December 12, 2012
A recent hot topic on my Facebook newsfeed and in the media in general was the release of the latest instalment of the Bond franchise Skyfall. Many of my friends went out of their way to make absolutely sure they were among the first to see it, some made an event of it and went out for a meal beforehand, one (now a candidate for my next friend cull) even dressed up in a tux for his viewing.
This got me thinking about how much I would pay for a cinema ticket to see a blockbuster on opening weekend and made me think that cinemas are potentially leaving profit on the table. In creating a blockbuster a film studio is creating a premium product that many people want, which has relatively poor substitutes (I could go and see another film but it wouldn’t be Bond), and they have a fairly high degree of control over the supply of the product (as well as there being a physical limit on number of screens, there may be scope to limit the number of showings).
So my question is this, why on the opening weekend of major film releases are prices not higher than the following weekends?
This strategy, known as price skimming, happens elsewhere. Take the price for a theatre ticket for a new show, initially the prices may be high, but when everybody who is prepared to pay the initial price has seen the show, the price is gradually reduced allowing people with a less cash to spend to see it. The theatre still makes a profit, just not as much as they made in the opening weeks. At the cinema, it is likely that this could only be sustained over one or two weekends as during the week emptier screens will make it harder to keep the price high, but for blockbusters that sell out cinemas it would appear an opportunity exists.
There would be some risks associated with this approach. There may be some people who, if they could not get a ticket on opening weekend, would not bother to see the film once the fuss had died down – but is that likely, and if so, what would the magnitude be? There may be protestations from loyal fans who see this approach as a form of price gouging and a kick in the teeth to them, this could be mitigated by offering some low cost inducements to make it more appealing: Red carpet treatment, encourage people to dress up and make an event of it, maybe give a free martini – “shaken not stirred” – for visitors of legal drinking age, or perhaps just bundle some food and drink into the higher price.
The film industry already uses this technique in the pricing of DVDs and on-demand movies through the cable box, which may indicate there is a reason why this does not happen today. If not, if I were a film distributor wanting to leverage more profit from my studio’s blockbusters this is the first place I would look.
– Nick Seagrave