Posted by: Jeff | October 7, 2009

Markets In Movie Tickets

Here’s a good example of why I’ve come to find economics so fascinating in the last year or two. I’d never thought about it before, but now that Nicholas Tabarrok (guest blogging over at Marginal Revolution) brings it up, it’s actually really, really weird that the cost of filming a particular movie has no effect on the price of a ticket to see it.

For example Honda can make a cheaper car with less features and cheaper finishes than BMW without losing all of their customers to the superior car because they sell their product for less.  You spend less to make something, you charge less for it.  Makes complete and obvious sense.  Not so in the film business.  I am an independent film producer and I make films that typically cost somewhere between $5M and $10M.  But when I make, say, an $8M film it has to compete at the same price level as the studios’ $80M or $100M film.  It costs the consumer the same $12 at the multiplex (and whatever it costs to rent a DVD from Blockbuster these days) for either film.

And since our hypothetical indie producer is competing with other films at the same ticket level, the studios and distributors and such have no market incentive to favor his cheaper films over $100M or $200M extravaganzas. And when one studio manages to make a bunch of money one year off of one or two lowest-common-denominator, star-focused “tent poll” blockbusters, every other studio has to follow suit. Because the option of undercutting the competition with a bunch of cheap dramas and comedies isn’t available. Those “indie” films will cost an audience member just as much to go see. And thus do we get the current downward spiral of competing summer blockbusters. It’s an extraordinarily perverse and inefficient way of doing things.

As one commenter points out, the only other industry which has this kind of strange fixed unit cost is the video game industry, and they’ve wound up with the same hit-focused business model. In any other market or industry, a lower cost of production would mean a lower unit price, which would be more competitive.

I mean, think about it. What would have happened if The Hurt Locker, already light years beyond Transformers 2 in terms of quality, had also cost maybe a third as much to go see? How much larger of an audience would it have attracted? How many more theaters could it have wound up in? Seriously. Somebody needs to fix this. Like, now.

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Responses

  1. James Cameron used to discuss this, basically saying that his super-expensive movies should have higher ticket prices than the low-budget star-driven drama. Fair enough, my only concern is that if theaters start charging less for cheaper movies, they’ll have even less incentive to carry them. If I were a theater owner, I certainly wouldn’t want to take up a theater that might be grossing thousands upon thousands showing Transformers 2 so I could toss in The Hurt Locker, which not only is less appealing but now actually costs less per ticket. Frankly, arthouse movies already get the worst auditoriums in major theaters already, I shudder to think how they’d be treated in a first run theater when the tickets were cheaper than the other attractions. It’s not a terrible idea at its core, there just needs to be some serious cost/benefit analysis possibly on a per-film basis.

  2. My initial instinct is that the volume of people opting for the cheaper movie would make up for the loss in profits per ticket. And as both theaters and studios saw the volume changes, they’d adjust not only screen availability but also marketing accordingly. Which would reinforce the effect all the more. (Which isn’t to say arthouse flicks would get better, or even equivalent treatment with the major blockbusters. But I do think the current gulf in treatment between the two would lessen.)

    ‘Course, that’s just my abstract theorizing on the matter. I wonder if anyone has done any studies or analysis on this? Not sure how they’d do it, but if so I’d love to see it.


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