How Streaming Services Are Effecting the Movie Industry’s Price Elasticity
By: Kimberly Grant
Movie theater owners are mad. Nay. They are incensed. How dare Disney+ use their own film releases to add subscribers to their streaming service and keep people from buying movie tickets in which the theaters make a margin?
The Movie Streaming Effect
There was a time, pre-COVID-19 Pandemic, when people had to go to the movies to see a newly released film. Enter 2020. The year that changed life as we know it. It was also a time period that ushered in what I call the movie streaming effect.
The movie streaming effect is when people who would spend up to $100 for two people to go to the movies to see a newly released film decide enough is enough. Instead, they spend $14 a month for a streaming bundle that would net them access to content from Disney+, Hulu, and ESPN. Without doing math, it is evident that streaming newly released movies is more cost effective for the consumers than going out to the theater.
Storming the Disney Castle
Disney, whose brand is synonymous with magic and being family friendly (and now Marvel Entertainment content), started its streaming service around the time that the entire country shut down to combat the COVID-19 pandemic. Streaming services like Disney+ and Netflix saw huge returns while many people stayed home and entertained themselves. When most of the movie theaters closed, many studios were faced with a dilemma: delay their big budget film releases by a year or take a small loss to release their films on streaming services, like HBO Max.
Some films, like Wonder Woman 1984,were released on streaming services (HBO Max) and in theaters. Did Wonder Woman make all of its budget and, at least, breakeven? According to the Observer, the film’s budget was around $200 million (not including $100 million for marketing costs). According to IMDb.com, the film’s overall domestic gross was over $46 million and its worldwide gross was over $166 million. For the purposes of this post, we can look at the domestic gross and deduce that Wonder Woman 1984 did not breakeven (or generate enough revenue to cover the cost of the film’s budget). Despite the global health crisis, the film’s box office “failure” can also be attributed to the high costs of going to the movies.
Elastic Wallets
This scenario brings up the question of price elasticity. Price elasticity is basically calculating how sensitive consumers are to changes in price for a particular brand or product or service. As Douglas McIntyre mentions in his article “This is the Price of A Movie Ticket in the Past 25 Years” for 247Wallst.com, there has been a slow and steady uptick of movie ticket prices for the past few decades. This has caused consumers to seek elsewhere for entertainment.
The rise in popularity of streaming services has only exacerbated this dilemma. It also is a glaring example of how elastic movie theater ticket prices can be. Pandemic aside, the slowing down of movie ticket sales is an example of when an industry breaks the threshold toward elasticity by increasing its prices too high.
Movie watchers have hit their breaking point when it comes to their money and what they spend it on. With the high amount of job losses caused by the pandemic, it’s not a small stretch to think this way. This thinking is what led Marvel Entertainment (read: Disney) to release the highly anticipated Black Widow in theaters and its streaming service simultaneously.
Movie Theater Uproar
So far, Black Widow, which is a great film with strong female leads, has made over $138 million of its $200 million budget just in theaters. It was also released on Disney+ the same day that the film hit theaters. But theater owners are thinking about how much more money could have been made if the Black Widow had not been simultaneously released on Disney+. Just thinking of the dollars they couldn’t capture from the film has theater owners seeing red. And that’s not just the red room mentioned in the film.
To look at Black Widow’s box office gross and what it could have been, it appears movie theater owners and Marvel Entertainment are losing. After all, with higher elasticity brings this scenario: increase in price = decrease in volume. So, the increase in movie ticket prices can be a definite correlation to the decline in box office dollars (read: movie ticket sales). That said, there are clear winners in this scenario:
- The consumers who are saving money by streaming newly released movies,
- Disney+ who probably increased their subscribers by releasing new films the same day as the theaters
- The actors and production crew of Black Widow who have already received their paychecks upfront and are getting screen exposure on the big and small screens.
Popping the Elastic
The war on simultaneous film releasing is far from over and the movie streaming effect is poised to get bigger and cause a higher elasticity in the film industry. At least until a happy medium can be found between the movie theaters, the streaming services, and the consumers who have become sensitive to movie ticket prices. Until that precious time, we will continue to watch the elasticity of the movie industry with popcorn and soda, while sitting at home avoiding the pandemic.
Interested in other insights on the movie theater industry? You can see my last post here.
