May 24th, 2010

Breaking My Movie Habit

By Neale Martin

I love going to the movies. Not just the movies themselves; the entire process of going to the theater, buying popcorn and a soda, and experiencing the incredible richness of a film projected onto a massive screen while being completely immersed in surround sound. Yet for all of the joy this experience brings me, I rarely go to the movies any more.

It’s not that the quality of the films is so bad (though for a few years, that was certainly the case); it’s that the price of the experience has knocked me out of the movie-going habit. Instead of automatically planning on going to the movies each weekend, I now only go when there is a film that I (or my wife) really want (or demands) to see. Gone is the reflex of deciding to go see a movie and then finding out what is playing. A date to the movies easily runs to more than $35 – far too much investment to simply gamble that the experience will be worth it.

Movies are the only product where consumers pay the same price for the best, most expensive product as they do for the worst and cheapest made. Avatar cost $280 million to make, so forking over $10-$12 on an opening Friday night amidst long lines seems like a bargain. But an independent feature with questionable production values that cost $300,000 to produce and viewed in an empty theater on a Wednesday afternoon costs the same 10-12 bucks. We grew up with this business model and so we tacitly accept the dubious arrangement, but it was easier to accept when a ticket cost five, maybe six dollars. As the prices have continued to climb, most of us have developed new heuristics for evaluating movies: 1) See in theater; 2) Wait for the DVD 3) Maybe stumble upon it on cable; or, for the legally agnostic technophiles out there, 4) Pirate it.

It is easy for those in the film industry to focus on the positives: as of May 19, 2010 Avatar has a domestic box office take of $748 million ($2.7 billion global), the animated How to Train Your Dragon topped $208 million, and newly released (and poorly reviewed) Robin Hood had nearly $215 million in ticket sales in its first two weeks. But the film industry’s business model is predicated on a handful of blockbusters to cross-subsidize the majority of movies that are unprofitable or marginally profitable. By continuously raising prices, the industry has exacerbated the cross-subsidization issue. The higher the prices, the fewer movies people are willing to see in theaters.

The average movie ticket price was $2.69 when Batman topped the box office in 1980. If you watched Avatar in 3D in Manhattan, you likely paid upwards of $17 ($14 or $15 in most major markets; $10.50 for 2D). Blockbuster movies are relatively immune to high ticket prices, but a quick review of movies releasing on any weekend reveal a large number that would have a larger audience at a lower price. Similarly, theaters have raised concession prices to the point where I bypass them regularly on the way in.

The movie business represents a great example of how business models and resulting pricing decisions can undermine habitual behavior . I’ve been conducting informal surveys around movie going for the past few years. I see widespread reporting of significantly reduced movie attendance directly related to increased pricing. While I’m sure the dating context creates some level of indifference to high prices, in almost every other context, people are going to the movies less. And yet, the priority on Hollywood’s part seems to be trying to figure out how to get more money out of every customer instead of looking at how to increase revenue by attracting more customers.

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