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Flexi-pricing is the answer to the economics of exhibiting

The last four years have witnessed a dramatic revival in the Indian cinema industry. From one movie releasing in more than four weeks to more than four releases every week, films in India have managed to keep viewers glued to the big screen. What appeared to be a dying industry in 2005, with exhibitors planning to shut operations, has already attracted foreign investors with the recent upswing.

The Indian cinema industry now witnesses around 120 Bollywood and 150 Hollywood releases every calendar year. However, on an average, only six movies are watched per annum by the movie-going population, resulting in just 20 of the 270 releases getting to blockbuster rating. To remove these inefficient market dynamics and narrow the demand-supply gap, the exhibition industry has been pondering, and in some situations effected, differential pricing.

Demand Cycles

By design, the cinema industry is exposed to three different demand cycles:The annual cycle: Cinema is a unique business where a new product is introduced every week – the portfolio of movies releasing every Friday. With each new product, the market potential varies – sometimes from the top-most crests in one week to the bottom-most troughs the next week.

The weekly cycle:

Due to time and work compulsions, the cinema-going crowd peaks on weekends (Fri-Sun) and dips on weekdays (Mon–Thu). While the ratios vary across cities, the variance could range from 55:45 in a primarily business-dominated city to 65:35 in a service-dominated city, in terms of occupation.

The daily cycle:

 

 

A typical day in a cinema witnesses variable demand across time slots with trends indicating a rise as time progresses.
Inventory on Hand

The ticket to a flight taking off at 10 am could be priced at Rs 5,000 till 9.59 am. However, at 10.01 am, the ticket can’t be sold any more. The inventory (seat) is history and there can be no revenue realisation from it. The cinema industry too has a highly perishable inventory. Once the show starts, the vacant seat in the auditorium is ‘lost revenue’.

Supplying to Where the Demand is

The variable demand and perishable nature of the inventory makes the cinema industry an ideal platform to practice differential pricing across different periodicity:

1. Movie-based pricing: Ticket rates are raised for highly anticipated movies.

2. Day-based pricing: Weekend tickets are priced higher than weekday tickets.

3. Time-based pricing: Evening shows are priced higher than morning shows.These three strategies have been embraced by the industry over the last few years. Hyped superstar movies like Robot have managed to raise ticket prices to Rs 750 – three times the normal ticket price. At the same time, discounted morning show prices have attracted the price-sensitive student community.

The increase in content and differential pricing has improved occupancy in cinemas. However, the impact has not been too great, with current occupancy hovering around the 24 per cent mark. Some of the state-imposed regulations like entertainment tax and the cap on higher ticket prices have further dented the profitability of cinemas.

The current mandate is against flexi-pricing of tickets of a particular show based on the increase or decrease in demand.

Flexi-Pricing

The pricing model that has evolved in the airline industry is aimed at maximising the sale of inventory through assessment of demand. Advance bookers are incentivised through lower prices, and based on the interest shown and the number of seats left, prices are determined for the remaining seats.

This incentive structure promotes committed sales of inventory well before time. 95 per cent of seats sold on an aircraft are booked at least a day before the departure of the flight. However, in the cinema industry, 95 per cent of ticket sales take place the day of the show. This increases the exposure of the inventory and due to its highly perishable nature, it is even more vulnerable to loss in opportunity.

Flexi-pricing would enable exhibitors to assess demand. Starting with low ticket prices, seats could be offered at discounted rates to those patrons who commit their viewership. Tickets could start at prices as low as Rs 50 and gradually rise as demand is met. This would help create an efficient market and appropriately bridge the demand-supply gap. Patrons would benefit by early-bird discounts, the exhibitor and distributor would be benefited by increased sales and the government would benefit from the taxes collected due to more footfalls.

Devang Sampat, Chief Strategy Officer, Cinepolis India

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