While home theater systems and movie streaming are convenient, they still can't match the experience of seeing a film in a commercial theater, where the screens are bigger and the aroma of fresh popcorn fills the room. A movie theater business can draw a variety of different customers, from couples out on a date to lone film buffs to groups such as friends or family. If you're starting a movie theater, your business and financing plan must account for advancements in technology, legal issues and the demands of your patrons.
Finding and Upgrading Theaters
Building a theater from scratch takes lots of time and money, so you might want to find an existing or old theater. Even then, you’ll likely have to modernize, especially because of the transition away from 35 mm films to digital projection. The Independent Filmmaker Project reports on its website that as of October 2012, 77% of screens in the U.S. had systems that could exhibit a digital copy. According to the IFP, a digital system at the time cost about $150,000. While digital movies have clearer sounds and visuals than their 35 mm counterparts, IndieWire advises that you will need to have computer-savvy technicians on hand to deal with technical issues that come up.
Finding Movies to Show
Find a distributor who delivers the films and, in some cases, the posters, cardboard cut-outs and other displays that advertise the showings. Distributors hold licenses, or permissions, from the movie producers that allow you to show movies. Without a license, you may violate copyright laws and face civil penalties between $750 and $300,000, possible jail time and criminal fines. To protect you and your patrons against bad deals in getting movies, states such as West Virginia and North Carolina prohibit distributors from forcing you to bid on movies you haven’t been given the chance to first screen. Join distributors' mailing lists to be notified about new releases. You can also subscribe to a theater or film trade magazine to stay abreast of releases.
Establish a Specialty Market
Distributors are the traffic controllers of the movie industry -- they decide when and where movies are released. Thus, your theater may have difficulty competing with the multi-screen, larger cinemas that can attract larger crowds for first-run movies -- especially those produced by the major studios and with advanced media fanfare. If you intend to compete against the multiplexes, establish yourself as the hub for second-runs, independently-produced, artistic or foreign films. You might even offer documentaries or movies that appeal to niche groups.
Pricing Tickets and Snacks
The Stanford Graduate School of Business suggests that you don't shy away from high concession prices in your business plan. Lost in customer complaints about $5 popcorn or $4 candy bars is the theater’s ability to keep ticket prices relatively low. In other words, consider pricing the main product -- the admission for the movie -- low and the secondary products -- the food and drink -- high. This way you can earn higher margins on the secondary products to help offset lower margins on the ticket price. Stanford's graduate business school reports that movie theaters get 40 percent of their profits from concessions, but only 20 percent of the gross revenues from them. Theater owners share ticket proceeds with the distributors but keep all of the concession sales.
The Franchise Option
Like fast food restaurants, some theater companies grant franchises. You get to use the parent company’s name, designs, advertising resources and price guidelines for tickets, concessions and movies. However, starting a theater franchise can cost north of $1 million and may require you to join an investors’ group. As reported by the website of the International Franchise Association, the franchise, or entry, fee for Alamo Drafthouse Cinemas is $75,000 as of 2014. Add the costs of buying land and building a theater, and the start-up price could run over $2 million.
- International Franchise Association: Alamo Drafthouse Cinemas Franchise Information
- Indepedent Filmmaker Project: IFP Resources: Domestic Distribution Part 2
- University of California - Berkeley: Career Center Article -- What is a Film Distributor?
- Harvard Business School: The Motion Picture Industry -- Critical Issues in Practice, Current Research & New Research Directions
- Stanford Graduate School of Business: Home: News: Why Does Movie Popcorn Cost So Much? Marguerite Rigoglioso
- West Virginia Legislature: West Virginia Code: Chapter 47 -- The Regulation of Trade: Article 11D -- The Motion Picture Fair Competition Act
- U.S. Copyright Office: Copyright Law: Chapter 5 -- Copyright Infrigment and Remedies
Christopher Raines enjoys sharing his knowledge of business, financial matters and the law. He earned his business administration and law degrees from the University of North Carolina at Chapel Hill. As a lawyer since August 1996, Raines has handled cases involving business, consumer and other areas of the law.