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Can concession prices at the theater go even higher!?!? Read on:

Rising Popcorn Costs Spell Trouble for Movies

Suddenly, in Hollywood and sticky-floored movie theaters across the nation, "corn" really is a four-letter word.

Thanks to the inflating cost of popcorn, the price of movie tickets is expected to skyrocket by as much as 30 percent this year, according to Ricard Gil, a University of Santa Cruz economist who studies the business. "You'e going to see a one- to two-dollar increase in the price of a movie ticket," he said. "And that's being conservative."

According to an Agriculture Department report, next year's corn stocks are expected to plunge to a 13-year low and, as a result, corn-futures contracts have soared to an all-time high. This can be attributed to the demand for ethanol, which will claim 40 percent of next year's corn crop, munching away at the margins of theaters that rely on concession sales for as much as 45 percent of their revenue.

"They're going to lose some of their customers," Mr. Gil said. "Some of them are just not going to go to the movies."

This is terra incognita for the movie-theater business. Ticket sales had been insulated for the past 30 years from both inflation and recession. (Adjusted for inflation, tickets today cost less than they did in 1977, according to the Motion Picture Association of America; the National Association of Theater Owners notes that in five of the past seven recession years, box office and admissions actually increased.)

Subsidizing tickets
That's in part because angst-riddled consumers sought relief from financial woes in the dark of the cinema, but also because roughly 25 percent of the price of admission is subsidized by popcorn, soda and candy sales -- a discovery Mr. Gil published in a landmark joint study with Stanford University's Graduate School of Business in February. (Popcorn accounts for an average of 32 percent of concession sales in the theater industry.)

In an interview with the Los Angeles Times in March, Mike Campbell, CEO of Regal Entertainment, the nation's largest theater chain, conceded as much: "If we didn't charge as much for concessions as we did, the tickets to the movies would cost $20." (According to the MPAA, last year's average movie-ticket price was $6.88.)

But while ticket prices have more than quadrupled since 1970, per-capita spending at concessions has only a little more than doubled in the same period.

This year's popcorn crop is down roughly 10 percent, said Larry Etter, chairman of the National Association of Concessionaires. In the past 18 months, the cost of coconut oil used for popping corn has risen 24 percent. And the price of the paper pulp to produce popcorn tubs has jumped 40 percent in the past 36 months, making the tub more expensive than the corn inside it.

The new "ear-conomics," along with a looming and costly changeover to digital projection, also means that for the first time, many independent theater owners may find themselves unable to weather a downturn, as concession sales typically account for 40 percent of smaller movie theaters' revenue. According to Patrick Corcoran, director of media and research at the theater owners' assocation, while top-10 megachains control half the nation's screens, the other half are run by some 500 independent theater companies.

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Raising prices at concession stands won't help much, as popcorn and soda are already at an 80 percent markup, said Mr. Etter, who is also VP-theater services for the Malco theater chain. For consumers facing the biggest food-price jump in 18 years and gas prices up 20 percent from April 2007, a $6 bag of popcorn isn't a pleasing proposition. Mr. Gil said higher prices will appear at the box office as more moviegoers pass on the corn.

More reliance on cinema ads is one option. In a 2007 Arbitron study, 63 percent of respondents 12 and older said they "do not mind the ads they put on before the movie begins."

But even its chief proponents say cinema advertising has limited prospects. Lauren Leff, a spokeswoman for National Cinemedia, the largest digital in-theater ad network in North America, said once a theater's ad inventory sells out, the cost per thousand rises substantially. She added that theaters' ad-revenue potential is always constrained by the need to start the next film on time.

MPAA President Bob Pisano calls both scenarios -- higher concession prices or more ads -- "mutually assured destruction" for theaters and movie studios, because both will try moviegoers' patience and may lead them to stay home and rent or, worse, illegally download a film.

Mr. Pisano said ticket prices may start to rise with demand. For example, going to see a blockbuster when it opens Friday night could run you a dollar more than going a week later.

(Source: AdAge.com, 05/19/08)

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