TakeAway: No business owner wants to/should leave money on the table, but when pricing a new product — especially in a down economy — how soon should you test consumers’ limits? Movie-theater chain owners think ASAP.
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Excerpted from WSJ, “Higher Prices Make Box-Office Debut, By Lauren Schuker and Ethan Smith, March 24, 2010
Major U.S. movie-theater chains, seeking to capitalize on the surge in revenues fueled by 3-D hits … are imposing some of the steepest increases in ticket prices in at least a decade …
The increases, in one case as much as 26%, vary from theater to theater, but many cinemas are raising prices most—or even solely—for 3-D showings, which accounted for the vast majority of last year’s 10% jump in domestic box-office sales. 3-D movies accounted for 11% of domestic ticket sales in 2009, up from just 2% in 2008 …
The price increases come on the heels of a record-setting year at the domestic box office, with revenue surpassing $10 billion for the first time. Movie attendance in the U.S. and Canada grew 5.5% in 2009, to 1.42 billion, the highest level since 2004. Ticket sales so far this year are up nearly 10% from a year earlier.
Movie theaters typically had charged $2 to $3 extra for 3-D tickets. But the brisk demand for those premium-priced tickets led many exhibitors to believe that they were underpriced …
While the price increases could boost theater owners’ already buoyant revenues, some industry watchers think the could also spark a consumer backlash. Studios, theater operators and trade groups have long touted films as a bargain, compared with other forms of entertainment …
A decade ago, the average ticket at a multiplex was $5.39, but prices have edged up between 2.7% to 6.1% a year since then …
“The U.S. economy isn’t in the greatest shape, and there is definitely risk here in pushing price too far in a weak economy.”
Some movie-studio executives expressed similar concern that the price increases might be too much too soon. “The risk we run is that we will no longer be the value proposition that we as an industry have prided ourselves on.”
Some studio executives … expressed support. “The exhibitors are trying to push the needle on ticket prices and see where it ends up … it’s a risky move, but so far charging a $3 or $4 premium has had no effect on consumers whatsoever, so I’m in favor of this experiment to raise prices even more. There may be additional revenue to earn here.”
Studios are also in a bind. While many are wary of appearing to gouge consumers beset by a weak economy, they are also facing higher costs as they produce more movies in the technology-heavy 3-D format.
Though ticket prices are set by theater operators, the proceeds are split roughly 50-50 with movie studios …
Edit by TJS
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Full Article
http://www.mediapost.com/publications/?fa=Articles.showArticle&art_aid=114556
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