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Why Dynamic Pricing for Movie Tickets Could Be a Tough Sell

People aren’t going to the movies as much this summer. Are they staying away because the films are duds, or is it because tickets are getting too expensive?

AMC is making a bet that cost, not quality, is behind the recent downturn. Last week, the country’s largest exhibitor announced it will be testing a new pricing initiative in which it will charge a premium for movies that are “of the highest appeal.” In turn, less in-demand films will be cheaper.

For now, AMC will limit the pricing model to 30 venues across four cities — Boston; Columbus, Ohio; Indianapolis; and San Diego. The surcharge will be between 50¢ and $1.50.

“Think of it being applied, let’s say, to one or two movie titles each month,” AMC chief Adam Aron explained on the company’s Aug. 8 earnings call. “This is basic economic theory that goes back to the first microeconomics course we all might have taken in college: Charge more in peak periods and charge more for high-demand products, but charge less in the off-peak.”

Aron’s bold gambit comes as box office receipts are struggling. Midway through 2019, the domestic market has slid more than 6% from the same time last year. The downturn has exhibitors reigniting conversations about variable pricing, where the cost fluctuates depending on the movie or time of day. The hope is that reduced fees encourage audiences to see more than just the next Marvel movie or Disney remake. While dynamic pricing works for airline and concert tickets — and is commonplace in exhibition across Europe and parts of Asia — it has historically been a point of contention for the movie business in North America.

With the exception of Disney, every major Hollywood studio is finding it ever more difficult to make movies that people want to see. It’s not that audiences are averse to going to multiplexes. Blockbusters, particularly those of the superhero ilk, are still smashing box office records. Disney-Marvel’s “Avengers: Endgame” became the highest-grossing movie in history, and fellow studio releases like “The Lion King” and “Aladdin” have cruised past the billion-dollar mark globally. But the gap in receipts between tentpoles and smaller films has widened. The more intimate dramas and comedies, the kind that seem to populate Netflix queues, are a harder sell.

There’s evidence to suggest that audiences would watch a film in theaters if they could pay less. The average movie ticket runs $9.26, whether you’re seeing Sony’s “Spider-Man: Far From Home” or A24’s “The Farewell.” In more expensive markets like New York or Los Angeles, admission can be nearly $20. Some theaters offer discounts on Tuesdays, which distributors have accepted because it’s normally one of the slowest times of the week. On those days, mid-budget films like Universal’s musical rom-com “Yesterday” or Paramount’s gator thriller “Crawl” often see notable boosts in ticket sales. In the wake of MoviePass, major chains such as AMC and Cinemark have also unveiled cost-effective subscription packages that charge a set fee per month. Both companies have reported increased attendance across their theaters.

Still, there are reasons to be skeptical about fluctuating pricing. For one, it’s hard to put a price on quality. Charging a lower fee signals to audiences that the film might not be so good. And then there’s the question of how to price movies. How does one determine what constitutes a movie of “the highest appeal”? Few would have predicted that “The Meg” or “A Quiet Place” would become breakouts last year, meaning that the two sleeper hits could have missed out on some serious cash if theater owners had decided there wasn’t a high demand for them. And good luck to the distribution employee who has to tell a filmmaker that his or her movie isn’t worth as much as a comic book adventure.

Another strategy in variable pricing is lowering the cost of a ticket after a movie has been out for a few weeks. The issue with that approach is that it teaches consumers to wait until prices go down rather than showing up on opening weekend. Granted, a movie’s success doesn’t live or die on its debut, though high attendance certainly signals interest surrounding a given title. Turnout on opening weekend also indicates enthusiasm to theater owners, who have limited screens to show movies.

Additionally, flexible pricing will put more pressure on theaters to police moviegoers. What’s to stop someone from buying a less expensive ticket and going into a screening for a pricier movie that’s showing at the same time?

Privately, studio executives fear that dynamic pricing devalues the moviegoing experience. But Hollywood companies aren’t just concerned about sending the wrong message to consumers. While exhibitors legally set the price for movie tickets, they have to negotiate with studios to determine how to split the profits. That could lead to tense discussions.

Clearly, the movie business needs to experiment. Moviegoing is not as popular as it once was, and the rise of streaming services and higher-quality television programming means that there’s more competition than ever for audiences’ attention. But will shaving a dollar off ticket prices make a difference? 

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