How Your Movie Theater Can Make Money

How Your Movie Theater Can Make Money

When we launched Indywood in January 2014, Hayley and I didn’t have a clue how to make money running a movie theater. A lot of people told us we were crazy – that movie theaters were dying out, and we must be in it for the dream, not the money.

Well we are in it for the dream but, to survive, we also have to make money.

In last week’s post, I wrote about how at Indywood, Hayley and I have used the Lean Startup business model, which is about learning and building, instead of just selling.

We now have a year of experience using that model, and it’s taught us a few things about surviving in the movie-theater game – specifically, about profit areas that are worth considering if you want to start your own neighborhood movie theater.

Here are those profit areas.

Note: After reading the Indywood Blog, a few people have asked me in recent weeks: “Do you really want to give away all of Indywood’s secrets? What if someone steals your idea and opens a competing theater?” My response: I welcome and encourage competition. We need more movie theaters! Indywood doesn’t have any “secrets.” We want to share everything we learn to encourage the creation of more cinema!

Ticket Sales

For Indywood, $7 seems to be a good price point. Of course, most movie theaters charge $10 or more these days. But I think that’s one of the reasons the cinema has been in decline in recent years. You have to make money to run a successful business but, at the same time, a $7 ticket is a branding move – it can get you noticed. I remember when going to a movie cost $5, and I wish that’s how it still was. But $5 just isn’t financially feasible to keep your theater afloat, so $7 is a good compromise.

Also (and maybe more importantly), we don’t want to charge as much as other theaters because, as I wrote about in the post “Why Film Distribution Needs Innovation” (February 23), our projection equipment is “consumer grade.” We don’t want to over-charge our viewers for something they can do in their own homes.

Ticket Sales Overhead

In recent months, we’ve had an average of 15 people per Indywood screening. We typically have two screenings a night. So that’s 30 people a night paying $7 = $210. Multiplied by 30 days, that’s $6,300 a month.

But before you start thinking that’s a lot of money, keep this in mind: We built up to that. In our first months, we were lucky to average five people a screening. It’s taken us a year and A LOT of hustle to build to 15. In your first months, you’ll be lucky to break even on ticket sales.

The average licensing fee for a film is $250 vs. 35% of ticket sales, meaning you pay whichever number is more. So even if you’re pulling 15 people a screening, you’ll pay at least 35% ($2,205) in licensing fees. You’ll also have to pay for the shipping of discs and posters, roughly $500 a month.

And of course you’ll have to staff your theater. A nightly shift at Indywood is about 6 hours: 6:00pm to 12:00am. Multiplied by 30 days in a month, that’s 180 hours. We pay our employees $10 and hour. So that’s $1,800 per month.

Ticket Sales Revenue

$6,300 - ($2,205 + 500) - $1,800 = $1,795

Concessions

Concessions is where I think it’s morally permissible to gouge your customers a little. ☺

I’ll leave it up to you to be creative with concessions, but at the very least you must serve popcorn (with real butter available, if customers want it).

Popcorn is a wonderful boon to movie theaters, in two respects:

(1) The smell of popcorn and butter is one of the few aspects of the movie theater “brand” that a person can’t get at home. People come to the theater for popcorn, even if it’s just for the smell.

(2) The mark-up on popcorn is free money for a movie theater – a lifeline to fiscal sustainability. To all our wonderful customers who come to Indywood and buy popcorn, I’m sorry to reveal this (well, not that sorry, because this has enabled Indywood to exist): Per month, we spend $90 on popcorn kernels and make about $900. That’s why popcorn is awesome … and all of you who subsidize Indywood by buying our popcorn, we thank you from the bottom of our butter warmer.

Concessions Overhead

We spend about $360 a month on concessions. I’m not going to hound Hayley (the accounting department – I wouldn’t have any of these numbers without her!) for the gritty details, but that money is spent on popcorn, butter, napkins, Mexican Cokes, other types of fizzy drinks and various candy.

Concessions Revenue

We make about $1,300 on concessions a month.

Event Rentals

Even more than popcorn, event rentals can grow into a sturdy income stream. With one caveat: You have to have a comfortable space.

A reason to invest money and sweat into creating the classic movie-theater experience is that people will want to rent your space. (How do you create that experience? Check out the March 2 blog, “How to Start Your Own Cinema.”) I think it’s safe to say – and it’s been borne out at Indywood over the past year – that the idea of renting a movie theater is a universally romantic concept.

Types of Rentals

  • Birthdays and Private Parties

Since the Indywood technical set-up is designed specifically for playing DVDs and Blu-Rays, anyone can rent our theater and bring their own DVD to show on the big screen.

  • Special Screenings

People who want to show a film to the public are usually either:

(1) local and/or independent filmmakers who want to share their film, or

(2) special-interest groups who want to host a screening of a specific film.

  • Live-Streaming Events

In the internet age, there are a lot of live-streamed special events. Watching a live-streamed event by yourself can be lame and lonely, so people like to congregate to watch them. If you’ve got a good internet connection, you can stream videos and provide a place for people to watch as a community.

Event Pricing

For several reasons, it’s best to do pricing on a sliding scale.

First, consider the time of day – and the day of the week. Charge a lot more for 7:00 pm and 9:00 pm time slots than you do for afternoon time slots. Evenings are when you’ll pull most customers for your theater’s regular programming. When you rent your theater in the evening, you have to make at least as much as you would from a normal screening.

Second, you have to factor in the price of the extra work for you and your team. Private events typically take more clean-up, because people get more drunk and sloppy than at normal screenings. Also, you might need to hire extra staff for special events. You have to cover those additional costs.

At Indywood, a few factors determine the quote we give for event rentals. In general, we charge about $95 for afternoon rentals and $200-$300 for evening rentals. But depending on who the customer is, we might charge upwards of $1,000. Obviously, it’s a fluid and sliding scale. For more specifics on how we price event rentals, feel free to ask us directly.

Event Overhead

As I’ve said, event rentals might require more clean-up and staff time. It’s a vague number, but let’s say about $500 a month.

Event Revenue

We have about 8 rentals a month (and rising). Let’s say they’re about $250 an average. That’s $2000 a month.

On-Screen Advertising

If you start a successful neighborhood cinema, there’s a good chance you’ll be well-supported by your community. People like cinema. At Indywood, we’ve found that local businesses and people who rep events advertise on our screen for two reasons:

(1) Our screen is a good way to get a message out to a specific, localized market – our neighborhood.

(2) The ads on our screen hold a captive audience. When audience members show up early to claim their seats, they don’t have much else to look at besides the ads on our screen.

When local businesses advertise on the Indywood screen, they know that about 900 people from our neighborhood will see their ad. For a neighborhood business, that’s great advertising.

I’ve never considered myself much of a salesman, but I find selling on-screen ads to be pretty rewarding. It helps business friends in my neighborhood connect with the folks in my neighborhood. That’s capitalism at its finest.

At Indywood, we have two levels of on-screen advertising (by the month): A logo is $25 and a full-page ad is $75.

On-Screen Advertising Overhead

One glorious thing about on-screen ads is there’s just about zero overhead. You’ll need some software to create your ad reel (I recommend the Adobe Creative Suite and Final Cut Pro X), but after you have those tools, you can create ads to infinity.

On-Screen Advertising Revenue

We’re just getting our ad sales off the ground, and we hope the totals below will go up. But to give you an idea of how it works, here are our March figures: We sold 11 logos and 16 full-page ads. That’s $1,491.

We also sell video ads. For $750, we will make a one-minute video for a business and show that video on-screen for a month. We’ve made one of those ads so far, and we’ve got another lined up. I predict we’ll make $2,500 a month on ads by the end of this year.

Memberships

We just started selling memberships, so I don’t have too much experience to speak from. However, from my armchair, I think that memberships are a good idea, for three reasons:

(1) We live in the age of Netflix. If movie theaters are going to compete with Netflix, we should allow our customers to buy monthly memberships, like Netflix does.

(2) Cinema naturally creates community. People come to see movies at the theater partly for the experience of being around other people. Buying a membership gives a person the feeling of being an official member of their cinematic community.

(3) Saving the cold business rationale for last (we actually have not proven this ourselves yet, but we’re betting this is the case): Many people may not use their membership enough to actually save money from it. So memberships could turn into a free-money stream (or trickle) for your theater.

At Indywood we have two (but really four) levels of membership:

Elysian Membership (monthly): For $30, a person gets in free for a month, plus a free small popcorn every time.

Royal Membership (monthly): For $50, a person gets in free for a month, plus a free large popcorn every time, plus four comp tickets to share with their friends.

Elysian Membership (yearly): For $300, a person gets an Elysian Membership for a year (that is, 12 Elysian months for the price of 10).

Royal Membership (yearly): For $500, a person gets a Royal Membership for a year (that is, 12 Royal months for the price of 10).

Memberships Overhead

Make nice-looking buttons or badges for your members to wear. Besides that, there’s no overhead on memberships. Let’s budget about $100 a month for creating buttons and badges.

Memberships Revenue

Again, Indywood is new to the memberships game. But in the past month (our first month selling memberships), we sold 45 Elysian Memberships ($1,350), 24 Royal memberships ($1,200), seven year-long Elysian Memberships ($2,100) and one year-long Royal Membership ($500). That’s $5,150 in memberships.

Indywood’s Budget Breakdown

So there are your profit streams for your neighborhood movie theater.

Keep in mind you’ll have other expenses besides your overhead for specific income streams. Rent, insurance, legal fees and building upkeep are all major expenses that I’ve not included in this post.

But just for the sake of proving that it is possible to make money on a single screen movie theater, here’s what Indywood’s budget breakdown looks like one year after opening:

Ticket Sales

Overhead: $4,505

Revenue: $6,300

Gross: $1,795

Concessions

Overhead: $360

Revenue: $1,300

Gross: $940

Event Rentals

Overhead: $500

Revenue: $2000

Gross: $$1,500

On-Screen Ads

Overhead: $0

Revenue: $1,491

Gross: $1,491

Memberships:

Overhead: $100

Revenue: $5,150

Gross: $5,050

Total gross: $10,776

Indywood makes money! You’re indie cinema can too!