20 Nov 2015

The Popcorn Business of Pathé

Rosanna writes*

In the Netherlands, movie theater chain Pathé offers its clients the ability to get a movie subscription. Pay 19 euros a month and you get unlimited access to any movie in every Pathé movie theater in the Netherlands with your personal ‘Pathé Unlimited’ card. Additionally, you get a 10 percent discount at the concession stand. As movie tickets cost (over) 10 euros at Pathé, this is appealing for everyone who goes to the movies more than once a month (which is the reason I got one). Pathé, on the other hand, increasingly misses out on revenue as people make more and more use of their card, it seems. But do they really?

Movie theaters only get to keep a small amount about 20 percent of the ticket sales revenue: the other part goes to the movie studios. This means that movie theaters need another source of income to stay in business. Many people like having a snack when watching a movie. As bringing in own food and drinks is not allowed, people would have to buy those at the theater. This means that there are no substitutes for snacks at the movies. Therefore, the demand for snacks at the movies is relatively inelastic and as a result, prices are often extremely high at Pathé, a medium sized popcorn costs 4 euros compared to 60 cents for a similar amount at the supermarket. And unlike movie tickets, all revenue from concessions goes to the theaters.

However, even though the demand for snacks at the movies is relatively inelastic, the very high price might cause one to think twice about really needing a snack. This might be different when one has the Pathé Unlimited card. What struck me about my own behavior is that I easily spend 3.60 (4 euros minus 10 percent) on a bucket of popcorn, because it feels as if I already saved 10 euros for the ticket. What I tend to forget is that without the card, I may not even have gone to the movies, which would have saved me those 3.60 euros. Additionally, the 10 percent discount makes it even more appealing to buy a snack. And this seems exactly what Pathé aims for.

In order to explore this, I looked back at my own expenditures at the movie theater during the last month. I went to the movies 4 times, and in total I spent 14.40 euros on snacks (discount included). I have the Pathé Unlimited card, so this means that I paid 19 euros. I went to the movies 4 times, thus 2.1 out of 4 times I went to the movies for free. Pathé gets around 20 percent of this amount: 0.2*19 euros=3.80 euros. Additionally, I spent 14.40 euros on snacks. Therefore, in total, Pathé got approximately 3.80+14.40=18.20 euros. Without the Pathé Unlimited card, I would have spent 4*10 euros=40 euros on movie tickets if I had gone 4 times. Pathé gets around 20 percent, which is 0.2*40=8 euros. Because I would have had to pay for the tickets, I probably would not have bought any snacks.

In conclusion, Pathé got approximately 18.20 euros because I have a Pathé Unlimited card. If I did not have the card, they would have gotten 8 euros, given that I would have gone 4 times (it would be even less if I had gone fewer times). This means Pathé is better off. And because Pathé’s revenue mostly comes from concessions, the more one uses their Pathé Unlimited card the more revenue Pathé gets. And additionally, I am also better off, as I spent 19+14.40=33.40 euros in total instead of the 40 euros I would have spent without the card.

Bottom line: Expectedly, the Pathé Unlimited card is beneficial for both Pathé and the customer. Unexpectedly, however, the more someone goes to the movies with this card, the more beneficial it is for Pathé.

* Please comment on these posts from my microeconomics / growth & development economics students, to help them with unclear analysis, other perspectives, data sources, etc.


Olivia K said...

Hey Rosanna,

That's a really insightful analysis! Expanding on your post, I have a question: would/will you change your popcorn consumption now that you realized how much you are actually spending additionally? Because if you do, then you could actually turn this profit-relationship around so that you only profit...

Cox Bogaards said...

This is a very interesting phenomenon. What Pathé does here is called metered price discrimination. It can be done when there are different ways to charge the customer. In the case of the cinema, this is first the movie ticket and then the drinks and snacks. They try to find the price for both of these products where they earn the highest total profit. Apparently for the cinema, this is where the price of popcorn is high and the actual ticket is cheap.

Rosanna C said...

After writing this, I do pay more attention to my consumption at the movies. Even though it doesn't matter to me whether Pathé profits or not, I realized that I can profit even more by not buying anything (or buying less) at the movies. Although I do like eating/drinking something when watching a movie, I realized it wasn't worth so much money.

Post a Comment

Note: only a member of this blog may post a comment.