04 January 2012

Theatre Pricing Speculation

The Atlantic | Derek Thompson | Why Do All Movie Tickets Cost the Same? At the AMC Loews in Georgetown, Washington, D.C., every evening ticket is $12, plus taxes, whether you want to see Mission: Impossible - Ghost Protocol, the holiday-season juggernaut starring Tom Cruise bouncing off Dubai's 2,700-foot Burj Khalifa tower, or Young Adult, a small, dark comedy starring Charlize Theron. Like tens of millions of Americans, I have paid money to see Mission: Impossible, which made $130 million in the last two weeks, and I have not paid any money to see Young Adult, which has made less than $10 million over the same span. Nobody is surprised or impressed by the discrepancy. The real question is: If demand is supposed to move prices, why isn't seeing Young Adult much cheaper than seeing Mission: Impossible?
Thompson has a good post about this, with some pretty graphs, but I think he misses something important. As does Tyler Cowen, who rarely misses things. He has this to say:
I would rephrase the question to be a little more specific. Especially in the days of robust DVD sales, why did they not offer first weekend modest coupon bonuses — as distinct from price discounts — for the most popular movies? That would drive up attendance, without damaging the gross (as a lower p would), and boost “advertising” for the DVD and the subsequent foreign openings.
Allow me to take a stab at an explanation. IIRC from my undergrad film class,* theaters get a bigger cut of ticket sales the longer a film has been out. Typically -- again, IIRC -- the theater owner gets nothing for opening week tickets. Then their cut gradually increases, so they get 10% of the second weeks, tickets, 20% of the third, and so on, with their cut plateauing before they get 100%.

(* And perhaps things have changed, and so neither Thompson nor Cowen are in fact missing anything.)

So while the studio and exhibitor could potentially work out some arrangement to cut opening week prices to boost DVD sales, the exhibitor alone can not. (And indeed, has no reason to.) Considering different prices for different films doesn't make sense unless you also consider how long the movies have been out.

The length of runs of niche, art-house movies is very different from those of blockbuster films because they rely more on word-of-mouth. It's likely that a theater owner is making more money on each $12 ticket to Young Adult than they are on the $12 ticket to MI:GP (which came out later), or they will be making next week on Underworld: Awakening.

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