Examining revenue streams, profit sharing in Nigerian cinemas

Nigerian cinemas operate on a multi-faceted business model, generating revenue primarily through ticket sales and concessions, with proceeds shared among key stakeholders, including government, cinema operators, distributors, and producers.

This article delves into the intricacies of Nigeria’s cinema revenue model, highlighting the various revenue streams and the structured sharing formula.

Revenue Streams: Where the Money Flows

Nigerian cinemas rely on three primary revenue streams:

1. Box Office (Ticket Sales): The primary revenue driver, especially for hit films, ticket sales account for the largest share of cinema revenue.

2. Concessions: Sales of snacks, food, and drinks at high markups contribute significantly to cinema profits.

3. Advertising: Screen advertisements shown before the movie and during intermissions provide an additional revenue stream.

Revenue Sharing: The Cash Waterfall

The money generated from ticket sales is distributed through a “cash waterfall” process, with the following sequence:

1. Taxes: 10% of gross ticket sales are deducted as taxes, comprising 5% Federal Government Value Added Tax (VAT) and 5% State Government entertainment tax.

2. Net Box Office Revenue: The remaining revenue after taxes is shared between the cinema (exhibitor) and the distributor.

    – Nollywood Films:

 Week 1: 50% (distributor) / 50% (cinema)

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 Week 2: 45% (distributor) / 55% (cinema)

 Week 3+: 40% (distributor) / 60% (cinema)

Hollywood Films: Variable terms, subject to contractual agreements, but often following a similar sliding scale principle.

3. Producer Share: From the distributor’s share, a fee (10-15%) and applicable withholding taxes (10%) are deducted, with the remainder going to the film’s producer (~30-40% of total box office gross).

Operational Costs: Behind the Scenes

Cinemas face significant operational costs, including:

– Real estate and equipment maintenance

– Staff salaries

– High electricity/fuel expenses due to reliance on generators

Target Audience and Film Types

Cinemas rely on a growing middle-class with disposable income, with urban centers like Lagos dominating box office revenue.

Hollywood blockbusters consistently attract large audiences, while Nollywood films perform well during peak seasons/holidays.