Why Does Popcorn Cost So Much at the Movies?

Feb 22, 2008
Why Does Popcorn Cost So Much at the Movies?
Moviegoers aren't being gouged when they pay big bucks for popcorn, says economist Ricard Gil.

Movie theaters are notorious for charging consumers top dollar for concession items such as popcorn, soda, and candy. Are moviegoers just being gouged?

New research from Stanford and the University of California, Santa Cruz suggests that there is a method to theaters' madness--and one that in fact benefits the viewing public. By charging high prices on concessions, exhibition houses are able to keep ticket prices lower, which allows more people to enjoy the silver-screen experience.

The findings empirically answer the age-old question of whether it’s better to charge more for a primary product (in this case, the movie ticket) or a secondary product (the popcorn). Putting the premium on the "frill" items, it turns out, indeed opens up the possibility for price-sensitive people to see films. That means more customers coming to theaters in general, and a nice profit from those who are willing to fork it over for the Gummy Bears.

Indeed, movie exhibition houses rely on concession sales to keep their businesses viable. Although concessions account for only about 20 percent of gross revenues, they represent some 40 percent of theaters' profits. That's because while ticket revenues must be shared with movie distributors, 100 percent of concessions go straight into an exhibitor’s coffers.

Looking at detailed revenue data for a chain of movie theaters in Spain, Wesley Hartmann, associate professor of marketing at the Graduate School of Business, and Ricard Gil, assistant professor in economics at University of California, Santa Cruz, proved that pricing concessions on the high side in relation to admission tickets makes sense.

They 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.

The work of Hartmann and Gil substantiates what movie exhibitors have intuited all along. "The argument that pricing secondary goods higher than primary goods can benefit consumers has been circulating for decades, but until now, no one has looked at hard data to see whether it’s true or not," says Hartmann.

In another study examining Spanish theaters, the researchers discovered: Moviegoers who purchase their tickets over the internet also tend to buy more concession items than those who purchase them at the door, by phone, at kiosks, or at ATMs (the latter option has not yet hit the United States). More research is needed to figure out why, but for now this suggests that theaters may want to be sure to partner with an internet service to make such ticketing available--or even take the function in-house.

People who come to the movies in groups also tend to buy more popcorn, soda, and candy, Hartmann and Gil found. While this, too, merits more investigation, it may be that such groups comprise families or teenagers. "If that turns out to be the case, it may be that theaters will want to run more family- or adolescent-oriented movies to attract a more concession-buying crowd," Hartmann says.

Analyzing data along the lines suggested by Hartmann and Gil can also support other pricing schemes for businesses that sell concessions, such as baseball parks. Taking the kids to a ball game can be a pricey proposition for many families, once you take into account all the hotdogs and memorabilia. "If we found the current pricing scheme turns away such a group, theory suggests that the firm might want to throw in a free baseball cap or bat," Hartmann says. "That raises the quality of the experience and provides an incentive for families to show up."

Source: University of California, Santa Cruz

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User comments : 11

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21stCenturyguy
4.7 / 5 (3) Feb 22, 2008
I never buy popcorn or drinks at the movies because of the high cost, just eat outside the cinemas for alot less. Cinemas are declining as they cut costs on staff, cleaning and maintenance.
I attend less than I ever have due to poor standards more than anything. And for the cost of going to see a movie, a few months later you can get it on DVD anyway.
Crucialitis
3 / 5 (2) Feb 22, 2008
I just come to the theater with large pockets full of whatever I picked up just prior at the grocery store for a much better price. Paying $10 for a bad movie and an extra $7 for poor concessions that won't last through the previews is out of the question. I can understand why piracy is rampant. Too bad the MPAA cannot.
MGraser
4 / 5 (2) Feb 23, 2008
I also understand from an article a read awhile back when I thought that opening a theater would be fun that the theater pays a substantial portion of their ticket intake to the film industry as part of their cost for running the movie. So, by keeping the ticket prices lower, they are saving money. Believe it or not, it's not a high profit business.
ceric
4.5 / 5 (2) Feb 23, 2008
Seriously? It took a researcher at Stanford to figure out something I knew since 8th grade? Anyone who worked at movie theater could tell you that. The idea that people are more comfortable splitting their $20 between multiple items rather than one large ticket price is also pretty logical. I don't see how it took university research to come to this conclusion.
Tortue
not rated yet Feb 24, 2008
For me, when I am able to go, Popcorn from the theater is a must. I don't just go for the movie, I could wait and rent it. It is the experience, and memories of Dad getting me popcorn at the drive-in.
gopher65
not rated yet Feb 24, 2008
I'd rather watch a movie in the comfort of my own home. It's cheaper than going to the movies. Eventually I'll buy a large TV, and in a couple decades I hope I'll have an entire wall as a screen. Sitting 3 metres away from a wall sized screen with surround sound is better than sitting 20 metres away from a larger screen with auditorium quality sound. (and sitting in some kid's pop that he spilt, which is gross).

Theatres are expensive and disgusting. If I'm going to go to a theatre it will be to a REAL one, like an IMAX. You can't get that at home:).
vlam67
5 / 5 (1) Feb 24, 2008
Seriously? It took a researcher at Stanford to figure out something I knew since 8th grade? Anyone who worked at movie theater could tell you that. The idea that people are more comfortable splitting their $20 between multiple items rather than one large ticket price is also pretty logical. I don't see how it took university research to come to this conclusion.
Seriously? It took a researcher at Stanford to figure out something I knew since 8th grade? Anyone who worked at movie theater could tell you that. The idea that people are more comfortable splitting their $20 between multiple items rather than one large ticket price is also pretty logical. I don't see how it took university research to come to this conclusion.

Welcome to Earth. Due to "peer review" procedure running amok, you can not state that toilet paper is used for wiping arses without at least 100 reviewers in prestige journals to be a valid fact. Live with it.
Julien
not rated yet Feb 24, 2008
The "Armchair economist" by Landsburg (a classic and recommended book for people interested in economy, [1]) has a chapter on the topic of popcorn in theaters.
The author first examines many common, but wrong interpretation. He then offers a theory: popcorn is a good way to discriminate two different populations who are willing to pay two different prices for the movie. This is similar to the insurance company using your smoking habits as a signal to put you in a different risk/premium category.

[1] http://www.amazon...29177766
k_m
2 / 5 (4) Feb 24, 2008
I'm wondering why a group from Stanford and Santa Cruz would chose to study movie theatre chain from Spain?
Are they afraid of what they'd find looking at theatres closer to home?
shydoc
not rated yet Dec 28, 2008
Well, I go to the cinema so that I can grope my girlfriend or whatever girl i hv with me at the time. Experience of doing that is priceless.
p_hud
not rated yet Aug 17, 2009
I used to manage a theater and the reason concession prices are so high is because the movie distributers take an average of 95% of the ticket take at the door. The theater has to make a profit some where. So blame hollywood, not the theaters.

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