Case study on dynamic pricing: Broadway
Michelle Ow
The movie exhibition industry is about 9x larger than the Broadway business (per total gross in 2013), but Broadway instituted dynamic pricing years ago and does face similar strategic challenges: a blockbuster-hits driven business that seeks to maximize profits under challenging audience constraints. About half of the tickets for most Broadway shows are sold the day of. In the movie business, studios spend millions towards a one-weekend gross or it’s a flop. But unlike movie tickets, Broadway ticket pricing continues to get more fluid. They sell three types of tickets – premium tickets, group sales, and discount tickets. Discount tickets are sold to those who don’t pay in full but will buy. These discount tickets won’t be assigned the best seats, nor will they fill a house with these buyers. By the night of the show, about half have been sold at various prices and no one knows what the other person paid. Sometimes, a producer would rather see the seat empty than sell too low of a ticket. You cannot discount too much if there are individuals who’d be willing to pay in full. The pricing power varies depending on the show’s popularity. For example, shows often up the price after a Tony Award win.
Movie ticket attendance has trended downwards at a fairly steady pace over the last 10 years, while Broadway ticket attendance has shown a more uneven trajectory. Despite a steady uptick in average ticket prices, the number of seats sold grew in 7 out of the last 10 years. A sign, perhaps, of the success of dynamic ticket pricing?
The pricing strategies vary from “The Lion King”, which has dynamic pricing down to an exact science, to “The Cripple of Inishmaan,” which is offering deeply lower tickets to lure young theatergoers to the art. In addition, new start-ups like Today’s Tix are pushing user-friendly ticketing experiences to attract those that won’t go to the box office for tickets or don’t find the coupon they want online.
It’s Lion King’s algorithm that is of particular interest to the scope of this project. The show draws from data for 11.5 million audience members so far, and has outearned other shows despite capping its prices. Their strategic decisions are all focused on sustainability. According to the New York Times, producers believe this keeps the show “relatively affordable for for large groups and families; lessens the chance of buyer’s remorse leading to bad word of mouth; and offers room to raise prices over the long term.”
Our analysis of Broadway, MLB, and airline ticket pricing underscores the importance of data. The next step of this project will be to gather as much data as possible about movie ticket attendance and demographics. Ideally, we can then chart potential pricing schemes for peak dates vs. off-peak dates. Just like the Lion King, the more data that is collected after instituting a dynamic pricing scheme, the better theater owners and distributors should be able to adjust and develop a more fluid algorithm to generate the price-attendance combo to maximize profits.