WEBVTT - Star Wars and Disney's Demands

0:00:03.600 --> 0:00:06.960
<v Speaker 1>Walt Disney Studios has some pretty steep demands for movie theaters,

0:00:07.000 --> 0:00:09.720
<v Speaker 1>wanting to show Star Wars The Last Jedi. How does

0:00:09.720 --> 0:00:13.920
<v Speaker 1>movie theater economics work? I'm Jonathan Strickland, and this is

0:00:14.000 --> 0:00:20.640
<v Speaker 1>text up daily. When it comes to accounting, very few

0:00:20.680 --> 0:00:24.840
<v Speaker 1>businesses are as opaque as the entertainment industry. You've probably

0:00:24.840 --> 0:00:28.320
<v Speaker 1>heard tales of blockbuster films packing in a seemingly endless

0:00:28.440 --> 0:00:32.159
<v Speaker 1>series of sold out houses only to show a financial

0:00:32.240 --> 0:00:36.199
<v Speaker 1>loss on paper. Things are slightly less mysterious on the

0:00:36.200 --> 0:00:39.040
<v Speaker 1>movie theater side of the equation, but it's still a

0:00:39.080 --> 0:00:42.280
<v Speaker 1>tiny bit confusing. The mouse House is about to put

0:00:42.280 --> 0:00:46.280
<v Speaker 1>the squeeze on movie theaters, perhaps even removing the incentive

0:00:46.440 --> 0:00:51.200
<v Speaker 1>for smaller theaters from even carrying the next Star Wars film. First,

0:00:51.520 --> 0:00:55.560
<v Speaker 1>Disney is demanding a sixty five percent cut of ticket sales.

0:00:56.120 --> 0:00:59.600
<v Speaker 1>This is pretty high. The average split between movie studios

0:00:59.600 --> 0:01:03.720
<v Speaker 1>and theaters tends to be between forty to according to

0:01:03.760 --> 0:01:06.800
<v Speaker 1>the Wall Street Journal. Really big hits, ones that are

0:01:06.800 --> 0:01:09.520
<v Speaker 1>most likely to pull in lots of crowds, may tip

0:01:09.560 --> 0:01:13.480
<v Speaker 1>the scales at six share for the studio. Disney wants

0:01:13.480 --> 0:01:15.920
<v Speaker 1>a bigger slice of the pie in return for granting

0:01:15.959 --> 0:01:19.640
<v Speaker 1>theaters the honor of showing the last Jedi. But that's

0:01:19.680 --> 0:01:23.080
<v Speaker 1>just the start of Disney's demands. The studio also wants

0:01:23.120 --> 0:01:25.720
<v Speaker 1>theaters to promise to show the next Star Wars movie

0:01:25.760 --> 0:01:29.920
<v Speaker 1>in the largest auditorium spaces for at least four weeks.

0:01:30.319 --> 0:01:33.479
<v Speaker 1>So if your local movie megaplex has an auditorium that's

0:01:33.560 --> 0:01:36.320
<v Speaker 1>larger than the others, that's where Star Wars will live

0:01:36.360 --> 0:01:39.240
<v Speaker 1>for a month. If a theater doesn't play ball, that's

0:01:40.400 --> 0:01:43.759
<v Speaker 1>take of the ticket sales jumps up to seven d percent.

0:01:44.440 --> 0:01:46.720
<v Speaker 1>There are other requirements to go along with these, including

0:01:46.760 --> 0:01:49.720
<v Speaker 1>Disney's demand that all marketing materials for the film must

0:01:49.760 --> 0:01:52.880
<v Speaker 1>be held back until Disney gives the all clear. You

0:01:52.960 --> 0:01:55.240
<v Speaker 1>could say that the studio is trying to control the

0:01:55.280 --> 0:01:58.080
<v Speaker 1>experience as much as possible to make it ideal for

0:01:58.120 --> 0:02:01.919
<v Speaker 1>the audience, but it's definitely being some theaters the wrong way.

0:02:02.240 --> 0:02:06.280
<v Speaker 1>It's particularly tough on smaller movie houses and less populated markets.

0:02:06.480 --> 0:02:09.440
<v Speaker 1>A four week obligation to show the same film in

0:02:09.480 --> 0:02:12.000
<v Speaker 1>the largest house could lead to lost revenues for a

0:02:12.040 --> 0:02:14.960
<v Speaker 1>small theater that only has a few screens. That could

0:02:15.000 --> 0:02:17.960
<v Speaker 1>prompt some theaters to skip Star Wars completely. And the

0:02:18.000 --> 0:02:20.160
<v Speaker 1>Star Wars. Fans who live in those areas may find

0:02:20.160 --> 0:02:23.160
<v Speaker 1>that they have to travel far, far away to catch

0:02:23.240 --> 0:02:26.320
<v Speaker 1>the flick. So this leads us to a question, what

0:02:26.520 --> 0:02:29.560
<v Speaker 1>are the economics of running a movie theater? How do

0:02:29.680 --> 0:02:33.000
<v Speaker 1>theaters make money these days? There are three main sources

0:02:33.000 --> 0:02:36.240
<v Speaker 1>of revenue for movie theaters. One is ticket sales. You

0:02:36.280 --> 0:02:39.960
<v Speaker 1>may have heard that ticket prices outpace inflation. According to

0:02:40.080 --> 0:02:44.040
<v Speaker 1>box office Mojo's figures, that's not always the case. It

0:02:44.200 --> 0:02:47.840
<v Speaker 1>sometimes is. There are stretches during which the ticket prices

0:02:47.840 --> 0:02:51.320
<v Speaker 1>have surged ahead of inflation, But sometimes buying a movie

0:02:51.360 --> 0:02:55.040
<v Speaker 1>ticket is a comparative bargain, taking inflation into account. At

0:02:55.040 --> 0:02:59.120
<v Speaker 1>any rate back in a ticket to the Moving Pictures

0:02:59.120 --> 0:03:03.080
<v Speaker 1>would set you back a single shiny quarter in today's money,

0:03:03.240 --> 0:03:06.000
<v Speaker 1>that's about three dollars fifty seven cents. So if you

0:03:06.040 --> 0:03:08.919
<v Speaker 1>wanted to see The Seahawk during its initial run, it

0:03:08.919 --> 0:03:12.080
<v Speaker 1>would set you back less than four bucks. But let's

0:03:12.080 --> 0:03:14.760
<v Speaker 1>take a big leap to nineteen sixty seven, when a

0:03:14.800 --> 0:03:18.640
<v Speaker 1>movie ticket cost a dollar twenty. Adjusting that for inflation,

0:03:18.720 --> 0:03:22.400
<v Speaker 1>it would cost you about nine dollars today in some markets,

0:03:22.520 --> 0:03:25.440
<v Speaker 1>that's still a bargain. Here in Atlanta. An adult ticket

0:03:25.440 --> 0:03:28.720
<v Speaker 1>to a first run movie I'm using for Ragnarok as

0:03:28.720 --> 0:03:31.720
<v Speaker 1>the lynchpin here, it would set you back fifteen dollars

0:03:31.800 --> 0:03:35.000
<v Speaker 1>forty cents. The average ticket price in the United States,

0:03:35.080 --> 0:03:38.320
<v Speaker 1>according to the National Association of Theater Owners, is eight

0:03:38.360 --> 0:03:41.520
<v Speaker 1>dollars in four cents, so in nineteen sixty seven, the

0:03:41.560 --> 0:03:44.760
<v Speaker 1>average price for a ticket required more purchasing power than

0:03:44.800 --> 0:03:47.920
<v Speaker 1>the average price in two thousand and seventeen, though both

0:03:47.920 --> 0:03:50.040
<v Speaker 1>of those figures are almost half of what it would

0:03:50.040 --> 0:03:53.760
<v Speaker 1>cost me to see a movie dag Nabbit. Movie theaters

0:03:53.960 --> 0:03:56.920
<v Speaker 1>get to keep a percentage of those ticket sales, and

0:03:56.960 --> 0:03:59.480
<v Speaker 1>the rest goes to the movie studios. So that's the

0:03:59.520 --> 0:04:02.800
<v Speaker 1>first source of revenue for movie theaters. The next big

0:04:02.840 --> 0:04:05.400
<v Speaker 1>source is one anyone who has gone to the movies

0:04:05.560 --> 0:04:09.440
<v Speaker 1>is familiar with, concessions. It's no secret that theaters make

0:04:09.520 --> 0:04:13.680
<v Speaker 1>incredible bank on selling cheap snacks for comparatively high prices.

0:04:14.000 --> 0:04:17.000
<v Speaker 1>One estimate I saw set a theater makes nine cents

0:04:17.120 --> 0:04:20.839
<v Speaker 1>for every dollar spent on popcorn, a n profit margin

0:04:21.000 --> 0:04:24.440
<v Speaker 1>is pretty darned impressive. Soft drinks are another big source

0:04:24.440 --> 0:04:27.880
<v Speaker 1>of revenue, though the actual figures aren't public information. Since

0:04:27.920 --> 0:04:31.560
<v Speaker 1>big companies like Coca Cola strike deals with movie theater chains.

0:04:31.600 --> 0:04:34.280
<v Speaker 1>You probably heard that theaters make more money on concessions

0:04:34.279 --> 0:04:38.240
<v Speaker 1>than ticket sales. That's absolutely true. The third big source

0:04:38.279 --> 0:04:41.520
<v Speaker 1>of revenue for movie theaters is advertising. This has caused

0:04:41.520 --> 0:04:44.359
<v Speaker 1>some friction among the movie going public. Some people have

0:04:44.480 --> 0:04:47.520
<v Speaker 1>even brought lawsuits against movie theater chains, arguing that the

0:04:47.560 --> 0:04:50.680
<v Speaker 1>start times advertised for films don't indicate when a movie

0:04:50.760 --> 0:04:55.080
<v Speaker 1>actually begins, but rather when commercials start advertising. Companies pay

0:04:55.120 --> 0:04:58.279
<v Speaker 1>handsomely for that screen time. Having a captive audience staring

0:04:58.279 --> 0:05:00.520
<v Speaker 1>at a big screen is worth a lot. We're talking

0:05:00.560 --> 0:05:03.479
<v Speaker 1>maybe fifty dollars per year per theater for some of

0:05:03.480 --> 0:05:06.520
<v Speaker 1>these deals. Make enough of those deals and that turns

0:05:06.560 --> 0:05:10.240
<v Speaker 1>into some serious cash. That being said, movie theaters have

0:05:10.400 --> 0:05:14.120
<v Speaker 1>overhead that eats into revenue. That includes paying utilities, taxes,

0:05:14.200 --> 0:05:18.039
<v Speaker 1>fees on space, and employee salaries. If Disney's move is

0:05:18.040 --> 0:05:20.480
<v Speaker 1>a sign of things to come, will that mean higher

0:05:20.480 --> 0:05:23.920
<v Speaker 1>ticket prices? Not necessarily, but it might mean you'll see

0:05:23.960 --> 0:05:27.479
<v Speaker 1>more ads in theaters, and that concession combo could set

0:05:27.520 --> 0:05:30.240
<v Speaker 1>you back a bit more. There's no business like it,

0:05:30.760 --> 0:05:34.120
<v Speaker 1>no business I know. That's all for today to learn

0:05:34.160 --> 0:05:37.360
<v Speaker 1>more about movie tech, as well as all other technology topics.

0:05:37.440 --> 0:05:40.520
<v Speaker 1>Tune into The Tech Stuff podcast. Each episode is a

0:05:40.560 --> 0:05:43.159
<v Speaker 1>deep dive on a particular subject, including some of the

0:05:43.200 --> 0:05:46.479
<v Speaker 1>most influential companies and people in tech today. I'll see

0:05:46.480 --> 0:05:47.159
<v Speaker 1>you again soon