Rambling thoughts on willingness to pay for movies

Over the last several months, I’ve gathered a lot of financial and operational data about the movie industry from publicly available reports from the major theater chains. The SEC/Edgar is a treasure trove.  Now I’m at the herculean stage of modeling those “what if” scenarios. To do these models, I’ve got to make some logical assumptions about moviegoers’ responsiveness to price changes.

The moviegoing audience can be separated into three segments – frequent, occasional, and non-going. Frequent moviegoers are pretty inelastic. Occasional moviegoers and non-goers are probably more elastic. Of these two groups, what percentage would respond to lower (or higher prices)? If I break these two groups by income, maybe I can presume x% of the group with x% of disposable income would be more interested in moviegoing during off-peak times.

Then there’s the group that goes to dollar-theaters or deeply-discounted theaters. Maybe if I gather data about trends within this group, there’s more guidance to estimate how many people would return to major theater chains if the price were lower. Back to the internets, then…

Food to film: lessons from variable pricing in restaurants for movies

An extremely cliff-notes version of variable pricing in restaurants:

Three years ago, the Chicago restaurant Next shook up the restaurant scene by launching a restaurant ticket system. Since then, owner Alinea Restaurant Group launched its proprietary variable ticket and reservation system across its own and other (so far) high-end restaurants. The group’s detailed post about restaurant ticketing is a good read (and the comments are interesting) but more importantly, it offers some relevant learnings for this research project. Here's one way the system works:

Screen that customers at Next see

On the other end of the spectrum, casual-dining chains like Applebee’s and TGIF have also experimented with promotional pricing to drive demand on slow times.  Examples include “2 for $20” at Applebee’s and a “Wing Tuesday” promotion at Buffalo Wild Wings. The discount wings are a significant sales driver. These chains are engaged in price wars (all the while food costs continue to rise) as part of the industry’s response to increasingly popular fast-casual spots like Chipotle. (As an aside, is the analogy Chipotle: Target:: McDonalds: WalMart apt?)  Groups like Buffalo Wings have found success in promotions such as discounted wings on Tuesday.

Fast-casual and high-dining alike are trying to address the same problem we are trying to answer with this research project: if you decrease prices on off-peak times, can you increase demand and make more money on otherwise empty seats?

Unlike the previous industries we've studied dynamic pricing (broadway, sports, airlines), there are some closer parallels in Alinea's blog post that will help guide our hypotheses:

DIfferent, but similar, eh? 

Price in two directions. At theaters, just like at Next, the consumers must be provided with transparency and choice and whatever moves up, the opposite must go down. If tickets are more expensive in one scenario, they must be cheaper in an alternative scenario. A center row vs. a front row seat. A Saturday night 8 pm movie vs. 10 pm Tuesday night movie. Whatever price option exists, the consumer has the freedom to opt-in or opt-out. This exists in Broadway shows and sporting events, but it is a fundamental principle to customer retention and should not be forgotten.

Don’t charge more than what the good/service is worth. This one is particularly tricky. In a mature industry, there’s tremendous risk aversion to do anything to pricing that might undermine or cannibalize your business. But this brings up a larger issue. Do theatergoers consider the average movie ticket price worth the good? In other words, is the entire theatergoing experience (content, concessions, seats, audience) worth its current price? So far, on average, yes. There is enough demand for theatrical movie experiences. But viewing behavior continues to shift, and the consumer’s willingness to take on price increases could reach a tipping point.

Demand has better and worse times. Like restaurants, movie theaters services are in greater demand at certain times (weekend, evening) than others.

Despite these good parallels, there is an elephant in the room, a distinct difference that exacerbates the challenge of launching dynamic pricing in movie theaters:

Ruh-roh.

This ticketing system works for “small, chef-driven, limited-seating per night, high demand” restaurants. Places with a sense of exclusivity, limited supply, but enough demand for a secondary market. This type of variable pricing is much easier to institute in the high-end restaurant business than in the movie business. The only comparable scenario is auteur or event-driven tickets for “sure bets” (Mockingjay, Part 1 and Interstellar to name a few). Plus, the wait for movies is really not too terrible except for event movies on opening night.

What now?

Self-punch? *Head desk*?

Reading the background surrounding Alinea’s ticketing system really helped organize my thoughts about the kind of hypothetical scenarios we’ll be modeling out. Our buckets of variable pricing will include: events/seasonality, day of week, time of day, weather, and seating locations.

P.S. Another interesting scenario we won’t explore is passes during busy seasons, e.g. unlimited number of movies during summer and winter break. I would gladly pay for both of these. Oscar Season is upon us and I have not the youthful stamina to watch that many movies in one-straight go. 

Michelle's Blog: Theatrical Distribution