My wife and I went to Indiana Jones and the Kingdom of the Crystal Skull on opening night. I enjoyed the movie quite a bit and a big reason we enjoyed it so much was that the theater was sold out. It’s nice to experience something enjoyable with other people. If I want to consume my entertainment alone [which is sometimes the case], I can stay home. Yet, I have noticed that theaters are rarely crowded these days.
There are clearly too many theaters, right? Perhaps it’s the DVD market? Or movies just aren’t what they used to be? And everyone knows that they are too expensive? The first two arguments are that supply has increased (either directly or through substitute products). The last two arguments argue that demand has decreased as a result of quality and/or pricing. So what’s the right answer?
Before I answer that question, I want to note that:
1. We usually spend about the same amount of money on popcorn and candy as on our tickets.
2. As I mentioned earlier, we like to be with other people when we watch a movie.
3. We always buy our tickets online at Fandango.
4. The marginal cost of an additional viewer is whatever the studios charge the theater (I don’t know the actual amount). The fixed costs of building and operating a theater are what economists call a sunk cost.
So, back to the question. Why are theaters empty? Is the problem demand or supply?
As is often the case, the answer is the price mechanism. By using a better pricing system than the one which exists today, supply and demand can be matched far more efficiently. Without adding one theater in the US, we can increase theater capacity by an order of magnitude by leveraging an auction-based system. Theaters would make more money. Studios, actors, and writers would make more money. And consumers would get a better deal. It’s the proverbial free lunch. So how would it work?
Idea: Asta — Ebay for Events
1. Work with a few studios to sell tickets for an advance screening of a hot sequel years in advance.
Using an auction system is a big change from the fixed price movie price system. So rather than start with everything, start with a sequel to a hot film. In fact, sell the rights to a one month advance screening of EVERY FILM released and do so at theaters across the country. If a sequel isn’t released within some predetermined amount of time (3 years?), the buyer gets her money back. This would be a way of funding the actual production of movies before they start. By using an auction system, studios would gain enormous information about price elasticity and REAL demand for a sequel. This would dramatically lower the risk of funding movie development.
2. Once we prove the model with sequels, we extend Asta to cover all movies.
Instead of waiting on crazy lines, consumers who really value being at a hot new film on the first night could buy the right to do so. Theaters could remove undesirable seats, as the utlization would dramatically improve. And for unpopular movies or undesirable viewing times, consumers could pay consierably less than they pay today. It’s conceivable that theaters could increase cash flow by selling tickets below cost by making money on concessions. The razor and blades model applied to information goods!
Like Ebay, our primary revenue model would be to charge the seller a percentage of every sale.
3. Now that we have proved the model in movies, apply it to all events (Broadway, concerts, sports).
This model should work for all events. Can you imagine fanatic fans of Green Day having the opportunity to bid on the next concert? Not only would this provide financing (even if it’s debt based on the data about demand rather than actual pre-paid ticket receipts), but it would help Green Day decide what cities to tour. The same goes for any event.
11 Comments
May 31, 2008 at 4:27 pm
Sweet ideas. I’m sure you could find someone on the indie circuit who would try that tomorrow.
One knock on this would be the same reason that I will rarely buy a product that is offering a good price due to a rebate. And who knows what I’ll be doing in 5 years when “Danger Girl” or “Cannonball Run 4″ make it to the big screen?
For something like an IMAX 3D screening, or the Flying Wallendas, (or even the indieplex), (or whatever is down the road like holography), where the seating capacity is already very limited, I would put down money ahead of time in an attempt to lure a show that otherwise might not make it into town.
Unrelated: but I would also pay extra to know that the sound system at a theater had been calibrated by a real sound engineer on the day of the show (and to see their satisfaction ratings). Maybe 2% of films I see in a theatre have great sound.
May 31, 2008 at 5:16 pm
I think you’re on to something with “Ebay for events”, but this sounds a little like investing in event futures, more or less.
You identified the difference between seeing Indiana Jones in a full theater on opening weekend, or soon after, vs the downsides of watching a mediocre movie in a half empty theater. And if you went to see Indy at 3 pm, you’re actually paying less for a movie that’s in high demand then the movie that’s in low demand.
The solution is to charge more for movies in higher demand, and less for movies in lower demand. Want to see Indy on opening weekend? $20. Willing to wait a week? $18. And those “I’ll wait until it’s on DVD movies” in their second month? Charge $1. A family of four can go out to a movie theater for less than the price of watching it on Pay Per View six months later.
The other problem that needs a solution is convenience. If I go out to dinner then a movie, I might make a 6 pm reservation for an 8 pm movie, allowing for bad service, getting to the theater, and getting there early enough for a good seat. How about charging extra for a prime seat, and less for the front corner?
May 31, 2008 at 6:57 pm
This concept could also apply from supply to demand (the opposite of a ticket buyer) which is what a true market is (2 way supply/demand relationship). For example, potential neighborhood ticket buyers express what they would like to see (say Palo Alto moms want to reconnect with movies of eariler days with other friend moms). Then the small Palo Alto theater gets winds of that demand through the site and offers its event accordingly. It could revive small theaters specializing on niches/topics. By the way , nice theaters are popular in other countries (for instance thousands of tiny/small theaters in Paris still managing to coexist with the big ones), indicating the people want, likely independent of a culture, for not always the latest movies.
June 1, 2008 at 2:35 am
Mike, pretty cool idea:
1. When the Lost finale came out Thursday, I thought ABC should have held live Lost screening events across the country, potentially in theaters. Would a night or weekend of Lost screenings uniting tens of thousands of fans out-performed ticket sales and concessions compared to What Happens in Vegas? I bet it would.
2. StubHub worked with INXS to auction off every ticket for a Santa Cruz concert starting at a price of $1/ticket.
http://findarticles.com/p/articles/mi_pwwi/is_200605/ai_n16363365
I don’t know how it did but I think it’s the right way to go.
3. Booktour.com is a site started by a friend, Adam Goldstein, and Wired editor Chris Anderson - it connects book authors and fans to help lower profile authors decide where to hold book signing events. It is a sort of an auction where fans “bid” on an author’s time by banding together.
4. Because a lot of concerts have fixed capacity and dates, a challenge may be avoiding the criticism that auctions cater too much to the rich, those who have the resources to outbid all others. I imagine many bands and movie studios want to avoid that perception.
A solution is to hold auctions for only a portion of seats, much like OpenTable does for restaurant seats, but that makes the model somewhat less attractive. My guess is the right balance is still a good company.
Mark
June 1, 2008 at 2:55 am
Mark,
I love your thoughts. I would have *LOVED* to watch the Lost Finale in a theater. And I would have bid big time for that. Love the idea.
Also agree that a reason promoters haven’t done auctions is the “wealth” issue. But, the reality is that this happens anyway in the secondary market — it’s just that the people that get the proceeds are scalpers rather than venues and content owners. And the auction is one way — consumers only get to pay more than list price for hot events. They don’t get to pay less for unpopular events. So I agree that it’s a concern of promoters, but I think they are wrong about it. Your proposal is a safe way to experiment.
Love all of the rest of your thoughts, too. Thanks.
Chide,
Agreed. The idea of the reverse auction was tried in the late 90’s, but so were many things that worked the second time around… Perhaps social networking will be the enabler to make this market finally take off.
Steve,
Good point. You are right to break the idea into some notion of futures versus auctioning current events. I think it makes sense to start with the prepaid / futures bit as it is all new and won’t require a fundamental change in behavior for anyone (as it’s new). I do think people would be willing to support things they love by paying well in advance.
However, I agree that the really big win is filling up theaters/events, making hot events less of a hassle by charging more, and increasing revenue for venues and content owners.
Scott,
Agreed. The ability to “petition” event promoters to visit your town with a movie, concert, or some other event through this type of mechanism is an easy win.
June 1, 2008 at 6:39 am
Mike, you should ask your brother about this. He hates crowded theatres and has (in his mind) a killer idea about movie-watching. I don’t really buy it
June 2, 2008 at 12:55 pm
I like the idea but studios really care about word of mouth. If a movie is “good”, it will do well because of word of mouth even if we have the auction was upfront OR even if there was no auction.
But, what if the movie was bad, wouldn’t the people who watch it before (through the auction), essentially kill the movie even before it is “realized”.
If movies in general are bad, is it not better for studios to have a big bang release so that more people will see it just to “check it out” and before the bad word of mouth has set in.
Ironically, your approach would extend the concept of “windowing” (theaters 1st, DVD’s 2nd, iTunes 3rd etc…) that most consumers (and now studios) want to do away with…
June 4, 2008 at 8:27 pm
After getting stuck in the third row, right side for Iron Man the other weekend and still feeling neck pain, I think they should charge more for premium seats.
I would definitely go to more “hot” movies on big crowd nights if I don’t have to show up 30 minutes early to scramble for a middle seat in the stadium section! Movie theaters are now competing against HDTV’s and home surround systems that are much more convenient. The only thing they have in their pocket is exclusive windows for new releases. If the overall experience (hassling for seats, crowds, ambiance) is a negative, even that advantage is not worth waiting for the DVD.
On bidding for events, I think it will keep accelerating with concerts and other things like charity events being the early adopters. Particularly for events where there is an active secondary market of scalpers, why not do dutch auctions or other formats so the event organizer can get the proceeds? If its an artist its more justifiable than a large corporation milking profit.
June 6, 2008 at 3:51 am
When my wife’s parents lived as ex-pats in Singapore, my wife loved going to movies there because you got to choose your seat when you bought your tickets just like the “theater.” The earlier in advance you bought your ticket the better seat you could get. Every time we go to a movie in the States she always says she wishes they did that here. Now there’s an idea for ya.
–jb
June 6, 2008 at 5:43 am
JB,
I like that idea. I’ll take two, to go please
You in?
July 6, 2008 at 11:41 am
[...] concept of which was to provide free ideas to entrepreneurs. One of Mike’s early ideas on auctioning off movie tickets caught my attention, enough that I decided to research the idea [...]
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