Two thumbs up for premium-priced movie theatre seats

A giant lizard wasn’t the only thing that had moviegoers on the edge of their seats last week. Speaking at the annual shareholder meeting of Cineplex Entertainment, CEO Ellis Jacob unveiled his plan to charge people an additional fee to sit in the middle rows of its theatres. The premium surcharge is only a trial at this point, and for the time being will apply to just one theatre in all of Toronto, but it was enough to unleash a wave of consumer melodramatics: Ticket prices are already outrageous! Cineplex is gouging its customers!! I’m never going to a movie. Ever. Again!!!

The reaction isn’t surprising, but actually, neither is the plan for differential seating prices, when you think about it. It would see customers sitting in two rows in the middle of the theatre pay a surcharge of $2 to $3 on their tickets. If that sounds similar to what’s on offer from the likes of Air Canada, that’s because it is. “As with aircraft, you have coach, business class and first class,” a spokeswoman for Cineplex told the CBC. “What we’ve tried to do is also provide you with a lot of different options.”

The benefits to moviegoers willing to cough up the price of a latte to reserve a prime seat seem obvious—no waiting in lines, no wandering in the dark with your spouse like a pair of social outcasts looking for side-by-side seats. Still, that hasn’t stopped some from seeing shades of a class struggle in the move, with one critic tweeting this marks the end of cinema as “equitable and accessible.” So before this escalates into Occupy Hollywood, it’s best to put things in perspective.

Let’s start by putting aside a few of the fallacies about the movie business that everyone is clinging to. First off, tickets are not ridiculously expensive. In the most recent quarter, the average ticket price (measured by box office revenue per patron) at Cineplex was $9.04. When Godzilla last went on a rampage in 1998, a ticket cost around $8.50. If movie tickets merely kept pace with the rate of inflation since then, they would cost close to $12 today. By that measure, a ticket with a premium seat surcharge is a steal.

For those who claim this move will be yet another nail in the movie-business coffin, well, reports of the industry’s death have been greatly exaggerated many times before. It wasn’t all that long ago many observers wrote off the movie business altogether, built as it is on luring people to pay to see blockbuster films that, with little effort, can be downloaded for free, or streamed a few months later through Netflix or other on-demand services. And yet for all its struggles, theatres remain crammed for hit films.

Lastly, and this might come as a shock, but going to movies is not an inalienable human right. Cinemas are in it to make money. The real shock is that theatres took so long to innovate on the prices they charge.

It was only over the past few years that Cineplex carved out a premium movie business with its UltraAVX and VIP cinemas. Featuring larger screens, better sound, reclining chairs, reserved seating and food and alcohol services, moviegoers in these cinemas pay anywhere from $3 to $7 over and above the standard ticket price. The advent of 3D movies and their premium prices also helped. These initiatives, aided by higher concession prices, boosted Cineplex’s bottom line and doubled its stock price since 2011, though a slump in margins in recent quarters has analysts calling for more pricing power.By tinkering with seat pricing in its traditional auditoriums Cineplex is doing just that.

The industry’s history with innovation is spotty. For the longest time, theatres clung to uniform pricing—the mantra of one ticket price for blockbusters and indie films alike. There were attempts to change this. When Godzilla stomped through theatres 16 years ago, Edgar Bronfman Jr., who then still controlled Universal Studios, bemoaned the practice of charging the same price for all tickets. Nothing came of his complaint. In one 2007 study, researchers Barak Orbach and Liran Einav examined all the variables the movie industry could exploit with variable pricing but didn’t. Why not higher prices for particularly popular movies? Moviegoers prefer certain days of the week, while movie attendance at Christmas is four times greater than October. Yet for the most part, prices remained the same all year long. “We could not find any good reason for the general, ‘across-the-board’ practice of uniform pricing,” they wrote. Cineplex has done much to overhaul this system, but there’s more it could do.

Major League Baseball offers a model. In recent years, teams have experimented with different pricing for tickets depending on the time of day and day of the week of games. If a popular opponent is in town, prices go up. Some teams, like the San Francisco Giants, have gone further, with dynamic pricing that uses algorithms to crunch data—such as the weather, how a team has performed, if there’s been a home-run streak—and adjusts prices in real time up to 24 hours before a game. When the stars align, prices rise. In a slump, they fall to fill seats. It’s a balance to keep fans happy and maximize ticket sales, and it’s something perfectly suited to the movie biz.

A couple of rows of premium seats among the moviegoing hoi polloi is one thing. Cineplex isn’t going to stop there.