February 15, 2006
David Leonhardt
Changes Ahead for a Theater Near You
LET'S say you decide to take a break tonight and go out to a movie. It's Wednesday, of course, so when you walk up to the ticket counter, there is not another person in line. You settle on "Glory Road," an inspirational basketball movie that has been out for a month. The theater is so empty that it almost feels as if you are watching it in your den. Your ticket costs $8.
Now it's the weekend. You meet up with some friends to see "Date Movie," a spoof that has just opened to good buzz. You have to stand in a long line to get a ticket, and the only seats you can find are in the third row. It is clearly a hot ticket. Yet it costs the same $8 as "Glory Road."
This isn't the way much of the American economy works. It's not how airlines sell seats, the Gap sells shirts or eBay sells anything.
Soon, it won't be the way the movies work either. You will pay more for a ticket on the weekends and less on weekdays. You'll be able to buy a reserved seat in the center of the theater for a few extra dollars. One of these days, you may even have to pay more for a hit movie than for a bomb. The changes are under way, and they are long overdue.
The theater industry's attempt to ignore the laws of supply and demand is as good an example of corporate inertia as you will find. For decades, going to the movies was one of the rituals of American life, and competition among theaters revolved mainly around trying to land more hot films than the theater down the street.
But now theaters face a very different competitive landscape, thanks to DVD's, high-definition TV's, Netflix and TiVo. Family night at the movies, meanwhile, can cost $60. It's no wonder that the share of disposable income spent on moviegoing has fallen a stunning 17 percent in just the last three years.
There is no easy fix for industry. But it's clear that it can't afford to leave easy money sitting on the table any longer, which is why executives are finally thinking about a more sensible business model. It is called variable pricing, and the first step is likely to be extending the old matinee discount to weeknights. "I predict we will see it within a year," said Peter C. Brown, who runs the nation's second-biggest theater chain, AMC Entertainment, which invented the multiplex in the 1960's and the armchair cup holder in 1981. "There are people looking at it. I'll leave it at that."
VARIABLE pricing has been around as long as outdoor markets, but the modern version of it really began at American Airlines more than 20 years ago. Robert Crandall, the chief executive, was trying to beat back a discount airline named People Express, and he devised a computerized system he called "yield management" to adjust prices constantly.
American sold cheap tickets to vacation travelers who were willing to fly when planes weren't full and expensive ones to last-minute business travelers who were never going to choose People Express anyway. The goal was figuring out exactly how much somebody was willing to pay to fill a seat and then selling the person a ticket at that price. It worked.
The Internet has basically recreated Mr. Crandall's system across the economy. Businesses can tweak prices to maximize revenue, and consumers can shop around. We are now comfortable with the idea that books, concert tickets or, yes, movies can have very different price tags, depending on convenience and demand. On Amazon, the new two-disc "Harry Potter" DVD set costs $6 more than the two-disc "Rent" set.
But this is a tricky game, which is why so many companies are still struggling with it. You may recall that Coca-Cola announced in 1999 that it was thinking about installing thermometers in its vending machines and charging more on a hot day. Economically, it makes perfect sense that a cold soda is worth more when the temperature hits 90. But consumers thought they were being gouged, and the ensuing uproar caused Coke's executives to insist that the plan was never serious.
It is not entirely rational, but shoppers usually need to be tempted with a discount first. Companies can sneak in a surcharge later, as part of a broader price increase. Or they can offer obvious benefits to people willing to pay more. That is how the theaters are proceeding: slowly and quietly, so that people won't notice the change until it's too late.
The chain that probably has the best understanding of this is National Amusements. It has recently opened 10 upscale multiplexes, mostly in the East and Midwest, and has plans for more. In each, at least two theaters have wider seats and sell only reserved tickets. Every ticket costs about $2 to $3 more than in the other theaters.
Last fall, the company also started advertising "Bargain Tuesday" at many of its theaters, when all tickets cost just $5, even less than matinees do on other days. (Other theater chains that use weeknight pricing usually offer a discount of $1 or less, which doesn't make enough of a difference.)
The idea, on either end of the spectrum, is that people should be able to buy the product the way they want it — or they might not buy it at all. A theater can't sell marked-up popcorn to someone who doesn't buy a ticket first.
The toughest job for the industry will be putting different prices on different movies, and we are not likely to see much of it anytime soon. If a theater cut the price of a movie on its opening weekend, it would announce that the film is a dog, turn off the audience and offend the studio. But theaters are starting to tinker.
In December, the Ziegfeld theater in New York charged more for the first week of "The Producers." Another option, Mr. Brown of AMC points out, is to mimic the old second-run movie houses and cut the prices of most movies after they have been in theaters for a few weeks.
"It's a bit of a slippery slope," he said, "when you start to be someone who would be suggesting that, say, 'King Kong' is a product that should be priced differently from 'Memoirs of a Geisha' or 'Capote.' Because ultimately it is art."
Fair enough. But the next time you're in an art gallery, check the price tags to see if all the paintings cost the same.
David Leonhardt
Changes Ahead for a Theater Near You
LET'S say you decide to take a break tonight and go out to a movie. It's Wednesday, of course, so when you walk up to the ticket counter, there is not another person in line. You settle on "Glory Road," an inspirational basketball movie that has been out for a month. The theater is so empty that it almost feels as if you are watching it in your den. Your ticket costs $8.
Now it's the weekend. You meet up with some friends to see "Date Movie," a spoof that has just opened to good buzz. You have to stand in a long line to get a ticket, and the only seats you can find are in the third row. It is clearly a hot ticket. Yet it costs the same $8 as "Glory Road."
This isn't the way much of the American economy works. It's not how airlines sell seats, the Gap sells shirts or eBay sells anything.
Soon, it won't be the way the movies work either. You will pay more for a ticket on the weekends and less on weekdays. You'll be able to buy a reserved seat in the center of the theater for a few extra dollars. One of these days, you may even have to pay more for a hit movie than for a bomb. The changes are under way, and they are long overdue.
The theater industry's attempt to ignore the laws of supply and demand is as good an example of corporate inertia as you will find. For decades, going to the movies was one of the rituals of American life, and competition among theaters revolved mainly around trying to land more hot films than the theater down the street.
But now theaters face a very different competitive landscape, thanks to DVD's, high-definition TV's, Netflix and TiVo. Family night at the movies, meanwhile, can cost $60. It's no wonder that the share of disposable income spent on moviegoing has fallen a stunning 17 percent in just the last three years.
There is no easy fix for industry. But it's clear that it can't afford to leave easy money sitting on the table any longer, which is why executives are finally thinking about a more sensible business model. It is called variable pricing, and the first step is likely to be extending the old matinee discount to weeknights. "I predict we will see it within a year," said Peter C. Brown, who runs the nation's second-biggest theater chain, AMC Entertainment, which invented the multiplex in the 1960's and the armchair cup holder in 1981. "There are people looking at it. I'll leave it at that."
VARIABLE pricing has been around as long as outdoor markets, but the modern version of it really began at American Airlines more than 20 years ago. Robert Crandall, the chief executive, was trying to beat back a discount airline named People Express, and he devised a computerized system he called "yield management" to adjust prices constantly.
American sold cheap tickets to vacation travelers who were willing to fly when planes weren't full and expensive ones to last-minute business travelers who were never going to choose People Express anyway. The goal was figuring out exactly how much somebody was willing to pay to fill a seat and then selling the person a ticket at that price. It worked.
The Internet has basically recreated Mr. Crandall's system across the economy. Businesses can tweak prices to maximize revenue, and consumers can shop around. We are now comfortable with the idea that books, concert tickets or, yes, movies can have very different price tags, depending on convenience and demand. On Amazon, the new two-disc "Harry Potter" DVD set costs $6 more than the two-disc "Rent" set.
But this is a tricky game, which is why so many companies are still struggling with it. You may recall that Coca-Cola announced in 1999 that it was thinking about installing thermometers in its vending machines and charging more on a hot day. Economically, it makes perfect sense that a cold soda is worth more when the temperature hits 90. But consumers thought they were being gouged, and the ensuing uproar caused Coke's executives to insist that the plan was never serious.
It is not entirely rational, but shoppers usually need to be tempted with a discount first. Companies can sneak in a surcharge later, as part of a broader price increase. Or they can offer obvious benefits to people willing to pay more. That is how the theaters are proceeding: slowly and quietly, so that people won't notice the change until it's too late.
The chain that probably has the best understanding of this is National Amusements. It has recently opened 10 upscale multiplexes, mostly in the East and Midwest, and has plans for more. In each, at least two theaters have wider seats and sell only reserved tickets. Every ticket costs about $2 to $3 more than in the other theaters.
Last fall, the company also started advertising "Bargain Tuesday" at many of its theaters, when all tickets cost just $5, even less than matinees do on other days. (Other theater chains that use weeknight pricing usually offer a discount of $1 or less, which doesn't make enough of a difference.)
The idea, on either end of the spectrum, is that people should be able to buy the product the way they want it — or they might not buy it at all. A theater can't sell marked-up popcorn to someone who doesn't buy a ticket first.
The toughest job for the industry will be putting different prices on different movies, and we are not likely to see much of it anytime soon. If a theater cut the price of a movie on its opening weekend, it would announce that the film is a dog, turn off the audience and offend the studio. But theaters are starting to tinker.
In December, the Ziegfeld theater in New York charged more for the first week of "The Producers." Another option, Mr. Brown of AMC points out, is to mimic the old second-run movie houses and cut the prices of most movies after they have been in theaters for a few weeks.
"It's a bit of a slippery slope," he said, "when you start to be someone who would be suggesting that, say, 'King Kong' is a product that should be priced differently from 'Memoirs of a Geisha' or 'Capote.' Because ultimately it is art."
Fair enough. But the next time you're in an art gallery, check the price tags to see if all the paintings cost the same.
