PolySciFi Blog

Friday, March 18, 2005


Uniform Pricing

In a comment to this post, Jody linked to this discussion of movie prices. It's interesting enough, but I think is based on a flawed understanding of how studios and theater chains make money. There's a pretty good, if very basic, discussion of distribution at How Stuff Works, here. Here's the problem in a nutshell:
Note that I don't know what the print deals were on either of these movies; it's possible that as My Big Fat Greek Wedding expanded, theaters paid opening weekend profit-sharing the first weekend they got it (and it took a full six months to expand to a 2,000 screen weekend). But in general, that's how it works. So the studios don't have the same economic interest the theater chains do. And studios know how to market their films. If it's something like The Hulk, where they will only be making money until word-of-mouth makes the movie undesireable, they put all their might into that first weekend, and then leave theater chains out to dry after that. With My Big Fat Greek Wedding, they don't put a lot of money into prints and advertising up-front, but hope that word-of-mouth will eventually have theater owners fighting to get to screen it.

Which brings me to my main point: theater chains are not really rational actors in this market. Or, they are, but not in the way you'd think; they don't always show a movie because they think people will see it--they make all kinds of strange deals with studios, because the fact is, the studios don't have to sell them product. So they'll say things like, you want an exclusive engagement in Knoxville of The Matrix Reloaded for its opening weekend? Well, then you have to guarantee me you'll give me two screens of a revival screening of Battlefield Earth for a full month, so that word-of-mouth will bring kids in (an optimistic plan, to say the least). And there are people who'll see whatever movie has seats available, even if it's John Travolta with dreadlocks; and by making this kind of deal, Warner Brothers gets that extra money, and more importantly, denies another studio the same screen.

Say a hypothetical theater owner decided that Battlefield Earth tickets were only worth $1, not $7.50. And as a result, sent $0.50 to the studio for everyone who saw it, not $3.75. Warner Brothers distributed that movie. Guess which theater isn't even going to get to bid on showing The Matrix, Batman Begins, Million Dollar Baby, or anything else they might want?

Finally, add to the equation that actors and directors get profit participation as well, and you can see why neither theater owners nor studios are anxious to price different movies differently. You don't want a star pissed off because people can see her latest flop for $1.25, while Hilary Swank gets $10.

And last, remember William Goldman's central rule about Hollywood:

Nobody knows anything.

Nobody knows what movie is going to be a hit ahead of time. Nobody knows what movie is going to strike a chord with audiences a particular week. Movies are tracked, and studios have some idea how they'll do, but they get surprised. It's not like other businesses, where past revenues give an idea about future returns; a studio markets and sells ten to twenty completely different products each year. Which will do well? Nobody knows anything!

Example: The Grudge tracked at $25 million for the first weekend (tracking is the studio's prediction of how it will do) and it made $40. They were nearly 100% off. (this info is from Tad Friend's excellent piece about Dave Wirtschafter (head agent at William Morris) in this week's New Yorker; the president of production at New Line makes an appearance. It's not online, but there's an interview with Friend here). Trying to further second-guess audiences by negotiating different ticket pricing deals for different movies is nothing theater owners want to get into (studios can't negotiate ticket prices). So this is an issue where I'm not sure the market (at least the market between studios and theater chains) is capable of making rational decisions.


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