Why Theater Owners Are Flirting With Weekly Discount Tickets

The president of the the National Association of Theater Owners announced a plan to experiment with discount ticket nights.

National Association of Theater Owners president John Fithian addresses the audience during the "State of the Industry" presentation at CinemaCon 2014 on March 25, 2014, in Las Vegas.

National Association of Theater Owners president John Fithian says the group is testing offering cheap movie theater tickets on Tuesday nights.

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Speaking at CinemaCon in Las Vegas Tuesday, National Association of Theater Owners president John Fithian announced that the trade organization will be testing a program to offer discount movie tickets one night a week in hopes of boosting ticket sales as the film industry copes with an audience evolving its viewing practices.

“The model isn't fully developed. There will be meetings this week, in fact," said Fithian at a press conference, alongside Motion Picture Association of America chairman and CEO Chris Dodd.

[READ: Netflix Chief, Theater Owners Debate the Fate of Cinema]

The announcement comes as the landscape has shifted for the movie industry, with growing attention turned to television as well as the new delivery models like Netflix and video on demand making it easier for Americans to see movies from their homes. The rivalry reached full boil last October when Netflix chief content officer Ted Sarandos and Fithian traded insults over who – theater owners or streaming services – was doing the most damage to cinema.

NATO has not released an official plan, but a spokesman confirmed it will be testing the program in a specific state before bringing it nationwide where all theaters would be encouraged to participate. To avoid accusations of price setting however, it would be up to individual theater owners to determine how much to discount tickets.

So far it seems that Netflix and other new content delivery services are more of a threat to the traditional TV model – particularly to premium cable – than to theatergoing habits, and a recent MPAA report found that frequent moviegoers tend to have more technological devices than the general population, suggesting that owning a Netflix-equipped DVD player isn't keep people away from the theaters.

Nevertheless, to differentiate moviegoing from the couch-watching experience, theater owners have been pushing toward a more "premium" experience – involving better technology, finer dining options and other perks – and with it, higher priced tickets. And so far the strategy appears to be working, particularly among older moviegoers.

“Premium theaters do well in the minds of those who believe the experience warrants that extra dollar, but not everyone has that extra dollar,” says Paul Dergarabedian, a senior analyst at the entertainment industry research firm Rentrak.

While the movie industry brought in record revenues in both its domestic and foreign markets in 2013, attendance was down, in the U.S. and Canada, according the MPAA report. Per capita attendance shrank among those over 17 and under 50 in the last year, and the number of frequent moviegoers has declined in most age groups as well.

The revenue gains being posted in the industry were made in part because ticket prices ticked up 2 percent to a national average of $8.13, which analysts are quick to point out is in line with inflation). While 3-D movie sales were down in 2013, they still play a major role in the revenues brought in by theaters, and in general, the industry has been by buttressed international growth, particularly the explosion of its Asian audiences.

“The problem is the U.S. and Canada the box office is pretty stagnant,” says Doug Stone, a former AMC exec who now is the president of Box Office Analyst, a film industry newsletter, information and consulting service.

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The logic of discount nights is simple: Theaters could grow attendance numbers by bringing in audiences on a midweek night – likely Tuesday night – when theater traffic tends to be low compared to the weekends.

“If you can boost attendance and also bring in people who feel like they want to pay a little less to do that, it will be a win-win situation,” says Phil Contrino, chief analyst at BoxOffice.com, movie industry reporting website.

However, executing it on a mass scale could be more complicated. The contracts theater owners negotiate with studios are usually based on per capita tickets – that owners will give studios a certain amount of money per every ticket sold – meaning owners would have to eat the difference on a lower priced Tuesday night ticket unless they could get the studio system to sign on (and Fithian said NATO was seeking studio endorsement.) If the testing period proves that the discount night can raise attendance without undermining overall revenue, NATO hopes it will address any studio concerns that a discount night would cannibalize weekend sales.

Experts also say theater owners would be better off if the plan was exercised across the board – as was hinted at CinemaCon – rather just by the select theaters that felt like participating (and some individual theaters and chains have experimented with discount days before.)

“A united front is important to make something like this work,” Dergarabedian says. “It has to be almost where the moviegoer if they come to expect that and can plan around it” -- much in the way that matinee pricing has become an industrywide standard.

Like any business decision involving pricing, theater owners will have to figure out the tipping point. However, unlike many other trade groups, their fate is ultimately tied with the product they are delivering.

“It’s Hollywood’s role that they’re putting things out there that have wide-ranging appeal,” Contrano says. “When both sides are on top of their game people love the theater experience very much.”