At the Movies: Paying Up for Popcorn

May 19, 2007 — -- At 7:15 on a Friday night at the Pavilion, a multiple-screen movie theater in Brooklyn, N.Y., a steady stream of parents shuttle their fidgeting children from the box office to buy tickets, to the concession stand to buy popcorn and soda, to their seats for the opening weekend of "Shrek the Third."

But what was once a time-honored tradition for American families -- the Friday night movie -- has transformed into something else entirely: a money-spending extravaganza.

"It's expensive. It's pricey," said Tonika Gray, a Brooklyn woman, as she waited with her 5-year-old son Zaire for her husband outside the theater before seeing "Shrek." "A small popcorn is $5, a soda $5. ... I feel a kid's movie should be cheaper."

Gray estimated that with the tickets ($11 per adult, $7.50 per child) and concessions, the night would cost at least $40 before the family went out for dinner afterward. Although the high prices did give her second thoughts about attending movies, she said Zaire, and the movie itself, prompted her to attend.

"I have a little boy," she said. "This is like the most popular movie out there."

The Power of Popcorn

It's no secret that the typical movie-going experience is getting more expensive. The average ticket price has risen steadily over the past 10 years, from $4.42 in 1996 to $6.55 in 2006, according to the National Association of Theater Owners. In most major cities, the ticket price for adults hovers around $10.

But what is surprising is that, although theaters are pulling in the most money from ticket sales, which they split in agreements with movie studios, they make the highest profit margins off of consumers at the snack bar.

A recent study done by a London-based trade publication estimated that in the year 2000, 20 percent of the gross revenues of U.S. theater owners came from concessions, but those same sales accounted for 40 percent of the profits. In other words, that small bag of popcorn you just paid $4 for is one big business.

"The opportunity for the profitability is on [the] concession side," said Mike Bowers, the affable president and COO of Harkins Theaters, a family-owned chain of TK theaters based in Arizona. "It's absolutely key. It is the thing that you can control. You're picking out your product, what kind of quality you're going to have."

Popcorn and soda are the concession stand's rock stars bringing in the most sales, according to Bowers.

Bowers contends that higher prices in both concessions and ticket prices aren't a result of capricious theater-owners, but rather a reflection of what theaters are expected to offer in 2007.

"The movie-going experience today does not even compare to what movie-going was 20 years ago," Bowers said.

Today's theaters are typically huge multi-plexes with high-backed rocking seats with cup holders and stadium seating.

"We're trying to entertain," Bowers said. "[Movies are] the cheapest form of family entertainment out of home."

Still, he acknowledges that even though he believes the prices aren't "out of whack," it doesn't mean that every one else feels that way.

"We are entertainment for the masses -- no elitism. ... That doesn't mean people don't feel [the price increases]," he said. "You always have to measure some price sensitivity. ... The biggest driver is the product selling. If the product's not selling, you've made a mistake."

That theory definitely rings true for University of Rochester economist Steven Landsburg.

"A lot of people believe that the reason movie popcorn is so expensive is because the theater owner has a monopoly on the popcorn, but that makes no sense," Landsburg said. "Look at the other things he's got a monopoly on that he doesn't charge you for -- walking across lobby, sitting in your seat. ... The only way he can gain from having a high popcorn prices is if for some reason ... popcorn lovers by-and-large are the ones who are willing to pay a lot of money to go to the movies."

In other words, the point of high prices at concession stands is not to charge every movie-goer a lot of money, but to charge a lot of money to those who will pay for it.

"The people who are paying less money [the non-popcorn buyers] are the people who would walk away if you didn't give them a good price [at the box office]," he said. "By charging a lot for the popcorn you're getting people into your theater who would otherwise have walked away and done something else.

"What they're probably not thinking of is that if the popcorn were cheaper, the box office would probably be more expensive," he continued.

In the first quarter of 2007 during entertainment's slower months, Regal Entertainment Group, the largest theater owner in the world with its namesake chains and United Artists and Edwards theaters, raked in more than $168 million in concessions.

The company does not feel like its concession prices are unfair either.

"Our concession prices are generally consistent many with the out of home entertainment venues, such as concerts, sporting events, football games [and] basketball games," said Dick Westerling, Regal's senior vice president of marketing. "We feel we're priced fairly."

But as Tonika Gray waited outside that Brooklyn theater staring down future expensive nights at the movies, she had her own time-honored solution: "Sometimes we sneak our own stuff in."