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Movie Theater Communism
Nicholas Tabarrok (brother of Alex) is a producer of small indie films. But he's frustrated because there's no way for him to increase his audience by lowering the price to see his pictures:
When I make, say, an $8M film it has to compete at the same price level as the studios' $80M or $100M film. It costs the consumer the same $12 at the multiplex.
....A few years ago Edgar Bronfman Jr, during the time his family briefly owned the Universal film studio, suggested that theaters actually charge different admission prices for different pictures so those films that cost less to make had correspondingly lower ticket prices than the mega-budget studio pictures. He was roundly ridiculed by the industry. But truth be told I actually think the less-the-warm reception his proposal received had more to do with the fact he was an 'outsider' who had bought his way into Hollywood than on the actual merit of the idea itself. Sound like good economic practice to me.
This same thought has occurred to me frequently. Why don't big, blockbuster films try to squeeze a few more dollars out of each ticketgoer? I mean, who wouldn't pay an extra couple of bucks to see Transformers 2?
Anyway, I've always assumed that theater owners are the roadblock here. Right now, no one has any incentive to cheat: if I want to see Transformers 2, I just buy a ticket for it. It doesn't cost me any more than the ticket to District 9. But if it did cost more, then I'd be highly motivated to buy a ticket to the cheaper movie and then sneak into the more expensive one. That would require a bunch of extra ushers to make sure no one cheated, and the whole thing would be a gigantic pain in the ass and probably revenue neutral in the long run. So why bother?
Then again, maybe there's some other, far more interesting and sophisticated reason for this practice. Anyone happen to know?
No Idea
"Then again, maybe there's some other, far more interesting and sophisticated reason for this practice. Anyone happen to know?"
I have no idea, but they had better figure out a better system soon.
In this economy - heck in any economy - $12/ticket is ridiculous. Besides, with more and more people getting big flat screen LCDs or plasmas, along with surround sound, going to the movies isn't as novel anymore. Why pay $12/ticket when you can rent the movie a couple months later from Redbox for a dollar, pop your own popcorn and watch it on a big TV in your living room? Is the "big theater experience" really worth that?
I haven't been to a movie theater in years (outside of free ones for the kids) and don't miss the experience, or the cost, at all.
While I have no concrete details in front of me, I've heard reports that many sports teams are wondering if these big-screen TVs and HD programming aren't costing them butts in the seats.
After writing this, I do see one reason why a movie theater won't charge different prices: to cut down on theater jumpers.
Why pay $12/ticket to see the new Spiderman movie when you can pay $8/ticket for some indie movie and then just switch theaters? Sure, the theaters can employ people to prevent this, but those people cost money. And that eats into the theater's profits. If they charge all movies the same price, then they don't really have to worry about theater jumpers.
As I've always expected...
MacGruber can't even be bothered to read the whole article before ejaculating his opinions all over the comments.
I think one reason is that
I think one reason is that there is no necessary correlation between the quality of the movie and its budget. Some of the best movies can be done at a low cost while some of the most expensive movies can be total flops. (Remember Waterworld?) Trying to charge more for an expensive bomb is not likely to get you very far. You could try to charge more for movies that are likely to be big hits, but that's a different and more difficult proposition. You really don't know what's going to be a hit until you see how many tickets you've sold, and then it's too late.
I can imagine the headache
I can imagine the headache of the movie executive who has to explain to Director X why his movie belongs in the second tier, or the first tier, or wherever.
Also, the movie economy has changed a lot in the past ten years or so. In the old days, your main audience was folks who just headed towards the theater because it was something to do that night--not because they were off to see a particular movie. So that audience would be very likely to pick the lower-cost movie, and higher-cost movies would die at the box office.
Today, though, there are so many different options for entertainment, people only head to the theater to see a movie they really want to see. So a higher cost ticket might make sense. This explains a lot about the movie business today--the fact that pretty much any movie with a budget has to be a sequel or based on a comic book--and maybe it will soon cause a shift in this direction.
Deja Vu
Didn't I just see this at Ezra's?
Anyway, the reason the Indi producers' idea is a dumb one is that while he may be able to increase audience with lower prices, he wouldn't be making any more money if they are paying less.
If only 1M people pay $15 dollars to see "Transformers 19," than it's a big time flop. But if the same million people go see "Juno Does Dallas," it's an Indi Hit! If the Indi film were allowed to charge less, say $10, than they'd have to pull in another 1/2 million people to reach the same gross... not easy to do, especially for an independent.
Tabarrok might well lament that he'd like more people to see his movie, but I'd bet his financier wouldn't take the trade if it meant less gross. Especially since having to bring in more people (at a lower price) also means more advertising and promo expenditures are needed to reach them, potentially increasing the marketing costs of the "cheaper" movie.
Natural Pricing
Anyway, the reason the Indi producers' idea is a dumb one is that while he may be able to increase audience with lower prices, he wouldn't be making any more money if they are paying less.
No, this is classic economics in terms of setting the price for your product. You charge just enough to maximize (price)*(units sold). Obviously you cannot let price go to zero, but you do not want units sold to go to zero either. Hell, these types of problems are staples of freshman Calculus classes.
Digital distribution (either through Steam or the iPhone App storm) has really altered people's view of game pricing. Games are priced much lower to get a larger numbers of buyers. Furthermore, digital distribution allows developers to change their price in real time and watch its affect on their sales. I heard an iPhone developer talk about how they raised the price of their game from $1 to $2 (because they pushed out an update with so many features it was essentially a newer game). It hurt their sales tremendously, and they dropped to the game back to $1 in an hour.
Similar things will happen with movies and digital distribution. The problem here is that cinema boxoffice is still the primary source income for films. If the primary way for people to see movies would be at home through digital distribution, then we would have solved this problem long ago. However, people still find a significant value add to watching in the cinema (which is not necessarily a value that the movie itself provides), and so that is the primary revenue stream.
Also
There isn't much of an incentive for movie theaters to charge less to see a particular movie, since their capital costs for the buildings are the same regardless of what is on the screen. The movie industry is mostly a venue for selling snack bar items anyway.
Margins on theater tickets are razor thin
It would be best to have a movie theater owner chime in with real numbers. From what I know of the system, the theater doesn't make a sustainable amount of revenue from ticket sales. The theater's profits come from concessions and other add-ons. So if the distributor offers lower budget movies for less than big budget movies, theater owners are more likely to sell all tickets at the same price and pocket the difference. Another factor is that big budget movies tend to open on many screens in a metropolitan area and smaller budget movies on one screen. There is more pressure on a theater owner to keep ticket prices competitive where customers can go to another theater to see the same movie.
Churc/State
I love these church/state cases because they show just how reactionary the conservative wing of the Court really is. Read Thomas in the Texas 10 Commandments case awhile back. He doesn't support the Court's whole movement to make the Bill of Rights apply to the states by "incorporating" the provisions of the Bill of Rights into the states through the 14th Amendment's due process clause. So basically Thomas does not believe the First Amendment prohibition against the establishment of religion applies to the states. The Texas constitution has a prohibition against an established religion, so the fundamentalists would have to take care of that first, But so, as long as no federal right was abbrogated, Thomas and other conservatives believe the state of Texas is within its right to establish the Baptist church or whatever as the official state religion if they wanted, whatever that would mean for voting or holding office or whatever. If you think about it, in Thomas' view Texas already has seceeded from the union, sort of.
You're right about the
You're right about the future, my comments are clearly rooted in the past structures of Hollywood economics, and have more to do with distribution contracts and the way "Boxoffice" is itself a marketing concept.
Internet steam and PPV has and will continue to change things especially for the indi world. In this respect the film industry escaped some of the problems that brought down the music majors. Quality and file size issues prevented mass illegal copying early on, and now that the internet is catching up, digital streams can supplant the more easily pirated formats. This will eventually allow all filmmakers... from Universal to Tabarrok... to securely charge whatever they want to see their films.
Tickets v Concessions
Wouldn't the fact that the theater owners make most of their revenue via concessions sales be an argument in favor of variable ticket prices (at least from the owners' perspective)? Different price points for tickets could = more potential theater goers = more concessions sales. This larger audience/increased concession sales might make it worth the theater owners' while to pay for more strict ushering staff.
Is there a difference in
Is there a difference in cost to theatre owners between a block buster and an independent film? Theatre owners fixed costs would be the same whether they showed one or the other.
You'd have to have a
You'd have to have a completely different building or some physical barrier between the different priced attractions.
But I think it could be done with nice velvet ropes. I don't think you'd need two concession stands or a lot more security.
"No, this is classic
"No, this is classic economics in terms of setting the price for your product. "
But it leaves out a basic factor in the equation - the consumer. Does anyone really think there's a lot of folks who would go to the theater and buy a ticket to some indy shlock they've never heard of instead of the blockbuster they've seen advertised on TV for months?
Mike
Movie The
One big issue is the model of revenue sharing between the theaters and the studios. While the amount can vary depending on the size of the chain and the studio, the contract for most major studio films requires the theater to fork over 80-90% of the gross ticket sales during the first few weeks of the engagement. That is why the profit for movie theaters is mostly in the concessions, but also why ticket prices have raised steadily over the years. Ten percent of $15 is more then 10% of $10. An indy film would have to give the theater a deal on how the ticket sales were split and guarantee a certain number of people attend to recoup the cost of fewer concession sales and smaller tickets sales. That is probably impossible for 99% of indy films.
theatre manager to the rescue
Film profits are a percentage of the take, and usually a pretty low one at that. So we don't give a damn, really, what the prices are, except in so far as we can give the distributor a good income estimate. This is, of course, all stuff my corporate office does, not me. But I do work at an art house theatre, so I do know a bit about the finances of indie versus mainstream--there isn't much of a difference, from our end. Over the last few years, the vast majority of the indies have gotten picked up by the "art" imprints of the major distributors, eg Paramount Vantage. Of course, those are shutting down now, so that could change everything.
Anyway, theaters make next to no money from the major opening weekends, although the take increases as the weeks go on, which is why some stuff stays FOREVER. Movies don't generally count as overhead, but they don't really count as income either.
So yeah, we'd have all this extra staff for absolutely no reason. And ever customer that wanted to change their ticket would require refund paperwork instead of just a quick exchange. And discount pricing for matinees and seniors? Lord no.
Already Being Done
The truth is that charging different prices for some movies is already being done. In Denver there are charging $10 for the standard 2D version of Toy Story and $14 for the 3D IMAX version.
because a cheap price signals a cheap product
tagged as:- solution
Joel Spolsky, the owner-manager of a small software company, addressed this question a few years ago, here. He argued that if theaters offered tickets to certain movies at a discount, customers would take the discount as an admission that those movies were crap, and therefore be less likely to buy the tickets.
He posted this to explain why the record labels wanted Apple to sell different songs through iTunes at different price points and why Apple wanted to keep the same price for every song. Of course, now Apple does sell different iTunes songs at different prices; make of that what you will.
The question is what the theatre pays the distributor.
In order to know if it makes any sense at all for theaters to vary their ticket prices based on movie one would have to know what theaters pay for the right to show a movie.
Do they pay something very uniform? $3 a ticket sold or whatever? Do they pay for showings? Do they pay for screen-days? Some more complicated blend?
Unless the price that theaters pay to film distributors is closely related to the production cost of the film it is ridiculous to expect that to show up in ticket prices.
"MacGruber can't even be
"MacGruber can't even be bothered to read the whole article before ejaculating his opinions all over the comments."
The link didn't work for me.
At least I can bother to register.
Theater pricing
Both theater owners and film makers would benefit from individual movie pricing.
To the extent theater owner profits come from concessions, they could really benefit from a two-part pricing plan... that is, price any given movie to fill the most seats, and sell that popcorn. A few more ushers wouldn't be that expensive.
Movie owners too would benefit by a scheme that allowed them to price a movie according the laws of supply and demand... since they'd be able to charge a profit maximizing price.
It could be that the problem stems from the difficulty of finding an equilibrium price for each movie. That price would probably be correlated with, but would not necessarily be determined by the movies budget... but rather by the relative popularity of the movie.
And it could change over time... perhaps the first week, the price would be $12 and by the second week fall to $5... or for a popular movie perhaps even rise to $15 or something... But probably we'd have prices varying, not only by movie, but over the length of each movie's run.
Wouldn't that be fun.
Large chains kind of have
Large chains kind of have different prices for the blockbusters in that they don't accept the discount tickets during the first two weeks. Places like The Bridge also have higher pricing for its reserved seating theater which generally shows the biggest movie out at the time.
It's been done.
Back in the '50s and '60s (I'm showing my age here), Hollywood blockbusters like "Ben Hur" and "Lawrence of Arabia" routinely did a first run in the major theaters on what was called a "road show" basis, with more expensive tickets and reserved seating. It was only after that first, more expensive, run that these big films, often by then with worn, shortened prints and inferior sound systems, made it to the neighborhood theaters and drive-ins. I suspect the proliferation of multi-screen complexes and the loss of the old movie palaces doomed that approach. "The Sound of Music" may have been the last film released that way.
delicate family reunion
I think the next time the Tabarrok family gets together Alex might take Nicholas over for a quiet chat about the concept of "marginal cost." Marginal cost is the cost of providing one more of the product. In the case of movies it is either the cost to the theater of ushering and cleaning up after people. One might consider the cost of the actual physical copy of the film to be part of marginal cost. The cost of making the master copy (you know of making the movie) is a fixed cost.
The profit maximizing price for a product is a function of marginal not average cost.
Now the marginal cost of selling a film viewing experience can be higher than the ushering and cleaning costs. If the film is sold out, no seats available in the theater, then the marginal cost is .... well huge (I guess you could show the film on another screen and send the people who wanted to see the scheduled film home saying it was sold out).
The sold out theater effect explains why matinee tickets are cheap. Yeah a super duper mega hit film might justify more expensive tickets because tickets are often sold out. But only for the first few days. I have never, ever, ever had the experience of going to a movie theater hoping to see a film and being told that it is sold out.
Notice that there is already an incentive to go to films that aren't super popular. I go to arty art flick with subtitles and I can sit where I want with no strangers anywhere near me. I go to MegaColossal and I better get there early if I want to really see the screen.
Basically so long as there are empty seats in front of each screen, it makes no difference to the theater which film you watch. Therefore it is profit maximizing for the theater to charge the same price to see each film.
The theater owners could
The theater owners could care less. They only see a fraction of the box office money. They make their money from concession, so lower ticket prices, would actually be more profitable if it increased the number of folks buying popcorn.
Peace