Cinemath: Movie Tickets Cost More Than They Used to, But How Much More?

by     Posted 223 days ago

movie ticket inflation

Movie tickets cost more than they used to, and audiences notice.  In a 2006 Gallup poll, cost was cited as the number one thing Americans disliked most about going to the movies—41% of those who had seen at least one movie in the past year said going to the movies is too expensive.  When the average ticket price rises, as it does just about every year, you see headlines that shout “Average Movie Ticket Price Is Highest Ever.”  But that doesn’t tell the whole story.

This week’s edition of Cinemath compares the rise of ticket prices to the rate of inflation over the last five decades to see just how expensive $8.16 (the estimated average cost of a movie ticket in 2013) really is.  More after the jump.

penniesFirst, a primer: Inflation is the economic power that rendered the penny obsolete—inflation describes the general rise in the price of goods over time. The rate of inflation fluctuates for various reasons related to the duties of the Federal Reserve, but mostly hovers around 2-5% per year in the U.S. (the high inflation of the 1970s are a recent exception).  However, currency remains fixed, so the money in your pocket loses worth if it stays in your pocket long enough.  A penny used to buy a loaf of bread.  Your grandparents used it to buy a piece of candy.  Now a penny buys nothing.

The Bureau of Labor Statistics uses the Consumer Price Index (CPI) as “a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.”   In other words, the CPI measures how much consumers pay for the same “basket of goods” over time, making it simple to compare how far a dollar went in 1961 to its spending power in 2013.

The MPAA [via Box Office Mojo] recorded the average movie ticket price most years from 1910-2013.  There is consistent data for every year starting in 1961, so this analysis begins in 1961.  The graph below plots the increase in movie ticket prices from 1961-2013.  The green line shows the actual average ticket price.  The blue line adjusts the actual average price for inflation to 2013 dollars using the CPI.  The red line sets the $8.16 baseline of the average ticket price today for easy comparison.  (Note: Javascript must be enabled to view these Google charts.  Hover over a data point to see the exact average price for that year

 

Adjusting for inflation, the average ticket costs more now than it did from 1979-2009, but the cost of a movie ticket peaked in 1967-1978 after several years of 8-10% cost increases and one 21% increase in 1963.  The ticket cost in 2013 is also down a bit from 2010-2011.  That’s 13 years where the adjusted ticket price exceeds the cost of a ticket in 2013.

Still, the recent trend shows a steady and significant increase in adjusted price.  The average adjusted ticket price from 1961-2012 is $7.68 in 2013 dollars—the average adjusted ticket price from 1980-2012 is $7.43 in 2013 dollars.  That extra 50-70 cents is just a few dollars a year for the individual, but it’s worth almost a billion dollars when applied to the 1.36 billion ticket sales seen in 2012.

Here is a closer look at the yearly fluctuation for inflation vs. ticket price fluctuation.  The green line shows the average ticket price change.  The blue line covers CPI change.

 

Believe it or not, the average ticket price decreased in 1989, 1991, 1992, and 1993.

I expected to ticket prices and inflation to be related (ticket prices increase more with high inflation and stay flat with low inflation).  One could make a case for correlation in 1970s, but other than that, movie ticket prices appear independent from inflation.

Suppose ticket prices did follow inflation, though.  The graph below shows five hypothetical scenarios in which the average ticket price is indexed one year, then rises and falls exactly with inflation.  For instance, the 1961 scenario blue line pretends there is a policy that takes the average ticket price in 1961 and changes the price each year to match the CPI.  The other blue lines do the same with 1971, 1981, 1991, and 2001 as the index year.  The green line shows the actual fluctuation of average ticket price.

 

As expected, four of the five scenarios lead to a lower average ticket price than the actual fluctuation.  But it could be worse.  With the 1971 scenario, high inflation in the 1970s escalates the price until it reaches $9.50 in 2013.

Several factors contribute to this expense that goes beyond routine inflation.  Mostly, theaters set a price point that we are willing to pay based on supply and demand.  Total admissions rose steadily form 1.1 billion in 1987 to nearly 1.6 billion in 2002, then steadily declined to about 1.3 billion in 2011. The adjusted ticket price certainly tracks with the rise in admissions, and with allowance for sticky prices, flattens out and eventually decreases when admissions start to decline.

You can also blame 3D and IMAX surcharges, but those are recent phenomena.

movie theater lineI suspect the changing composition of theaters plays a role.  According to NATO, there were 7,744 theaters in 1995 and 5,697 in 2011 (26% decrease).  Over the same time period, the number of screens increased from 27,843 to 39,580 (42% increase).  A 2012 MPAA study found that 81% of all movie screens are housed at theaters with 8 or more screens compared to 75% in 2007.

The market is clearly shifting away from smaller theaters to bigger multiplexes, a trend that will only become more pronounced with the ongoing conversion to digital projection..  The economics of this evolution are a topic for another Cinemath, but I believe it possible we are phasing out the spread of cheaper theaters and transferring the market share to the AMCs and Regals of the world, who in turn charge higher prices.

I have seen a new movie at six different theaters in the last year in the Boston area, including fine establishments run by AMC and Regal, so I stop short of crying foul about the level of competition among movie theaters.  I just want to try to address some of the complexity in a changing industry.  The act of sitting down in a theater and watching a movie is pretty much the same experience it was in 1961, but the venue itself is changing and the price must follow.

Sure, a movie ticket is more expensive than it used to be even when adjusting for inflation, but it is still relatively cheap entertainment.  If you read Collider, I imagine you understand the value of seeing a movie in the theater.  You may have to see a matinee to get that $8 movie ticket where you live, but for my money, the theater experience is always worth an $8 bet.




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