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Now Playing at Theater Near You:
Higher Ticket Prices

By Patrick Riley  Fox Market Wire
NEW YORK — It's a drama you would expect to find in the movies: The masses rise up against the cruel, oppressive establishment.

Only it's not splashed across the silver screen — it happens at the box office every time ticket prices go up.

Loews Cineplex recently raised ticket prices in all of its 245 theaters in 22 states. In New York, the price of an adult movie ticket at the chain's theaters has jumped to $9.50, making it the most expensive ticket in the country. City officials and residents complained on cue, even calling for a movie boycott and a more surreptitious snack revolt, aimed at denying greedy theater owners the enormous profit they make from selling exorbitantly priced cups of Coke and buckets of popcorn.

But it seems that miffed moviegoers may not have much to complain about. Movie ticket prices have actually remained relatively steady over the past decade. While the consumer price index has risen 29.6 percent since 1989, movie ticket prices have gone up just 15.1 percent in the same period, according to the Motion Picture Association of America.


The average admission price nationwide last year was $4.70 — a figure that seems low because it includes lower-priced matinees and discounts for children and seniors. "Clearly, those people who are paying $9.50 probably don't relate an awful lot" to that average price, acknowledged Bill Kartozian, president of the National Association of Theater Owners.

And when inflation is factored into the price of a theater ticket, it becomes clear that Americans on average will pay less to see Star Wars: The Phantom Menace this May than they paid to see M*A*S*H in 1970. That year the cost of catching a flick peaked at an average ticket price of $1.55, or $6.68 in today's dollars, according to Robert Sahr, a professor at Oregon State University who tracks admission prices.

And if past ticket hikes are any indication, New Yorkers will forget their anger and continue to flood theaters in record numbers. That's what they did when prices rose from $7.50 to $8 in 1994, then to $8.50 in 1996 and $9 in 1997.

"If it's a really great movie, $9.50 is worth it," said Ilene, a moviegoer from Staten Island, N.Y. Movies such as Shakespeare in Love and Life Is Beautiful, she said, "are priceless."

In fact, moviegoers in New York are already gladly paying as much as $11 a ticket for a movie. The phone and Internet-based MovieFone service, which charges a $1.50 service charge for every ticket bought with a credit card, has seen its business rise dramatically over the past two years.

"Ticket prices in New York have always been a complicated subject because there is a large segment of the population that would go to the movies if they were $25 a ticket," said Andrew Jarecki, CEO of MovieFone Inc. The company launched a reserved-seating option in some New York theaters last year, a service that took a while to take off but has proven to be a service people are willing to pay a premium for.

"Those movie theaters that offer it are always chosen over others," Jarecki said. "For a big sold-out movie, it guarantees a seat where they want it as opposed to pot luck."

So what exactly is driving the price of a movie ticket, anyway? Is it "price gouging" on the part of theater owners, as one New York City official has charged, or a legitimate response to the cost of making, distributing and showing movies?

Those aren't easy questions to answer. Unlike most businesses, such as the computer industry, where there is a direct relationship between the cost of materials, technology and labor and the cost charged to consumers, the price of a movie ticket is determined by more complex economic forces.

Exhibition Costs Are Increasing

The movie exhibitors decide the price of a ticket. And they've got their basic costs to cover: rent, utilities, taxes, payroll, concession costs, maintenance, a portion of advertising.

But they've also got to meet the monetary demands of the distributors — movie studios such as Warner Bros. and Universal — whose pull is strong: After all, they've got the product that the exhibitor wants.

Distributors have the upper hand in the negotiations and therefore have an effect on pricing. "Ultimately, the distributor is driving it," Anne Wurts of Economics Research Associates, an entertainment consulting firm, said. "Because ultimately a big box-office draw will drive concession sales, and that's really what the exhibitor is interested in."


On average, about half of the revenues go back to the studios, though terms are negotiated with each theater on a movie-by-movie basis. After expenses, the exhibitor is left with only about a 10 percent profit from the movie admissions take itself. The rest of the theater's income comes from concessions, proceeds from which are not divided with the studio. In fact, theaters may be keeping ticket prices much lower than they ought to by shifting some of the cost to concessions.

"The reason (concession) prices are so outrageous is to the extent that movie exhibitors can make money from snacks, they don't have to share that money with the distributor of the film," said Charles Slocum, director of special projects for the Writers Guild of America.

The cost of making and marketing a film is also rising and is now at an average $78 million, according to the MPAA. Money spent on marketing and distributing films climbed 13 percent in 1998, and in 1997 the average production cost climbed 34 percent.

"The distributor is under greater pressure to recoup more money," said Kartozian. "They will therefore attempt to obtain a greater percentage of the box office as the pressures on their margins grow."

Also putting pressure on the studios is the fact that the cost of making and marketing films — the "wholesale" price — can never be accurately reflected in the price charged to see the film — the "retail" price. It costs the same to see a big-budget movie like Titanic as it does to see a low-budget independent film like Life Is Beautiful.

Also, higher production and marketing costs do not necessarily mean greater box office success. When Waterworld, the Kevin Costner fiasco, was released 1995, it cost $175 million and pulled in only $88.2 million in the U.S. In 1998, Waterboy, starring Adam Sandler, cost only $23 million to produce and took in $39.4 million in its opening weekend alone. As of February 1999, the film has grossed $158.8 million in the U.S.

So despite big hits like Titanic, the movie industry itself is not always a big hit. "It's possibly a money-making business, but it's tight," said Jason Squire, editor of the Movie Business Book.

"These movies cost so much more to make and eventually someone's going to pay for it," noted Gitesh Pandya, editor of Box Office Guru, a box office data and analysis Web site.

Titanic Prices for Tickets?

Some in the industry think ticket prices should be much higher than they are now. One of them is director James Cameron.

"The bread-and-butter business right now is in dreadful shape in terms of profitability," Cameron said in the February issue of Premiere magazine. "People expect to see a certain level of entertainment in a movie theater that is an order of magnitude greater than it was ten years ago, but they want it for the same price."

"Theaters keep incrementally increasing the ticket price. I think they should just double it," he said "Or add 50 percent. Go straight to $12. People will squawk and scream for six months, and they'll still go to the movies, and the business will be profitable again — though I wouldn't want to be releasing my picture at the exact moment they did that."

Photo

Still, the industry isn't exactly scraping for change. The total U.S. box office take grew to a record $6.95 billion last year, up from $6.36 in 1997. Admissions jumped 6.7 percent to 1.48 billion last year, the largest increase since 1987.

These kind of stats make it hard for many to have much sympathy for movie makers and theater owners.

Squire, the editor, attributes the price inflation to greed.

"They sense they will get it, that the people will pay. They want to increase their revenue for a big summer," he said, referring to the May release of the eagerly awaited new Star Wars movie. "This is going to be one of the hottest summers in history."

"It's way too much," said John Manalac, on his way to an IMAX showing at a Loews Cineplex theater in Manhattan. "They should have controls on those prices, it's getting out of hand."

New York City Council speaker Peter Vallone called the price hike "a mugging of the middle class" and organized a movie boycott.

He also penned letters recently to the Justice Department and state attorney general asking that last year's merger between Sony Loews and Cineplex Odeon — to form Loews Cineplex — be reinvestigated for violation of anti-trust laws. The chains were forced to sell some area theaters but still control almost half of New York City's screens.

"This is not a live performance with live actors, this is a movie on film," Vallone complained. "They're taking away the favorite American pastime and not making it affordable anymore."

Vallone added that when he takes his five grandkids to a movie and buys a few refreshments, "it's a hundred-dollar night. And how many people can afford that?"

— Additional reporting by Gary Gentile


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