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The case for flexi-pricing

Arvind Kala | June 05, 2004

Why does the Indian state meddle with movie ticket pricing? Our airlines are allowed differential pricing. They can charge different rates for two passengers sitting side by side in the same plane.

Why don't India's 13,000 cinema-halls get the same flexi-pricing freedom? If they did, their stagnant revenues may rise substantially because our cinema-halls suffer from one malady common to the business worldwide.

Their occupancy shoots up to an average 70 per cent on weekends and drops to around 30 per cent on weekdays. Those empty halls from Monday to Friday could be partially filled if cinema-halls were allowed to sell discounted tickets.

Alas, a lingering licence raj prohibits movie halls from doing this. So we have the paradox of movies playing to half-empty halls while roads outside teem with poor people starved for entertainment.

Faced with a similar low-occupancy problem, our airlines fill their seats by offering 20 to 60 per cent discounts on tickets booked in advance.

The same formula will also work for films and everybody will benefit. Cinema-hall incomes will rise, the government's entertainment tax collections will go up, and films will become more affordable, especially for the poor.

Unlike our straight-jacketed movie exhibition industry, its counterpart overseas is extremely innovative. Since October in fact, a maverick Greek tycoon, Stelios Haji-loannu, has been trying out a revolutionary experiment in England that we can learn from.

He has leased a ten-screen cine complex of 2000 seats where the price of a ticket depends on how early you book it, the price going up with the show date getting closer.

For instance, a ticket booked two weeks in advance costs just 20 pence, or one-25th as much as a five-pound ticket bought just before a show. Haji-loannu, who runs no-frills airline EasyJet, believes that his EasyCinema can turn a profit by boosting Britain's off-peak-hour seat occupancy from the current 10 per cent to 50 per cent. He rightly thinks that even a little revenue from a filled seat is better than no revenue from an unfilled one.

Contrast this flexi-pricing allowable overseas with the mindless government control that shackles our cinema-halls. In Delhi, theatres can't even have different weekday and week-end rates for the same movie.

This is ridiculous because prices are determined by demand. Hotels and airlines raise their charges during the tourist rush in winter. Cinema-theatres should have the same freedom to raise ticket prices during the week-end rush. Forget that freedom, movie-halls in Delhi can't even offer discounts to senior citizens.

The government allows it but lays down an impossible condition. Those discounted tickets cannot be sold to anyone except senior citizens. So if a show doesn't attract senior citizens, seats meant for them must remain unfilled even if there are others willing to pay for them. For India's cinema-halls, heads or tails, they lose.

This irrational official meddling has ruinous consequences for the Indian film industry. Colossal in size, it produced 1,013 films in 2001 compared to the 739 produced by Hollywood. India's movie ticket sales of 3.6 billion that year far exceeded the 2.6 billion tickets bought for Hollywood films.

Our film industry is growing at a whopping 19 per cent a year. But now we have reached a historic turning-point. For the first time, our movies are grabbing such world attention that though Asians form only 4 per cent of Britain's population, Indian movies in 2002 got 15 per cent of Britain's film audiences.

At around 600 seats per theatre, India's 13,000 cinema-halls have some 78 lakh (7.8 million) seats. Multiply that by four for the daily shows in a theatre and if a single ticket's price is Rs 30, that works out to potential sales of Rs 93 crore (Rs 930 million) a day or nearly Rs 34,000 a year.

Ultimately, however, the health of our film industry depends on hundreds of millions of movie-going Indians. What ticket prices they pay should be decided by cinema-halls, not by government licensing authorities.

Actually, movie ticket pricing has been freed in most of India but not sufficiently. In Delhi, for instance, a cinema-hall can get approval for a multiple set of rates. Which means that it can sell cheaper tickets for mediocre films and more expensive tickets for hit films.

But cinema-halls can't change the ticket rate mid-way for the same movie. This fettering loses them money because the movie exhibition business is ruled by time cycles. Boom time is during school and college vacations and around Diwali, Holi, Id, and Valentine's Day. Lean days come during exam time and when India plays international cricket.

But fluctuations can be unpredictable. Torrential rain, a cold wave or a Bryan Adams concert can keep crowds away from cinema-halls. Ticket sales on these days could be boosted if cinema-halls could halve ticket prices, but licensing conditions forbid them from doing so. Imagine an industry being disallowed from giving discounts!

How ironical, considering that many of the discount beneficiaries would be cash-short students and daily-wage earners who form a bulk of movie audiences.

Delhi, comparatively, is like a paradise for cinema-hall owners. In price-control states like Bihar, movie ticket prices are fixed not just from town to town, but from cinema-hall to cinema-hall, says Aditya Khanna, who runs Chanakya theatre in Delhi.

And any theatre seeking to raise ticket prices has to get permission from a licensing officer who knows nothing about movie exhibition. Ideally, India's movie halls should have complete flexi-pricing freedom. That way they could hike ticket prices for a blockbuster and lower them for a flop.

The ticket rate would be determined by demand -- the higher the demand for seats, the higher the ticket. If movie halls could do this, they would merely be emulating Jet Airways whose "yield management system" will charge a premium on tickets for flights where demand for seats exceeds supply.

It's nonsense that cinema-halls would start profiteering from flexi-pricing freedom. Market forces will curtail their greed. Thanks to tax exemptions, so many new multiplexes are coming up that India may see a multiplex glut that will drive down movie ticket prices. This has already begun to happen.

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