Tuesday, May 29, 2012

Cinemas: more crowded, more expensive?

As a student, I used to walk up to the box office with my friends to buy tickets 30-60 minutes before the movie started. These days, I book my tickets hours in advance on the internet, or even a day or two. Is this a matter of cinemas becoming more crowded?

To find out if cinemas are becoming more crowded, we have to look at how demand and supply have moved over the years. Cinema attendance has risen markedly, from 16.4m in 1998 to 22m in 2011, a 35% increase. On the other hand, the number of cinema seats decreased over the same period, from 46,000 to 34,000. 

To put demand and supply together, I measure the number of times a cinema seat is sat on (what else is a seat for?) each year. This is shown by the blue bars in the chart. In 1998, a cinema seat is used about 360 times a year, or about once a year, suggesting ample space in the theatres on average. This number grew 80% by 2011 to 650. 

While this suggests cinemas are indeed becoming more crowded, it could also arise because cinemas are screening more shows every year to meet demand. As a result, two scenarios arise - one good (more shows), and one bad (crowded theatres). 

To differentiate between the two, we might want to look at how cinema prices have changed over the years. For the good case, having more shows means overheads like space rental and staff costs are spread out more, so prices might fall or at least stagnate. For the bad case, crowded cinemas puts pressure on prices to increase. 

Looking at the price index of "recreation and entertainment" from Singapore's inflation figures (cinema prices determine 40% of this index) as depicted by the red line, we observe that by 2010, recreation prices stood at 9% higher than that in 1998. 

This suggests (but it doesn't prove) that cinema demand has outpaced supply; book your tickets early then!

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