> > > >

1948-49 Theatre Catalog, 7th Edition, Page 516 (501)

1948-49 Theatre Catalog, 7th Edition
1948-49 Theatre Catalog
1948-49 Theatre Catalog, 7th Edition, Page 516
Page 516

1948-49 Theatre Catalog, 7th Edition, Page 516

building complete with the heating and wiring, and the tenant must supply the other equipment outlined above, Under such an arrangement 10% is the usual maximum.

The fact that adds a somewhat acrid flavor to all this discussion of rent expenditure is that, from information now available, few other businesses pay as much as 12 to 15% of their gross for this item. A list (Fig. 1) as published by one of the large real estate organizations discloses, that under normal conditions, out of 47 businesses quoted, only two pay as much or more than theatres. And, understandably enough, these two are storage garages and parking lots, where the commodity merchandised is the landlords space on which he is entitled to a large participation.

As one prominent independent circuit owner has very aptly stated it: nI think one of the reasons why theatre rentals have been high is because originally they had been considered a very risky type of one-purpose building tenant. The last 20 years has proved this to be very erroneous thinking. Theatres have paid good rentals and have been good tenants, and have improved the landlordis surrounding properties. Therefore, rental percentages should be on the basis of a very good risk tenant, and that means lower rentals-eor weill build our own."

General Overhead

Overhead, which derives its major substance from film costs and rental charges, also includes a number of less bulky but nevertheless appreciable items. Repairs and supplies, for example, each average about 2 to 3%. Advertising, including trailers, newspapers, posters and the other paraphernalia of publicity, runs approximately 8%.

It is not uncommon, however, for a metropolitan theatre grossing $20,000. to $30,000. to allow only $1,000. for its newspaper advertising. For additional expenditures, such houses depend largely on the film distributor. Most distributors, being human, would be well pleased if all exhibitors spent as much as 8% for the advertising budget and spent it consistently. Film delivery and sound charges together average about 1%; insurance from 1 to 2%; improvements and amortization, 2%; depreciation on equipment from 3 to 5%; and building depreciation from 2 to 5%.

Home office expenses for circuit or group operation average not over 5% of the gross in many cases half that figure; and electricity and heat generally speaking, make up about 3%. Salaries-probably another one of the most controe versial of subjects but always one of the favorite topics of the day-cannot be too definitely established but on the basis of experience, 15 to 22% would seem to be a fair allocation.

Now, if you have gone to the trouble to total up the lowest and the highest of all of the above, you will find that the fortunate theoretical owner who could accomplish the former would have 26% for profit, while the unfortunate owner who paid the highest would soon be out of business with a 4 to 5% loss. That is the tenuous thread of good management.

All expenses remain more or less fixed, independent to a certain extent of


ffFAIR AVERAGE, of Stores Gross Volume for Rent

Percentage Type of Store for Rent

Art shops 10-12 Auto accessories (5.3 Auto agencies . . . . . . . . .. 11/2-21/2 Bakeries 6-7 Barber shops . . . . . . . . . .. 10-15 Beauty shops-merchandise 10 service . . 121/2-15 Booksenew 8-10 12-15 Candy . . . . . . . . . . . . . . . . . . 7-10 Candy with luncheon . . .. 10-12l/2 Cigars and tobacco . . . . .. Cleaners and Dyers . . . . . . Credit clothing Department stores Drugsechain #individual Electrical goods . . . . . . . . . Five cent-10c, 5-10-25c, 5c-$1.00 Florists Fruits and Vegetables . .. Furnituree-cash . . . . . . . . . -credit Furriers . . . . . . . . . . . . . . . . Garageestorage Gas stations . . . . . . . . . . . . Groceries-chain -individual . Haberdashery . . . . . . . . . . . Hardware Hosiery and knit goods .. Jewelry Leather goods . . . . . . . . .. Liquor stores . . . . . . . . . .. Meat markets#chain . . . . individual . clothing . . . . . . . . . . furnishings . . . . . . . hats shoes Millinery Optical stores Parking lots . . . . . . . . . . . . Pianos and musical instru Restaurants#regular . . . . cafeteria

Sporting goods . . . . . . . . . .


Theatres-motion picture. #combination of motion picture and vaudeville . .

Womenis furnishings . . . .

Womenls dresses, cloaks,

and suits Womenis shoes . . . . . . . . . . Womenis cotton wear . . . .

FIG. liTlle tabla shown is not intended lo presenl a fixed rental percentage figure for the parlirulnr husinessns appearing in il: but rnIhI-r indiealo llu- ufair average" arrived a! in .1 nationwide survey. No indiezh [inn is given of the number or locations of line businesses analyzed in any one group.

external influences. For example, a 10% drop in the gross recoipts would lower the film rental by only 3V3%. This condition, while interesting as an economic phenomenon, emphasizes the need for careful budgeting.


So far, the discussion has concentrated on the negative aspects of the budget, with the all-too-familiar list of expenses that confront all exhibitors occupying the major part of the thesis. But, fortunately, even after all the hydra-headed expenses have been extracted, there are still signs of financial life in the undernourished dollar we started with. Yes, appearing on the horizon like a contingent of U. S. Cavalry galloping to the heroinels rescue in a good old silent Western, profit rears its beautiful head.

Information obtained in conversations with exhibitors all over the country indicates that a profit of 10%, while not possible to attain consistently, is considered equitable. This news may come as a shock to some operators, but it must be remembered that this is an estimated average forlthe entire United States and, depending on the financial physique of each community or region, will finctuate above or below the 10% estimate.

A topic rather closely allied to the fascinating subject of profit is that of fixed assets and their valuation. Fixed assets, although they do not affect the managers pocket so directly as current expenses and profits, do infiuence the entire economic history of the theatre by: providing the place and the means for making profits; and, accounting for the lions share of the expenses.

Fixed assets include: the building, in which the business is conducted; the equipment, which includes machinery, furniture and fixtures necessary for the efficient operation of the business. Their importance to the manager aside from their unquestioned necessity consists of their value. In this latter respect they exercise a tremendous influence on the fate of the business.

Evaluating the Theatre

At different times, exhibitors in discussions of financial matters, have agreed with the real estate experts that the value of a building can be more or less accurately determined by multiplying the monthly rental by a factor of 100 or 125. Thus, a theatre building with a rental of $1,000 per month would represent in round figures a value of $100,000 to $125,000.

The value of equipment is generally assumed to be not in excess of 20 to 25% of the value of the building and land; and probably tends towards the lower percentage as time increases the rate of depreciation.

Finally, the value of the business itself can be estimated to be 11 to 3 times the annual net profit, based on a 5 year period. In rare instances, when the theatre has an exceptional set-up and the outlook for the future is particularly bright, 4 times the annual net profit has been considered a just estimate. The following excerpt from a 1948 Variety report adds an interesting sidelight on evaluation of the business:

"With the pressure on to close out partnership theatres attacked in the Government anti-trust action, Paramount has reportedly fixed a formula for price on a number of its circuits. Par is asking for the book value of the theatres plus three times the profit for
1948-49 Theatre Catalog, 7th Edition, Page 516