Variable Pricing For Movies?

Prices for airline tickets have long fluctuated depending on the season or day of the week they are purchased. Variable pricing in that industry has become a given and, much like death and taxes, it’s hard (or nearly impossible) to avoid paying up the wazoo during periods of high demand.

Washington Post columnist Steven Pearlstein recently asked why such a variable pricing model couldn’t exist in the movie theater industry, posing the question, “Wouldn’t they sell more tickets and popcorn, and make more profit, if they increased the price when demand is high, and lowered it when demand is low?”

During Hollywood’s golden years, Pearlstein said, ticket prices fluctuated, depending not only on the time of day you watched a movie, but also the location of the venue and the box office draw of the film itself.

Television, cable television, VCRs and DVDs have chipped away at the film industry over the years, which increased prices, then eventually switched to uniform ticket prices to compete.

A study by two academics, Barak Orbach and Liran Einav, set to publish in 2007 by the International Review of Law and Economics, outlines many reasons why theaters have been reluctant to move back to the variable pricing system, Pearlstein said.

One reason cited in the study mentioned the costs and sheer size of the undertaking involved in changing the system. Another questioned whether consumers would consider variable pricing to be fair.

But the real responsibility for the lack of enthusiasm on the part of the industry, according to Pearlstein, lies more with movie studios than theater owners, because the latter would benefit most from the new dynamic.

“Theaters actually pay widely varying fees for the licensing rights to the movies they show,” Pearlstein said.

“The bigger the expected gross, the higher the percentage of ticket revenue that normally goes to the studio and its distributor. And the formula also includes a per-ticket fee that declines each week of the movie run.”

Some theaters that have experimented with variable pricing have faced retribution from the studios, according to Orbach and Einav’s study, including the loss of access to big movies or even demands for higher per-head prices.

Still, Pearlstein suggests variable pricing is worth considering – if movie studios warm enough to the idea to let theaters try the system.

“Discounts for some could well be offset by higher prices for weekend tickets to hit movies,” he said.