Dynamic pricing for movie theater tickets

In most of the consumer markets, pricing is guided by a supply – demand fit. Price a product too high and there’ll be less demand, price it too low and you’ll miss out on potential profits (of course, there are lots of exceptions to this too). Pricing is therefore more of finding that fit as opposed to a perfect science.

Last weekend, I went to watch ‘Wake up Sid’ at a nearby theater. For a Saturday night show, the theater was reasonably crowded and I would have expected it to be more crowded. On my drive home, I started wondering – why is it that theaters follow a fixed price model ? For instance, lets say a ticket costs Rs 250/-. You pay the same price no matter if you watch the movie first day first show or 3 weeks later (assuming its still running). The only price variations theaters offer (in the US) are for students, senior citizens and matinee shows. That just doesnt make sense.

Seats in a movie theater are ‘perishable’ inventory. What I mean by that  is all the unsold tickets for a particular show translate to unsold inventory that is wasted – meaning wasted potential revenue. Its just like airline tickets. If a flight is not full, all the unused seats mean wasted revenue for the airline. Ditto for hotel rooms. So, while hotels and airlines offer incentives like last minute deals and sell through other opaque channels like Priceline etc., why dont movie theaters do something similar ? One might argue that last minute opaque selling for a movie theater is difficult since the actual unsold inventory can only be found out after they have sold tickets to a particular show. So, the opaque selling has to be a truly last minute, real time channel to meet the unique constraints of movie theaters.

If opaque selling is not a viable option, movie theaters should at least consider gradually decreasing the ticket prices for each subsequent week that the movie is aired. But if customers knew that movie ticket prices were to drop in subsequent weeks, why would they watch a movie first day / first week ? Wouldnt everyone wait just for the subsequent weeks to watch it ? Well, the answer is no. For two reasons:

1) just like die hard apple fans want the latest gadget as soon as Apple launches them, there will be movie fanatics who want to watch as soon as its released

2) In this scenario, you also throw in a dynamic pricing element. So, for instance, you keep it uncertain whether there will be price drop in the subsequent weeks or not. For a super hit movie like Harry Potter / Batman etc., it might not make sense for the theater to drop the price – there will be hordes of moviegoers who would pay the full price to watch the movie in the subsequent 2-3 weeks as well. Its for the other movies that you are most likely going to have unsold inventory that you try to price dynamically.

There might be aspects of this that might need more research, but just jotting down my thoughts as they flow. Let me know what you think.

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17 comments

  1. Nice read.

    Certain aspects definitely need more research. Atleast in state I live, Andhra pradesh, It’s a govt mandate to maintain prices approved by Govt. Multiplexes is a totally different game though which I think have less govt control.
    However, Movie ticket distribution is broken and there’s lot of money at stake for those who can fix.

  2. It is not right to compare movie tickets with airline tickets.
    Theatres are a source of entertainment; so, people will not want to acquire movie tickets on a last minute basis all the time (probably for the first two days for a blockbuster).
    However, consider DVDs and rentals : they are the cheaper alternative for older movies, aren’t they? They allow you to watch whatever you want whenever you want.

  3. A friend of mine floated the idea of actually auctioning the first few days. The highest bidder wins the ticket. Sort of dwindle the black marketeers out of the picture and make it official online.

    Profits proceed to the theatre, movie makers and pocket the commission.

    I said, its viable but said it might seem like a fine line between auctioning and black marketing.

  4. In Tamil Nadu, Government has permitted theaters to fix a higher price for first few weeks of the film release. After few weeks, the ticket price goes to a normal level. This is good, since unscrupulous theaters will sell only few tickets through counter and rest through black market by their employees themselves.

  5. The pricing model should also consider attracting more people during off-peak or down phases. Say a movie XYZ is not running well after 2 days from the release date, should’nt the ticket rate go down the normal price (obviously considering the govt. tax) ?

    I know people don’t get fooled with low rates…but isn’t there a scope to attrack more viewers?

  6. the idea is good …tis may generate revnues for even movies that are low budget and currently suffer heavy losses…but i suggest one more thing..for people like us who want to watch movies in theatre every week there should be a priviledge card…to reduce regular cinegoer’s expense…for example if you see 4 movies in a month for 600 rupees…using this card if reduces your cost by say 20 % would be cool

  7. I know a mall in Noida(TGIP) which follows the dynamic pricing model-it was selling a movie ticket for nearly 350 bucks for a newly released movie when the normal price is around 150 bucks.

  8. As far I know, Inox has been doing sort of semi-dynamic pricing for long awaited movies on first weekend. usually it will be priced at a premium rate >= 300. Implementing full dynamic pricing based on rate of booking and amount of seats would be interesting.

    Also, on the lines of airline tickets there should be discount for people who plan and book for a show advance (3-4 days) before official release without hearing any reviews ! Later, when critical reviews are in public domain, prices should be brought back to normal level.

  9. Actually the multiplexes could do a lot of good to the movie industry if they were freed up from the entertainment tax shackles which every state govt binds on them. These archaic rules don’t allow dynamic pricing or discounting based on inventory levels. This is quite popular in the west.

  10. First, Good thought. Why i think it wont work – In Chennai, Sathyam Cinemas is THE place to watch a movie. The highest ticket offered there is Rs120. One big reason why people go to Sathyam is not just the technology but the crowd who come there. As the tickets are priced higher people who come there Behave!. Unlike other theaters where our common Indian crowd do all the mean things to make the place stink.
    Make sense?

  11. The Great India Place in Sector 18, Noida dynamically prices its tickets as a comment above notes. Before noon, during the work-week tickets are Rs 50. In the last half hour before a movie, ticket prices go up to Rs 500. Scalping before ball games and concerts achieves the same end. The other need is for discounting at the last minute to ensure reasonable participation/occupancy/utilisation which can be achieve by discounting for an unseen unbranded purchase as with hotel rooms. Here, for premium seats to a movie purchased online without specifying the theatre and its facilities.

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  12. The issue with movies (atleast multiplexes) is that there is a revshare between the distributor and the exhibitor – so an independent entity cannot do differential pricing – you will need to negotiate with the exhibitor and the distributor. That said longer term there might be a model here.

    I was seeing http://www.dealivore.com having some sweet deals (evidently on off peak demand etc). The first deal was a movie deal – apparently though they had a disclaimer as well (i guess it was not necessarily a discount from the theater). The second deal (that is going on) is with a restaurant chain – little italy where an low demand discounting works very well

    Bottomline – today theaters dont have such a model, ultimately though the industry might move towards that.

  13. .) This is the right blog for anyone who wants to find out about this topic. You realize so much its almost hard to argue with you (not that I actually would want…HaHa). You definitely put a new spin on a topic thats been written about for years. Great stuff, just great!

  14. .) There are certainly a lot of details like that to take into consideration. That is a great point to bring up. I offer the thoughts above as general inspiration but clearly there are questions like the one you bring up where the most important thing will be working in honest good faith. I don?t know if best practices have emerged around things like that, but I am sure that your job is clearly identified as a fair game. Both boys and girls feel the impact of just a moment’s pleasure, for the rest of their lives.

  15. .) There are certainly a lot of details like that to take into consideration. That is a great point to bring up. I offer the thoughts above as general inspiration but clearly there are questions like the one you bring up where the most important thing will be working in honest good faith. I don?t know if best practices have emerged around things like that, but I am sure that your job is clearly identified as a fair game. Both boys and girls feel the impact of just a moment’s pleasure, for the rest of their lives.

  16. Dynamic pricing for movie theater tickets concept is good
    This is the right blog for anyone who wants to find out about this topic

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