Quick, Netflix is here: increase the salt!

How an unsuccessful independent movie starring Emma Watson is a big threat to Village Roadshow (ASX:VRL) and Event Hospitality and Entertainment (ASX:EVT).

In Edward Jay Epstein’s book ‘The Hollywood economist 2.0: the hidden financial reality behind the movies’, a veteran of the cinema business let slip the secret behind his success.

‘The real secret is the salt’ he said, referring to how much salt staff adds to the butter which covers the popcorn. The more salt they add, he observed, the more people would visit the snack bar and purchase an extra soft drink, and perhaps even more popcorn.

With ticket sales — which cinemas split with distributors — rarely covering the costs of operating a cinema chain, all the profit comes from selling overpriced snacks and advertising.

The opening where no one turned up

The three UK cinemas that decided to screen the independent thriller The Colony might be understandably annoyed. The movie, set in Chile during the 1973 coup and starring Emma Watson, took in only £47 on its opening weekend box office. You could count the popcorn eaters on one hand.

Although this sounds embarrassing, its distributors would not be too concerned. The movie was released in cinemas and video-on-demand (VOD) devices on the very same day, known as simultaneous release. Viewers that watched from their lounge rooms were the main focus.

With cinemas no longer having an edge in viewing technology, increased piracy and the rise of online steaming, it wouldn’t be a surprise if more films were released simultaneously across all mediums.

For cinema operators like Village Roadshow (ASX:VRL) and Event Hospitality and Entertainment (ASX:EVT), this would be the nightmare scenario. Even under the most optimistic view, it’s hard to see any situation other than fewer people ‘going to the movies’.

And with most cinemas located inside shopping centres run by the likes of Scentre Group (ASX:SCG), there’s rent to be paid, and lots of it. This, combined with employee expenses and deals with distributors means movie distribution has high fixed costs. When falling revenue meets high fixed costs, watch out.

An independent film like ‘The Colony’ is no ‘Star Wars’ or ‘Hunger Games’. As yet none of the major studios have been brave enough to use a simultaneous approach to launch one of their big budget films. You can be sure, however, they have at least run the numbers on it.

With cinema chains beholden to their Hollywood overlords to attract popcorn eaters, they’re at the bottom of the food chain in a changing media landscape. That’s not a good place to be. They better hope that Hollywood believes it’s better to stick to tradition than give customers the choice many want, otherwise the curtain may be falling on the big cinema chains.

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