Latest / Stagflation Conversations with Fexingo: High Inflation, Slow Growth, and 1970s Echoes / How Stagflation Is Reshaping the Movie Theater Business
Transcript
- Lucas: You know, Luna, I finally made it to the theater this weekend to see that new sci-fi epic everyone's talking about. The movie was great, but what really struck me was the audience — or rather, the lack of it. The 7 PM showing on a Saturday was maybe half full. Luna: That tracks with what I've been seeing in the data. April's core PCE came in at 3.4 percent, highest since October 2023. People are feeling the squeeze on discretionary spending. Lucas: Exactly. And the movie theater business is a perfect lens for stagflation right now. You've got rising costs on one side — energy for the projectors, labor for the staff, rent for the real estate — and on the other side, consumers are pulling back because real wages aren't keeping up with inflation. Luna: So what's the hard number? How much are attendance and spending actually down? Lucas: Well, the National Association of Theatre Owners reported that per-capita concession spending dropped 4.5 percent year-over-year in the first quarter of 2026. That's a big deal because concessions are where theaters make their margin — they barely break even on ticket sales. Luna: Right, the classic model: ticket revenue goes mostly to the studios, popcorn and soda pay the rent. Lucas: Precisely. And operating costs have risen about 12 percent over the past two years. So you have a pincer movement: costs go up, revenue per customer goes down. That's the stagflation story in microcosm. Luna: So how are the big chains responding? I know AMC and Regal have been trying different things. Lucas: They're moving toward dynamic pricing. AMC, for instance, now charges more for prime-time weekend shows and less for matinees or weekday screenings. They're also pushing their subscription program — AMC Stubs A-List — to lock in recurring revenue. Luna: But isn't that a tough sell when people are already cutting back on subscriptions? Netflix, Spotify, gym memberships — something's got to give. Lucas: That's the risk. But the data suggests that loyal moviegoers — the ones who go at least once a month — are actually more likely to subscribe because it feels like a discount. The problem is that casual viewers, who make up the bulk of attendance, are the ones staying home. Luna: And what about premium formats? IMAX, Dolby Cinema, 4DX — those cost more per ticket, but they also offer an experience you can't replicate at home. Lucas: That's the bet. The major chains are investing heavily in premium large-format screens. The theory is that if you're going to spend money on a movie, you'll pay extra for the best seat in the house. And early data supports it — IMAX screens are often sold out while standard auditoriums are sparse. Luna: So it's a bifurcated market: premium experiences thrive, standard shows struggle. Lucas: Exactly. And that creates a real challenge for smaller independent theaters. They can't afford to install IMAX or Dolby systems — each screen can cost over a million dollars to retrofit. So they're getting squeezed hardest. Luna: What are they doing to survive? Lucas: A lot of them are pivoting to event programming. Private screenings, birthday parties, corporate events, even live-streamed concerts or sports. Some are turning into hybrid spaces — part theater, part bar, part event venue. It's about diversifying revenue beyond just showing first-run movies. Luna: That makes sense. If you can't compete on blockbusters, compete on experience. Lucas: Right. And the numbers bear out that shift. According to the Independent Cinema Alliance, non-film revenue now accounts for 40 percent of total revenue at small theaters, up from 25 percent five years ago. Luna: It's interesting — this feels similar to what we talked about with the craft brewing industry a few episodes back. The middle is getting hollowed out. Lucas: That's a great parallel. In both cases, you have a premium tier that can raise prices and a discount tier that competes on price, but the middle — the standard experience — is losing ground. Stagflation accelerates that polarization. Luna: And the broader economic data supports it. The latest CPI report showed overall inflation at 3.4 percent, but services inflation — which includes entertainment — is even stickier. So the cost to run a theater keeps going up. Lucas: Yeah, energy costs alone are up about 8 percent year-over-year. And labor costs are rising too — average hourly earnings for private workers hit $37.50 in May, up from $37.41 the month before. That's good for workers, but it adds pressure on margins. Luna: So what's the outlook? Do you see theaters surviving this cycle? Lucas: I think the industry will shrink. We'll see more consolidation — the big chains will buy up struggling independents, and some locations will close. But the core product — watching a movie on a giant screen with great sound — still has value. The question is how much people are willing to pay for it. Luna: And if the economy stays sluggish, that willingness might be tested. Lucas: Exactly. The next six to twelve months will be telling. If blockbuster releases can't fill seats even with premium pricing, we might see a structural shift in how movies are released — shorter theatrical windows, more day-and-date streaming. Luna: That would be a huge change for Hollywood. Lucas: It would. But for now, the industry is adapting in real time. And if walking through the economy with us has made something click — or if you just enjoy these deep dives — listener support is what keeps this show ad-free and independent. You can find us at buy me a coffee dot com slash fexingo. Luna: It really does help us keep the lights on — or in this case, the projectors running. And we appreciate every bit of it. Lucas: So back to the theaters — one thing I'm watching is how the studios respond. Disney and Warner Bros. have already started experimenting with variable pricing for new releases, charging more for opening weekend tickets. Luna: That's like what the airlines do. Surge pricing for movies. Lucas: Exactly. And if that becomes standard, it could actually help theaters by smoothing demand — you get more people on Tuesday nights because it's cheaper, and those who really want to see it opening weekend pay a premium. Luna: But doesn't that risk alienating casual moviegoers even more? Lucas: It might. But the data from early tests suggests that overall revenue increases, even if attendance doesn't. And in a stagflation environment, maximizing revenue per ticket becomes critical. Luna: So it's less about filling seats and more about optimizing yield. Lucas: Right. And that's a fundamental shift from the old Hollywood model, where box office was about butts in seats. Now it's about dollars per seat. Luna: I guess the question is whether that can sustain the industry long-term. If theaters become a premium-only experience, you lose the cultural role they've played for a century. Lucas: That's the tension. But stagflation forces tough choices. The industry that emerges on the other side might look very different — smaller, more expensive, but maybe more resilient. Luna: Let's hope the popcorn stays affordable, at least. Lucas: Ha — well, if dynamic pricing comes for the popcorn, we'll know we've crossed a line.