Why Variable Movie Ticket Pricing Is So Hard

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"Why Variable Movie Ticket Pricing Is So Hard"

Derek Thompson has an intriguing post up about why ticket prices aren’t variable. It’s an interesting question, but I think he’s ignoring the full extent of what it means that movie theater ticket prices are set by theaters rather than by studios and distributors.

It’s useful to look at how book and music pricing’s shaken out in recent years. It used to be that publishers set a price for books that retailers would pay, and the retailers would then determine what price they wanted to charge consumers based on that cost. In the e-publishing era, they’ve moved to something called the “agency model,” where publishers set prices for their titles and retailers like Amazon get 30 percent of that price. It’s a system where retailers have less power than they had previously, and even under both models, the publishers had significant control over basic pricing.

That system means that the publisher’s and retailers’ incentives are fairly closely tied together. Which isn’t entirely the case for the studios and the theater owners, the former of whom want to monetize a mix of movies across multiple platforms, the latter of whom want to get a steady number of people in proximity to candy counters and popcorn machines. You see a lot of friction between the parties, as with the scrapped plan to release Tower Heist both in theaters and via premium-priced Video on Demand, or with 3D pricing, which some filmmakers have said is too expensive and drive moviegoers away from theaters. The New York Times had a good piece this summer about the incentives that have driven studios and theaters apart on pricing:

Even some of the best-compensated players are beginning to wonder whether exhibitors and studios are pushing their luck with consumers….Historically, the big theater chains like Regal, AMC Entertainment, Cinemark Theatres and Carmike or their predecessors have been reluctant to raise ticket prices because their profit margins were higher on the sale of popcorn and other concessions than from tickets. Thus, they had an interest in raising the number of attendees, rather than maximizing film revenue that would be shared with studios. (The studios and exhibitors typically split the proceeds from each ticket sale, although the exhibitors alone set the price to consumers.)…More recently, though, theater chains turned to price increases, and especially to premium prices for 3-D and big-screen formats like Imax, for added cash that sometimes has been used to pay large dividends to shareholders or to pay down debt.

Cinemark Holdings, though generally more restrained than some of its peers when it comes to pricing, raised its quarterly dividend 17 percent, to 21 cents a share from 18 cents, an amount that nearly equaled its earnings in the first quarter. Meanwhile, Carmike, which operates many small-town theaters with relatively low ticket prices, has paid down a substantial $100 million in debt in just over three years.

Negotiating how variable ticket pricing would work would require fiendishly difficult movie-by-movie negotiations. Discounting a small independent movie might be in the interests of an individual filmmaker willing to accept small profits to get a movie in front of audiences, but it could also create the perception within a studio that one film was being used to undercut the performance of others. If the theaters started slashing prices on individual movies, one studio might feel it’s being targeted compared to other studios who are getting the revenue from regular ticket pricing. There’s no question that variable pricing would be in the interests of consumers. But the interests are complex and murky enough that it’s not clear that it would be in the interests of the studios or the theater owners — or of streaming providers. It’s worth remembering that the prices for movies you watch through Netflix or Amazon don’t vary either.

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