2 Reasons We Don’t Go to the Movies

While movie ticket sales are down, box office revenue is up.

NATO, the National Organization of Theater Owners (not the North Atlantic Treaty Organization), says that between 2004 and 2013, movie ticket sales declined by 11% but box office revenue went up 17%. In 2013, the average movie ticket price was $8.13, up from $7.96 the previous year. At almost the same time, movie attendance for people aged 18-24 dropped 17% and for 12-17 year olds, there was a 15% decrease.

Concerned, theater owners are trying to figure out how to increase attendance. A discount weekday, for example, would target our elasticity. Elasticity involves how much a change in price affects the amount we buy. When a relatively large drop in price generates much higher sales and more revenue, the cause is elastic demand. If however, price and revenue both go up, then the quantity we demand is relatively inelastic.

The problem though might be quality. With Netflix, Amazon, HBO and other attractive alternatives, many consumers prefer staying at home. After all, Lena Dunham got good press for “Tiny Furniture” but turned to TV for her next project.

The industry does see a brighter picture beyond the US. Theater executives say that China is building 14 new screens a day and the Asia Pacific is generating more revenue than China, the Middle East and Africa.

Our bottom line? As economists, we can conclude that price elasticity of demand and substitute products are the 2 reasons we enjoy our home screens rather than the local theater.

Sources and Resources: Lower ticket sales cited in a recent WSJ article might be the “canary in the coal mine.” They could be temporary but it seems more likely they indicate a more formidable trend. Meanwhile 2 NY Times articles and Variety provided extra detail, here and here.