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A modest defence of price gouging at movie theatres

As a popular leisure activity, complaining about the awfulness of movie theatres may have surpassed actual movie attendance. The noise! The cellphones! The prices of tickets and popcorn!

The year 2010 brought us the highest movie ticket prices so far, up 5 per cent from the previous year. The average ticket last year cost about $7.89 U.S., including age discounts and regional variations. In Canada, which is part of the U.S. domestic movie market, adult general admission prices are between $10 and $13.

Are things out of control? In a blog item this past Tuesday that The Hollywood Reporter picked up, BTIG media investment analyst Richard Greenfield chastised David Ownby, the chief financial officer of the United States' biggest theatre chain, Regal Entertainment Group. Ownby boasted about theatre's big profit margins: A $6 bucket of popcorn cost 15 to 20 cents to produce and 3-D films have allowed the chain to charge an average of $3.50 premiums a ticket, on a low cost of only $4,000 per screen.

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Greenfield wrote that exhibitors' strategy of "raising ticket prices through 3-D premiums and pushing concession pricing as far as humanly possible" was dangerous, and exhibitors should be less concerned with maximizing profits than increasing customer satisfaction.

Though it's probably not a popular view, it's possible that current theatrical pricing, more popularly known as gouging, really is about customer satisfaction.

Proposition 1: Movies are cheap entertainment. When adjusted for inflation, the tickets haven't gone up that much: The $1.55 cost of a ticket in 1970 would be $8.71 today. Compared to visits to sports events, theme parks and rock concerts, movies are a bargain. A family of four can still go to the cinema for less than $50. An NHL game would likely be four times as much. The cost of a rock concert last year averaged $61 per ticket.

Proposition 2: High-price popcorn is the movie-lover's friend. That's not to say you should actually eat the stuff, just recognize that the money theatres make on concessions allows them to keep your ticket cost as low as it is. Theatres and studio distributors split the revenue of a movie ticket, with the studio getting most of the money at the beginning. With popcorn sales, the whole revenue belongs to the theatre. Naturally theatres want more people coming in at lower prices and spending more on concessions.

Proposition 3: Different prices for different movies makes sense. The extra cost offends our sense of order as much as our wallets. We're accustomed to paying the same price for a movie ticket, whether a movie costs $30,000 or $300-million to produce. But the convention of uniform movie pricing, which has only existed since about 1970, is an economic antique. "Uniform systems seem fair because of the system's regularity, not because of any intrinsic justice," argued economists Barak Orbach and Liran Einav in a 2007 study of the move ticket prices.

Canadian and American attendance fell 5 per cent last year and movie theatres are struggling to keep their revenues up. Studios, who make the films, are not always their allies: The studios are making fewer films while pushing ahead on a plan to release video-on-demand films eight weeks after the theatrical release, cutting into theatres' potential profits. For a lot of people, paying an estimated $20-$25 to watch a recent movie at home with friends or family will be an attractive alternative to going out. That's why theatres have to keep trying ideas, even ones that annoy us, just to survive.


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About the Author
Film critic

Liam Lacey is a film critic for The Globe and Mail. More

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