for most films to come to Netflix or some other streaming service; the impetus to “see it in theaters” just isn’t as strong as it once was. The obvious exception to this is the major blockbuster, as fans are clearly still more than willing to pack the seats for The Avengers and Star Wars.
This means the entire theater industry has become increasingly reliant on blockbusters for ticket sales. Not only does this shift the power imbalance even further to the side of the ever-conglomerating major studios, it also leaves theaters incredibly vulnerable when blockbusters don't live up to the hype.
When Blockbusters Flop, The Results Can Be Devastating For TheatersPhoto: Disney/Lucasfilm
In 2018, box office profits are increasingly reliant on blockbuster films. When films like Avengers: Infinity War, Black Panther, and Jurassic World: Fallen Kingdom are in theaters, that's not a problem, as strong word of mouth buzz and positive critical reception push movie-goers out to theaters in droves.
However, when films flop - as was the case for Solo: A Star Wars Story as well as a number of 2017 disappointments like Baywatch and The Mummy - theaters can be hit hard as expected profits vanish into thin air.
These box office bombs don’t just affect a theater’s bottom line, they also can hurt the stock value of their parent companies, as well. A cinematic lemon can harm a theater just as much as it does the studio that made it.