How High Will Movie Ticket Prices Go?

NEW YORK (MainStreet) — Contrary to what your parents or grandparents may have you believe, there was never really a prolonged era when a typical ticket to the movies cost a nickel. No, it used to cost a nickel and a couple pennies.

The average price of admission was a blissfully low seven cents back in 1910, just five years after America’s first movie theater opened its doors in downtown Pittsburgh, according to the oldest data on record from the Motion Picture Association of America. The golden era of seeing a feature film for less than a dime didn’t last too long either: By 1924, the average price had shot up to 25 cents, and with few exceptions, that amount has only continued to increase.

Consumers paid an average of $7.89 for a movie ticket in 2010, a 5% increase from the previous year and the highest amount yet recorded. If ticket costs continue increasing at this rate, average movie prices will break the $8 milestone this year. That’s certainly a long way from the days of seven-cent movies, but it may not be quite as much of a price increase as some believe.

“People are always nostalgic and lock in whatever prices they remember paying when they were much younger,” said Patrick Corcoran, director of media and research for the National Association of Theater Owners, an industry trade group. “In real numbers, prices are more expensive today, but if you adjust for inflation, we have managed to hold the price down over time.”

During the past 35 years, ticket prices nearly quadrupled – from $2.05 in 1975 to their current rate – but as Corcoran rightly noted, inflation increased even more quickly. According to the Bureau of Labor Statistics, if movie prices had increased at the rate of inflation starting in 1975, a ticket would have cost $8.35 in 2010, or nearly 50 cents more than it actually did. So in the long term, ticket prices have remained as good a value as ever, given the standard price increases in other consumer goods over time.

But this point does not hold true if you focus on price increases just for the past decade. In 2000 the average movie ticket cost $5.39, and had it risen on par with inflation, that would amount to $6.86 today, about two bucks less than current averages. This is why it may feel like you’ve been forced to shell out significantly more money to see movies in recent years.

What Makes Movies More Expensive

Each decade seems to bring a big structural change for the movie industry, and each of these changes in turn requires funding and increased ticket revenues, or at least that’s the reasoning of the movie industry.

In the 1980s, the multiplex theatre introduced Americans to the blockbuster movie. In the 1990s, many theaters began installing stadium seating to boost the number of people they can put in each screening room. More recently, the 2000s saw arguably the most ambitious project, as thousands of theaters around the country switched to digital projectors.

“Over the last few years, we’ve seen an increase in digital cinema,” Corcoran says. “Hundreds of millions of dollars have been invested in improving the industry’s infrastructure.” That money had to come from somewhere, and much of it supposedly came from ticket price hikes.

But while digital projectors and multiplexes are nice, they only tell part of the story behind the rise in ticket prices.

“That’s all just an excuse to raise prices,” said Brandon Gray, president and publisher of Box Office Mojo, an independent firm that tracks the industry. “The general increase is the industry trying to get away with as much as they can without pricing themselves out of the market.”

According to Gray, the 2000s proved to be an especially difficult decade for the movie industry as consumers began to move away from buying DVDs and instead decided to download films or use streaming services like Netflix.

“When DVDs were thriving, the industry rested their hopes on this market, but now they have no choice but to rest their hopes on movie theater sales again,” Gray said.

As a result, the industry has upped prices on movie tickets and made a bigger push in recent years to promote 3-D and IMAX movies, which can draw $15-$20 ticket prices.

Corcoran concedes that the average movie ticket price – as well as the revenue generated from movie releases in general – has increased because “premium offerings like 3-D and IMAX are attracting a larger percentage of the audience.”

At the same time, prices on most other consumer goods remained static through the second half of the decade as a result of the economic downturn, which has only added to the feeling that movie ticket prices are spiraling out of control.

How High Can Ticket Prices Go?

For moviegoers in cities like New York and Los Angeles, the idea of paying $8 this year for a movie ticket isn’t at all objectionable. Big cities around the country have become accustomed to double digit movie prices in recent years.

“We thought there would be a psychological barrier to paying more than $10 for a ticket, but we’ve blown past that now,” said Paul Dergarabedian, who monitors box office trends for Hollywood.com. As he sees it, consumers will pay handsome amounts for a movie ticket without complaining too much as long as the quality of the movie is good, but this hasn’t been the case in recent years.“The problem now is that the quality of movies is perceived as going down while the ticket prices are clearly going up,” Degarabedian says. “If that continues, it’s a problem.”

What’s more, by continually increasing prices, the movie industry now runs the risk of undermining the very incentive that ultimately drives consumers to the movies in the first place.

“The reason people don’t go to a rock concert every week is because they can’t afford a ticket, whereas a movie has always been perceived as something you can afford to do more often. But if you are a family of five today, it’s getting pretty expensive to do that,” Dergarabedian says.

Already there are signs that the movie industry has maxed out much of its audience. Box office attendance declined by more than 5% in 2010, the second largest decline of the decade. At the same time, box office revenues reached record highs in 2009 and 2010, mostly due to an increase in 3-D movie sales.

“Last year was flush with 3-D movies, so revenues were high, but I don’t think 3-D is a long term solution,” Gray said. “It’s been a fad before and there’s no reason it won’t be a fad again. At some point, people won’t want to pay a premium for it.”

For the time being though, the movie industry has no intention to stop pushing 3-D and IMAX offerings on moviegoers, as Corcoran predicts Americans “will certainly see an increase” in these hi-tech movies in the years to come.

Regardless of whether 3-D movies prove to be a long term strategy, the question of how much the industry can get away with charging consumers remains.

“If we see tickets continue to rise at their current rate, we will see the average price go into the $10 range in the next decade,” Dergabedian says. How much higher than it could reasonably go without losing businesses depends entirely on the customers. “If it were suddenly announced that tickets were $25, people would just stop going, but if it reaches that in 15-20 years, and that’s in line with other product prices, then maybe it’d be OK.”

Gray, from Box Office Mojo, argues that movie theaters may have already reached their limit.

“I’m not sure how much higher they can reasonably raise their price… We’re already seeing 15- to 20-year lows in attendance levels because of the combination of unappealing movies and high ticket prices,” he said.

At this point, Gray thinks the industry’s best bet may be to change its strategy all together. Either studios and distributors can start lowering ticket prices to attract more customers, or if they are dead-set on playing the price increase game, he suggests they make practical investments to improve the overall movie going experience.

“People don’t mind paying a higher price if there is value there, but the problem is that the movie-going experience has not improved with these price increases,” Gray said. He suggests any number of straightforward fixes, ranging from nicer seats that can be reserved to hiring ushers who patrol for cell phones and crying babies, in addition to cleaner theaters and better parking lots.

“It’s the little things that make it worthwhile for customers,” he said. “That’s much more important than whether the movie is in 3-D.”

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