Episode 552: Blockbusters, Bombs And The Price Of A Ticket : Planet Money A ticket to an unpopular movie in an empty theater costs the same as a ticket to a sold-out blockbuster. Why?
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Episode 552: Blockbusters, Bombs And The Price Of A Ticket

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Episode 552: Blockbusters, Bombs And The Price Of A Ticket

DAVID KESTENBAUM, HOST:

Thanks for listening to PLANET MONEY. If you're looking for more podcasts, check out Ask Me Another. The show blends word games, brain teasers and trivia of all sorts with comedy and music. Find Ask Me Another on iTunes under Podcasts.

UNIDENTIFIED MAN #1: It's movie day. Turn off your cellphone. Woo-woo (ph). Yeah. Give it up. Movies.

JACOB GOLDSTEIN, HOST:

So, Robert, we're here. We're at a movie theater in Brooklyn.

ROBERT SMITH, HOST:

We're seeing "Jersey Boys" - the 9 o'clock show.

GOLDSTEIN: And there's about a hundred seats in the theater, and there's us and two other people and 95 seats.

SMITH: (Laughter).

GOLDSTEIN: We paid 12.50 each.

(SOUNDBITE OF CINEDIGM ADVERTISEMENT)

UNIDENTIFIED MAN #2: Cinedigm - a new paradigm in cinema.

SMITH: Whoa.

GOLDSTEIN: We paid 12.50, which is the exact same amount we would pay for a sold out show for "Transformers" on opening night - same price for, like, empty theater that nobody wants to see as for the most popular movie in town. Why, Robert? Why is this the case?

SMITH: You know, there is something that happens when your product isn't selling. If you have cereal, and nobody's buying it, you put it on sale. If you have a nail salon, and nobody's coming to it, you lower your prices.

GOLDSTEIN: Hello, and welcome to Planet Money. I'm Jacob Goldstein.

SMITH: And I'm Robert Smith. Today - why are movies all the same price?

(SOUNDBITE OF SONG, "OH, WHAT A NIGHT")

DANIEL REICHARD, ENSEMBLE FT TITUSS BURGESS: (As Frankie Valli, singing) Oh, what a night late December back in '63. What a very special time for me, as I remember. What a night.

GOLDSTEIN: So, Robert, it is now Friday. You and I are sitting here in the studio at work, and it is, of course, the middle of the summer blockbuster season. Tonight - this very night - while chumps like you and me are sitting alone in empty movie theaters watching "Jersey Boys," there will be people sitting one theater over in the multiplex, people who stood in line for the sold-out opening night show of "Dawn Of The Planet Of The Apes."

(SOUNDBITE OF FILM, "DAWN OF THE PLANET OF THE APES")

ANDY SERKIS: (As Caesar) War has already begun.

SMITH: Sold out "Planet Of The Apes" show - same price as empty movie theater "Jersey Boys" show. Now, when we talk about the movie ticket prices you may be thinking, you know what? It is fine. I like the predictability of just knowing a movie theater ticket is a movie theater ticket. But to an economist, a sold out theater right next to an empty theater is a misallocation of moviegoer asses in movie theater seats.

GOLDSTEIN: And this kind of misallocation - this is a problem that the world has solved. You know the solution if you've ever bought an airline ticket. If there is a flight everybody wants to get on, it's going to cost you more. If you want to go somewhere that nobody else wants to go, you're going to get a deal. This is why you almost never ride on an empty airplane.

SMITH: It is called variable pricing. In the past 10 years or so, technology has made this so easy to do, and lots of businesses do it. Online retailers use algorithms to constantly tweak the prices depending on who's buying what. And professional sports teams have jumped on board this in this incredibly sophisticated way. It used to be you'd go to a baseball game, and it was pretty clear. It was, like, 10 bucks to sit in the bleachers, a hundred bucks to sit behind home plate. Today, the price of a ticket is not just where you are sitting.

BARRY KAHN: It's anything from the matchup to the team's performance to the weather to the day of the week to the time of the year to the playoff implications.

GOLDSTEIN: This is Barry Kahn. He runs a company called QCue that helps sports teams do variable pricing. And by the way, he is not done with that list of things that affect the price of a ticket to the ballgame.

KAHN: How many seats are left, how comparable areas are selling, what alternatives might be on the resale market or even, you know, other events that are competing in town.

GOLDSTEIN: Here's a guy who has built his professional life - built a whole company - around the idea that prices should change based on supply and demand. So we called him up to talk about what pricing would be like in his dream version of the movie business.

SMITH: Barry says that movie theaters are just a perfect candidate for variable pricing because you generally know in advance which movies are going to be hot, which ones are going to be the blockbusters and which movies are going to struggle. And movie theaters, like a lot of businesses, have this great way to communicate prices. They have a giant marquee that faces the street. Now, imagine you walk up to the ticket window. And you're looking up at all the names of the movies, and you see a price next to each one. You go, oh, "Jersey Boys" just went on sale. It's now 6 bucks. That's the one I'm going to go see.

GOLDSTEIN: And so one of the things we asked Barry was - how cheap could a movie get? And he said - how about free? You like free?

KAHN: Some comedy clubs I feel like are a good example of this where there might be no cover, but there's a two drink minimum. Could you do something like that, Where maybe you don't even - you don't even charge to go in, but you have to at least go purchase two things from the concession stand. Is that an option?

GOLDSTEIN: I love that option. No cover - it's a movie with no cover, but what's the minimum? Two popcorn minimum?

KAHN: Yeah, I think that sounds reasonable.

SMITH: Of course, there is a flipside to variable pricing. I'm sure you see this one coming. In a world where movie prices are based on demand, you're going to have to pay a lot more to see "Planet Of The Apes" on opening night.

KAHN: I mean, clearly, people want to go see that new movie. They want to see that hot movie. They're willing to pay more for that. And, you know, when you see a movie that has a line out the door, when you actually can't get to see that movie at that theater - I mean, if you've run out of seats in that theater, the theater should be charging more.

GOLDSTEIN: And, of course, I asked Barry the big question - how much more? And he said, you know, it depends. Of course, he's going to say it depends. He's the very little pricing guy, right? Everything depends. But he said normal, you know, big movie opening night - think something around 20 bucks. But he said if you're the only theater in town showing the big new movie, and if you've sold out most of the theater in advance - you've got a few seats left - then you can go big.

KAHN: Maybe it's - you know, maybe it is 75 bucks. Maybe it's a hundred bucks for those last four seats.

SMITH: A hundred dollar movie.

SMITH: Yeah, I mean, it's, again - but - I couldn't imagine doing this across the entire theater, but I could imagine that if you have four seats left.

SMITH: And, you know, I could actually see - I know I'm not - I know - I can't believe this, but I could actually see paying that much for a ticket. I mean, let's say I have one date night with my wife. It's our anniversary. It's her birthday. I promised that we would go to this one movie and then forgot to get the tickets ahead of time. I could imagine actually spending a hundred dollars a ticket just so I wouldn't have to admit that I did not plan in advance.

GOLDSTEIN: You could not.

SMITH: I could imagine.

GOLDSTEIN: I would never. I love my wife dearly. I screw up sometimes. I will never pay a hundred dollars for a movie. But in New York, I'm sure - I am sure there are plenty of people who would pay a hundred bucks for the big movie.

SMITH: And once you start thinking that way - that, you know, there's a lot of different kinds of people with different kinds of needs with different abilities to pay, and you have the technology to vary prices - I mean, it is amazing what you can do. So, for instance, why not have a discount on days when nobody goes to the movies? Half off on Super Bowl Sunday - what about that? Or for that matter, you could charge more when it's a hundred degrees outside - 105 degrees. Like, people who want to get into the air conditioning - you could have an energy surcharge that starts going up on the marquee there.

GOLDSTEIN: Just as the temperature goes up the price goes up, right? Or another thing that Barry said has actually been really popular in baseball and he said could work for movies is give people a discount to buy tickets in advance. That way if you're a theater, you lock in the profit. And if the reviews are terrible, it doesn't matter. You got the money.

SMITH: And we were batting around ideas, and Jacob came up with this awesome plan, which is sort of a Priceline for movies. So imagine an app on your phone. And a few hours before you go out, you know, you bid, say, five bucks on a movie - "Tammy." And if any theaters are showing that in town that got empty seats, they're like, yeah, fine. Five bucks - we'll sell you a ticket like that. And, you know, if they don't respond with the five buck offer, you stay home, watch Netflix or something.

GOLDSTEIN: It's a good idea, man.

SMITH: It's a great idea.

GOLDSTEIN: It's a good idea. All this stuff is not only so fun, but it seems, frankly, so reasonable that there must be some reason this hasn't already happened in the real world. There must be some reason that it doesn't happen at actual movie theaters.

SMITH: Like this one.

(SOUNDBITE OF PHONE MENU GREETING)

UNIDENTIFIED WOMAN: Hello, and welcome to the Phone-and-Go movie information line for Four Star Cinema - Kilgore, Texas.

GOLDSTEIN: The other day I talked to Byron Berkley, who owns the Four Star Cinema and a few other little theaters in Texas. I wanted to find out why the reality of movie ticket prices is so different from our economic dream. So I asked him - why don't you cut the price when you're showing a movie that nobody wants to see?

SMITH: Byron says that charging different prices for different movies would start messing with the minds of moviegoers in a way that might not be good for him and may not be good for anybody. He knows - Byron knows that some movies are dogs. In fact, he calls them stinkers. But he says when you cut the price for an unpopular movie, it sends a signal that the movie might not be worth seeing at all.

BYRON BERKLEY: We don't want to give the public the impression that any of things - any of the movies that we play are stinkers. We don't want to be part of setting a value on a movie.

SMITH: Of course, he is setting a value on the movie. He's just setting the value of all movies at the exact same price.

GOLDSTEIN: He did also have a few other interesting insights. He said if he cut the price on the stinker, he might not get any extra people in to see it. It might just be people who would have seen it for full price.

SMITH: And then there is a practical problem that perhaps only a movie theater owner might think of.

BERKLEY: You end up running the possibility of, of course, people buying the cheaper ticket for the stinker and then, when you're not looking, running into the other auditorium and seeing the good picture that they paid sticker price for.

GOLDSTEIN: And on the flip side, he says, if he tried to jack up prices for the sold out blockbuster, there'd be townspeople with pitchforks standing outside the theater or something like that. So that is not going to happen in Kilgore, Texas.

SMITH: Even if we managed to convince Byron that he should adjust his prices, there is another big thing standing in his way - the movie studios. Byron Berkeley, like every other theater owner, has to negotiate with the studios for every single movie, and this amazed me when I first heard it. This is the way the business works. A small town movie theater owner actually has to deal with the studios about which films go into which theaters, and they also negotiate over the money.

GOLDSTEIN: And the basic deal is the theater and the studio agree to divide the revenue - the money - from every ticket the theater sells. For a blockbuster, the studios sometimes get most of that money, but for normal movies, the split is closer to half and half. Not surprisingly, given all this, things can get tense between movie studios and movie theaters.

BERKLEY: The relationship between theaters and their suppliers and the film companies has always been kind of tenuous. I mean, we're in bed together, but, you know, we kick each other often times during the night.

(LAUGHTER)

SMITH: And once you get into this, there is this weird, contentious history over this. I mean, basically, it went to the Supreme Court back in 1948 whether studios could own their own theaters. And the Supreme Court said no, no, no, no, that's a violation of antitrust rules. And so they cobbled together this weird system where everyone depends on everyone else.

GOLDSTEIN: And it turns out, in part, I think, because of all this, movie ticket pricing is the third rail of the movie industry. Nobody wants even to talk about it. When I was working on this story, I called and emailed a bunch of big theater chains, and only one of them got back to me. And that one said, sorry, we don't talk about pricing.

SMITH: And this tension between the theaters and the studios turns out to be a big part of the reason every movie is the same price.

GOLDSTEIN: Do you feel like it might anger the studio if you cut the price on one of its movies 'cause nobody was coming to see it?

BERKLEY: They wouldn't like it. The studios, you know, feel that you should charge a reasonable price for the movie in your market, whether the movie's good, bad or otherwise. They don't - they don't particularly like the idea of you, you know, charging different prices.

SMITH: So think about it. If I am a studio, and I have just spent millions of dollars on a slick preview, a slick trailer, on posters, on TV ads saying that the movie "Mars Needs Moms" is the best thing to come along this summer, and then, all of a sudden, a movie theater owner puts up $1, then that's just - that's just admitting that the thing's a stinker.

GOLDSTEIN: And, Robert, what you as the studio think actually really matters to the theater because you, the studio, get to decide which theaters get your movies.

SMITH: I can punish them.

GOLDSTEIN: You can punish them, in short. So if you don't like them selling tickets to your movie for a dollar, they might suddenly find they're not getting your good movies anymore.

SMITH: You're only going to get foreign documentaries from now on.

GOLDSTEIN: And even if the theater tries to get creative - if the theater - for example, to go back to Barry's idea - if a theater says free with a two popcorn minimum, that's probably not going to work, either. Byron says there was actually a theater in Chicago that tried something like this a while back where for one package price, you got to see the movie and eat a meal.

BERKLEY: The film companies just went through the roof. And they threatened legal action, and they got into all kinds of back and forth. And eventually, of course, the idea was scrubbed because the film company demanded a percentage of the - of the total revenue.

GOLDSTEIN: I mean, it's amazing. There are all these ways of varying the price of the time, if there are fancy seats, if it's 3D or IMAX. And, like, the one way you cannot vary it is if it's a great movie or if it's a terrible movie.

BERKLEY: That's right. That's one way that - that seems to be involatus. It's one of those - one of those things that you don't mess with, I guess. I don't know (laughter) - tradition. I don't know what it is (laughter).

SMITH: Which in the movie business counts for a lot. Tradition is a big deal. But before we leave you, there is a coda to this story. You know that whole tradition thing? Not actually true. Movie prices have not always been this way forever.

GOLDSTEIN: You know, Robert, before I started working on this story, I had, of course, heard the phrase B-movie. We've all heard that phrase. But I just thought it was just like a generic term that referred to any low-budget, schlocky movie. Not so. I talked to this guy, Barak Orbach. He's a professor at the University of Arizona, and he actually studies the price of movie tickets. And he told me back in the '50s, Hollywood movies were actually officially classified as A, B or C, and B-movie tickets were not the same price as A-movie tickets.

BARAK ORBACH: They had a totally different price. They were priced lower, and people knew what these movies were about. You know, "Frankenstein" was, back then - was a crappy movie.

GOLDSTEIN: And was it cheaper?

ORBACH: Yes, much cheaper.

GOLDSTEIN: This system starts to fade in the '60s, but theaters still did charge extra for movies that were a really big deal - movies that were called event movies. This was the way things were until 1972.

(SOUNDBITE OF FILM, "THE GODFATHER")

AL PACINO: (As Michael Corleone) I never - I never wanted this for you. I work my whole life I don't apologize to take care of my family, and I refuse to be a fool.

GOLDSTEIN: Yes, "The Godfather" - huge movie - same ticket price as every other movie.

SMITH: And there were huge lines around the block to see it. It was a fantastic promotion for the movie.

ORBACH: Surely enough, it is a hit - after that, magic. The system is changing overnight to uniform pricing.

SMITH: The studios, the theater owners - everyone wants the next movie to be "The Godfather," and so they start pricing event movies the same as normal movies. To them, the line around the block, the sold-out theater is not this massive economic error. To them, it becomes the sign of success.

(SOUNDBITE OF SONG, "DECEMBER 1963")

THE FOUR SEASONS: (Singing) Oh, I got a funny feeling when she walked in the room. And I - as I recall, it ended much too soon.

GOLDSTEIN: We'd love to hear what you thought of today's show. You can email us - planetmoney@npr.org. And if you're looking for more podcasts, I would encourage you to check out Ask Me Another. It is recorded by NPR live in Brooklyn. I've gone to see it. It is a totally fun program of brainteasers, word games and trivia with comedy and music. You can find Ask Me Another on iTunes under Podcasts.

SMITH: Our show today was produced by Phia Bennin. Special thanks today to PLANET MONEY intern Jason De Leon for all his help in putting the show together.

GOLDSTEIN: I'm Jacob Goldstein.

SMITH: And I'm Robert Smith. Thanks for listening.

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