Friday, 4 March 2005

Movie theaters and price differentials

Tyler Cowen has an intriguing post on movies costing the same, regardless of popularity. As someone who’s been to literally thousands of movies, I have a couple of thoughts.

I think much of the reason for the lack of price differentials has to do with contracts from the studios. They are very protective of their profits, maybe to the point of not maximizing them, even. When the first Star Wars prequel came out six years ago, I read an article that Lucas’s contract stipulated that the movie must play in the four largest theaters (for a certain class of large multiplex) and for four consecutive weeks, regardless of attendance.

When I lived in Illinois, I frequently went to a huge multiplex and noticed that they had a number of theaters of differing sizes. I suspected then, as now, that they created the multiplexes with various theater sizes to allow some flexibility to compensate for the lack of price flexibility. That way movies like “My Big Fat Greek Wedding” can run for months on end in a small theater and generate word of mouth. Similarly, popular movies can be moved to smaller theaters as their audience declines.

Another thing I read is that for the first four weeks of a movie’s run, the studio gets around 90% of the box office. This helps account for the outrageous cost of a Coke and popcorn. If the studios allowed the theaters to vary their prices, and share an even cut of the film’s box office over its run, I suspect much of this weirdness would go away and the obsession with blockbusters would disappear. I also suspect that more movies would be profitable if the prices were allowed to vary.

Currently listening to: "Up On Cripple Creek".