Buying, Owning, & Operating Movie Theaters in a Post-Pandemic World
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The COVID-19 pandemic shook the movie theater business, with North American box office amounts plummeting from $11 billion in 2019 to just $2 billion in 2020.
However, rising amounts of filmgoers and recent movie buzz with mega hits, like Barbie and Oppenheimer, are instilling newfound investor confidence in the film industry's ability to adapt and overcome.
Nonetheless, owners and operators of movie theaters should act accordingly and deploy strategies that anticipate events like the COVID-19 pandemic. Here, we'll cover the basics of what commercial real estate investors should know when buying movie theaters for sale in a post-pandemic world.
We'll talk about movie theater revenue, profitability, and the steps you can take to open your own movie theater.
Let's get started.
How Do Movie Theaters Make Money?
Movie theaters make the majority of their revenue from two main sources: ticket sales and concessions. Ticket sales form the bulk of revenue for most movie theaters. The average movie theater keeps about 40% of each ticket sold, while the remaining 60% goes to production companies, distributors, etc.
Concessions are the other big money-maker for movie theaters. Unlike ticket sales, movie theaters keep the majority of the markup on concessions. For example, about 44% of Marcus Theatres' revenue comes from concessions.
Additional sources of revenue for movie theaters might include:
- Membership fees;
- Arcades/coin-operated games;
- Private rentals (e.g. birthday parties); and
- Advertising.
Ticket sales have declined significantly since 2019, so many movie theaters are focusing on expanding and improving their selection of concessions to make up for revenue shortfalls.
Are Small Movie Theaters Profitable?
Small movie theaters can certainly be profitable, but sustaining that profitability may be challenging. Independent theaters may face competition from large chains and rising rental costs threatening to squeeze small theaters out of their leases.
Additionally, movie attendance is still depressed compared to pre-pandemic levels thanks to the popularity of streaming.
Let's run some quick calculations. Say you buy a small three-screen theater with 100 seats for each screen. Assuming a $10 average ticket price, 30% seat occupancy per screening, and four screenings per screen per day, that comes out to a little over $3,500 in ticket sales per day. If every person spends an average of $5 on concessions, that's an additional ~$1,800 a day.
These numbers are just estimates, not actual figures. Seat occupancy will vary significantly depending on the movie/time, and some customers may not buy concessions at all. Still, you can run these simple calculations to get a rough estimate of daily operating revenues.
What's the Profit Margin for Movie Theaters?
It depends heavily on the specific item. Movie theaters, by far, have the highest profit margins on concessions, which can have markups as high as 800%. Movie tickets have lower profit margins of around 20% to 30%.
Ticket margins are lower, and ticket sales are still down from pre-pandemic levels. The natural response to this issue is for movie theaters to get more creative with concession sales. For example, many “luxury” theaters are emphasizing and expanding food and drink options to provide a more “sophisticated” movie-going experience and generate more revenue from concessions.
How Do You Open a Movie Theater?
The first step to opening a movie theater is finding a suitable facility. Do you want a smaller theater that caters to independent and retro films? Or do you want a drive-in theater complex with parking space for cars?
You can look for financing for buying a movie theater for sale through an SBA 504 loan or from private lenders that specialize in cinema lending and financing. The pandemic saw large amounts of theater closures, meaning there are lots of abandoned theater properties that entrepreneurs can pick up.
The cost to acquire a movie theater can range from a few hundred thousand dollars to several millions of dollars depending on theater size, equipment, and location.
Buying or Leasing a Movie Theater
Commercial real estate prices vary heavily by state, so some might find it hard to find an affordable facility to buy. In that case, leasing a movie theater facility can be a viable alternative. You can lease a facility from a landlord and lease equipment, such as projectors and film rolls.
The advantage of leasing is that you don't have to find the capital to buy commercial property and can start business operations faster. The downside is that you have less control over the property. For a business like a theater, that might require renovations and upgrades. As a result, leasing may constrain your options.
If you're having trouble finding movie theaters for sale, you can work with a commercial real estate broker. Real estate brokers who focus on special-purpose real estate and recreation-focused properties can help you find commercial properties for sale or for lease that fit your budget and oversee sales negotiations. Also, a real estate agent can help you avoid common pitfalls of buying commercial property.
What Movie Theater Makes the Most Money?
The largest movie theater chain in the world is AMC, which collectively owns 11,000 screens and generated nearly $4 billion in revenue in 2022—nearly half of total US movie theater annual revenue during the same year.
The second and third largest cinema chains are Mexico-based Cinépolis and Regal Cinemas in Knoxville, TN, with annual revenues of $3.25 billion and $3.22 billion, respectively.
Is Buying a Movie Theater a Good Idea?
With the right revenue model and film selection, buying a movie theater for sale can be a profitable venture.
Despite the lull from the pandemic, movie theater financials seem to be recovering, and theaters are showing flexibility in adapting to the new post-pandemic cinema experience. In short, despite previous challenges, movie theaters aren't going anywhere anytime soon.
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