Entertainment Prices Outpacing Inflation

Federal Reserve Chairman Alan Greenspan hails the U.S. economy as a model of continuing low inflation, a situation he will be trying to maintain if he nudges interest rates up next week. But has he been to the movies lately?

Movie ticket prices have certainly been rising faster than inflation this year--to $9.50 at New York City theaters owned by Loews Cineplex Entertainment Corp. That’s not all. The price of everything from cable television to rock concerts to sporting events to meals at restaurants has risen more rapidly than consumer prices generally over the last year.

The reason is simple: Consumers are flush with cash and they want seats at baseball games, theaters, concerts and restaurants. That demand is giving entertainment companies the power to raise their prices--something computer makers, auto makers and most retailers haven’t been able to do.

“When incomes rise, entertainment is one of the areas where consumers spend a disproportionate amount of their money,” said Allen Sanderson, a sports economist at the University of Chicago.

Many paid as much as $400 to watch Mick Jagger and the Rolling Stones strut their stuff in this year’s 32-city “No Security” tour, or $90 to see “The Lion King” on Broadway. Across the U.S., admission prices for movies and concerts rose 3.3% last year.

That’s more than double the overall inflation rate of 1.6%. Some companies in the leisure business boosted prices as much as four times the 1998 inflation rate. Still, while the cost of entertainment is rising, it’s not likely to push up inflation, because entertainment costs represent less than 12% of the consumer price index.

And there’s another catch. Recreation costs could stop climbing if the economy slows and incomes stop growing. “This is feel-good consumption,” said Diane Swonk, deputy chief economist with Bank One Corp. “One of the first things to be cut the minute the economy softens is entertainment.”

For now, entertainment companies have pricing power.

Atlanta businessman Michael Kennedy is the entertainment industry’s dream customer. The 41-year-old consultant eats out five nights a week, goes to at least three movies a month, and vacations three times a year. Though the prices for his favorite pastimes have jumped, he doesn’t mind forking over the extra money.

Like many consumers, Kennedy is willing to open his wallet wider for entertainment mainly because he’s earning more. U.S. incomes rose 5% last year, after increasing 5.6% in 1997.

Cable television costs have skyrocketed, jumping 7.2% last year, 4 1/2 times the rate of inflation.

The restaurant industry predicts menu prices will rise nearly 3% this year. And admission prices for the top 50 music concerts soared 15.6% to an average of $34.30 last year, according to concert information company Pollstar Inc.

One reason for that is captive markets.

SFX Entertainment Inc., the largest U.S. concert promoter, controls much of the concert business after spending $1 billion gobbling up promoters and ticketing companies. The company owns, leases or manages 75 venues in 30 of the top 50 U.S. markets, including Irvine Meadows. It also owns Los Angeles-based Avalon Attractions.

Coupled with strong demand, that kind of control gives SFX extraordinary pricing power. For example, the company more than doubled ticket prices for Neil Young’s last tour; and Chicago fans, who paid $35 in 1997, paid more than $75 this year.

Sports fans have taken it in the wallet as well. Basketball fans pay 35% more for the average ticket than four years ago, and football tickets are up 29% to nearly $43 on average, according to data compiled by Team Marketing Report, a Chicago-based industry publication.

“The man on the street thinks increased player salaries have led to higher ticket prices, but it’s the reverse,” Sanderson said. Because the supply of sports teams is limited, surging demand allows owners to push up prices, he said.

In Atlanta, the National Football League’s Falcons said last month they would raise ticket prices as much as 24% to between $37 and $41. Admissions to major league baseball’s Braves, a unit of Time Warner, have risen in eight of the last 10 years. Even the cheapest seats in the upper level of the grandstands at Turner Field are up 83%, to $11 today from $6 in 1989. Dugout-level seats rose 247% to $33 from $9.50.

Some industries are charging more because they have to pay workers from popcorn servers to waiters more money as the labor force shrinks. The U.S. unemployment rate fell to its lowest level in nearly three decades last year, and has since stayed at 4.5% or lower.

“Services like entertainment are much more sensitive to wage gains,” Swonk said. “This is where much of the acceleration of wages

has been, at the entry level.”

The National Restaurant Assn. expects menu prices to rise 2.8% this year, driven primarily by labor costs. Average salaries of nonsupervisory workers are expected to rise at nearly double that rate: 4.5%.

Kennedy says his salary doubled when he joined Korn/Ferry International, the world’s largest executive search firm, nearly six months ago. He says he’s happy to spend more and pay higher prices, with his income rising so much.

And Kennedy’s not the only U.S. consumer willing to shell out more for entertainment these days.

“In January, on any given day, 47% of the population ate out,” said restaurant stock analyst Dean Haskell with Everen Securities Inc. in Chicago. “Last year, it was 42.3%.”

The average consumer spent more than $30 last year on movies, a 4.5% increase from 1997, according to a survey by New York investment bank Veronis, Suhler & Associates.

Consumer spending overall rose 5.7% last year, the largest gain since 1994, and spending on services--a catch-all category that includes everything from eating out to hospital care--rose 6.2%.