If Hollywood is so competitive, why are movies, TV so stupid?

[RickJay]

@tracer

Speaking of which – although DVD prices are allowed to vary somewhat from one title to the next, why are all theater seats priced the same for each and every movie regardless of production cost? I mean, you don’t see that cost structure in the PC video game industry, where a game like Half Life 2 will be released at $59.95 but a game like Railroad Tycoon 3 will be released with a much lower price. Why don’t theaters charge, say, $3 admission for a movie that cost 5 million dollars to make and $15 admission for a movie that cost 150 million dollars to make?

What does it matter to the theatre what the movie cost to make? They didn’t make it. There’s a total logical disconnect there.

First of all, “Half Life 2” isn’t more expensive than “Railroad Tycoon 3” because it cost more to make. It’s more expensive because there’s WAY more demand for it. The marginal cost for the two games’ individual units is the same - for both games you’re printing a box and a manual and stamping a CD. For either game your profit-maximizing strategy is to set the price at whatever will bring in max revenue. Deviating from that price is just throwing money away; it doesn’t matter if the game cost $50 million or 50 cents to develop.

(Ironically, inthe case of HL2, I noticed it was priced WAY down after Christmas, more than any other game. I think they oveerestimated demand. Everywhere I went they had hundreds of copies on sales for $39 Canadian.)

Same with movies. It doesn’t matter that Waterworld cost $200 million. You can’t charge $25 a ticket and think you’re going to make all that money back. You will make LESS as $25/ticket than you would at $10, because so many people will be pissed off they’ll refuse to go, or they’ll opt to see other pictures.

Where you could in theory play with the pricing structure is with respect to viewer DEMAND, not the PRODUCTION COST. Presumably more people would want to see a Quentin Tarantino movie than some peice of shit I produced myself, so in theory the optimal price for a Tarantino film is higher than the optimal price for “Home Movies By RickJay, Starring My Cats.”

However, price discrimination (what you’re suggesting) is not necessarily possible in some cases. In the case of theatres, their cost in getting the movies is usually a PERCENTAGE of the box office take, not a flat fee. Consequently, they won’t necessarily benefit as much as you might think from jacking up the prices. Charing an extra $5 to see “Star Wars Episode XX: George Lucas Is a Dork” may only bring in an extra $1 or $2, and that profit could be lost by a loss of business to rival theatres who don’t jack the prices up.

There just isn’t that much price elasticity in movies anyway, I don’t think. To be honest I don’t really case if a movie costs $9 or $12; if a movie interests me I will see it, and if it doesn’t, I won’t even watch it for free.

[well_he_s_back]

sort of back to the original topic: I can be very forgiving of mindless Hollywood stuff (I really enjoyed “Cellular”) as long as it succeeds for what little it tries to be. I find myself wondering, with the original post, why so many films fail at even that.

Why did LOTR succeed when Oliver Stone’s “Alexander” did not? Let’s not quibble - yes “Alexander” got a few good reviews and made a little money, and some people & reviewers didn’t like LOTR, but let’s just use these as examples. “Alexander” had a decent budget & some talented folks; how did it out like crap? I read the excellent book about the “Heaven’s Gate” debacle & don’t understand why Hollywood bigwigs seemed to have learned nothing from it. If you or I made that many mistakes in our work we’d be out the door.

[Just_Some_Guy]

@RickJay

First of all, “Half Life 2” isn’t more expensive than “Railroad Tycoon 3” because it cost more to make. It’s more expensive because there’s WAY more demand for it. The marginal cost for the two games’ individual units is the same - for both games you’re printing a box and a manual and stamping a CD. For either game your profit-maximizing strategy is to set the price at whatever will bring in max revenue. Deviating from that price is just throwing money away; it doesn’t matter if the game cost $50 million or 50 cents to develop.

(Ironically, inthe case of HL2, I noticed it was priced WAY down after Christmas, more than any other game. I think they oveerestimated demand. Everywhere I went they had hundreds of copies on sales for $39 Canadian.)

You’re not looking at that the right way. If printing costs were all that mattered then all computer games would cost two bucks. Half-Life 2 was in development for five years and the money to pay for those salaries has to come from somewhere. I guarentee you that HL2 cost at least double to make what RC3 did. Those prices are paying for the development of the game much as movie ticket prices pay for the making of the movie (in a round about way).

[RickJay]

@Just Some Guy

You’re not looking at that the right way. If printing costs were all that mattered then all computer games would cost two bucks. Half-Life 2 was in development for five years and the money to pay for those salaries has to come from somewhere. I guarentee you that HL2 cost at least double to make what RC3 did. Those prices are paying for the development of the game much as movie ticket prices pay for the making of the movie (in a round about way).

I don’t think you read my post very closely. I did not claim that the price was determined by printing costs. I said printing costs DON’T matter, which is why the price is not set by costs. The price of things isn’t determined by fixed costs.

The price of Half Life 2 is not set by either the cost of production or the marginal cost. It’s set by what the equilibrium price is - the price that will bring in the maximum possible amount of revenue, e.g. sell the most units. Your claim that the price is set by the development cost is just plainly wrong and could not possibly work, as evidenced by the fact that many games that were cheaper to produce are priced the same (e.g. Civilization III, when it came out.) My point about printing costs was merely that they’re negligible in both cases - that is, that the marginal cost of both games is the same.

Look, let’s suppose it cost $50 million to develop “Half Life 2.” We can pretty safely assume that HL2 will sell a lot of units, but obviously the number will vary depending on price. Suppose that through market research, Valve discovered that the following prices would result in the following sales volumes:

$29 per unit = 5.1 million sales
$39 per unit = 4.7 million sales
$49 per unit = 4.2 million sales
$59 per unit = 3.1 million sales
$69 per unit = 2.5 million sales

The logical pricing strategy is therefore to set a (general) price of $49, since that will bring in the most money ($205.8 million.) Setting the price at anything else would be stupid. If you charge more you lose money. IF you charge less, you lose money. If the marginal cost was more - for instance, if it cost $20 to print up the CD and box - the strategy would have to change because more volume would mean way more cost, and our numbers would be different. But at $1 or $2 per unit it doesn’t really matter.

Now, imagine Half Life 2 didn’t cost $50 million to make. Imagine you somehow pulled it off for $10 million. How would the above price/unit numbers change? Not in the slightest. The development cost simply does not matter - you’d still be best off charging $49. What if it cost $100 million to produce? $49 is still the bst price. Eighty bucks plus a pizza? $49 is still your best price. If it turns out that $49 doesn’t bring in enough money - say, if the game had cost $250 million to make, or if the sales volumes I made up were cust to 1/10th of those figures - then you’re screwed. You will lose money.

Or let me put it another way; if Valve had pulled off HL2 for a fraction of the actual development cost, do you really think they would have given you a break on the price? Ha ha ha ha.

In cases where marginal costs are negligible, the optimal pricing strategy is to charge the equilibrium price, the price that brings in max revenue. (This would not be true of things with lots of marginal cost, like Ferraris. Ferrari could make way more revenue by selling cars for cheap, but the marginal costs would kill them.)

This works for movies exactly the same way. It simply does not matter if “The Lord of the Rings” cost $300 million, $30 million, $3, or a zillion jillion trillion dollars. The only logical pricing strategy is to set the ticket price at whatever maximizes revenue.

[pizzabrat]

Plenty of people have pointed out that TV is consistently better than film. The reason is because TV shows have a much smaller audience than movies do - TV shows are mainly for Americans while movies are made for the world. Thus, Hollywood movies are dumbed down tremendously for the foreign market. The world doesn’t want to get into any deep, thoughtful analysis of American culture, or wouldn’t appreciate subtle, witty jabs at our social folkways - so we put all that stuff on TV. The world wants breasts, bombs, and pratfalls - none of that needs any cultural or linguistic translation, so movies are full of them. Americans aren’t the problem - we’d all love better movies, but our wallets aren’t big enough to make up for the money studios would lose from the foreigners if they added more sophistication to their products. This stuff isn’t coming out of my ass. It’s common knowlege that out of all of our great TV shows, the most popular one in the world was once Baywatch. And look at this article about media exports and scroll down to the bolded sentence. Look at the box office charts from these countries and see how recognizable most of the movies that top them are.

It kind of angers me, too, that we get so much flack from foreigners about our trashy pop culture when we make it that bad just to appease them!