2-43 Movie Manager Malia Mahler is the manager of Stanford’s traditional Sunday
Flicks. Each Sunday, a film has two showings. The admission price is deliberately set at a
very low $3. She sells a maximum of 500 tickets for each showing. The rental of the
auditorium is $330 and labor is $435, including $90 for Mahler. Mahler must pay the film
distributor a guarantee, ranging from $300 to $900, or 50% of gross admission receipts,
whichever is higher. Before and during the show, she sells refreshments; these sales
average 12% of gross admission receipts and yield a contribution margin of 40%. 1. On
June 3, Mahler screened Little Miss Sunshine. The film grossed $2,250. The guarantee to
the distributor was $750, or 50% of gross admission receipts, whichever is higher. What
operating income was produced for the Students’ Association, which sponsored the
showings? 2. Recompute the results if the film grossed $1,400. 3. The “four-wall”
concept is increasingly being adopted by movie producers. In this plan, the movie’s
producer pays a fixed rental to the theater owner for, say, a week’s showing of a movie.
As a theater owner, how would you evaluate a “four-wall” offer?
a Guarantee is $750
b .12 x $1,400 = $168
c .60 x $168 = $100.80
3. The offer would shift the risk completely to the movie producer, whereas
ordinarily the theater owner bears a great deal of the risk. The owner is
assured of a specified income; the producer then reaps the reward or bears
the cost of the actual attendance level.