Price discrimination.

07Jan12

Derek Thompson at The Atlantic asks why cinemas don’t play with ticket prices – charging more for sure-fire blockbusters and less for niche indie flicks – in an attempt to boost both attendance rates and revenue. He dispels the myth that this policy would be too tricky:

More expensive movies have bigger audiences. There is a high “correlation coefficient” between production costs and gross revenues. Sequels outperform non-sequels. The seven best-performing movies of 2011 were second, fifth or eight in a franchise. Christmastime outsells Eastertime … and every other time, as the graph of weekly attendance below shows. Furthermore, it’s practically a rule of law that big opening weekends predict overall success and that movie revenues fall after the first week.

What’s more, in 1910 this was the norm:

Movies were priced according to their length, stars, and popularity. For three decades until the 1940s, one theater would have the rights to each movie within a certain zone, and movies received grades (A, B, or C) that corresponded with ticket prices at those theaters.

He follows up with some confusing and only half-convincing explanations as to why this changed. For instance:

… with the onslaught from online streaming, legal downloads, and DVDs, studios and theaters are nervous as heck about pissing off what die-hards they have left by moving prices based on demand.

But then a more plausible theory:

You can’t consistently cut prices after a successful opening weekend. If people knew that ticket prices would fall after a big opening, many more would wait until the second or third weekend to see it, which would, ironically, destroy the meaning of opening weekends.

I’m obviously not read-up enough on my economics to know the intricacies of this, but intuitively the status quo seems silly. I’m mainly intrigued by this graph, though:

In 1930 people averaged 47 cinema trips a year? Note the decline began, strangely, slightly before the rise of television, and the introduction of video had no impact. No doubt if the graph went on past 2001, the effect of DVDs would be seen to be similarly small.

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