A forthcoming test program from Regal Cinemas (the second-largest theater chain in the U.S.) might wind up making a significant impact on attendance for various movies. That would be demand-based or dynamic pricing, commonly used for airline and hotel rates, but recently seen at Disney and Universal theme parks, golf courses, and with some sports teams like the Los Angeles Angels of Anaheim. With their revenue down 12 per cent from a year earlier, and a 21 per cent drop in their share price this year (part of which is industry-wide; all movie ticket sales are down 4.8 per cent from last year, and largest U.S. theater chain AMC has seen its stock fall 58 per cent), Regal is looking to try some new things to reinvigorate attendance.
As Bloomberg’s Anousha Sakoui writes, a test of demand-based pricing is one of those new ideas:
Regal Entertainment Group is testing demand-based pricing for films, potentially leading to higher prices for top hits and low prices for flops, a big change for an industry that typically uses a one-size-fits-all approach.
Working with app maker Atom Tickets LLC, which has lobbied theaters to try dynamic pricing, Regal plans to test the concept in early 2018 and see if it boosts revenue and fills more seats at non-peak times.“Changes to the historical pricing structure have often been discussed but rarely tested in our industry, and we’re excited to learn even more about how pricing changes impact customer behavior,” Amy Miles, chief executive officer of the Knoxville, Tennessee-based exhibitor, said Tuesday on a call with analysts.
…Industry executives are debating whether dynamic pricing will increase attendance. Some object to a system that would involve charging higher prices for hit movies and lower prices for unpopular movies. Miles said Regal would conduct the tests in enough markets to be statistically significant and said the experience of Atom Tickets, which sells movie passes through its app, will be helpful.
“If we can get consumers to go one more time a year, that is transformative to the whole business,” said Matthew Bakal, co-founder and executive chairman of Atom. The company has already worked with Regal on services such as pre-ordering concessions.
In theory, demand-based pricing would seem to make a lot of sense for movie theaters. As with airlines, they want as many seats filled as possible (as their costs don’t change dramatically based on if a movie screen is sold out or sparsely attended, but their revenues do), and dynamic pricing may be a way to do that. If there’s a movie people are on the fence about seeing in theaters, they may be much more willing to go if tickets for that are suddenly cheaper than normal. And that’s a bonus for the theater; they’re now getting revenue out of seats that would otherwise have been empty, to say nothing of extra concession sales and so on.
Where this could get rough for consumers is if it becomes about jacking up the price for high-demand movies, though. Huge numbers of people will want to see the latest Star Wars or Marvel blockbuster regardless of the ticket price, and theaters could probably make more money by charging more for those tickets than for your average film. But that comes with some costs; for one, that could price some people out and create backlash and resentment, and that also might lower those films’ attendance numbers (which could have further knock-on effects, from making the cultural conversation around the film not last as long to impacting tie-in merchandise sales).
This could also change viewing habits in interesting ways, and it’s not clear if that would be a net positive or negative. Under the current system, all movies are treated as equal as long as they’re in the same format (there are extra costs for IMAX, 3D, etc) in the same theater (some theaters are cheaper than others). So consumers’ decisions on which movie to see are presumably based on the movie’s content and if they feel it will appeal to them. But dynamic pricing adds an economic component in there. Now it could be a question not just of “Would I rather see Star Wars: The Last Jedi or The Disaster Artist?”, but “Would I rather pay $20 for a Last Jedi ticket or $5 for a Disaster Artist ticket?”
And that carries some other elements to ponder. Yes, not all movies are equal in budget or earnings expectations to begin with, but the current pricing system makes a ticket to any movie relatively equal. Dynamic pricing means that goes away, and that can change how people feel about a movie, especially when it comes to expectations. Are you going to praise Last Jedi more if you had to pay $20 for it (an endowment effect), or be more critical if it doesn’t live up to your suddenly-higher expectations? Are you going to be more down on Disaster Artist if it’s “only a $5 movie,” or more likely to be pleasantly surprised thanks to lower expectations? Those reactions are probably going to vary from person to person, but dynamic movie pricing certainly would carry the potential for people to change their view of a movie based solely on what the ticket cost. And what does that mean for actors and studios if their movie is highly discounted?
Of course, dynamic pricing models can be made more complicated than just “What’s the maximum amount we can charge to fill a theater once?”, and could potentially examine some of those other considerations. And executives can also use models as a guide and source of input rather than as the exclusive way to make decisions. It also makes sense to run this just as a test program to see how it’s received and what sort of effects it actually has.
The current system isn’t necessarily better, either; saying all movies are equal in terms of what a ticket should cost carries its own assumptions, and those don’t go away just because it’s the system that’s always been used. In any case, the potential’s definitely there for this to significantly alter what movies consumers choose to view in theaters, and that could be positive or negative. Either way, it will be worth keeping an eye on.
