11/27/2010

Movie theatres charging a higher price and succeeding?

The movie theatre industry is making some big changes to the way you watch movies and it's worked so far. They are giving people more options in the movie theatre instead of just your typical movie going experience. You can now sit in seats that shake or a "no-kids" zone for adults to enjoy movies. These changes are having a positive effect on sales so far even though they cost a little more. In the short-run these prices will stay high, but in the long-run the demand for these more expensive amenities will drop causing the price to drop and stabilize. I think that this will help the movie industry (which isn't hurting that bad anyway) and it can also revolutionize the way we watch sports or any other forms of entertainment.

8 comments:

denver said...

Generally, people like to enjoy themselves and this article shows that people are willing to pay a little more money to boost that enjoyment. Not everyone can afford a personal theater room or a 3D TV but they can find a few extra bucks to go to the theater.

As we see the emergence of 4D theaters (the ones with moving chairs) it reminds me of a Lexus commercial running right now. “The Next Big Thing" from Lexus isn't a new car, but a simulator. It makes me wonder when we will see 4D theaters built with simulator-type experiences with motion, personal surround sound, fragrances and even wind. It would be like a theme park ride, but even better because it would last for more than two minutes. This surely seems like a viable option when you consider the upgrades people are willing to pay for. This could be the premium option for theaters.

As long as theaters give people the choice instead of forcing them to take the higher price every time I think they can keep revenues coming in. The article even mentioned watching the Super Bowl at a theater which is just another creative innovation that would help revenue streams. Theaters have some creative options ahead of them and from an economic standpoint it is good to see them doing something a little different.

Baden said...

I am surprised that movie theatres are able to raise their prices at all during this recession. Especially when considering the competition in the entertainment industry. Particularly concerning movie entertainment as an earlier post pointed out Netflix’s online offering and some people have commented on Redbox with their low price and convenience. I feel that movie theatres are already overpriced. Their business model brings the owners a large portion of their direct profits from concession stand items such as food and drinks. I believe that this industry will need to continue to innovate to keep business and even with such innovations will start seeing their margins per movie ticket decrease in order to keep the seats filled. They will drop prices in the future to keep the concession stand money coming in. A good example of this is gas stations that compete with each other at the pump for the convenience store money.

walla walla said...

I like this article because it offers a real world example in regards to profit maximization and creating more producer surplus. The fact that people are willing to pay more money for a “no-kid zone” is proof that consumer surplus is present in movie theaters. The movie industry seems to be zoning in on these customers who would be willing to pay more for the same product and are making sufficient amenities to entice them to pay more. Way to go capitalism!

kmuteki said...

I actually read the article pasted below a couple of weeks ago which explains why consumer spending in movie theatres is up in 2009. The basic reason is consumers are looking for a way to have fun that maximizes the price-to-time ratio an activity provides. Eating out and other leisure activities like shopping have not maintained consumer patronism, but people have found a way to afford $10 on the weekend for a movie.

Theatres may have begun to think that they are in a recession proof industry, and are building upon current models to attract new customers by adding options to upgrade.

http://articles.latimes.com/2009/dec/14/business/la-fi-ct-boxoffice14-2009dec14

MIA said...

People going to the movies instead of watching one at home are going because they want to see it on the big screen. The new features will add more to the experience of having a “night out on the town” and people will be willing to spend a little more. These new features in the short run are order winners allowing theaters to charge more for the better experience. However, when more and more theaters adopt these new features they will soon become order qualifiers and prices will drop.

Dave said...

I think Rhett's post is fair ... and I like going to the movies ... but I'm not sure theaters aren't a dying industry. For my part, I'd pay extra to have people STFU in the movie (apologies for the implied swear). That's a lot more important than all the technical gizmos.

Having said all that, I agree with Denver and the others that it would be nice if theaters were able to figure out something that works for them and me.

For curiosity's sake, Mexican theaters went through this in the mid-90s with Cinemex. The technological changes were not the same as those mentioned here, but they were a big upgrade for Mexico at that time. And Cinemex' business model pretty much printed money for them for a few years. But, free entry took care of that.

Belba said...

According to an article in the Dixie Sun, Westates Theatres in southern Utah raised their prices for movie tickets to keep up with the latest technology. The company realizes everyone has a choice on how discretionary money is spent, and if they want to keep customers, they need to stay on top of things. 3-D is the best technology currently out in the marketplace, and Westates Theatres just spent about $1.5 million to upgrade two theaters. To also help with the costs, the company played commercials before each movie. A lot of customers complain because of the new ticket prices, but they would also complain if the new and latest technology wasn’t being used. It’s a battle.

Dr. Tufte said...

I'm not sure what to make about Westates: they have no competition in Cedar, and I'm not sure how much they have in St. George.

If so, it seems to me that their competition is Netflix and Redbox. If that's the case, why upgrade?

I wonder how much of this was pushed on them by Hollywood: you know, in order to get this movie at all, your theatre must have this, that, and the other thing.