Broadway Tickets, for the Price of an Economics Lesson
Thursday, June 8, 2017
By James B. Stewart | View original article at New York Times
With the Tony Awards coming on Sunday night, I decided this week that I’d better bite the bullet and buy tickets to “Hello, Dolly!” in case Bette Midler wins best actress and tickets become even more scarce and expensive.
I knew the tickets would be steep. Thanks to what’s known as dynamic pricing, in which costs shift constantly to match demand, top ticket prices for hit shows on Broadway have hit previously unheard-of levels. Annual Broadway ticket sales reached a record $1.45 billion for the just-ended season.
Last month The Times reported that the top box-office price for “Hello, Dolly!” was $748. For the phenomenon “Hamilton,” it was $849.
When I went online Wednesday, the top price for that night’s performance of “Hello, Dolly!” at several ticket resellers was $1,450, give or take a few dollars. (It was sold out both on Ticketmaster and at the Shubert Theater box office.)
As premium ticket prices have soared, many buyers have responded with outrage, accusing theater owners of price gouging and bemoaning the emergence of Broadway as one more exclusive preserve for the ultrarich. Both themes were prominent in reader comments on the Times article.
But guess what? There was also one “Hello, Dolly!” ticket for $194 on Wednesday evening, albeit for a balcony seat. And there were more than a dozen seats at prices well below $750.
And if you’re willing to forgo the potentially once-in-a-lifetime experience of seeing Bette Midler as Dolly Levi, TodayTix, a relatively new purveyor, was offering seats for future performances starring the critically lauded Donna Murphy — for $39.
The venerable TKTS booth in Times Square had 22 Broadway shows on offer for Wednesday evening, nearly all at 50 percent off.
“People have been whipped into a frenzy by the top prices,” said Thomas Schumacher, president of the Disney Theatrical Group, producer of the current, dynamically priced hit musicals “The Lion King” and “Aladdin.” “If you’re a regular person who wants to see a Broadway show tonight, you can. There are tickets for $29. You may be priced out of the best seats at the hottest shows, but the same is true of a deluxe suite at the St. Regis or a restaurant on New Year’s Day.”
Even at hit shows, relatively few seats sell at headline-making prices. Mr. Schumacher noted that the average price of a ticket for “Aladdin,” one of the five top-grossing shows on Broadway, was $112 last year.
Average Broadway ticket prices last season rose to $109 from the prior season’s $103, a 5.8 percent increase. That’s more than the rate of inflation but still not exorbitant considering the disproportionate impact of a few megahits like “Hamilton.” (The higher prices compensated for — or perhaps contributed to — a decline in the number of tickets sold.)
As more transactions shift to the internet, consumers will have to get used to a world in which dynamic pricing is increasingly the norm. They’ve pretty much accepted it for airline fares; airlines pioneered the concept years ago. It has since spread to hotel rooms, sporting events, concerts and designer clothing — and is likely to be used for just about any highly differentiated product where demand may at times far exceed supply.
“At the most basic level, all pricing is about allocating scarce resources,” said Robert Phillips, the head of marketplace optimization sciences at Uber, the car service that has pioneered surge pricing in local transportation. Surge pricing is another form of dynamic pricing. (Mr. Phillips previously headed Columbia University’s Center for Pricing and Revenue Management.)
“I’ve worked in theater, concerts and sports,” he said, “and they all have a similar problem: For extreme hits, demand at what people would consider a reasonable price far exceeds supply.”
From an economics perspective, “this is simply a rationing problem,” he added. “If you keep prices low, people will buy tickets and resell them on the secondary market. Someone is going to pay a market-clearing price, no matter how high. The only question is who should get the money: the investors and performers and creators, or a speculator who managed to snap up the tickets the moment the box office opened?”
However creative the product, says Howard Sherman, director of the Arts Integrity Initiative for the New School College of Performing Arts, Broadway is not immune from the forces of any marketplace.
“As somebody who believes theater and live performing arts are an incredibly important part of our society, I’d love to be able to say that ticket prices should stay artificially low,” said Mr. Sherman, who is also the United States theater critic for the British weekly The Stage. “But that denies the reality of what commercial theater is. Shows have a responsibility to return money to the people who invested in them and to the people who created the show.”
The Harvard economist N. Gregory Mankiw paid $2,500 apiece last fall for prime tickets to “Hamilton,” which he bought two weeks before the performance via StubHub. As he put it in a subsequent column in The Times, “In a perfect world, everyone would have the opportunity to see a megahit like ‘Hamilton.’”
But “it was only because the price was so high that I was able to buy tickets at all on such short notice,” he added. “If legal restrictions or moral sanctions had forced prices to remain close to face value, it is likely that no tickets would have been available by the time my family got around to planning its trip to the city.”
When I reached him this week, Mr. Mankiw said he thought the backlash to high theater prices reflected a broader anticapitalist bias. “People say they believe in capitalism, but when prices rise to clear markets, they say it’s unfair,” he said. “I have some sympathy for that when you’re talking about fundamental rights, like perhaps health care. But scarce tickets to ‘Hamilton’?”
I asked him if “Hamilton” tickets had been worth the cost. “Every penny,” Mr. Mankiw said. “It was fantastic, one of the best things I’ve ever seen.”
Just as smart travelers know how to find bargain airline seats, there are some simple ways ticket buyers can use dynamic pricing to their advantage, since it yields bargains along with premium prices. Weekday shows, and especially Wednesday matinees, are generally in far less demand than weekend shows. January and September are the best months for cheap seats. Prices are usually lower before a show officially opens and critics weigh in (as long as the reviews are positive).
Waiting until the last minute often pays off for everything but the biggest hits, since lost revenue from an empty seat can never be recouped. Theaters often offer last-minute cut-rate tickets at the TKTS booths, and online resellers start to slash prices. (Ticket buyers can monitor in real time what’s available at the TKTS website.)
And as I discovered, it helps to be flexible. While I started out this week looking for “Hello, Dolly!” tickets, I ended up at “Groundhog Day,” a new show with seven Tony nominations, including best musical and best actor, for a small fraction of the price of seeing Bette Midler. Seats for “Groundhog Day” were available at TKTS for half-price and online for $50. (And I loved it.)
Dynamic pricing and super-premium prices may be relatively new, but the scarcity of tickets for hit shows has a long tradition. Mr. Schumacher cited “My Fair Lady,” the “Hamilton” of the 1955-56 Broadway season. As Broadway lore has it, a man in the audience turned to his neighbor, an older woman, and asked why the fifth-row center seat next to her was empty.
“My husband died,” she replied.
“Didn’t anyone else want to come?” he asked.
“No,” she answered. “They’re all at the funeral.”