Why don’t better movies cost more?
This is from an email from Ashok Rao:
You might have addressed this. On iTunes – to some extent – they do, though this appears to matter more with something you might call “scale of production” than quality of movie. Avatar is still at $15 compared to $10 for most others mainstream films (with very crappy and very lowbrow comedies sometimes lower).
But in general it seems absurd that westerns that I’ve never heard about cost as much as Harry Potter. Some points:
Does the movie industry – and ensuing bargaining with important agents like Apple – prefer completely homogenized pricing? Certainly it might be negative signaling that “we know this movie is trash” but that shouldn’t matter after the initial critic and audience review cycle is over.
A lot of crappy movies might make for good TV fodder, though the pricing structures are complicated enough that I have no idea exactly where or how this happens.
The comparison doesn’t even need to be on quality. How on earth does Godfather still cost $15 a pop – isn’t it going to be in the public domain soon?
My gut tells me piracy is a key instigator though I don’t know how exactly. Logically I feel it’s just the opposite. The price elasticity of someone who will not pirate to begin with is much lower than someone who will, on average…
Are there multiple equilibria? 1) Given that the price elasticity of non-pirates is low, you can and should charge them similar rates but 2) Given that pirates are highly elastic it makes sense to price quality.
Is the fact that I’m browsing on iTunes at all enough of an information signal to segregate the market?
It appears Netflix is what will change this entirely, and iTunes prices are completely irrelevant because no one plans on buying Sharknado 2 in HD anyway.
The other interesting question (which also requires a finessed understanding of Netflix economics) is comparing the entertainment value of television vs. cinema on the dollar. It appears there is a “timepass” value to both and a completion value for movies (and TV as well, but distributed over n episodes so basically 0).
One season of TV, which might be about 20 hours of entertainment, is frequently only 2x one movie which might be 2 hours of entertainment. Is the “scale of production” and completeness factor enough to justify 10 hours of entertainment? It is also the case that the median show and median movie are converging in parity on the margin, and increasingly on average too. – You would have to watch many hours of TV before reaching a cliff in quality where the marginal movie is dramatically better than the marginal show, versus a baseline of the best show vs. best movie.
If you insist on legal purchases only learning to read subtitles on Hindi movies is also a really cheap hack to amazing entertainment – foreign films otherwise tend to be too highbrow though that might be a rather lowbrow thing to say.
These are of course “demand side” factors, though after a reasonable period of time the supply side should largely be a sunk cost and somewhat irrelevant.
By the way, there is a new app –called Atom — which among other things will help groups of moviegoers receive discounts for movies which are doing less well.
And here is my earlier post on the uniform pricing of movie tickets.