> > > >

1948-49 Theatre Catalog, 7th Edition, Page 515 (500)

1948-49 Theatre Catalog, 7th Edition
1948-49 Theatre Catalog
1948-49 Theatre Catalog, 7th Edition, Page 515
Page 515

1948-49 Theatre Catalog, 7th Edition, Page 515

Costs Consistent with Good Business

A Comparative Review of Theatre Finance Including Expenses, Profits and Valuations Based on Experience

Like any other business, the moving picture theatre operates on the general principle of profit. This simply means that after all expenses are deducted, the owner expects to find some cash left in the till. If this principle is violated, if overhead exceeds receipts too often, the business is headed for trouble.

In this study of the financial side of the theatre, information is presented to assist theatremen in their theatre budgeting. Ordinary expense items are listed in terms of percentages derived from reliable estimates and, balancing the picture, profits and valuations are also given. These percentages represent the budget proportions best suited to theatre operation according to the experience of practical theatre men.

The dollar that changes hands at the box office today may have shrunk by pro-war standards but even in a slightly anemic condition it still has some of its old green magic left. Now, in order to take full advantage of this debilitated dollar, vintage of the late forties, every economy-minded manager ought to have a working knowledge of its anatomy.

Once the overhead is broken down into its component parts; and once the problem of ascertaining a fair percentage charge for the different items in the theatre budget is worked out, allocation of operating expenses will be on a sounder economic basis and the manager will have some positive data at his finger tips when he struggles with the budget.

Not that this allocation can assume the dignified vestments of an exact science. Variation seems to be the special demon of theatre finance. But what at first glance might appear a major mystery of modern accounting, resolves itSelf into a reasonable basis of comparison when established estimates are studied in the light of each managers own personal experience.

Cost of Film

Film rental, for example. The movie industry has never formulated a definite set of percentage figures that would be applicable to all theatres. While it is not uncommon to find many houses paying 20% of their gross receipts for film, it is definite that some theatres spend even less than this amount. It is even possible that because of irreducible operating overhead such low percentage the


Theatre Circuit Owner and Publisher

atres make little profit or actually lose money while some theatre paying up to 40% is in the profit column. Generally speaking it would be safe to estimate 35% of the gross as a- fair film rental for first run, key neighborhood and key town operations.

Also, there are no hard and fast rules to keep some owners from going overboard in their zeal to corner the celluloid market.

One metropolitan theatre-owner who had difficulty in getting first-run product offered a major distributor 70% of the gross in a burst of persuasive strategy, explaining this abnormal expenditure was justified by small overhead in his other departments. The sad commentary on this episode ,is that even this surcharged financial inducement did not fetch the badly wanted films, because the distributor knew that the much bigger and better located opposition run would bring a much bigger net return in spite of only a normal percentage of perhaps 35 to 40%. .

Years ago, when Adolph Zukor, then president of Paramount Pictures, stated that, in his opinion, 331/3% represented a fair percentage of film cost. Other executives felt that 25% to 30% plus another 3 or 5%.f0r shorts represented a fair allocation for film costs. Since pictures at that time were being sold generally on a flat basis, this estimate caused considerable comment and criticism in the industry. But there has been a decided change in thinking since then!

While these figures-starting at about 20% and running up to 331/3%ewill probably appeal to those exhibitors who are paying more than this percentage, they will of course be less attractive to that fortunate group of exhibitors who are now paying less. However, the approximate range of 20 to 33%% establishes a fairly good basis for comparison and gives the average theatre owner a tentative yardstick with which to measure his own film expenditures.

Road show attractions usually stipulate a percentage division of 65-35, '7030, or 75-25, with the distributor receiving the larger figure in each group. However, there is now an additional ex *]uy Emunuelis diversified Ihi'uln' lmrkgruund has endowed him with special militarily to discuss the complvx [fold of IIu-alrc finance. A successful Ihrmlrv ()[H'Iulor for over .37 years, Mr. Emunucl'x experience inrludr-s firxl-run, neighborhood and country theatres. In addition he has .u-rnrd (u Ih-rviver in Hue lmnlrruplry also of a large vaudeville and "lullan picture theatre; which finally returned 100% to the stockholders and hm: (tried as an expert trillion in the Federal Courts. For 15 years Mr. Emanuel was also coincidentally 0ngugvd in holh major and suites right distribution so that he has experienced a brand view that ix nor amfttyt'll by many creculives Ivilhin [he industry.

penditure on the distributors budget for advertising, usually any amount over and above the house allotment for this purpose. If a treasurer is required (for road shows the union insists on the installation of a treasurer, who is identical with a cashier except that the title requires a higher rate of pay), the distributor pays this charge.

Some exhibitors have made arrangements for the showing of road show attractions in which a specific amount is named as minimum and, after their audited house expenses are made, they receive as profit an additional 10% or 15% of the gross.

Generally speaking, theatres enjoying a good run in neighborhood sections, or key towns, are paying between 35% and 40% and are happy to do so because the arrangement enables them to make money.


Next to films, rent is the most important item in the budget from the cost angle. Although variations exist in this department also, several authoritative estimates now available make the formulation of this figure fairly easy. ifPoorls Reportsl, indicate that 15% of the gross take is a justified outlay and, in the trade, the Associated Theatre Owners of Indiana concurred some time ago that this amount was a proper rental figure.

Some experts in this field feel that 12 to 15% represents a true figure; others have established 15% as a maximum but with the additional items of taxes, insurance, water rent and maintenance thrown in, probably to give a truer picture of this part of the overhead.

However, all of the above would refer to a theatre that is completely equipped with seats, projection and sound equipment and accessories, air conditioning, carpets, decoration, sign work, furniture and fixtures in good workable order for prompt and efficient modern management.

As with films, specific instances of rentals reveal departures from the norm. In one metropolitan town, an important neighborhood theatre with 500 seats pays $20.00 per seat annual rent as the result of a personal percentage arrangement. Very small neighborhood houses have made rental deals on the basis of 50 cents per seat per month; while slightly larger spots have paid $1.00 per seat per month. In big towns and cities, houses have paid up to $3.00 on this basis, specific rentals always dee pending on the locality and other individual variables, including clearance problems.

There are also ufour wallll deals, where the owner only supplies the basic


. wawma..4


1948-49 Theatre Catalog, 7th Edition, Page 515