Will Moviegoers Really Pay a “Premium” For Better Seats?
The economics of premium pricing, coming soon to a theater near you
There is a term in economics, “perishability,” that essentially has it that something is time-based and it can’t be sold at a later date.
Movie showings are perishable.
Empty seats in the 8:45 showing of Creed 3 are simply gone. The theater can’t sell them again. Yes, there will be another screening. But 8:45 seats are only available for that showing and if the establishment can’t fill them, this is a sunk cost.
Industries like airlines have long recognized perishability, and now it’s garnering more attention in movies.
Another aspect of attendance at a theatrical event that is part and parcel of business—but something that has heretofore been absent from the local multiplex—is premium position.
If you want to go to a concert or a Broadway performance, you are going to pay a premium for a good seat. Sometimes that premium is going to be non-trivial, adding tens if not hundreds of dollars to the base rate.
But generally we still consider the price for a seat in a movie theater to be the same across the board. Except, of course, it is usually the rule that if you go to a matinee you are going to spend less than should you decide to go in the evening. Still, even then the discounted ticket allows you to pick your position within the theater.
In February theater chain AMC Entertainment Holdings decided to establish a program named “Sightline.” Want better sightlines when seeing a movie (a.k.a., the middle of the auditorium)? Then you can have it, assuming you’re willing to pay more than, say, one of those seats to the side in the front row, which the operator ought to pay you for (perhaps the theater operator could get sponsorship money from a local chiropractor).
While concerts, plays and sporting events have long had position-based pricing, it seems as though doing so in a movie theater is something that is a cause for at least concern, if not consternation. Oddly, although the markup on popcorn is on the order of greater than 750 percent, theaters keep filling those tubs. Presumably, AMC thinks the seats will also get the same sort of demand.
However, this may not turn out to be as advantageous as AMC hopes based on a recent survey conducted by Morning Consult.
It found that of all U.S. adults, 14 percent think the variable pricing is “very appropriate” while, on the other end of the scale, 32 percent think it is “very inappropriate.”
And this is not a case where they’re asking a whole lot more for said seats. When asked whether they’d pay a fee of one or two dollars on top of the ticket price, again just looking at the two ends, 15 percent are “very willing” and 34 percent are “not at all willing.”
But those numbers combine all generations, and the good news for AMC is that Gen Z adults and Millennials are more accepting of spending a couple more bucks than Gen Xers and Boomers.
That is 19 percent of Gen Z are willing to spend extra and 24 percent of Millennials are. Contrast that with 11 percent of Xers and eight percent of Boomers. Perhaps many of the Boomers who attend movies are those who have entered the stage of life when they are on a fixed income because 49 percent–by far the largest percentage of any cohort—are “not at all willing” to spend extra for a ticket.
While AMC can certainly adjust its pricing plan, possibly even end it, that doesn’t seem to be particularly likely. The reason: Market dominance.
According to Statista, as of March 2022 (latest figures), AMC had 7,350 screens in the U.S. Regal Cinemas had 6,851, but when you get to third, there is a precipitous drop: Cinemark had 4,426. Cineplex Entertainment had 1,676 screens, or just 23 percent of AMC’s number. So certainly AMC has the sort of footprint that would permit it to determine what it is going to rent its seats for.
And there is another factor in all this: the impact of the COVID 19 pandemic, which had a massive effect on box office in the U.S. (and elsewhere, but we’re just looking at the U.S. here). This was a case of perishability to the nth degree. Seat after seat, showing after showing—vacant and not to be sold again.
According to Box Office Mojo, in 2018 the total box office gross was $11,892,160,111. In 2020 that figure was down to $2,113,846,800. While the numbers increased by 2022, it finished at $7,369,357,270. That’s $4,522,802,741 behind 2018.
So theaters have a long way to go to make up for lost revenues.
While it may be to AMC’s benefit that the younger generations—and potentially those who are going to be seeing more movies going forward—are not completely resistant to the Sightlines pricing scheme, odds are that these are the same people who are going to be finding alternatives to typical movie going.
Perhaps AMC better get it while it can.