Every Price Tells a Story: The Case of Movies-On-Demand Platform Pricing
Like brands, prices can convey subtle information, leverage customers' tacit knowledge, boost the product's image, and facilitate purchase decisions.
For over a century now, marketers have used the different elements of a brand, such as names, logos, symbols, colors, taglines, fonts, shapes, promises, and spokespersons, to build and leverage customer knowledge. Brand elements can be combined in countless ways to paint a vivid picture of what the brand promises to deliver, the values it stands for, and the feelings it evokes in buyers. The architecture of building brand equity is well-established and is used widely for growing a business and increasing customer engagement.
The elements of price — the numerical value(s), the relation of one price to another, its history and range, and its tangible aspects such as the fonts used, the use of text and accompanying signs, the medium by which price is communicated, and so on, possess the same potential to build and leverage customer knowledge. Specifically, the elements of price also have rich representational, informational, and symbolic content that customers can use to form the same kind of associations that they do with brand elements.
Yet, pricing is often managed by managers or analysts with little understanding of brands or appreciation for the value of cultivating or leveraging customers’ tacit knowledge or supporting their sense-making processes. Consequently, the story-telling, knowledge-building, and interpretational potential of prices remains underutilized, or even worse, it is ignored entirely. This is a huge missed opportunity for pricing strategy and branding strategy.
This is a big idea with many moving parts and implications that I will develop in detail over a number of posts. In this post, I want to take the first step by looking at the narratives of pricing logic that are embedded within a set of prices. What I mean by pricing logic is the fact that prices can provide insight to knowledgeable customers about the logic for the coherence of prices (why the prices are what they are and why they make sense), useful information about the underlying products (how the products are likely to be by themselves and relative to one another), and details of relative value (why one product is one price and another product has a different price). This tacit knowledge embedded in prices can help buyers make judgments about the fairness of prices (are these prices reasonable?) and their preferences (which option is best for me).
The pricing logic for movies-on-demand on a streaming service
We will explore the narratives of pricing logic using the case of movies-on-demand pricing on Amazon Prime Video. Viewers can rent or purchase movies on the platform. The rental process works as follows (in the US): Once you pay the rental price, you have a 30-day window to begin watching the movie. Once you start watching, a 48-hour clock starts counting down, and you must finish watching (and rewatching, if you wish) the movie in that period. After that, you will have to rent the movie again when you want to watch it. But if you purchase the movie, you can watch it whenever and as often as you want to watch it through the Amazon Prime Video app.
To illustrate how prices can leverage customers’ tacit knowledge and generate an understanding of the underlying pricing logic, let’s do a quick interactive exercise that will require your participation. Below are four movies that are currently available on Amazon Prime Video for rental or purchase. I’ve hidden their names. Look at the prices carefully.
What are these four movies? Can you guess them? Even more importantly, can you decode the logic behind their rental and purchase prices in absolute and relative terms (in relation to each other), relying on your implicit knowledge of current and old movies, pricing in the movie industry, and viewer behavior? No special research is needed; just use what you know. Record your guesses.
The logic behind movies-on-demand platform pricing
The distribution and pricing models in the movie industry, including those for movies-on-demand, have changed dramatically over the past decade. Covid greatly accelerated trends that were already in play, like a consolidation of studios, lesser reliance on revenue from theatrical releases, and greater reliance on revenue from other distribution channels, particularly movie-on-demand platforms and streaming services.
The following factors influence the current pricing strategy for movies (new releases and others) on movies-on-demand platforms like Amazon Prime Video, Google Play, and Apple TV.
Movie studios set the prices or at least strongly influence prices in downstream channels like Amazon Prime Video, especially for new and popular releases. For big releases, they strive for consistency in availability and pricing across the channels (only available for purchase the first two weeks, maintaining the same rental and purchase price on all platforms, etc.).
The window of theatrical exclusivity, i.e., how long the movie runs only in movie theaters before becoming available on streaming sites for rental or purchase, has shrunk significantly since the pandemic. During 2020 and 2021, the window shrunk to zero as many new movies were released on streaming platforms at the same time as movie theaters. It has increased since then, but the 2023 average is still about four weeks, far less than the three months before the pandemic.
The appeal of a new release movie is the highest at the point of release when movie enthusiasts and influencers clamor to see it and then tapers off. Here’s a chart of the gross revenue by week and the number of theaters screening Barbie, this year’s highest-grossing movie, since its release in July that illustrates this pattern.
Barbie gross revenue and number of theaters screening the movie by week for first ten weeks after launch. Source: The Numbers Consumer viewing behavior for movies, including movies-on-demand, follows a well-understood pattern. When a new movie is released on an on-demand platform, enthusiasts and influencers are the first to watch it there and may be the most insensitive to price. These are the movie buffs who may have watched it in a theater already or missed watching it there for logistical or economic reasons. The more buzz the movie has garnered during its theatrical release, the greater the interest in accessing it on the site, both in terms of number of people interested in accessing it quickly and how much money they are willing to pay for access. As time passes and prices come down, casual, mainstream viewers start to get interested with a fair degree of impulsive renting (and buying), but the interest tapers off quickly.
Many consumers watch the same movie repeatedly. In explaining why, Russell and Levy say:
“Consumers navigate within and between reconsumption experiences in a hyperresponsive and experientially controlled manner. The dynamics in time and focus fueled by the reconsumed object allow emotional efficiency, as consumers optimize the search for and attainment of the emotional outcomes sought in volitional reconsumption, and facilitate existential understanding, as the linkages across past, present, and future experiences enable an active synthesis of time and promote self-reflexivity. Consumers gain richer and deeper insights into the reconsumption object itself but also an enhanced awareness of their own growth in understanding and appreciation through the lens of the reconsumption object.”
What this means for movies-on-demand is there is a significant ongoing interest in renting and purchasing older movies. The interest varies depending on the movie’s quality and fan base; some movies (e.g., the classics) will be watched by many more people, while most movies won’t be rented or watched at all.
In choosing whether to rent or purchase the movie, the customer will consider its (1) watchability, or how good the movie is (based on first-hand or second-hand knowledge), (2) rewatchability, that is, how likely they are to see the movie again in the future or share it with others, and (3) the relative price difference between renting and buying the movie.
With this background in mind, here are the four movies and the pricing logic behind them.
Movie 1 - Rent $24.99, Buy $29.99
Movie 1 is an example of brand-new blockbuster movie pricing. What is striking about it is (1) its high rental price and (2) the relatively small difference of $5 between the rental and purchase price. The rental price option is clearly dominated by the purchase price option for most viewers. Movie 1 is this year’s highest-grossing and most viral movie by far, Barbie.
After an approximately 7.5-week theatrical release window, it became available on Amazon Prime Video and its competitors in mid-September. By this time, it had garnered intense and sustained buzz from movie-goers and the mainstream media. It had the highest degree of watchability for any movie in a long time, perhaps since Avengers: End Game, but its rewatchability is unclear, which is likely captured by the relatively small price difference.
We can call the pricing logic for Barbie “Pay through the nose to be first” pricing. It applies in some shape or form to all new movies. The goal is to capitalize on eager home-movie-watchers who are less price-sensitive. Other recent releases that haven’t been as successful or high-profile as Barbie have also followed this pricing scheme ramped down one notch. For example, recent releases The Nun II, After Everything, and The Equalizer 3 all have prices of Rent: $19.99, Buy: $24.99 at the time of this writing.
Movie 2 - Rent $4,99, Buy $19.99
The second movie has a dramatically different price, reflecting that its watchability has cooled down (low rental price), but it retains a high level of rewatchability potential (high purchase price). The movie is Everything Everywhere All At Once. It was a blockbuster hit in 2022, winning the 2023 Best Picture Oscar award and nine other Oscars, including Best Actress, Best Director, and Best Original Screenplay. It also garnered a lot of positive word-of-mouth and critical acclaim. Its theatrical release date was March 11, 2022, which means that although eighteen months have passed since its release, it has a high ownership appeal; many movie buffs would want to own it to be able to watch it as and when they please1.
Movie 3 - Rent: $3.99, Buy $14.99
The third movie has a similar price profile to Everything Everywhere All at Once, but is priced lower on both watchability and rewatchabilty. Movie 3 is the 2007 musical Hairspray, which was a movie adaptation of the Broadway show and extremely successful at the box office when it came out. Like other popular musicals, Hairspray has a solid base of fans who will watch it over and over, which makes its purchase on a movies-on-demand platform worthwhile. For casual viewers choosing which movie to watch impulsively, the rental price has to be moderate so as to be competitive with a large number of movies spanning genres and periods. Other popular musicals like Mama Mia (Rent: $3.79, Buy: $14.69), Grease (Rent: $3.79, Buy: $14.99), and Phantom of the Opera (Rent: $3.99, Buy: $9.99) have similar price profiles.
Movie 4 - Rent: $2.99, Buy $6.99
The last movie on our list has the lowest prices for rental and purchase. We can consider it a stand-in for the hundreds of movies in Amazon Prime Video’s catalog that it periodically makes available to stream freely to Prime members and offers at modest rental and purchase prices the rest of the time2.
Movie 4 is Alfred Hitchcock’s classic movie from 1954, Rear Window. It is a high-quality classic with super-star actors like James Stewart and Grace Kelly, a large following of fans who have seen it before, and steady viewing interest. The prices are low to acknowledge the fact its relatively low watchability and rewatchability. Other movies like Dial M for Murder, Vertigo, and Double Indemnity have similar prices.
The Value of Narratives of Pricing Logic
For on-demand movie pricing on Amazon Prime Video, a pricing logic based on watchability for renting and rewatchability for purchasing runs through in a discernible way through the movie pricing. Because Amazon Prime Video is a distribution channel for movie studios or content companies that own these movies, they are likely passing through or amplifying the pricing logic created and propagated by the movie industry over years or decades (from when VHS tapes and then DVDs were rented or sold) rather than setting it up fully themselves from scratch. Nevertheless, the watchability-rewatchability narrative of pricing logic resonates intuitively with us as renters or buyers of movies, especially for those who watch movies through this platform regularly. We may not agree with all the prices (for instance, we may think that Barbie is too expensive), but it is clear to us why the prices are what they are. The prices are consistent and explainable, individually and together, with a relatively straightforward narrative tying them all together. This is a well-honed narrative of pricing logic.
It’s worth noting that there is one complication to movies-on-demand pricing that I haven’t considered in this discussion: how the movie’s availability on streaming platforms like Netflix, Paramount+, Max, and Hulu affects the rental and purchase prices. Covid normalized the practice of bringing movies to streaming services quickly after launch, and this trend has persisted. It affects demand and prices. For instance, during the period that Everything Everywhere All At Once is available to subscribers of Showtime or Paramount+, the demand for renting or purchasing will diminish to some degree on Amazon Prime Video.
The rental and purchase prices for this and all other movies on Amazon Prime Video are not fixed. In fact, they vary quite a bit, and as a function of their availability on other competing streaming platforms, or other contractual considerations, they also become unavailable on the site from time to time. The purchase price history of Rear Window from camelcamelcamel.com illustrates this point.
