Coming soon to a cinema near you? Ticket prices shaped by demand

Chances are that if you see just one film this year, you probably saw it already. The period between Christmas and Australia Day is typically the busiest and most competitive in our film calendar. But even when you arrive at a ticket counter at a quieter time of year you will usually pay the same price to see a film irrespective of its popularity, quality or budget size. Imagine if you could instead pay less to see films that are not in high demand?

A new smart application means this will soon be a reality for some Australian consumers. Melbourne-based start up Choovie will launch a service offering demand-based ticket pricing to filmgoers at the end of March, with over 100 screens across metropolitan and regional venues in Victoria, NSW and ACT. One of the first cinema chains to take up this initiative is Dendy. More will follow.

Choovie’s app will allow consumers to decide, within parameters set by the cinemas, what price they pay to see a film. For example, if you don’t want to pay more than $10 to see a particular title and are prepared to compromise on where and when you see it, the app will locate a suitable session for you.

The emergence of apps such as Choovie is likely to shake up the film industry by fundamentally changing our experience of going to the movies.

A giant shift

To understand just how huge this shift is, let’s first consider how cinema ticket prices are currently set. In Australia, as in many countries (but certainly not all, especially the world’s most rapidly growing cinema market, China) it is typical for a cinema to charge the same price for different film titles presented in the same format. If you saw a new release movie last Saturday night at a major chain cinema in Melbourne, it would have cost you between $21.50 and $25.50, whether the title was a major blockbuster or a lower budget, indie film.

This fee may fluctuate when there are discounts for concession holders or loyalty card members, or if a different type of experience is offered (such as premium pricing for Gold Class or 3D) or on predetermined days of the week (half-price Tuesdays). There may also be online booking and reservation fees. But this is the typical extent of price discrimination.

Price variability may also occur between cinemas. Some charge more or less than their rivals by banking on the sale of products like popcorn to subsidise their costs. For example, the Cineplex chain in Queensland and also some of the Reading Cinemas located in lower income catchment areas are significantly cheaper to attend than other cinemas.

(However, the capacity of Cineplex to set its own ticket price was recently challenged by the distributor The Walt Disney Company, which “leases” film titles to cinemas in return for a cut of box-office sales. Disney insisted on a minimum return per average ticket price for the blockbusters Rogue One and Moana; that in turn caused Cineplex to lift its prices for these titles only.)

Despite such exceptions, the price of going to the movies for most Australians is relatively consistent across titles. Generally, filmgoers sitting under the same roof will have paid much the same for their seat within a relatively small price spread.

Dynamic (or demand) ticket pricing aims to change this.

So how does dynamic pricing work?

Dynamic ticket pricing gives the consumer the ability to purchase film tickets at a wider range of prices. This depends on a number of demand variables, such as movie life cycle, time of day, day of the week, film title, venue, size of screen, actual bookings and so on. The number of seats in each price category for every film is based on demand conditions at the time of purchase.

It works by using “pricing bots”, which adjust prices in real time according to rules set by the exhibitor and on the basis of information gathered about consumer preferences. Uber’s “surge pricing” is one example of dynamic pricing. Airline tickets are another.

The idea is that instead of offering customers a limited number of ticket categories, the cinema sells each seat based on the individual customer’s willingness to pay. Patrons can choose screenings by specifying things such as the amount they are prepared to spend (say, under $10), the location of the cinema (no more than 10 km from home), the time of day (any time after 2pm) and so on. Conversely, cinemagoers should also be prepared to pay higher prices for films that are close to selling out in popular sessions.

Dynamic pricing benefits cinemas by optimising the price mix for every screening of every film, giving them the flexibility to respond to unexpected fluctuations in demand and encouraging their patrons to pre-purchase seats. And it benefits customers by simplifying the process of finding cheaper cinema tickets and guaranteeing them a reserved seat.

Demand pricing has been especially successful in China, where something like 70% of movie tickets are sold online – the vast majority of these via mobile devices. Dynamic ticketing platforms like Maoyan, Gewara and Wepiao in China mediate information between audiences and cinemas, and also provide opportunities for audiences to exchange information about movies with each other.

Moves are also afoot in the US with two major online ticketing companies, Atom and Fandango, being backed by rival Hollywood studios for an anticipated push into dynamic pricing. We can expect the major chains in Australia to follow suit.

For the mass uptake of apps like these in Australia, some die-hard practices will need to change. For instance, not all Australian cinemas have online purchase options (let alone mobile apps) and many that do currently penalise the customer by charging additional fees. At the moment, less than 20% of Australian movie tickets are purchased online.

Choovie has already been successfully trialled in Melbourne and initial indications from the small test audience were encouraging for cinemagoers and exhibitors alike. Although most of the test users said they were less motivated by cost and more motivated by seeing a film at their preferred time and date, they also overwhelmingly indicated that they would see more films using a demand based pricing service.

So the curtain is about to rise on some of the biggest behind the scenes action in the film industry for some years. Popcorn anyone?