should movie theaters use flexible ticket prices like airlines do_ (guest blog)
TRANSCRIPT
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 giveit to them
In our previous posts on the box office, we discussed many ofthe recent trends in the theatrical business. There are severalchallenges facing movie exhibitors in the U.S. and Canada,particularly the fact that the rate of admissions per person is
declining about 3 percent per year.
And if Netflix and other home entertainment options continue toinnovate and deliver ever-higher-quality content at attractive prices,cinema attendance will keep on struggling without furtherinnovation (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 dowhen 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 inGive discounts for unsold shows or inventoryIncrease prices for people who book tickets at the last minuteOffer discounts for larger groups
While dynamic pricing may work for product categories such as airfare, hotels andconcerts, 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 cinemascan be as flexible as they want with the quantity, what else is there to gain by being flexiblewith the price?
As can be seen in the table above, most of the elements that lend themselves to dynamicpricing 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 aconsumer’s total cost (after items like popcorn, parking, babysitters and so on are addedin) compared to, say, concerts, where an attendee spends most of his or her money on theticket.
The mechanics of the price itself are also different. With airline tickets, there is no singlevisible posted price (because each airline has many routes, many take-off times, manydifferent 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 postedmovie ticket price is very explicit, with little room for maneuvering, especially given thecontracts that exhibitors have with the studios.
Purchasing behavior is different, as well. Nearly all travelers buy airline tickets well before
they arrive at the airport. But consumers buy nearly nine out of every 10 movie tickets at thetheater.
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 theatershave the flexibility to decide the number of screens on which movies play, even at the lastminute.
And demand is different. Airlines have sales that drive new travel on certain routes. Butthere are few consumers who go see a film like the latest “Star Wars” blockbuster becausethere 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 anatural extensionReserved seating (a prerequisite for dynamic pricing) is happening graduallySome cinema operators are reducing seats per screen, which should make reservedseating even more relevantExhibitors are getting more creative and efficient with their loyalty programs, whichshould improve market segmentation opportunitiesRaising prices for holiday weekends or, for example, for Friday nights at 7:30 p.m. willprobably work (these have been tested in L.E.K. Consulting research)
However, as discussed above, there are probably more reasons against dynamic pricingthan there are arguments in favor of it.
Thus, dynamic pricing will likely struggle. While some price-up opportunities will work (likeraising the cost of tickets on holidays or opening weekends), these will make going to themovies even more expensive relative to other options such as Netflix and Hulu.
Also Read: Why Theaters and the Moviegoing Experience Need an Overhaul (GuestBlog)
As we wrote in one of our prior posts, the cost of going to the movies has beenescalating, 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 asignificant 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 JohnCalkins, former Warner Bros., Sony Pictures and AMC Theatres executive.
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The • a day ago
Really? I'm supposed to to believe the theater industry is stuggling? Lets see. JurrassicWorld, biggest opening of all time, then outdone by Star Wars. Deadpool, Batman VSuperman, and Zootopia so far have all broken box office records this year. Where's thedecline?
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Deus deCorvos • a day ago
How about another possibility - like second-run pricing? Back before AMC bought themout, Kerasotes Theaters had a program called the "5 Buck Club." After a movie had beenout 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 fewweeks of taking over, AMC cancelled the program and replaced it with a reduced priceTuesday matinee.
The thing AMC didn't understand was that the original program wasn't the differencebetween people paying five dollars and paying full price - it was the difference betweenpeople 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 alot of people could afford to see a movie, and when that program ended, they simplystopped going. I have a relative who was a manager at a local Kerasotes/AMC, and hesaid 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 ofcomplex variable pricing scheme that would more likely just piss off patrons and furtherdrive them toward alternate entertainment sources, like Netflix and Amazon.
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HOLLYBLOGSDAN SCHECHTERDan Schechter is a Managing Director and Partner at L.E.K. Consulting, and he leads the firm'sGlobal Media, Entertainment & Technology practice. He has broad experience within the media,
entertainment and technology sector, including TV, film, Internet content and commerce, radio, magazines,theme parks, advertising and news. He also has experience working with retail, consumer products, travel andindustrial clients. Dan was awarded his MBA from Stanford University and his BA, cum laude, from HarvardUniversity.
THEWRAP FEATURED VIDEO
SHOULD MOVIE THEATERS USE FLEXIBLE TICKET PRICES LIKE AIRLINES DO? (GUESTBLOG)DAN SCHECHTERApril 6, 2016 By Dan Schechter and John Calkins a day ago
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