Odeon Cinema is currently showing a movie named “Last House on Elm Avenue”. It is a horror movie and is doing really well for the past 3 weeks. The management of the cinema is certain that a fairly large audience will come and watch the movie for another two weeks. However, being a horror movie, children cannot watch it. Meanwhile, another comedy movie, by famous actor Adam Sadler, “Cute Guerilla” has been booked by the cinema for the next two weeks. However, despite the comedy movie being booked, strong performance of the horror movie is making management have second thoughts about taking it off the cinema. While the building has the capacity of another theatre, there is only one screen in the cinema so the two movies cannot be run in parallel. However, even if the management decides to show the horror movie for the next 1 or 2 weeks, it still has to pay the cost to distributors of the comedy movie as well, as it was booked quite a few weeks in advance. While the cost to be paid to the distributor for booking a movie does not change with booking it weeks in advance or merely a few days, it has been an established practice of Odeon to book movies in advance and start advertising them on their website. Almost all the tickets are still sold on the day of the show with negligible advance booking.
Normal attendance at the cinema is 2,000 people per week, with around one-fourth being children under the age of 12. Attendance for the horror film has been 50% greater than the normal total in the past weeks i.e. 3,000 people per week. However, management believes that this would gradually go down during the next two weeks. In the first week, it will go down by 25% and in the second week, by 33.33% of what it was, on average, in the last three weeks. On the contrary, the viewing for comedy movie is expected to remain the same as is the normal attendance for the next two weeks and possibly beyond.
The price charged by cinema is £2 for adults and £1.20 for children under 12. The charge that the cinema has to pay to distributors for the horror movie is £900 for one week. If management decided to run it for next two weeks, the cost to be paid to distributor will be £1,500 for two weeks. The comedy movie is a low-budget film so the cost to be paid to the distributor is £750 for one week or £1,200 for two weeks. Operating fixed costs of the cinema are £4,200 per week. In addition to tickets, the cinema also makes money through sale of popcorn and drinks, which on average amounts to £1.20 per person. The cost of popcorn and drinks to the cinema is on average 60% of the selling price.
Management is investigating the following three options: show the horror movie for the next two weeks; show the comedy movie for the next two weeks; or show the horror movie for one week and then show the comedy movie for the next.

1. What is the net profit/loss of the three options?

What strategic or operational lessons can be drawn by the management from this situation?

Answer rating: 100% (QA)

1 Defining the alternative I Show horror movie for 1week comedy Movie Next week II Extend the show o... View the full answer