A number of articles and EFM announcements in the last week or so concern the notion of demand-led pricing in film.

This is a very interesting area of the film business with a history of trials and truisms, and which is currently being disrupted by digital innovation.

Films in the UK,  whether blockbuster or low budget indie, have traditionally cost the same amount to view – be it via a cinema ticket or a supermarket DVD. The price may have differed if you are old/young, view in luxury or a flea-pit, buy on day of release or three years later – but generally the price did not vary greatly according to content.

Consumer demand uncertainty is of course a core characteristic of a number of creative industries, and of film in particular. Significant amounts of scholarship has investigated how demand can be understood and potentially managed, the Ghiassi et al. article has a great review.

The extreme Pareto distribution of returns is one of the industry’s fundamental dynamics, and the ability to capitalise on rare success is vital for film businesses.

How to do so most effectively in different segments of the value chain has led to recent pilots in demand-led pricing that involves differentiation by content, and is noted to point the way for potential innovation in the industry.

In the UK, Odeon are reported as experimenting with slight price increases for blockbusters in opening weeks, and discounting less popular films, albeit by secondary systems and temporary events (groupon, flashsales) rather than explicit de-valuing / second tiering of independent cinema.

In Germany, Smart Pricer, a company working in multiple entertainment events sectors also applies demand-led pricing for multiplexes and similarly looks to maximise revenue for each screening. They  differentiate purchase options by price according to multiple variables – including content.

In their literature they disclose a little more detail of the complexity of their model – which rather than simply adding £1 per new release blockbuster ticket as per the more basic trials, operates a optimum price mix for all seats.

Developed from the company’s founders’ experience in airline ticket pricing, the cinemas provide a mix of some cheaper seating to be bought early and more expensive seats as showtimes near (and demand increases). Also included in the pricing structure to finesse the mix is data concerning show time, booking time, google searches, Facebook posts, and weather forecasts, used to anticipate demand and match the seating mix accordingly.

The result was a 5% increase in ticket revenue at the UCI Kinowelt – the application is still at an early stage but clearly benefits from a great deal more sophistication than the EasyCinema trial in the UK in which simple chronological price increases were applied up until show-date. One (hopefully) enduring aspect of the theatrical sector is that the experience is a social one, especially for younger audiences, as a result of the core motivation to purely go out and meet friends – choice of film can be left to the last minute – this factor undermined the attraction of cheap early seats.

Best for whom? 

The split of extra revenues between house and distributor for these new price models is not known at present. However, deal terms on blockbusters would certainly play a part in strategic thinking over a theatre’s adoption of such a system. If studios have agreed a larger cut of more high profile releases for the first weeks and then the cinemas terms better over time, then both sides will want to understand how price surging / increases on demand (and who gets what over and above traditional the traditional ticket price) play out over the life of the film.

This question of what is best for market actors in each section of the value chain, and the notion of inherent tension or conflict in attempting to align interests is of import when we consider how serving the consumer should also serve the provider.

Mainstream Film & TV media providers’ reticence to relinquish legacy models of artificial scarcity for uncertain, disruptive new models that reflect changing consumption patterns, is a frequently derided cause of inertia and often noted as motivation for piracy.

A recent article by Brian Forde, Director Digital Currency at MIT’s Media Lab concentrated on the Home Entertainment sector’s issues around this topic to illustrate the potential for Blockchain. It is useful to consider this idea in relation to its implications for all market actors involved in the film industry. Forde makes the point that in order to exploit demand for Star Wars films in relation to the recent new release, the distributors (Disney – experts of using the Vault!) ensured the films were only available for purchase not rental – looking to extract maximum revenue from the time-limited opportunity (and thus offset multiple failures e.g. $200m write offs).

In order to solve the consumer’s problem of no longer owning media (dvds, cds) but rather renting access at the discretion of changeable providers, Forde explores the idea of Blockchain as an open and interoperable digital rights management platform. The system could replace previous secondary markets (purchase and rental) for content i.e. the US legal provisions that made Netflix viable originally. Immediately this presents a challenge to established market actors’ systems of managing risk by exploiting hits to maximum extent, and such an initiative would likely meet great resistance, no matter how useful it would be to consumers. Imagine the potential reduction in sales from primary channels if perfect digital copies were openly available to rent.

A conference at the Law School of Trinity College Dublin (front page picture credit) explored related issues of copyright and the EU. Dr Eoin O’Dell, a Fellow of the College provides an excellent blog post on the re-sale of digital goods with Blockchain using film as an example, with detail of the legal provisions and literature in the area.

Making threats into opportunities

Technological innovations that can potentially allow cinemas and distributors to derive maximum income from hot titles, and threats to similar practices being leveraged at the home entertainment end of the spectrum, are both served by the open characteristics of digital engagement metrics.

Whilst illustrative examples exploring these ideas use examples such as Star Wars, for which there is unequivocal demand, it is also worth bearing in mind implications for smaller films, independents with a lack of scaled capacity to capitalise on success.  The projects connected to issues at Berlinale’s MEDIA events are worth paying attention to, and the information here is a good start.

The topic of the Digital Single Market and rationalising business and consumer interests within this regulatory framework is a crucial issue recognised by major players in  discussions with the European Commission.  A press release from a collective of organisations including Zentropa, IDFA & Fox foregrounded concern over “how best to deliver the Digital Single Market while ensuring that it is mutually beneficial to consumers and those whose livelihoods depend on creating, producing, marketing and distributing film and television content in Europe”