When I last checked in with my buddy Adam Aron, in late December, the C.E.O. of AMC Theaters was unloading millions of dollars in meme-inflated stock before its inevitable decline. The AMC share price is now down to about $18 from $27 on Dec. 23, when I dubbed him the “Villain of the Year” for his antics. It’s off 75 percent from its $72 high in mid-2021, when retail investors that call themselves the “AMC Apes” decided to push the company far beyond the grim business fundamentals of movie theaters in the Streaming Age.
That perilous position is at the center of Aron’s latest move, adding about a dollar to the ticket price of Warner Bros.’ The Batman during its first eight days in AMC venues. Theaters have long charged different prices at different times, from weekend surcharges to cheaper matinees and, your elderly neighbor’s favorite, “discount Tuesdays.” And premium experiences like IMAX cost more. But this is an upcharge for a specific film, a demand-based judgment that Batman is worth more to a moviegoer than, say, an Oscar contender or whatever that Channing Tatum dog thing is. That’s both obvious and relatively unique, although Aron has tested this idea in the past. While AMC has said that Batman is a one-film experiment, Aron told the Apes on an earnings call on Tuesday that there’s “considerable upside opportunity ahead if we continue to be imaginative” on pricing.
Aron didn’t want to talk to me publicly, nor would Warners domestic distribution chief Jeff Goldstein, or executives at other studios, who, I’m told, had no idea this move was coming. (Theaters, not studios, set prices, and everyone is terrified of violating antitrust and regulatory rules by discussing policy plans.) The other leading U.S. theater chains, Cinemark and Regal, haven’t announced similar moves, yet a quick glance at the Regal website suggests it is following AMC’s lead. If this works, and the chains don’t scare away price-sensitive customers, or lose market share to venues without the upcharge, all signs are that this is the beginning of a new era for movies.
A couple people texted me after the AMC news broke to complain that Aron is “gouging” superhero fans, which is technically correct. You and I don’t care about an extra dollar, but a lot of people do, and everyone hates the rising cost of theaters in general, especially with such great stuff available at home. If Aron is trying to entice the Covid-hesitant and digital natives back to the theatrical experience, sticking them with an upcharge—even a small one—is the opposite of welcoming. And if an extra dollar works for Batman, maybe he’ll try $2 for Wakanda Forever or $5 for Avatar 2?
Still, even if Aron’s motive might be to cynically leverage a guaranteed hit for more cash, we all know that if theaters are going to survive post-Covid—and, at this point, that’s a big question—they very badly need to evolve the model. Domestic box office estimates for 2022 suggest the total gross will land between $8.5 billion and $9 billion. That would be double the revenue from 2021, but still 20 percent off from pre-Covid times. If the new normal is $9 billion a year, that would siphon out the profits of theater chains, which would necessarily shrink or go out of business. It’s life-or-death decision time.
Variable pricing has long been debated as a potential salvation for movies because it’s successful almost everywhere else in entertainment, from music concerts to Broadway to sporting events and theme parks. There are the time-based price shifts—a day at Disneyland now costs $104 if that day is a Wednesday in early March, and $164 if it’s a Saturday in late June—as well as content-based fluctuations. Hamilton is more expensive than Wicked, and if the MLB player lockout ever ends, I’ll pay more to see the Dodgers play the Yankees than, say, the lowly Arizona Diamondbacks. This is all a matter of simple supply and demand, multiplied by the general exuberance as we finally come out of the pandemic. Demand for out-of-home entertainment is booming. Just ask Live Nation, which is benefiting—and raising prices for concerts.
The terms are often confused, but “variable pricing” is different from “dynamic pricing,” which uses algorithms to capture real-time shifts in demand and assigns prices based on when a ticket is purchased, like with airlines and Uber. That’s not what’s happening with Batman, and Aron has said he’s opposed to dynamic pricing because moviegoers hate thinking they paid more than the guy sitting next to them. That’s debatable, and there’s a whole science to this. People smarter than I am use terms like the “evolution” of each ticket to determine its value at any given moment, and it seems like that modeling could apply to movies—even though, unlike Adele concerts and NFL games, movie theaters offer a lot more supply, and there’s virtually no secondary market.
Regardless, it’s clear why Aron is charging more for Batman: Streaming-obsessed studios like Warner Bros. are sending him fewer movies, and for those that do get a theatrical exclusive, the studios are extracting better splits of revenue for themselves. (For instance, I’m told Warners is taking between 55 percent and 60 percent of Batman receipts, up from the more typical 50-50 split. Warners declined to comment.) With the collapse of the 90-day theatrical window, the time for movies to earn in theaters is limited. Plus, with a nearly three-hour run time, Batman will show less often. And, let’s not forget, AMC needs money badly. It’s why Aron is also, comically, talking about getting into the retail popcorn and real estate management businesses: Desperation.
Studios generally don’t mind when theaters raise prices, and among the execs I spoke to yesterday, all said they applaud AMC for experimenting. (On the other hand, studios generally freak out about discounts, but I’ll get to that in a second.) I’m told Warners hasn’t adjusted its internal projections based on AMC’s move, but let’s do some quick math for the studio:
- Warners is projecting about $100 million in domestic box office this weekend. I actually think it will do way more, but let’s use that number as the base.
- AMC has about 25 percent market share of domestic theaters, so that’s $25 million in gross for them.
- Its average ticket price was $11 last quarter. So that’s about, let’s say 2.3 million tickets sold. If Warners got 55 percent of sales, that would be about $13 million and change for the studio from the AMC venues.
- Now, let’s add an extra buck to the $11 ticket, so 2.3 million times $12. That $25 million becomes $27.6 million. If Warners gets 55 percent of that number, the studio would take home more than $15 million from AMC this weekend, or less than $2 million more.
So the added revenue isn’t huge for either Warners or AMC, but it’s not nothing. And yes, that’s if AMC doesn’t lose market share.
The downside, of course, is that assigning more value to movies like The Batman necessarily diminishes the value of other movies—and, potentially, the average moviegoing experience in general. Aron conspicuously did not announce that he will charge less for certain titles, and there’s a reason for that. It’s still a radioactive issue with studios and talent, and why theaters kept the one-price model for so long. Good luck telling Ken Branagh or Channing Tatum (or, more likely, their agents) that they are on the 50 Percent Off rack. Figuring out what’s an A-level, B-level and D-list movie is an unenviable task, especially because pre-release tracking is so unreliable.
But theaters in Europe have offered variable pricing for years. Also, consumers already pay less for indie titles on V.O.D. than they do for blockbusters, so this price distinction is happening in the home. And it’s hard for studios to complain about devaluing the product when nearly all of them are releasing movies day-and-date on streaming services with monthly subscriptions that are less than the cost of a single ticket. WarnerMedia C.E.O. Jason Kilar arguably did more to devalue the theatrical experience with his HBO Max experiment of 2021 that any movie theater has with variable pricing.
Indeed, with more movies relegated to streaming-only, studio resistance to real variable pricing is lessening. “Originally, studios were opposed to [different prices on different films] because it would signal too much info on the quality of the movie,” Rich Gelfond, the IMAX C.E.O., told me today. “They seem much more flexible now.” With social media and messaging apps, consumers are a lot savvier and better connected to each other. They can kinda tell what’s a “theatrical” movie and what isn’t, and they are making themselves clear at the box office, which has never been more dominated by superhero tentpoles. Steven Spielberg basically predicted this way back in 2013, saying “You’re going to have to pay $25 to see the next Iron Man. And you’re probably only going to have to pay $7 to see Lincoln.”
There’s actually a decent argument to be made that a range of movie prices could lead to a better result for smaller films. I might not pay $15 to see Belfast or even the Channing Tatum dog thing, but if they cost half the price of Batman? Maybe. Revenue for the theater chains goes up on Tuesdays when they do discounts. Might a studio like Warners, which has directed most of its adult dramas and comedies to streaming, take more theatrical swings at lower price points? Maybe that would lead to a full theater at half price instead of a third-full theater at full price? For theaters, which keep nearly all the concession revenue, that’s an easy question. For studios, it’s tougher.
Solving the pricing issue doesn’t fix the fundamental problems facing theaters: The experience is bad, and young people would rather watch TikTok on their personal screens. But the theaters’ inability to evolve hasn’t helped their cause, and it’s not always their fault. Studios, for instance, are still opposed to variable seating prices within theaters. AMC and others have wanted to charge more for the best seats and less for the front rows, which are almost never used, but studios fear customers will seat-hop, and once you re-price the product, in general, it’s hard to recover. That’s silly to me, and if the odd symbiosis between the studios and movie business is going to survive, these are issues that need to be figured out. Popular movies should cost more, and less popular movies would probably benefit from costing less.