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April 23, 2013

Judging Hollywood according to average ticket prices can be misleading. In PART 1, I pointed out that 2D box office data is mixed with 3D box office data. Here is another example of that:

Average movie ticket price, nominal, real, 2D, 3D

All this graph shows is that since 3D films were re-introduced into our lives in 2006, there was an increase in ticket prices. As more and more 3D tickets have been sold since then (see the 3D vs. 2D grosses in my next post), the average was “pulled up” by the larger amount of premium 3D tickets.

One might claim that we don’t know much about the prices of 2D tickets, because we don’t know the amounts sold in each category. But here’s the thing: a report by analyst Richard Greenfield of Wall Street’s BTIG, which is quoted in this Deadline article, states that in 2011, the average ticket price for a 2D movie was $7.60 (vs. $10.85 for 3D). This means that 2D ticket prices have not gone down, in real terms, since 3D films were introduced in 2006.

So here’s what I’m thinking: Maybe it’s time to lower the prices of 2D films? (rather than using them to subsidize 3D premiums, which is what Regal is essentially doing by raising them to the price of 3D tickets). I’m not a pricing expert, but I will take the risk of saying that I think that the middle class of movies – the ones without the massive special effects – have a diminishing added value over modern home entertainment systems. They may still have some magic to them when projected on a big screen in a theater, but the evolution of home entertainment systems has made the delta considerably smaller – in both price and quality.

Perhaps it’s time to lower the prices of these movies, relative to the big spectacular 3D extravaganzas, because at the end of the day – a viewer’s decision if to pay $X for a movie is a binary one: they either do it or they don’t – and that acceptable price has been lowered. In the past, it used to be high enough to create the illusion of 2D and 3D film categories existing together – both valued above their price point. But now, the TRUE value of 2D movies has been reduced to below their current price point: the 2D cinematic experience costs more than the added value it provides over watching it at home. For an increasing number of people, the cost of a Netfilx account and a nice home theater system is less than the price they have to pay to watch a movie like The Iron Lady – which is excellent, but has no “urgency” factor or big-screen benefit to it. The Avengers, on the other hand, might not be as good creatively (arguable), but is probably worth the 3D ticket price, because recreating that experience at home currently costs much more than $10.85 per movie.

So if independent production companies (which are my focus in this blog) make primarily 2D films, and 2D ticket prices are not going down, and the value of 2D films is being eroded – indies have two options: either suck it up and ask for lower box office prices, or embrace the digital online streaming revolution and change the paradigm according to which a cinematic distribution is so much more prestigious than “straight to video”. This second option means that the industry will have to stop relying on box office as a promotion method for home entertainment revenue (DVDs, BluRay, rentals and streaming) and focus on direct marketing to those channels, while leaving the cinemas to be dominated by the giant studios. A diligent price sensitivity analysis, coupled with price elasticity research of these market segments will determine which of the two scenarios will prevail.

* Nominal figures from: National Association of Theater Owners.

** 2011 2D and 3D ticket prices are from this Deadline article, which quotes this report by analyst Richard Greenfield of Wall Street’s BTIG.

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