Economics Questions

Re: Is the movie theatre market cartelized?

Anarcho-libertarian — Tue, 06 Dec 2011 02:43:05 GMT

No2statism:

The movie theatres don't make the movies, so they have a lot of costs which is partially due to the antitrust laws.

Bingo. Ronald Reagan explained why this is so in his autobiography, An American Life (p. 116-118). He wrote:

Of the fifty-three pictures I appeared in, thirty-one were made before the war and twenty-two after... But enormous change was coming to Hollywood after the war, and a lot of it wasn't for the good.

When I arrived there in my Nash convertible in 1937, there were seven major studios in Hollywood. Each had a huge production lot dominated by barn-like soundstages where the interior scenes of movies were shot, a make-believe New York City neighborhood, and a western town with false-fronted saloons and a dusty main street for exterior shots. The studios also owned large ranches in the San Fernando Valley where western and outdoor movies were filmed.

In those days Hollywood was run a lot like an old-fashioned candy store: You cooked it in the back and sold it in the front. Each studio had a big stable of contract actors, writers, directors, musicians, and producers who turned out the pictures, and a nationwide chain of theaters where the pictures were exhibited. The studio was like an assembly line that was entrusted to keep a steady stream of pictures flowing to the theaters.

This system turned out many of the best pictures ever made. Each studio was like a big family. You belonged to Warner Brothers or MGM or Paramount and your associates and friends were mostly other performers and writers and directors from your studio. Sometimes we had family fights, but the system gave a solid stability to the picture business. You belonged someplace.

But that all changed after the war. An anti-trust suit was brought by a private chain of theaters and as a result the Justice Department issued a series of decrees declaring that the studios could either make pictures or operate theaters - they couldn't do both.

This turned Hollywood inside out overnight. The studios chose to continue producing movies. But no longer could they afford stables of actors and other workers under contract because from now on, they had to make movies purely on the speculation theaters would want to show them.

Because of tax problems, many stars were willing to give up the security of a studio contract and a weekly salary. I was one of them. I was in the ninety-four percent bracket, which meant the government took most of what I earned. I'd always thought there was something inherently unfair toward actors in the tax system. I'd seen careers take off like a comet, shine brightly, then burn out almost overnight, but during their brief period of stardom, taxes would have eaten up most of their income and they'd have little left afterward.

Nevertheless, I believe the government's decision to break up the studio system was wrong. It destroyed the stability of the industry under the justification that the studios monopolized the picture business. But they didn't have a monopoly; there was intense competition that worked well for everybody. You had seven companies who were always competing with each other to turn out a better movie than the guy down the street, and if people didn't like a picture, they'd show it by voting with their feet.

Owning the theaters provided a guarantee to the studios that if they guessed wrong on a movie and made it, at least they'd get some of their money back by playing it at their own theaters. This allowed them to take risks on people and stories.

It allowed the public to create real stars - legendary stars with staying power like Clark Gable, Olivia de Havilland, Gary Cooper, Jimmy Stewart, and a lot more.

A star like Judy Garland or Mickey Rooney wasn't born a great star. When a studio spotted people they thought had talent and promise - for instance, a pretty girl in a college play - they'd sign them up for a small salary and send them to classes where they were taught to act and sing and dance. Then they tried to nurture them, bring them up.

The studios knew they didn't make stars, the public did. But they could tailor movies to showcase an actor's particular talents, allow their talents to develop, and give them the backing of wonderful character actors and actresses who would never become stars. In those days, the great stars were built up over time and their names and faces became as familiar to people as their next of kin. The studio publicity machine saw to that. Every performer had a publicity agent whose responsibility it was to see that you were in the trade papers, the gossip columns, and the movie magazines: It built an image of you. That's what sold tickets.

Re: Is the movie theatre market cartelized?

No2statism — Tue, 06 Dec 2011 00:37:56 GMT

All good answers: ) Anyway, Bert's answer makes a lot of sense because of all the insurance the movie makers have to have and the actors' salaries, and the movie theatres are pretty expensive to maintain (electric bills for the screens and sound systems, janitors, security, etc) and so on. The movie theatres don't make the movies, so they have a lot of costs which is partially due to the antitrust laws. The only two big theatres that are really anywhere near me are an AMC 24 and a Regal, so I had been wondering why there were so few. They're pretty good considering their operating costs.

Re: Is the movie theatre market cartelized?

Wheylous — Mon, 05 Dec 2011 23:33:44 GMT

The Wikipedia page does add to the government interference idea:

http://en.wikipedia.org/wiki/United_States_v._Paramount_Pictures,_Inc.#Consequences

It's also probably due to the nature of the business.

Re: Is the movie theatre market cartelized?

Bert — Mon, 05 Dec 2011 23:11:20 GMT

I think working at a theater can give you a good idea of how things work. I had thought about writing a short article on the econs of a movie theater to give people an idea of how a business can operate (plus I'd hope to shut people up who complain about high prices, mind you these are the same people who continue to see movies every week).

I once heard an employee say "I think Regal should treat us better. They should pay us more." I sharply replied with, "Some people don't deserve more." I think he was a bit surprised as well as one of my managers who was standing there. Working at a movie theater can be the easiest job you can have if you are in college/high school (and during the week the slackest) and some people I work with act like they are working at McDonald's or something.

There's a few smaller theaters around here that are locally owned. They'll get movies a few weeks after they come out and will serve you real food (the theaters are set up where you sit at actual tables, etc. Waiters will come in and ask if you need anything before the movie starts, during the movie if you put your menu up they come to your table, etc.)

Re: Is the movie theatre market cartelized?

Lewis S. — Mon, 05 Dec 2011 22:22:55 GMT

@ Bert:

I used to work in a movie theatre when I was in high school. Thanks for posting this, I concur on everything!

We were a small theatre, and only made money on the big blockbusters. Ironically, the people I worked for were paying me less than minimum wage, and I recall it never bothered me one bit...though when my friends found out they urged me to report it. Why should I bother, I told them, I got all the free movies, popcorn, and soft drinks I wanted, and had a blast! It was a fun job.

This is the experience that minimum wage supporters want to take away from kids...

Re: Is the movie theatre market cartelized?

vive la insurrection — Mon, 05 Dec 2011 21:03:59 GMT

...Or just go by Burt's answer

Re: Is the movie theatre market cartelized?

vive la insurrection — Mon, 05 Dec 2011 21:02:45 GMT

probably no more or less than any other major industry. Be sure not to turn "i don't like the general politics/ quality of Industry X" into a rationalization as to how it is so due to govt subsidy. All in all these are not important issues anyway

Re: Is the movie theatre market cartelized?

Bert — Mon, 05 Dec 2011 21:02:17 GMT

I work at a movie theater (Regal, specifically), so I can handle this.

I was thinking it might be since my dad says how high prices have become for food, drinks, and the movie tickets, even when adjusted for the fact that the money supply is a lot more than it was when he was a teenager in the 60s.

There's reason the prices are so high. 1. Movies are rented from their respected companies for an obvious fee (I don't know exact numbers, let's say $2,000 a week or so). 2. A theater (I know how it works for ours) will only make 10% of the ticket price. For a regular priced adult ticket that is $10, we only get $1. This cut can change or vary, let's say for the first 4 or 5 weeks a movie is out it's a 10/90 cut, and after that might change to 20/80, etc. 3. Seeing that tickets are not the main source of income for a theater this means the concession stand is. This is why the prices are as high as they are ($8 for a large tub of popcorn, $6.50 for a large drink, $3.50 for candy, etc.) Not everyone who comes to the theater buys food/drinks, so we must upsell and have a high per cap. If we can average $3-4 a person that's a good per cap, what this means is that you may have 100 people come in, maybe less than half will buy from concession, so you have to sell as much as you can to even out the people who did not buy which will average out to $3-4 a person.

Is the market willing to pay for it? Yes, they are. Regulations? Not that I know of. Keep in mind how many people it takes to actually create a movie and the payroll for that, and then running the theater that the movie is played in.

Also, if a theater gets a bad rating or grade (based on secret shops that evaulate us monthly from up above) we can actually not get movies unless we perform well.

Re: Is the movie theatre market cartelized?

bbnet — Mon, 05 Dec 2011 20:46:58 GMT

There is the other NATO (national association of theater owners, representing 30,000 movie screens in the 50 states, whose mission is to influence federal policy making.

In 1948, the movie studios were banned from owning theaters on antitrust grounds.

Re: Is the movie theatre market cartelized?

No2statism — Mon, 05 Dec 2011 20:20:05 GMT

Although we did have IP laws in the 60s that could be all of it. Good answer:)

Any others, anyone?

Re: Is the movie theatre market cartelized?

boniek — Mon, 05 Dec 2011 20:05:22 GMT

How about IP laws? Seems like an obvious pick.

Is the movie theatre market cartelized?

No2statism — Mon, 05 Dec 2011 16:56:32 GMT

If so, how? I was thinking it might be since my dad says how high prices have become for food, drinks, and the movie tickets, even when adjusted for the fact that the money supply is a lot more than it was when he was a teenager in the 60s.

Of course, it could be that the market is just willing to pay for it, but I was thinking there were some regulations that have made all the movie theatres I can think of the same in price and quality. If there are, then I don't know what they are so that's why I'm asking:)