Why Doesn’t It Cost Less To See a Bad Movie?

Randolph B. Cohen, an assistant professor at Harvard Business School (who is not to be confused with Slate’s “News Quiz” writer Randy Cohen), raises an interesting question about movie-ticket prices (see “In Praise of Movie Ticket Prices“). Namely: Why do movie theaters always charge the same amount, regardless of how good or bad the movie in question might be? Movie-ticket prices vary, of course, but only depending on factors such as whether the buyer is a child or an adult or whether the ticket is purchased in the afternoon or in the evening. Why not charge a premium for movies that, for one reason or another, might be more worth seeing than other movies? To quote Cohen:

Wouldn’t people pay more to see Titanic than Wild, Wild West?

Cohen does not mean to suggest that movie studios should charge more for movies that cost more to make (as Edgar Bronfman, who was “just smart enough to get it completely wrong,” once proposed). Cohen explains:

The price you sell a unique good for is not determined by what it cost to make it. It cost Van Gogh little to paint “Sunflowers,” but that doesn’t mean he or anyone else should sell it for little. Instead, the price is based on consumers’ willingness to pay. And presumably people would be willing to pay more for the best movies, so why not charge more for them?

Chatterbox assumes that Cohen would define “best movies” not according to subjective aesthetic criteria but rather according to how many people want to see them. By this definition, a popular movie would be a “better” movie than an unpopular one. Under Cohen’s hypothetical scheme, a studio’s response to a movie’s popularity would not be the current, egalitarian method of opening it in more theaters, but the inegalitarian method of pricing the “better” movies out of many people’s reach. (Poorer people would have to rent.) It sounds barbaric, but such demand-based pricing goes on all the time with other commodities, even other entertainment commodities:

Broadway does seem to charge more for big hits like Les Miz, and the effect is even more extreme in pay-per-view cable, where prices range from $3 to $50 depending on the appeal of the event. Similarly the software business has huge “desirability premia”–Microsoft Office costs far more than competitors that presumably had similar development costs. Publishing seems to be in between–books by [Michael] Crichton, [Stephen] King, and other superstars appear to get a small premium (about $3 more in hardback based on a casual flip through Amazon). [Chatterbox pauses here to note that the big superstores have also been known to do the precise opposite–i.e., sell the most popular books and cd’s at a specially low discount.]

Cohen points out that movie theaters’ seemingly perverse pricing mechanism is also used in a few other branches of the entertainment business:

The record industry doesn’t appear to charge more for popular albums (except in the cutout bins, which are more analogous to low-cost second-run theaters). Similarly, video rentals all cost the same except for new releases vs. old.

Here is Cohen’s attempt to explain movie studios’ seeming lack of greed:

The best theory I have so far is signaling: By giving a film a low price, you let the world know it’s lousy; then they really don’t want to see it. So instead, everyone charges what the best films charge, hoping people will perceive the film as good.

This sounds right. Since most movies are bad (both in the subjective aesthetic sense and in the cruder sense of being unpopular), discounting the bad ones would bleed revenue while probably not persuading many moviegoers to make the tradeoff between quality and cost. As Chatterbox pointed out in his earlier item, movie tickets are fundamentally inexpensive, so you aren’t going to lure many more people into seeing, say, Eyes Wide Shut by slashing the already low price of first-run admission. (To the extent the discount audience exists at all, it’s mostly a rental audience, because renting saves money not only on the unit price of viewing but also on parking, babysitting, and other incidental costs associated with going out; perhaps most important of all, the rental audience knows it can bail out with greater ease if the movie in question proves unwatchable.) To make a buck, the movie business has to lure large numbers of people into seeing bad movies, and to get them to pay as much as they would if they were seeing a good movie. That’s the bad news. The good news is that when a movie is good, pretty much everyone can afford to see it, which isn’t true, say, of a concert reuniting Bruce Springsteen with the E Street Band (though in the latter case the price differential is not the Boss’s fault, but rather the fault of ticket scalpers and brokers).* (Click here for Paul Krugman’s explanation of why stadiums charge less than the market will bear.)

*The scalpers-and-brokers point was brought to Chatterbox’s attention by Randolph Cohen’s brother Andrew, who is an assistant professor of history at Syracuse.