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Why are all movies the same price?
Well, not the same price in all cases. Before 6 p.m. is cheaper, there are numerous dollar theaters, and not all films allow for discount coupons. Nonetheless a multiplex will charge the same ($9.50 in my case) for the number one movie and for a flop. Nor is the price more expensive for Saturday night, or during the summer when demand is higher. Can any economic model predict these results? Here are a few observations:
1. Theater owners are trying to maximize profit across all screens. Spillover demand, from people who can't get in to see their first choice, is a significant source of revenue. You don't want markets to clear on a screen-by-screen basis.
2. Low prices encourage queuing, which attracts the young and hardy. Those same customers are most likely to spread the virtues of movies by word of mouth. A theater might rather have a young customer than an old customer.
3. Lines for a popular film are one way of generating valuable publicity.
4. A priori, I would have expected the number one movie to sell cheaper, not more expensive. Moviemakers wish to generate snowball effects for potential hits. (For purposes of comparison, it reflects commercial prestige to have your books sell for a low rather than high price.) This also predicts movies will be cheaper in early stages of their run, which does not generally seem to be true.
5. Maybe the whole theatrical thing is a shadowplay for popcorn sales and advertising for a subsequent DVD release. The theater owner, on his side, may not care so much about getting the profit-maximizing price right. So he invests in consumer good will by offering a flat price across all films.
6. The emergence of strict uniform pricing across movies appeared in the early 1970s; it is sometimes suggested that Paramount insisted upon such pricing (illegally) for the release of The Godfather. (The 1948 Paramount decision limited the involvement of the distributor in pricing decisions, but there is pressure nonetheless.)
7. Variable pricing would divert movie demand to weekdays, which would make it harder for a film to be number one at the box office for its opening weekend. And since a top movie will sell out in any case, why bother lowering the price for Saturday night?
8. With differential prices you might buy a ticket for a cheaper movie and walk into the more expensive movie.
You could ask related questions about why restaurants do not tack on a surcharge for Saturday nights, although I find this practice is becoming more common. As far as the movies go, I will put the most weight on #7. And I have turned on the comments section...
Posted by Tyler Cowen on March 4, 2005 at 07:30 AM in Film | Permalink
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Comments
Variable pricing is likely to become an important strategy in a number of categories- record companies are talking about it for music downloads, 10 years ago Coca-Cola talked about a vending machine that could sense temperature and alter price accordingly and 7-Eleven have thought about charging people more if they shop in the early hours of the morning.
This is going to be a big trend for those retailers and distributors who have captive audiences.
Posted by: Edward Cotton at Mar 4, 2005 8:35:38 AM
2 & 3 don't seem right anymore, gone are the days of the two theatre cinema, you very seldom see lines around the block for a movie (I remember waiting hours to see "Jaws" when I was a kid). Most popular openings today have advanced ticket sales, or Fandango (I love those ads).
Also at our local 14 theatre cinemas there is only one line for buying tickets, you spend just as much time in line for "Spiderman" as you do for "Soul Plane".
Today I would go with 4 & 8. I haven't read up on the current theatre economy but it use to be that the cinema owner got a bigger part of the receipts the longer the movie stayed in the theatre so there is no incentive for the cinema owner to lower the price for older movies as long as he can reasonably fill smaller theatres.
The structure of the cinemas now make it difficult to track movie hoppers, so there's no point differentiating. I spend as much on popcorn and drinks as the movie now, and even movie hoppers buy snacks.
Posted by: Steve at Mar 4, 2005 8:50:15 AM
Since most box offices use computers now, it wouldn't be hard for them to automatically adjust prices to match demand. You'd pay the standard amount for a new movie, but then as attendance drops over the next few weeks the computer could lower the price. I know there are a lot of movies that I'd kind of like to see, but won't rush out on openening weekend for. I'd probably go a few weeks later for $4.50, and it would be better for the theater than what they're currently getting from me: nothing.
Posted by: David Ely at Mar 4, 2005 9:31:52 AM
Something I've noticed is that a lot of theatres offer student discounts, which would seem to line up with #2. The queing I've seen the last few major blockbusters isn't for advance tickets, but rather for seats in the theatre. I got my tickets for the second Starwars early, but I still had to stand in line for six hours to get a decent seat.
Of course, there's also the senior discount, and the military discount depending on the city. My guess is that it's a combination of factors, but 2, 8 and 5 seem the most right to me. Movie snacks are priced way above marginal cost, so we know they're raking it in on those.
Posted by: Timothy at Mar 4, 2005 9:45:04 AM
I'm a film studies guy not all that up on the contemporary industry (I focus more on the postwar years). That said, #5 strikes me as the most plausible explanation. It's an exaggeration to say that theatrical boxoffice doesn't matter, but for theatres themselves, the profit margin on ticket sales can be slim, and concession sales comprise much of their profit.
#1 makes sense given that there's a large subset of filmgoers who simply seek to be entertained for two hours and will substitute less in-demand films if necessary. (Steve is onto something with variale theatre sizes of multiplexes). For others who demand specific films, they will often substitute less in-demand days/times, though they're also increasingly watching on video.
I'd add that distributors don't set the price, but they do set the rental terms. It's my understanding (correct me if I'm wrong), that a minimum vs. intake charge is levied to the theatre: for instance, a theatre would pay $3500 or 50% of the boxoffice, whichever is greater. This wouldn't rule out profit maximization, but it definitely gives theatres and theatre chains less room to experiment with price discrimination.
#3,4, and 7 have more to do with the economic interests of the producers and distributors than the exhibitors. These causal explanations needs some mechanism (like above) to translate those interests down to exhibitor practice.
By the way, uniform pricing dates way back, to the nickelodeon days and the early silent era of $1 and $2 admissions - if what we mean by uniform pricing is not uniformity between all exhibition outlets (movie palace vs. neighborhood vs. small town) but instead uniformity for all screenings at a given theatre. The vertical monopoly issues after the Paramount ruling are just part of a long history.
Posted by: Chris Cagle at Mar 4, 2005 9:48:33 AM
Here are my comments on some of the points:
1. It's been a very long time since I could not see the movie I wanted because there were no tickets available. Maybe the Denver market has oversupply, or maybe there are many megaplexes that can offer big hits on 5+ different screens so if your favorite showing is full you have to wait only 20 minutes for the next one. Buying tickets over the Internet also helps.
3. If I see a long line from the parking lot, I don't even bother parking.
4. A class of moviegoer wants to see movies on their opening weekends because they cultivate an image of "experts". They are willing to pay more.
5. Certainly so. I was looking at some numbers not too long ago, and movie ticket sales are chump change compared to everything else (merchandise, sponsorships, DVDs, etc.) for a big hit.
8. Maybe... but I don't think so. It would be easy to put turnstyles at each theater's doors and a mag strip on the tickets.
Posted by: Luca at Mar 4, 2005 9:57:29 AM
I don't how it is in the U.S. but in Australia and Germany Tuesdays are cheap days at the movies. Tuesday is now one of the most popular days to go to the cinema because of this. So there is some price differentiation at work.
The guy that runs EasyJet has opened an "EasyCinema" where the prices for tickets were based on demand. Last thing I heard the distributors refused to give him films to show because they didn't like his ticket pricing model.
http://www.easycinema.com/
Posted by: Hamish at Mar 4, 2005 10:04:13 AM
In Toronto, Canada, we did have variable pricing within the same week: weekend matinee and Saturday night performances were at a premium. Also, "holiday and summertime" pricing used to jack up the cost by $0.50 - $1.50 (CAD, so, like, $0.05 USD) during, as the moniker implied, holiday seasons (long weekends, Christmas) and the summer.
During the SARS fracas, the Ontario government reduced the "entertainment tax" which dropped prices, but they returned to their scandalous highs of $14.50 for a Saturday night summer movie this past summer.
Then, suddenly, Famous Players (one of the major chains here) dropped the cost to $9.95 at all times for all evening movies. It's a temporary, trial thing to see if it increases attendance during the week, I think.
Still: the ability for studios to raise/lower the "retail cost" of their offerings would be cool. I think it would also get more indie films seen by people. This is, of course, assuming that the studios have that amount of direct control.
Posted by: Mike Beltzner at Mar 4, 2005 10:08:12 AM
Another example of price variability to consider might be the regular and fairly quick availability of DVDs (or videos) since a lot of people seem to divide movies into "DVD movies" and "theater movies" with the price of group 1 a maximum of $3 or $4 per showing compared to $10 per person for group 2.
I believe I've also read that movie studios discourage variable pricing at movie theaters because it might signal lesser quality for a cheaper movie and discourage box office further or offend the directors/actors of the movies. Concern about bos office might be even more true now that opening weekend box offices are so significant. Also, studios might not like seeing their prestige releases like "Finding Neverland" priced cheaply based on box office along with "Are We There Yet" priced cheaply based on quality. If the main factor in pricing is time (matinee bargains, DVD new releases more expensive or having a shorter rental period) then all movies move together. As to why the exhibitors don't go object, I believe #5 makes sense: the profits from a $4 coke probably help.
Posted by: Andrew at Mar 4, 2005 10:24:25 AM
I'll add two more possibilities (which I think explain a lot of the issue, btw)
1) Consumers will tolerate variable pricing on some things and not on others. This is entirely irrational, but certainly true. Cinemas would generate massive negative PR by moving to variable pricing (even though the public might be better off, net-net).
2) Variable pricing is tremendously difficult to pull off in practice. For low price, low margin items like movies tickets, the risks of getting variable pricing wrong far outweigh the benefits of getting it right. Its one thing to say that movies should be cheaper on Wednesday night. Its an entirely different thing to say they should be $1.00 cheaper, or $3.00 cheaper, or $2.86 cheaper. The devil is in the details on pricing. The current pricing regime provides stability. You, as a theater operator, can assess your pricing vs. competitors very easily and simply. You charge $.75 more on average, but you have a nicer facility, etc. But in a variable pricing world, you would have to constantly re-assess the right pricing, on the fly, without an easy and low-cost way of collecting data on competitor pricing.
By the way - on the restaurant question. Restaurants have deliberately avoided variable pricing because of #1 above. The public would scream if the same food cost more Saturday night than Thursday night, and competitors who stuck with everyday low pricing would have a significant advantage in attraction patrons. That being said, restuarants (at least the big national chains of sit-down family eateries) have gotten very smart about doing "revenue management" in ways that don't hinge on price.
For example, at a typical restaurant most deserts have a higher margin than most bar drinks. Many patrons will either drink alchohol, or get desert, but not both (each adds about $5.00 per person to the bill). But on a busy Saturday night servers are told to push drinks heavily. That's because even though drinks are lower margin than deserts, a table typically gets its drinks before the meal arrives. Thus the drinks-or-desert diner will consume his "extra" item during the time that he is already taking up valuable table space. If he spends his incremental dollar on desert instead of drinks, then he'll take up the table for 15-30 minutes more than he otherwise would have. On a slow Tuesday night when there are plenty of empty tables servers are told to not push drinks so aggressively but to push deserts after the meal to capture the higher margin. The restuarnt business is filled with these little profit maximizing tricks.
Posted by: sd at Mar 4, 2005 10:26:12 AM
Among Tyler's suggestions, only 8 would imply that a ticket to "Dude Where is My Car?" sells for the same price as "Titanic." Most of these might imply that the price for an individual movie may not be set to clear the market, but that is not the same as saying that two movies with different demand schedules sell at the same price.
But if 8 were the reason then theaters that have only one cinema would be free to charge different prices for different movies. But they don't.
Explanation 1 can't be right or the same argument would imply that there are no first-class seats on airplanes.
I suspect that minimizing the complexity of pricing policies makes it easier for theater chains to collude. A deviation from a uniform pricing policy is easy to detect. (and easy to detect that it has been detected...)
Posted by: Jeff Ely at Mar 4, 2005 10:27:48 AM
Prices must stay somewhat constant to keep customers happy; no one goes to the same vending machine in Disney World every day, but if the corner Coke machine at the office changed daily, I'd give up and find my fix somewhere else.
Every time I see a movie, it's in the same price range, a tad higher in the evening. But it's always close enough that it's the same "Is this movie worth $5-7?" If, every time, I had to make a new decision based on the current price, the cost of that thought would make the deal less attractive.
Clay Shirky used this argument against micropayments:
[Micropayments, like all payments, require a comparison: "Is this much of X worth that much of Y?" There is a minimum mental transaction cost created by this fact that cannot be optimized away, because the only transaction a user will be willing to approve with no thought will be one that costs them nothing, which is no transaction at all.
Thus the anxiety of buying is a permanent feature of micropayment systems, since economic decisions are made on the margin - not, "Is a drink worth a dollar?" but, "Is the next drink worth the next dollar?" Anything that requires the user to approve a transaction creates this anxiety, no matter what the mechanism for deciding or paying is.]
That article is here: http://www.openp2p.com/pub/a/p2p/2000/12/19/micropayments.html
Posted by: Nick Douglas at Mar 4, 2005 10:28:53 AM
There is the benefit of it being simpler. I don't have to wonder what the price will be of the film I want to see at my local cinema if I know the price of tickets anyway.
Simplicity. Ah...
Posted by: Small Paul at Mar 4, 2005 10:38:27 AM
Here's another puzzle: why are the lousiest-view seats priced the same as the best-view seats in US cinemas, with choice of seats determined entirely by queueing, when that isn't true in (a) cinemas in other countries like India, and (b) sporting events and concerts in the US?
Posted by: Lawrence H. White at Mar 4, 2005 10:54:28 AM
The exhibitors'pricing policy is constrained by their bargain with the distributors. Exhibitors receive a percentage of the box office, in some cases quite small in the first few weeks of release. Often, the exhibitor's percentage will increase in the weeks after opening so that the exhibitor may actually make more money (in terms of ticket sales) with a half empty theater than in the opening week. The exhibitor often makes most of its money from concessions and advertising revenue.
Posted by: Dennis at Mar 4, 2005 11:10:08 AM
Is it relevant that the cinema manager shows his no. 1 hits in multiple and/or larger theaters and shows his loser films in the small theaters fewer times per day?
Posted by: Jordan at Mar 4, 2005 11:34:16 AM
Sherwin Rosen and Andy Rosenfield wrote a paper in the Journal of Law and Economics in 1997 that has always explained this phenomenon to my liking. I have taught it in my undergrad classes several times. They argue as follows:
let D be the impatience factor for consumers, and let r be the (large number of identical) consumers' spot reservation price. If consumers are very impatient, the seller does better by holding back tickets until the day of each performance and selling them at price r. Inducting backwards, the seller has to charge r for the last performance, since that's everyone reserve price that day. Now in the penultimate performance, customers would be indifferent between this performance or the last one if they expected the seller to drop prices by r(1-D) tomorrow, but since the seller is actually going to charge r tomorrow, not rD, there will be excess demand to the penultimate performance, and sellers can charge the full r at this performance too.
Working backwards, the price has to be r in every period. Excess demand declines over time as more customers are served, but nonprice rationing is always the optimal policy.
It's basically a price-discrimination problem applied to intertemporal demand.
Posted by: Kendall at Mar 4, 2005 11:36:53 AM
I recall an excellent paper in the Cato Journal that reasonably addressed my obvious first reaction: why don't theaters (1) legalize 'scalping' in a designated area, taking care of the queue and the information burden on theater owners, and then (2) occasionally adjust the box price when huge scalping activity is obviously going on for a particular film, thus quickly transferring the gains on scalping entrepreneurs back to the owners? I'll need to dig that paper up.
Posted by: J. Goard at Mar 4, 2005 12:40:55 PM
Here in LA, the theater I most often frequent* actually does have variable pricing -- movies that have been out for a few weeks are discounted by $1 for members (membership is free).
Besides that, tickets are $14 at peak times (Friday night, Saturday night, and Sunday afternoon) and $11 off peak.
* www.arclightcinemas.com
Posted by: Afsheen at Mar 4, 2005 1:47:22 PM
You're closest on #5, but you forgot the agent problem:
The theater owner makes less on the film in the first week of a release than later weeks. So the "#1 movie" of last week doesn't make the theatre owner as much per person as that three-weeks-ago release.
So the control is, as noted above, the size of the theater in which the film is shown.
Posted by: Ken Houghton at Mar 4, 2005 2:22:17 PM
#5 "Maybe the whole theatrical thing is a shadowplay for popcorn sales..." is dead on. My friend managed movie theaters for many years and explained this to me in some detail. He told me that most theaters *take a loss* on the actual movies themselves. What they pay out for the films is much higher than what patrons are paying in to see them.
Theaters turn a profit by selling patrons $8.00 Cokes and $5.00 Junior Mints. The amount of market research that goes into movie concession sales is staggering. The age, wealth and race of the theater's patrons have a drastic effect on what is offered at the snack stand, as well as the geographic region.
Additionally, with the growing ease of watching movies at home with cable, satallite TV, Netflix, etc., movie houses are looking for more ways to get patrons in the door and to keep them there. Cafes, arcades, laser tag and premium viewing rooms are just some of the ways theater owners are hoping to lure us off our couches.
It will be interesting to see if and how the movie theaters of the future continue to attract customers.
Posted by: BlueGirl at Mar 4, 2005 2:58:01 PM
I'm a cinema manager in the UK and there are variations in prices at our cinema throughout the week depending upon the day and time of a screening.
We haven't tried varying the price for different movies but film distributors are very resistant to any change and wield a lot of power over us. There are actually very few distributors so if one of them decided to not supply us with their movies we would suffer a lot more than they would.
It's true that most of our profits come from concessions we now seem to be in the popcorn and soft drink business with the movie being an extra on top.
I despair of this sometimes, I think the way things will go is that the movie will be free for purchasers of popcorn. The movie companies will use the theatre release of a movie as a method of marketing for DVD sales and the cinemas will use the movie as a lure for popcorn sales.
Posted by: electricinca at Mar 4, 2005 4:18:15 PM
So far as the difference between weekday and weekend prices, student (cheap) labor is more readily available on weekends, so the cost of running the box office, concession stand, etc. may be as big a factor as higher weekend demand.
Posted by: Tom Hanna at Mar 4, 2005 4:39:37 PM
I think #8 has a lot to do with it, as kids are always buying tickets for PG movies and going into R-rated theaters. The movie chains know this and would fear a run on lower-priced tickets purchased by people going to higher-priced movies. If they added more people to check tickets, this eats into the additional profits.
Item #7 also plays into it as the theater owner must maximize total profits, not ticket profits. I watched far more movies when I was younger - I had more time - but I was far more budget-constrained. If the price depended on which movie I saw, there would have been times where I couldn't afford the popcorn AND the price of the ticket. This would leave the theater owner worse off because I wouldn't have purchased his (high margin) refreshments as a result.
While lower prices may generate additional refreshment sales, that also results in a lower profit on tickets which might wipe out any gains.
Posted by: Kevin at Mar 4, 2005 7:05:08 PM
I was just thinking, as I was falling asleep last night, that, somewhat like a plane ticket, an empty seat at a movie theater is most valuable just before the film begins, and that the theater would be better off selling a seat for $1 than leaving it empty. I envisioned, sleepily, a holding pen of myself and everyone else who registered being willing to pay $5 to see Constantine at 7pm, and, moments before the movie starts, the theater deciding the cut off and letting us in.
Of course, those who had paid $14 earlier would be grumpy, but they'd have better seats.
Posted by: sohcahtoa at Mar 4, 2005 9:29:24 PM
