Good popcorn and low ticket prices?

A few weekends ago, while I was writing an exam for my students, I got to thinking about popcorn and movies. Part of this thinking was inspired by this piece by Edward Jay Epstein that the entire movie theatre business was driven by popcorn and soft drink sales. That is, theatres competed not to be able to make money from movie tickets but from other sales. This appeared to make some sense given the high margins on those products and their persistence in the face of competition. [Something that was the subject of one of my earliest posts on this blog].

The theory goes like this. Consumers don’t think about buying popcorn or not until they are at the movie theatre. That means two immediate things: (i) movie ticket prices will be all they look at when deciding where to go and (ii) that they can be subject to monopoly pricing for popcorn when they finally get there. But it also means that movie ticket prices will be discounted somewhat because the theatres expect to earn some money from other stuff.

But then, this has another implication. Movie theatres will earn much more from add-on sales (like popcorn, etc.) if they are much more tempting when people get to the theatre. So the theatres that provide great food options will earn more money from that and will have a bigger incentive to get people through the door. In competition with other theatres that means that their ticket price will be slightly lower. But do we see this? Do we see movie theatre with the lowest ticket prices having the best confectionary options? My causal observation suggests that this isn’t happening. But if that is the case, how can Epstein be right in saying add-on sales drive the movie theatre business?

Global IP has the IP

IP telephony has arrived although it is hardly ubiquitous. Skype has the most hype but as most people know, Yahoo’s messenger was not far behind. This week Yahoo announced a service that would allow you to call ordinary phones (just like Skype) at the same rate as Skype (2 cents per minute). Google, Microsoft and AOL are all to follow. This all suggests that this will be a highly competitive business and none of these firms will end up making any real money from it.

However, a footnote to the Yahoo! announcement was that it had selected Global IP Sound to imrpove its sound quality. Who are these people? Well, they also supply the same technology to Skype, AOL, Nortel among others. Maybe there is a winner here after all.

Looking at GIPS’s stock price, and the news barely rated. So there is probably more here than meets the eye. Nonetheless, Global IP Sound is something to watch for.

Storming the iTunes Music Store

France has passed a law that requires suppliers of content (most notably Apple’s iTunes Music Store) to provide information that is essential for ‘interoperability.’ Currently, purchases from Apple will only play on iPods, PCs and, of course, Macs, but not on other MP3 players and systems. The intent of the law is to require Apple to provide a means of making their downloads playable on alternative systems.

I have noted before that, in an ideal world, this might not be a bad thing for Apple. It will only encourage more sales from its store and may not make such a difference for iPod sales (after all, most music on iPods does not come from Apple, it is from peoples’ own music collections).

Of course, the world is not ideal. It seems reasonable to suppose that Apple’s agreement with music publishers is contingent upon downloads being in their DRM format. Moreover, it is also likely that Apple would be contractually prevented from providing ‘work arounds’ as the French law would require. So what will happen?

There are several possibilities:

1. Apple exits France.

Notice that this won’t happen immediately. Someone has to make a claim against Apple. They have to then demonstrate the ‘interoperability’ is possible but it is unclear whether this can be modified for piracy concerns.

Moreover, even if that is done, Apple could argue that its downloads are already interoperable. Why? You can burn a CD from iTunes in the original CD format. Then you can load it back to the computer in MP3 format; something playable on most systems.

2. Apple partially exits France

Apple could modify its iTunes Music Store in France to supply content that does not require DRM (e.g., podcasts and independent music publishing). This would leave it with a presence as well as sending on on-going message that French customers are being disadvantaged by the French government.

This is not usually Apple’s style but then again, they did launch the Australian iTunes Store without Sony initially. Australians knew where the blame lay there.

3. Apple finds a way to provide interoperability.

If it is potentially in Apple’s interest to open up the system, it could provide interoperability. Imagine what would happen if it found a way to do this that was proprietary. Then its music store would have a considerable advantage over others and it would retain its dominance there. Thus, there are big incentives to innovate on that dimensions.

So, in summary, given this, the immediate exit notion seems very unlikely to me. It also seems that this will not have long-lasting effects on innovation. It just sends a signal to the music industry: worry about DRM but also worry about providing competition. We want to find out if we can have our brioche and eat it too.

Of Cylons and Television

I just came across a 2005 article by Mark Pesce on “How Battlestar Galactica Killed Broadcast TV.” He speculates that downloaded television can embed advertisements in a more efficient way than broadcast television. A very interesting read.

All the more so for it is asserted that Australians are the most prolific downloaders of television in the world. That this is so is not that surprising; they have to endure the longest gaps between broadcast elsewhere and broadcast in Australia. In some cases, the lag is so long that the DVD is already released well before a show is broadcast (e.g., The West Wing and, dare I say it, Battlestar Galactica).

Pesce’s second article on “The New Laws of Television” is also good.

Trade yourself

Today, Fairfax bought the New Zealand internet auction site, Trade Me, for A$625 million. That is about $150 per New Zealander! This seemed to me a staggering sum for a site that competes directly with eBay.

I hadn’t heard of Trade Me before but I visited www.trademe.co.nz today to see what the fuss was about. I did a search (as I am want to do) for “lego star wars” and found 60 plus entries. If I went to www.ebay.co.nz, there are none. So there is such a thing as network effects when it comes to Internet auctions.

Actually, the NZ eBay site is interesting for it uses a yellow motif and cartoon kiwis that give it a look and a feel similar to Trade Me but very different from other eBay sites around the world. The question I have is this: why didn’t eBay want to pay as much as Fairfax for Trade Me?