My £266 Trip To The Cinema
For the first time since the start of the Covid-19 pandemic, last Saturday I got to indulge in my oldest hobby; I went to the cinema. My first trip to the cinema was back in 1977 when my parents took me to see Star Wars, and I have absolutely love going ever since. So, after everything we went through over the last sixteen months, the first chance I got after things started opening again, I packed up my three children—plus my son’s friend—and the five of us headed for our local cinema in North London for some much-needed entertainment from the long-postponed Black Widow movie.
Much to the annoyance of my children, I got us to the cinema 30 minutes early. I figured the pent-up demand for cinema in London must be huge and that the place would be a mad house given that it was Saturday, Black Widow had only been out a few days, and the extra covid health restrictions in place would surely complicate things. Ten minutes later, the five of us sat down to a nearly empty cinema. Eventually another father and his son came in, taking the grand total of cinema goers for this huge summer blockbuster film up to seven. As we waited in the dark for the film to start, my business analyst senses began to tingle; Cinemas are in real trouble.
It is clear that cinemas are in trouble, but how much trouble? Other than seeing the cinema business from the outside, I know nothing about their business. But I’ve never been afraid to make assumptions and use some classic business analyst tools to find out.
REVENUE
How much money does this cinema make a day? I immediately began to work through the back of envelope calculations as to what a good day—you know before the pandemic—looked like for this cinema. This cinema has 12 screens with approximately 100 seats each. Each screen in turn shows maybe six films a day. In total this cinema has a max capacity of around 7,200 butts in seats each day. Just to keep the number round, let’s assume each ticket cost about £10 each—ha ha. So, on a perfect day they should be able to earn around £72,000 a day (£2,160,000 per month) which is impressive. Of course, nothing ever goes to plan. Let’s assume that they normally operate at only about 50% capacity, so they only earn about £36,000 a day (£1,080,000 per month). On the day my family and I went, the cinema was running at around 7% capacity, so on that particularly bad day they only earned about £5,040 (£151,200 per month). And of course, they have costs.
| Perfect (100% Capacity) | Normal (50% Capacity) | Bad (7% Capacity) | |
|---|---|---|---|
| Revenue | £72,000 | £36,000 | £5,040 |
| Costs | |||
| Rent | £16,666 | £16,666 | £16,666 |
| Film Licenses | £5,400 | £5,400 | £5,400 |
| Staff | £4,800 | £4,800 | £4,800 |
| Other Costs | £5,000 | £5,000 | £5,000 |
| PBT | £40,134 | £4,134 | -£26,826 |
COSTS
Rents and Business Rates—This cinema is huge and is in the middle of a popular shopping mall in London. I wouldn’t be surprised if they pay £16,666 a day (£500,000 per month), if not more in rents and business rates.
Film Licenses—I had to Google this one. Every time a film is shown, the cinema must pay £75 or 35% of ticket sales, whichever is greater. So, with 12 screens showing six films a day, at a minimum, the cinema would need to pay £5,400 a day (£162,000 a month).
Staff—On the way into the cinema we passed at least five staff. One sold us popcorn, one checked our tickets, one was fixing the escalator, one was cleaning, and one was managing the others. So, behind the scenes there was probably at least 10 more staff that we didn’t see. I estimated there are at least 15 staff on duty in a cinema this big at any given time. The cinema is open at least 16 hours a day and each staff member cost the cinema about £20 per hour (£10 in wages and £10 in taxes, contributions, and other costs). This brings the total staff costs up to around £4,800 per day (£144,000 per month).
Other Costs—There are always other costs. The utilities alone for running this place must easily cost a couple thousand pounds a day. So, for simplicity let’s just say £5,000 a day (£150,000 per month).
PROFITS
Let’s get to the bottom line. On a perfect day, cinemas are a gold mine. This cinema could earn over £40,000 a day (£1.2 million per month) in profits—and that is before they sell us any popcorn. On a normal day, the place should still do well with over £4,000 a day (£120,000 per month) in profits. However, on the day we went with only 7% capacity, holy crap. At 7% capacity I estimated that the cinema made a daily loss of £26,826 (£804,780 per month). With a daily loss of £26,826, it effectively cost the cinema £266 to show me and my family the film.
THE END OF CINEMA
I was shocked. I know that this cinema chain—whose name I don’t want to use out of fear it hastens their death—has around 100 cinemas around the UK. If each one is making a similar loss, then the company must be haemorrhaging upwards of £80 million a month. How long could a company go on while making such huge losses? A month or two? Surely not more than six. My head swooned. I pulled my phone from my pocket. I could easily look up the company’s annual report to see how much cash the company had on hand. From there I could easily work out the company’s burn rate and come up with a rough date on which all of this would close.
I was about to click on the link, when my eight-year-old daughter told me to put up my phone because the film was about to start. She was right. I was there to enjoy the film. I snuck a handful of her popcorn and took one last nostalgic look at their smiling faces in the darken, but empty cinema, unable to shake the feeling that one day very soon, one of my oldest hobbies might not be here any longer.
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Robert Ben Parkinson
Copyright 2021
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