There are two ways for a theater to lease a movie:
Bidding method
- Bidding method
- Percentage method
Bidding requires that the theater agree to pay a fixed amount to distributor for the right to show the movie.
For e.g. A theater might bid $100,000 for a four-week engagement of a new movie. If it could make $125000, then it would have profit of $25000 and if it could make $80000 only, then it means that theater has occurred a loss of $20000. These days, only few distribution companies are following method of bidding.Most agreements are for a percentage of the boxoffice (ticket sales).Percentage method
These days, only few distribution companies are following method of bidding. Most agreements are for a percentage of the box office (ticket sales}In percentage method, the distributor and the theater agree to several terms:-
- The theater negotiates the amount of the house allowance, or nut, with the distributor.{Nut or house allowance is the expense that theater spent each week for the movie and which theater charges from distributor}
- The percentage for the gross box office is fixed in agreement. {Gross box office is gross value of ticket sold. In business language it can be compared with gross turnover for a company without subtracting any expense.}
- Percentage for net box office is fixed in agreement.{ Net box office is the amount of box office left after the deduction of the house allowance or Nut from Gross box office}
- The length of engagement is fixed (typically four weeks). {Length of engagement means period for which movie will be shown in theater as per agreement.}
Further,The distributor gets the vast majority of the money made by the movie. The agreement gives the distributor the agreed-upon percentage of the net box office or gross box office, whichever is greater
