Weekend evening, Washington: You pay $3.50 to get into a first-run film, 40 cents for popcorn, and ask, "Why does this cost so much?" You go to your seat convinced that the way to get rich is to own a theater.
But this is the movie business, and - just as on the silver screen - things often are not as they seem.
Theater owners make little money on tickets to first-run movies - the $3.50 is split up faster than "Jaws" splintered fishing boats, and after everyone gets his cut the theater owner sometimes winds up with less than 35 cents of it. But on popcorn, soft drinks and candy, he can make 70 per cent profit.
"More and more, theater owners are running a 1,500-foot auditorium to take care of 12-foot concession stand," said Marvin Goldman, part owner of the KB Theaters.
Goldman, 24 uears in the movie business, is president of the 8,500-member National Theater Owners of America. In a long interview, he explained the economics, which could strain the patient powers of R2-D2.
When you stepped up with your $3.50, most of it - maybe 80 per cent - was already spoken for. Long before any film opens, local theater owners bid for it: One may promise the film company 80 percent of each $3.50, minus taxes and a fixed sum for overhead; another may offer 85 per cent.
A film company, in inviting bids, often suggests terms, and if a theater owner really wants the film he'd better pay close attention to the suggested figures.
The films company's percentage of your $3.50 is called "film rental." For first-run films it's often 90 per cent of adjusted box-office receipts, and the owner must pay a sizable chunk "up front," as advance or guarantee. If he pays a $100,000 advance and the film flops, he can recover his money; but if he pays a $100,000 guarantee for "Exorcist II: The Heretic" and only the 12 local Satanists show up, he's stuck.
Owners must often bid without seeing the firm, especially for the busy holiday seasons - Christmas, Easter and the beginning of the summer. In smaller cities, they can read Variety to see how a new film is doing and gauge how it will play. But since most first-run films open here at the same time they do in New York and Los Angeles, Washington theater owners are forced to be gamblers. They look at a new film's stars, its producer, its director. And they guess.
"It's like shooting craps," said Goldman.
"There are all kinds of opportunities to be wrong," said Paul Roth, president of Roth Theaters, who picks films for 42 screens in the area. "If you misbid, you have agreed to take a film for several weeks and you will be cranking away to an empty theater."
While the moviegoer is in his seat rooting for "Rocky," fantasizing about being Robert Redford or trembling in the presence of Dart Vader, his money is being divided.
The first cuts are those for taxes and overhead. Taxes vary, from 10 per cent in the District. Overhead, called the house allowance, is agreed on by the theater owner and the film company. It varies depending on the age of the theater, the film company's terms and the owner's negotiating skill.
To follow where your $3.50 goes, let's say that taxes are 5 per cent and the house allowances 5 per cent of the gross. That leaves $3.15 to split between the owner and the film company according to the terms in the owner's bid. If it's a 90-10 splits, which is what "Jaws" got, the film company gets $2.83 and the exhibitor 32 cents.
Out of that 32 cents and the 17 cents from the house allowance, the theater owner pays his expenses. Goldman figures a conservative 8 per cent of the gross, or 28 cents, for expenses. That leaves 21 cents of the $3.50.
For some operators, the subtraction doesn't end here. Rent and a percentage or a film's advertising expenses can whittle a theater operator's cut to less than a dime.
"The percentage of profit," Goldman said," is nowhere comparabel to the risk theater owners take."
Why do these exhibitors stay in the game? Ted Pedas, and admitted minor player, offered an explanation. Pedas and his brother James own the six Circle theaters in the Washington area. These specialize in art films, but Pedas - a veteran of the movie business - talk knowingly of the perils and rewards of showing first-run films.
"I think that if exhibitors had it to do over again, they wouldn't," he said. "But now, they are involved . . . They are on the merry-go-round, and once you're on, you can't stand still. You've got to move."
But there are three ways the theater owner can fatten his profits.
First, he can bet the film will draw large crowds during its entire run; with big crowds at the end of a run, he makes big money because the rental agreement is based on a sliding scale. His cut of the $3.15, which started at 10 per cent, will be 50 per cent by the end of the sixth week. Later it could go as high as 65 per cent.
Another option is second-run films. Striking a good deal on a first-run film is difficult, since film companies - themselves in somewhat of a crap game - are betting on a big money-maker and playing hard to get. But once a film leaves first-run theaters film companies think it has lost some glitter and rental fees drop. Only a few hits, such as "Star Wars" and "Jaws," can still demand advance money from second-run theaters.
The third cushion is pushing popcorn.
"Back when I got into the business," Goldman said," I wouldn't allow popcorn in my theaters. I didn't like the smell. . . . It got the theaters dirty. I didn't like the have concession stands, I wouldn't be operating."
The markup on candy and popcorn is 60 to 70 per cent - 28 cents on a 40-cent box of popcorn - so owners who once concerned themselves only with landing Clark Gable's next now weigh buying their own popper.
A study has been made, Goldman said, to determine the best way to sell popcorn. Conceding that ready-popped popcorn is cheaper, it pointed out that the smell of corn popping attracts enough customers to make popping it profitable. Concession sales even figure in the decision to cut the admission for early-evening shows. The owner may not make money on tickets, but twilight time is suppertime.
Faced with uncertainty at the box office and certainty at the concession stand, some owners turn to "four-walling," or renting the theater - its four walls - to the distribution company for a flat fee. The distributor, not the theater owner, takes his chances on the turnout, while the theater owner gets his same healthy profit from concession sales.
The economics of landing a first-run film are not likely to change soon, Goldman said, for the competitive nature of the business makes agreement among theater owners difficult. If one theater or chain owner boycotted films with high rentals, a competitor would no doubt run them. In Washington area, among the major competitors of the KB theaters are the Roth theaters.
Another competitor, if a relatively minor one, is the U.S. government, which operates eight of the 225 or so movie theaters in the metropolitan area: A fringe benefit of being affiliated with the military is that installations show films for $1 and $1.50.
Theoretically, admission is controlled, but Goldman, a realist, responded: "and we are all supposed to drive 55 miles per hour."
Part of the owners' dilemma, Roth said is too many theaters and not enough films. While Hollywood has been cutting back the number of movies, the number of theaters has grown. As and example Roth cited Gaithersburg: "Ten years ago there was one theater there. Now there are seven screens and soon there will be eleven."
While Roth predicted that the financial pinch will close some theaters, he doesn't expect moviegoers to pay much attention. He said he can't blame them - it's the nature of the business:
"People don't eat in an empty restaurant to keep the restaurateur from starving, they go if the food is good.And people don't go to a film to help the theater owner. They go if they want to see the movie."