The ever-increasing cost of tickets has been one of the constants in the movie industry over the past twenty years. This trend has accelerated over the past five years in particular as the proliferation of 3D-formatted movies, expanded use of eye-popping visuals and the increase of IMAX theaters has caused the average ticket price to exceed $10 in most suburban locations and to approach $20 in some urban areas on the East and West coasts. While the increase in ticket prices initially provided extra revenue and profitability for movie studios and theaters, the last few years have seen a gradual decrease in the number of moviegoers. This decline is largely due to the prohibitive cost of movie tickets in an environment of middle-class wage stagnation.
The effect of the increase in movie ticket cost is very apparent when you compare the number of tickets sold between the years of 1995-2014. (1) In 1995, 1,221,825,463 movie tickets were sold at an average ticket price of $4.35, and there was a consistent increase in the number of tickets sold each year through 2002 in which 1,577,407,017 tickets were sold at an average cost of $5.81. (2) In 2003, there was a noted decline of over 50 million tickets from the previous year as the cost of an average ticket exceeded six dollars for the first time and the gradual decline continued almost every year until 2014 in which only 1,267,672,767 tickets were sold at an average cost of $8.17 per ticket. Given the significant increase in population between 1995 and 2014, one conclusion that can be drawn from the data is that 2014 saw the lowest percentage of moviegoers in a generation.
There are two direct impacts that can be drawn from the constant increase of movie ticket prices over the past two decades. First, there appears to be an inflection point at $6, in which exceeding this average price for a movie ticket starts to have a negative effect on the numbers of tickets sold. However, this decline in the number of tickets sold does not necessarily mean a decrease in the overall box office receipts. Until the ticket prices exceed $8, the extra revenue realized by the increased ticket cost offsets the lower number of tickets sold overall.
A second impact that can be drawn is the implication that there is a certain price inelasticity concerning the cost of a movie ticket. Above an average cost of $8 per ticket, the movie industry is dependent on successful "tent-pole" movies and franchises to ensure an increasing revenue stream each year as most middle-class families will hesitate spending $50 or more for tickets and concessions to attend a movie with middling or worse reviews. There are exceptions as in the case of the Star Wars movie franchise where two movies having decidedly mixed reviews, "The Phantom Menace" and "Attack of the Clones" grossed over $1 billion and $649 million, respectively. However, for most mid-range quality movies, people will just choose to wait for the movie to be available on Netflix or On Demand for $5 rather than ten times that amount for unsatisfying fare, especially with compressed time frame from the time the movie is released in the theaters and its availability via another medium.
Going forward, there will be an increasing tension in the movie studios in weighing whether or not to wring every last dollar out of a smaller customer base by increasing the ticket prices or stimulating an increase in demand by lowering the cost of the ticket prices. The evidence would suggest that a 10% reduction in the cost of ticket prices could pay for itself with an increase in the number of tickers sold and reduce the variability for the movie studios in the event one of the tent-pole movies flopped and failed to make back its original production and advertising costs. In conclusion, based on the evidence, an average cost for a movie ticket above $8 is too costly for both the movie industry and the general public.
Article sources
http://www.the-numbers.com/market/