Movie Theaters vs. Netflix

Movie Theaters vs. Netflix

Written by: Jenna S.

With the invention of Netflix and other streaming services, movie theaters around the country were apprehensive as to how consumers would react to their increasing popularity. After all, Netflix alone has over 75 million subscribers, and the low price of $7.99 per month is more attractive than the increasing cost of movie tickets, especially since those only have a one time use (“Number”). The movie theaters wasted no time fighting against this, implementing promotions such as the $5 movie Tuesday in an attempt to compete with the competition. In reality though, Netflix and other streaming services are not competitors to movie theaters, and movie theaters are also better for the economy.

This actually makes a lot of sense in regards to the big picture. If a consumer was trying to weigh the opportunity cost of attending a movie theater, they would not compare it to watching one on Netflix, they would compare it to other forms of entertainment such as bowling or going out for dinner. Most consumers don’t see watching a movie on Netflix as an alternative for going to the movies. According to Tim Richards, a leading movie theater chain CEO, movie theaters “are one of the few growing channels the studios have for their products right now" (Gibbs). The movie theaters don’t compete with Netflix because they don’t offer the same product. While they do both show films, the movies are the only place that releases new movies with the big screen and sound experience, so they continue to have a high demand.

Movie theaters are such a presence in the economy, it is a good thing that streaming services aren’t taking over. They are an industry with $17 billion in revenue (“Movie”). Netflix pales in comparison to that number with only $8.83 billion in revenue (“Number”). This means that movie theaters bring a lot more money into circulation than Netflix does. Especially since they don’t save all their money, but spend it on things such as food, drink, and other supplies, the spending multiplier takes effect and much more than $17 billion is injected into the economy. Although it is the goal of for companies to make money, economists are aware that raising prices too much can cause the demand for tickets to decrease, and that it is important to find the equilibrium between supply and demand. As seen in Figure 1, movie ticket prices rise so much that attendance starts to decline. As a result, they had to lower the prices again. In the long run, the supply and demand of movie tickets should settle back to equilibrium because of this change.

Figure 1

(“Declining Cinema Attendance”)

Overall, it is clear that the traditional movie theater brings in more money than Netflix does. There is no other way to experience watching a newly released movie on the “big screen” with traditional movie popcorn and booming surround sound. Because of that, theater attendance will continue to have no correlation with the popularity of Netflix, and the economy can continue to benefit from them.

Works Cited

Gibbs, Alexandra. “Netflix and Kill: Is Streaming Hurting Movie Theaters?” CNBC, CNBC, 15 Sept. 2016, www.cnbc.com/2016/09/15/netflix-and-kill-is-streaming-hurting-movie-theaters.html. Accessed 8 Mar. 2017.

“Is Declining Cinema Attendance a Bellwether for All Location-Based Entertainment Venues?” White Hutchinson - Leisure & Learning Group, White Hutchinson Leisure & Learning Group, www.whitehutchinson.com/leisure/articles/DecliningCinemaAttendance.shtml. Accessed 8 Mar. 2017.

“Movie Theaters in the US: Market Research Report.” IBISWorld, IBISWorld, www.ibisworld.com/industry/default.aspx?indid=1244. Accessed 8 Mar. 2017.

“Number of Netflix Subscribers, Users 2016.” Statista, Statista, www.statista.com/statistics/250934/quarterly-number-of-netflix-streaming-subscribers-worldwide/. Accessed 8 Mar. 2017.

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