Key Operating Ratio
By Arnold Kling
Why are movie theaters gravitating toward large multiplexes? The Washington Post writes,
With 16, 18 or 24 screens, the traffic in and out is constant and the popcorn sales never stop — yet the staffing costs are only incrementally greater than for an eight- or 10-screen theater.
This suggests to me that the key operating ratio is revenue per employee. This is a bit of a surprise. If you had asked me before, I would have guessed that getting the most revenue per seat in a movie theater would be important. Fill the seats, make a profit. But apparently that is wrong.
On the demand side of the equation, people probably are less interested in patronizing a small local theater nowadays. If they want to watch a movie close to home, they can go to Blockbuster or turn on cable.
The article also points out that a blockbuster movie may last only two or three weeks. I remember around 1970 in Clayton, Missouri that instead of saying “Is the Pope Catholic?” we would say “Is ‘Love Story’ playing at the Shady Oak?”
For Discussion. Why is the length of time a blockbuster movie stays in the theater getting so much shorter?