Should Movie Theaters Use Flexible Ticket Prices Like Airlines Do_ (Guest Blog)
1. Should Movie Theaters Use Flexible Ticket Prices Like Airlines Do?
(Guest Blog)
Follow @thewrapMOVIES | By Dan Schechter And John Calkins on April 6, 2016 @ 8:30 am
Film exhibitors need a revenue boost, but so-called dynamic pricing is unlikely to give
it to them
In our previous posts on the box office, we discussed many of
the recent trends in the theatrical business. There are several
challenges facing movie exhibitors in the U.S. and Canada,
particularly the fact that the rate of admissions per person is
2. declining about 3 percent per year.
And if Netflix and other home entertainment options continue to
innovate and deliver ever-higher-quality content at attractive prices,
cinema attendance will keep on struggling without further
innovation (see our post on the Screening Room for an example).
So…what should movie theaters do now to help themselves?
Also Read: Where Movie Studios Must Turn to Fix Their Failing Theatrical Fortunes
(Guest Blog)
Some have posited that cinemas should deploy dynamic pricing, similar to what airlines do
when they sell seats. For example, cinemas could:
Charge higher prices for holidays, opening weekends, key blockbusters, etc.
Provide discounts for movies or weekends that are not pulling customers in
Give discounts for unsold shows or inventory
Increase prices for people who book tickets at the last minute
Offer discounts for larger groups
While dynamic pricing may work for product categories such as airfare, hotels and
concerts, it may offer less of an opportunity for movie exhibitors, given some industry-
specific issues. Put another way, if revenue is a function of price and quantity, and cinemas
can be as flexible as they want with the quantity, what else is there to gain by being flexible
with the price?
3. As can be seen in the table above, most of the elements that lend themselves to dynamic
pricing in other sectors do not align for movie exhibition.
Also Read: Why Movie Studios Need China to Build More Theaters (Guest Blog)
For example, the cost structure is different. For movies, the ticket is a smaller portion of a
consumer’s total cost (after items like popcorn, parking, babysitters and so on are added
in) compared to, say, concerts, where an attendee spends most of his or her money on the
ticket.
The mechanics of the price itself are also different. With airline tickets, there is no single
visible posted price (because each airline has many routes, many take-off times, many
different travel periods during the year, etc.). This gives airlines some more flexibility,
especially since they can largely price how they see fit. But with theaters, a clearly posted
movie ticket price is very explicit, with little room for maneuvering, especially given the
contracts that exhibitors have with the studios.
Purchasing behavior is different, as well. Nearly all travelers buy airline tickets well before
4. they arrive at the airport. But consumers buy nearly nine out of every 10 movie tickets at the
theater.
Also Read: Why 3D Is No Longer Hollywood Studios' Savior (Guest Blog)
Supply provides another variable. Hotels can’t create new rooms each day, but theaters
have the flexibility to decide the number of screens on which movies play, even at the last
minute.
And demand is different. Airlines have sales that drive new travel on certain routes. But
there are few consumers who go see a film like the latest “Star Wars” blockbuster because
there is a special ticket sale.
Finally, although some studios and cinemas offer reduced prices at certain times of the day,
they will resist lowering sales even further with additional price cuts.
Also Read: How Studios Use Blockbuster Budgets to Boost Moviegoing Attendance
(Guest Blog)
There are, of course, arguments in favor of implementing dynamic pricing:
Premium products (i.e., special reclining seats) are working, and premium pricing is a
natural extension
Reserved seating (a prerequisite for dynamic pricing) is happening gradually
Some cinema operators are reducing seats per screen, which should make reserved
seating even more relevant
Exhibitors are getting more creative and efficient with their loyalty programs, which
should improve market segmentation opportunities
Raising prices for holiday weekends or, for example, for Friday nights at 7:30 p.m. will
probably work (these have been tested in L.E.K. Consulting research)
However, as discussed above, there are probably more reasons against dynamic pricing
than there are arguments in favor of it.
Thus, dynamic pricing will likely struggle. While some price-up opportunities will work (like
raising the cost of tickets on holidays or opening weekends), these will make going to the
movies even more expensive relative to other options such as Netflix and Hulu.
5. Also Read: Why Theaters and the Moviegoing Experience Need an Overhaul (Guest
Blog)
As we wrote in one of our prior posts, the cost of going to the movies has been
escalating, while the price that consumers pay for in-home entertainment has declined.
Thus, while dynamic price-ups might drive short-term cash flow for cinemas and studios,
those increases will only exacerbate the 3 percent per year audience decline.
In summary, while dynamic pricing offers theaters some pockets of opportunity, the film-
exhibition industry may not yet be at a stage where it can expect such changes to cause a
significant uptick in value.
In our next post, we will cover a much more promising idea, subscriptions.
This is Part 6 in a series by Dan Schechter, head of L.E.K. Consulting’s Media,
Entertainment & Technology consulting practice, with additional contributions by John
Calkins, former Warner Bros., Sony Pictures and AMC Theatres executive.
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8. 2 Comments theWrap Login1
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• Reply •
The • a day ago
Really? I'm supposed to to believe the theater industry is stuggling? Lets see. Jurrassic
World, biggest opening of all time, then outdone by Star Wars. Deadpool, Batman V
Superman, and Zootopia so far have all broken box office records this year. Where's the
decline?
△ ▽
• Reply •
Deus deCorvos • a day ago
How about another possibility - like second-run pricing? Back before AMC bought them
out, Kerasotes Theaters had a program called the "5 Buck Club." After a movie had been
out for a while (usually two weeks, but sometimes longer if it was a summer blockbuster)
members could buy tickets for 5 dollars.
It was extremely popular and lasted 3 or 4 years - until AMC came along. Within a few
weeks of taking over, AMC cancelled the program and replaced it with a reduced price
Tuesday matinee.
The thing AMC didn't understand was that the original program wasn't the difference
between people paying five dollars and paying full price - it was the difference between
people going to the theater and not going at all.
For families with kids and seniors on a fixed income, the 5 Buck Club was the only way a
lot of people could afford to see a movie, and when that program ended, they simply
stopped going. I have a relative who was a manager at a local Kerasotes/AMC, and he
said attendance dropped twenty percent in one week. That was just revenue lost.
Second-run pricing is a lot simpler and more intuitive than trying to do some kind of
complex variable pricing scheme that would more likely just piss off patrons and further
drive them toward alternate entertainment sources, like Netflix and Amazon.
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11. SHOULD MOVIE THEATERS USE FLEXIBLE TICKET PRICES LIKE AIRLINES DO? (GUEST
BLOG)
DAN SCHECHTER
April 6, 2016 By Dan Schechter and John Calkins a day ago
March 30, 2016 8 days ago
Where Movie Studios Must Turn to Fix Their Failing Theatrical Fortunes (Guest Blog)
March 23, 2016 15 days ago
Why Movie Studios Need China to Build More Theaters (Guest Blog)
March 16, 2016 22 days ago
Why 3D Is No Longer Hollywood Studios’ Savior (Guest Blog)
March 9, 2016 29 days ago
How Studios Use Blockbuster Budgets to Boost Moviegoing Attendance (Guest Blog)
March 3, 2016 about a month ago
Why Theaters and the Moviegoing Experience Need an Overhaul (Guest Blog)
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