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Essential Economics and Online Movie Tickets

I realized very early on (perhaps even before I reached high school) that most of the stuff taught in schools (and by extension, the pre-university college, engineering college and MBA education) was perhaps not so useful. In its place, I discovered that these schools and colleges were a place to meet other brilliant minds – students, faculties, elderly scholars and university experts – from whom we can learn so much. It’s like going to a movie theatre and realizing that the movie snacks are better than the actual movie.

I found that the education system is flexible and allowed me to gather the knowledge I want even if much of it never came from the books. For that, and so much more, I continue to have profound respect for our education system, and the people who are part of it. Without them, I do not think I would have achieved whatever limited success I may have achieved today. 

One of those things that I discovered in my MBA days was economics. Over the years, I kept thinking, why isn’t economics taught to us as part of basic schooling? It is so essential to understand life, I think that is one of those they missed out.

As of now, I am in the fifth year of being an independent income guy. If I don’t figure out the economics of things, I have noticed that things seem to go very horribly for me. Over the years, I have become better at it but I feel that I have barely touched the surface. Today, I thought, I will simply write about economics using online movie tickets as the McGuffin.

I became a tax payer in 2008 and the first thing I did was demonetize my life. I went full online and that is when I discovered online movie tickets. The luxury of picking the exact seats (I am a big believer in sound acoustics, and take into consideration the size of the movie hall, the type of seats used and all that stuff to decide where I wish to sit and watch movies) is what really makes paying that extra amount of money to get the tickets online. Also, it totally beats standing in queue at the box office.

Movies fall into one of those services which can only be paid for with ‘discretionary income’. I have been watching, analyzing and understanding the movie industry (and its finances) for over a decade now and I have learnt that it is possible to understand a lot about any nation’s economy by looking at how much money the highest grossing movie has made on any given year. The more money a movie makes in any country, you can infer (with a certain degree of error percentage) how well off the people in that country are.

Discretionary income is directly linked to supply and demand for any service, and in our case, the movie service. Suppose, there is this super awesome movie that is simply the finest form of entertainment that cuts across age groups, gender groups, cultural groups and overcomes all language barriers. I am thinking of movies like Avatar and Titanic. Clearly the supply is of top quality, and the demand is there. For instance, when Avatar fixed its release date, movie theatres all over the world upgraded their projection systems to equip themselves with 3D. Thousands of movie theatres all over the world underwent fantastic renovations so they can feed off the millions of movie goers who want to watch Avatar.

Obviously, it happened in India too. So, there is a good supply and there is good demand with the super nice movies. That brings us to the fixed cost. A fixed cost is something that the owner of the movie theatre must pay irrespective of how many people are sitting in the movie hall. In fact, movie theatres have some of the highest fixed costs when compared to how much money they make when there are literally no customers. To understand this, imagine you are living in a big house (like in one of those Sooraj Barjatya movies) with ton of people. When everybody is at home, all the lights are burning and kitchen is being utilized and that is perfectly fine. That’s maximum utilization. Suppose all these people went for vacation and you are staying alone. If so, you could limit yourself to staying in a small room, so only that room’s light is burning. The food will only be prepared one person. The water will only be consumed by one person. By extension, the cost is directly connected the number of consumers. One consumer equals say, one unit of cost.

In a movie theatre, though, it does not work that way. There could be only one person in the movie theatre, or the movie hall could be full. Either way, the entire hall must be powered on. Fixed cost allows an individual to figure out so much about how the economy of an entire nation or city or individual is faring. When you connect to the earlier fact about discretionary income only, so many things become clear.

For instance, understanding this allows one to realize why the movie food is so overpriced. A tub of popcorn that costs barely 30 bucks (half a dollar) costs at least 200 rupees ( 3 to 4 dollars) inside the movie theatre. Water bottles are marked up by at least 200 percent, and that’s perfectly legal because the MRP label indicates it. Of course, this is also the reason why the water cooler (which provides free water) is almost always tucked away in some far corner where its impossible to find.

This extends to the several offers and all the stuff that the online booking service does. The service which sells these tickets online also has a fixed cost which relates to its IT cost. Its revenue is tied to the overall movie industry, essentially acting like a huge movie hall. That is why, it is almost always possible to guess when there will be loads and loads of discounts offered and when there will be none. It is also possible to predict ticket prices and what movie will cost how much.

This further explains why the ‘service charge’ or the ‘internet handling fees’ can sometimes be as high as fifty percent of the actual ticket cost. By extension, this is another reason why you must pay hefty fees for the 3D glasses, and further reason why so many movies are shoddily converted to 3D (instead of being shot on 3D) thereby ruining the movie going experience and also ensure that we will continue to have a poor opinion about 3D as an effective story telling medium.

The movie industry is also facing a slow death because now, there are so many alternatives. Television has always been the easy option for a lot of people. More importantly, television is not directly linked to discretionary income since it becomes part of the monthly utility bills. Same goes to online providers such as YouTube and Amazon Prime and Netflix. These folks avoid the problem of discretionary income, something which the movie chains can never avoid.

The way I see it, I fully expect the movie chains (and the online ticket services) to ruin the movie going experience and do what is called as ‘self-fulfilling prophecy’. They want to avoid going out of business, and do lot of tricks and then, the same tricks will turn movie goers away. Almost all movie ticketing apps have turned into massive ad display banners. Movie theatres keep increasing the price of movie snacks (which has the effect of turning away people instead of making more people eat it) like every month. Then, there are these ads. Now, we are forced to sit through ads before the movie starts and then during the interval. Heck, last time I went to a movie, the movie just paused and an ad just started playing. The preceding scene was a dramatic moment and the ad just ruined the impression.

Essentially, in a bid to survive the movie chains and movie ticketing companies are both doing everything they can to put off to movie patrons.

As I said, its all basic economics, supply and demand, discretionary income and fixed costs. We must respect the invisible hand and play its own by its own rules. Trying to find short cuts will inevitably lead to drastic misfortunes.

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