COMMENTARY : One Price Doesn’t Fit All : What if movie tickets were priced like pop concerts or plays? ‘Jurassic Park’ would cost more than, say, ‘Son-in-Law’

Like a long-distance runner, the movie business has hit the wall.

For the past 15 years, annual admissions to movie theaters in America have hovered narrowly around 1 billion, exceeding that mark one year and then slipping beneath it the next. The booming summer box office in 1993 is no greater, when measured by the number of admissions, than that of the summer of 1983. True growth at the core of the film business is minimal.

Fortunately, film revenues have grown dramatically in this period, but that growth has been fueled principally by factors other than an increase in admissions.

The first is ticket price, which has risen 120% since 1977, considerably outstripping inflation. The second has been expansion in the international marketplace, which has seen American movies continue as one of our healthiest exports. And the third has been the explosion of the videocassette business. Nonexistent in 1977, it threw off revenues of $5 billion last year, exceeding domestic box office for the first time. But increases in all of these areas are quickly leveling off.

Now, more than ever, we need to break the theatrical admissions barrier wide open.

A clue of how to do that points to the home video phenomenon. Beyond convenience, renting videos has become popular because it has given people a choice in how much they want to spend to see a movie. That choice is denied them in the movie theaters. In turn, providing the audience with differentially priced movies could be the most significant opportunity we have to dramatically increase attendance at theaters.

It is not that the overall ticket price for movies is too high or too low. The real problem is that the price consumers pay for specific movies bears virtually no relationship to either the demand for these movies or their underlying cost.

Consumers are quite comfortable paying differential prices in most areas of entertainment. Concertgoers pay more for U2 than for a new fringe band. A Matisse exhibition draws a premium over general exhibitions. The NBA playoffs command a higher price than regular-season games. “The Phantom of the Opera” costs more than an Equity-waiver production on Melrose. And in the emerging pay-per-view television market, consumers are already choosing among events with radically different charges.

But consider the marquee of a typical Los Angeles multiplex this past July 4 weekend: “Jurassic Park,” “Son-in-Law,” “The Firm,” “Last Action Hero,” “Sliver” and “Strictly Ballroom.” The production costs ranged from nearly $100 million for “Last Action Hero” to $4 million for “Strictly Ballroom.” “The Firm” and “Son-in-Law” had just opened, while “Sliver” had been playing since mid-May. But a ticket to each of the six films cost $7.50. Intuitively, the price of these movies should have varied with a number of factors.

The first is the difference in “upfront” demand. If one describes the concept and cast for a group of movies, moviegoers can normally say which ones they are interested in seeing. In fact, moviegoers distinguish among movies more acutely than such variably priced products as jeans, sneakers, beer and soft drinks and far more acutely than among such narrowly priced products as toothpaste and laundry detergent.

Movies cost radically different amounts because of issues such as number of shooting days, quality of sets, technical talent, use of special effects, locations and, most significant, actors and actresses. The mix is always different. But none of the differences is passed on to consumers.

In addition, once movies have been sampled, word of mouth spreads more quickly and more powerfully than with other products. Demand for “Jurassic Park” remained intense for weeks after the opening because of favorable word. “Sliver,” in contrast, disappointed the audience and declined precipitously. Nevertheless, for the length of their runs, the ticket price remained constant. (Movies are often discounted in so-called dollar house theaters once they’ve played out their first run.) Thus, ticket price is set with no relation to either the costs involved in making the movie, the inherent demand for the film or the satisfaction the film provides. This approach is bizarre.

Suppose the industry adopted a “flexible” pricing system in line with economic reality. How would our world change? Let’s speculate on the prices at our sixplex.

“Jurassic Park” might have been priced at $12, since Steven Spielberg’s extraordinary creation deserves a powerful premium. So does “The Firm.” This combination of director Pollack and Tom Cruise, one of the most sought-after actors in America, would carry a $10 price.

Pricing other movies is trickier. Hollywood Pictures might want to charge $5 for “Son-in-Law,” given its relatively low production cost, but given the loyalty of Pauly Shore fans, perhaps the price is too low. Let’s say $6.

“Sliver” is rapidly approaching the end of its run. Next step is video. Paramount might price this film to attract moviegoers who would otherwise wait for video. Its close-out price is $3. “Strictly Ballroom,” a little-known but strong word-of-mouth movie from Australia, could be priced under the more expensive competition. At $4 a ticket, an audience might take a chance on the movie. As people discover it, its price might actually go up.

“Last Action Hero” presents somewhat of a problem. The movie, whose production values and star power are awesome, should have carried a huge premium. Maybe it was priced at $12 when it opened but somehow did not succeed as hoped. Like every other retailer, Columbia would have to face the reality of the marketplace and lower the price. Perhaps on July 4, “Last Action Hero” was on sale for $5.

Whether or not these prices are correct, they are more in touch with the consumer’s reality than a single overall market price. For moviegoers who are predominantly middle class and young, a ticket in today’s world is a significant expenditure. With flexible pricing, we would be giving them choices other than “going out” versus “renting a video.” If they want a show badly enough, they will and should pay for it. If they are willing to go to a lower-profile film, they should pay less for it.

In turn, studio executives could take more chances on lower-budget movies since the market price would not be fixed against such films. There could be diversity in the choice of films available.

Flexible pricing could also be used to expand marketing options. Prices might be reduced for weekdays when demand is lighter and increased on weekends, especially for movies facing Saturday-night sellouts. Legitimate theater does this regularly. Advance-purchase tickets might be priced with a discount as airlines do. Coupons and “twofers”--regular tools in the marketing of many consumer products--could be employed.

The most significant disadvantage to flexible pricing is the increased anxiety this system would carry for executives in the film business. Those of us who would decide on price would confront dilemmas. How does the head of marketing tell one filmmaker his movie is “worth” $10 and another that his is “worth” $5? How does one announce a price reduction without showing a lack of faith in the film? How does one avoid being second-guessed on the myriad of pricing decisions that would occur?

Our colleagues in other businesses face such decisions all the time. But they look at the ability to set price as one of their most powerful weapons and would never let it be taken from them. Changing the policy would also require re-education of the consumer. But people are smart, especially where their pocketbooks are concerned. They will figure out what the different prices mean.

How would we implement the flexible pricing system? There is no need for a crash conversion. Industry leaders could agree to take a single market or a few and try the program over two years. Let’s see how consumers react and what opportunities and problems present themselves to us as marketers. The only thing we know for sure is that most of the results will surprise us.

Still, I believe that the net effect will be to invigorate the marketplace by generating more interest by consumers in movies; more willingness to go out and see “small films”--and hence more reason for us to make them; bigger grosses for the hits; more inventive marketing ideas by studios and exhibitors and, most significant, considerably more admissions. Like the successful long-distance runner, we as an industry can find our second wind.