Karnataka govt's Rs 200 cap on movie tickets is a terrible idea, here's why

Ramanathan S.
The government’s role is not to fix the value of products, but to create the best conditions for the market to perform.

The Karnataka government delivered on its Budget promise on Tuesday, when it enacted a uniform pricing policy for all cinema theatres by capping ticket prices at Rs 200 except in Gold Class, IMAX and 4DX screens.

You know Assembly elections are around the corner when a state Chief Minister in India takes personal interest in the cost of tickets at cinema theatres, and you know mindless populism is his route when he imposes absurd pricing caps.

Before we get our cudgels up, it is true that the cost of watching a movie, especially in multiplexes, has shot up. The problems is real, but the solution isn’t government intervention.

We need to understand a few things about the cinema industry.

One, it isn’t an easy job being in cinema. The creative industry is highly competitive, and for every millionaire director or actor, there are a thousand failed ones. There might be some nepotism in the industry, but there is a regular stream of artistes who have risen from the boondocks of tinsel town through years of misery and penury. So, when they succeed, they want to hit the jackpot. And staying successful is a high-stress job too. That is why they get paid a lot.

Two, cinema is a high-risk industry. Take, for instance, even a proven superstar like Rajinikanth. The last couple of decades of his career have been riddled with failures of high-investment movies. Even with Kabali, there have been murmurs of disappointed distributors and theatre-owners. Businesses which put several crore rupees into a movie are always staring at the possibility of a flop, and they can only normalise such losses if they also see the possibility to make windfall profits from other hits.

Three, the nature of the cinema business has changed drastically. It’s all about the first couple of weekends now, and high-budget movies, like Baahubali, should enjoy the benefit of differentiated pricing if they believe that audiences will pay a premium to watch a movie of such a grand scale. When the shelf-life of movies is dwindling, only pricing flexibility can help filmmakers make profits.

Further, there are problems with the very basic idea of price controls on a commodity.

Price caps have a direct impact on the natural forces of supply and demand. If the quality of the product is good, price goes up. When you place artificial caps on prices, then those suppliers (in this case filmmakers) who are capable of producing superior products lose the incentive to make better products. When this is all the money you can make from the industry, why push it, right?

Price caps, especially if they are below equilibrium levels (like in Tamil Nadu, where the ceiling is now a measly Rs 120), can have a serious impact on supply. The growth of the industry stops, and there isn’t nearly as much of the product as there is demand for it. This is evident during the release of big blockbusters, when there just aren’t enough tickets.

And this further leads to the proliferation of the black economy. When the price is too low, and artificially so, but the demand is high and people are indeed willing to pay more, you have a bustling black market. In Tamil Nadu, there have been cases of even cinema owners themselves selling tickets in black through third parties.

Practically speaking, our experience with price caps on cinema tickets hasn’t been great either. This story explains how theatre-owners in TN have suffered from the price caps.

But how can they still make a lot of money then, you ask? Well, price caps are the reason why multiplexes have a hefty parking fee, popcorn is weighed in gold and sugar water is more expensive than a shot of tequila. Add to that the extra charges on internet booking and other special services, and somehow, established players have been able to make a profit. But this isn’t sustainable, as is evident from the case of TN, which has had the same price cap for 10 years now.

So, what do we do then? Can we simply allow cinemas to charge the audiences however much they want, and exploit consumers? After all, exploitation is genuine problem.

The answer lies in one main concept, apart from several other measures – competition. The role of the government is not to mess with demand and supply, but to implement a framework which ensures the best performance of the market.

We need the government to devise policy that encourages competition, and penalises collusion and cartelisation. We need to have strong anti-trust legislation and incentivise cheaper distribution of content.

Just like the Competition Commission of India went after cement cartels after private cement producers colluded to hike up prices, cinema theatres too must face action if they join hands to exploit the market.

The government must encourage OTT and DTH platforms to release movies directly into the homes of audiences, rather than being double-faced and colluding with theatre-owners on one hand and then imposing price controls on the other.

In 2013, when Kamal Haasan wanted to release Vishwaroopam on DTH on the very first day, theatre-owners colluded to arm-twist him, and he eventually relented. The government should not have allowed the blackmail, and the CCI could have penalised theatre-owners for this.

Further, if the Karnataka government wants to encourage Kannada cinema, as some people have claimed the price cap will, they must encourage better production and help them with the infrastructure to create world-class cinema. Only when the industry flourishes can the producers outdo their Tamil or Hindi counterparts.

Competition is the way to go, not ineffective and populist price controls which rob creators of their right to price their products the way they want, consumers of their right to choose, and the industry of its true potential.

Note: Views expressed are the author's own.