Cinemas sell merchandise to boost ‘Star Wars’ revenue
People headed to cinemas to see the new “Star Wars” next month will encounter more than the usual concession-stand popcorn and Raisinets. Theater chains, seeking to capture a bigger share of “The Force Awakens” bonanza, are creating pop-up stores to sell posters and key chains — and pouring “Yoda-rita” cocktails.
“Star Wars: The Force Awakens,” which opens Dec. 18, is forecast by BoxOffice.com to be the top-grossing movie of all time. But because of the way Hollywood structures agreements, exhibitors will pay a higher share of ticket revenue to distributor Walt Disney Co. than with most other films. “Well north of 60 percent,” estimates Eric Wold, an analyst with B. Riley & Co.
That means cinema chains are under pressure to extract more money from patrons. In addition to moves like round-the-clock screenings, group sales and premium showings in 3-D and Imax formats, exhibitors are getting creative with concession sales and adding merchandise to the mix as they seek to enhance profit margins.
The exhibitors “have to find a way to make this work for them,” Wold said. “They can do what they can to boost profitability around it by driving concessions sales.”
Disney, which licenses the swag, and the movie houses are borrowing from Broadway, working with New York-based Araca Group, which provides merchandise for live theatrical shows. Araca will be create pop-up “Star Wars” shops and items including T-shirts, bags and caps.
Marcus Corp. will have pop-ups in its 54 theaters, a first for the company. It will screen the picture around-the-clock on opening weekend, and concession stands will feature souvenir popcorn containers emblazoned with “Star Wars” characters, said Rolando Rodriguez, chief executive officer of Marcus’s theater unit.
At Carmike Cinemas Inc., the country’s fourth-largest chain, $40 will buy a “Star Wars” fan a T-shirt, unlimited popcorn and refills in collectible drink cups. And dine-in theater chain Studio Movie Grill is introducing a themed brunch — with cinnamon-flavored “Princess Leia Buns” for $6.95 — to cater to early risers catching the film at its 23 locations. There will also be cocktails like the “Tattoine Sunrise Mimosa” for $5 and “Yoda-rita,” an under-$10 twist on the Margarita using Sauza Blue Reposado tequila.
Marcus is running a marathon of all the earlier “Star Wars” movies, and doing a big business in group ticket sales, Rodriguez said. Such bulk purchases, often by companies treating their employees, typically sell at a 20 percent discount. Due to the demand for “Star Wars,” Marcus is collecting the full ticket price. Advance sales overall are running three times that of those sold for the latest “Hunger Games” installment, Rodriguez said.
“This is bigger than anything I’ve seen and I’ve seen a lot, including Harry Potter,”’ said Walt Disney Studios Chairman Alan Horn, who helped oversee that franchise at rival Warner Bros.
“The Force Awakens” could generate records with a $215 million opening weekend and a record $762 million in total in North America, according to Boxoffice.com. That money is split with theaters, though not evenly. The agreements vary by studio and exhibitor, and aren’t disclosed for individual films. On average, the distributor takes just over half of ticket-sale revenue from the largest theater chains, which keep the rest.
Some tracking services used by the studios are projecting $175 million-plus.
“We will measure success by the total run, when we are months and months from December, looking back on what we expect to be a fantastic film experience,” Dave Hollis, executive vice president for theatrical distribution for Walt Disney Studios, said in an e-mail.
These arrangements tend to involve a sliding scale, so the more successful a film, the greater the share the theater chains have to pay the studio. With the biggest movies, called tentpoles, such as “The Hunger Games: Mockingjay - Part 2,” studios can keep 60 percent or more, according to B. Riley’s Wold.
Disney declined to comment on the splits. Representatives from the biggest U.S. movie chains, Regal Entertainment Group, AMC Entertainment Holdings Inc., Cinemark Holdings Inc. and Carmike, either didn’t return calls or declined to discuss the rental splits.
Rising film costs have emerged as a concern for theater-chain investors as studios release more big-budget pictures, according to Benjamin Mogil, an analyst with Stifel Nicolaus & Co. “The aggregate rental split has moved up because more of the box office is coming from tentpoles,” he said in an Oct. 8 research report.
That’s where concessions come in. At Regal, the largest chain, the gross profit margin on items like popcorn, soda and candy exceeds 86 percent. Mogil estimates concession sales at Regal will total $915.6 million this year, up 12 percent from 2013, and make up 29 percent of revenue.
Theater chains have found stealthy ways to raise prices, according to Wold. Instead of including tax with the cost of concession items as they have in the past, some are now tacking it onto the sale, which increases the total paid by the customer, he said.
With merchandise there are always logistical issues, including how to return items and what customers do with the products when they’re in their seats, according to Marty Brochstein, a senior vice president with the International Licensing Industry Merchandisers’ Association.
But “if you’re going to try it for any movie at all,” Brochstein said, “you’ll try it for Star Wars.”’