By Jim McCarthy Aug 9, 2012 0 comments

(Understandable) Wrong Answers to “Why Are Prices so High?”

Via Ken, I read a piece in The Atlantic attempting to come to grips with higher prices for live entertainment, specifically Broadway, written by New York newcomer, Derek Thompson.  Like a lot of other people, he’s flummoxed by the seemingly unstoppable rise in prices for tickets to live entertainment.  And although he’s specifically talking Broadway here, the same kinds of arguments and discussions are had frequently about other genres too (sports and concerts, mostly).

It’s a nicely written article, but like most on this subject, it’s coming at it from a very natural, but ultimately incomplete (and in some ways, incorrect) point of view.

First, price has nothing to do with cost. Oh, sure, in the short run you might adjust price to reflect an increase in costs, but in the long run, price is a reflection of value, not cost.  Whether an individual production or company or whatever is profitable is really none of the market’s concern.  It’s not their problem; it’s your problem.  The example I sometimes use is this: suppose you decided to hire Brad Pitt as your janitor.  Your costs sure as heck are going to go up, but not the value of your show.  That’s an extreme example to make a point: you might be spending money in all kinds of ways that don’t add a thing to the value of your show or game as defined by the customer.

In fact, my opinion on this is that it’s closer to the other way around: the more value that live entertainment producers have realized exists in the marketplace, the more they’ve been able to spend to make their shows ever more complex and elaborate.

Which leads me to my second point: live entertainment used to be under-priced.  The example I frequently use to illustrate this is my purchase of two things from Bruce Springsteen in 1985: a record album (yep) and a concert ticket.  I paid about the same amount for both: $17.50  Adjust for inflation, and that’s $35 or so today.  You can still buy both products: a Springsteen concert ticket and a Springsteen album (in whatever form).  You feel like paying $35 for Born in the USA? Didn’t think so.  How do you feel about $35 to a Springsteen concert?  If you’re a fan, that’s a great price for a decent ticket.

So the two products have gone in opposite directions in terms of price (and therefore value) over a generation.  Why did concert tickets used to be so cheap? Because the sale of all those records subsidized the concerts.  The concerts were little more than promotional appearances for record sales, which is where the acts really made their money.  D’oh.

And on another note, tickets were cheap, but they were also scarce.  Bruce played fewer shows in smaller buildings, meaning that in order to get those tickets, we had to dispatch our most questionable friend to camp out on the sidewalk all night waiting in line to buy them.  You up for a camp out overnight on the sidewalk?  Didn’t think so.

So for a period of time, live entertainment was just a sideshow, while the real show itself paid the bills.  Those days ended, partly because we all downloaded Napster.

But not only because of that.  Third, we are placing more value as a culture on the live experience.  In an increasingly mediated world, where our time is spent more and more staring into a screen of one kind or another, and where our personal connections are either more scarce or occur, again, when we are staring into one kind of screen or another, an actual, real, in person experience is ever more valuable.  Remember what drives value: scarcity.  As less and less of our lives are “real,” the real becomes scarce and therefore valuable.  In a world where kids grow up protected from games of tag, it’s illegal to build a fire on the beach, and yes, the average person spends more than a third of his or her time looking at a screen, seeing something actually occurring in front of you, especially if that thing is exceptional, like a Broadway show or an NFL game or Bruce Springsteen in concert, has a lot of value.

And this is why the explanation that “rich people love theatre, so the theatre owners are taking advantage of that” just doesn’t hold up.  Because prices have made similar climbs in every genre.  So it may be true that “rich people love all live events,” or it may be true (much more likely) that “all people love live events, and people with more money are willing to pay more for them than people with less money.”

Which you could file under the category of  “d’uh.”

But my interest is in getting people out to live entertainment as much as possible.  The increases in prices have come alongside a whole range of ways of being able to offer far more price points at far more times in far more ways.  Not just that, but the Internet revolution has made the creation of more live entertainment content easier than before in a number of ways, so there’s a whole ecosystem of live entertainment at every price you can think of, including free.

Take it from me.  If you want to find something great to see or do in New York every night of your life, and you don’t want to spend much money, you’re all set.  It’s there, and it’s not even hard to find.  But like Ken says, if you do pay big dollars for the big shows, you’ll find it’s totally worth it.  Because that price isn’t about how much it cost to put the show together.

It’s about how much you enjoy it.

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