Takeaway: 3-D films have drawn customers back into theaters and now film executives are looking to cash in on their captivity.
After deploying the greatest ticket price increases in recent memory, will these executives bring home the gold, or crumble to the critics?
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Excerpt from Wall Street Journal, “Higher Prices Make Box-Office Debut” by Lauren A.E. Schuker and Ethan Smith, March 24, 2010
Major U.S. movie-theater chains, seeking to capitalize on the surge in revenues fueled by such 3-D hits as “Avatar” and “Alice in Wonderland,” 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.
At an AMC theater in a Boston suburb, 3-D ticket prices are jumping more than 20% to $17.50 from $14.50, while the adult admission price for a conventional film will remain at $10.50. A 3-D Imax movie at New York City’s AMC Loews Kips Bay will cost $19.50, up from $16.50.
Their moves 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.
About 83% of the record $2.6 billion in ticket sales for “Avatar” came from 3-D and Imax screens. And Walt Disney Co.’s “Alice in Wonderland” also set records when it hit 3-D screens earlier this month.
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, intensifying their pitch during the recession.
“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,” said a media analyst.
Some movie-studio executives expressed 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,” said a distribution executive at one major studio, who added that he was worried movies would become “a luxury item.”
Warner Bros. executive said: “Sure, 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.
Five major 3-D films are opening in theaters over the next three months, starting this weekend with DreamWorks Animation’s “How to Train Your Dragon.” That rich selection is one reason theater owners chose to raise 3-D ticket prices now. It may also help set consumers’ expectations for future 3-D films.
“This is a truly unique event for the movie industry,” said one industry analyst. “I can’t remember the last time I saw such a major change in ticket pricing.”
Edit by BHC
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Full Article:
http://online.wsj.com/article/SB10001424052748703312504575142143922186532.html
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