Museums, Amusement Parks and Cable TV

"Zero marginal cost, you say?"

From the National Archives and Records Administration, and Wikimedia Commons.

Should museums charge visitors according to the length of their visit?  In a recent paper Bruno Frey and Lasse Steiner argue they should. We pay per hour when we park our cars, so why not when we go to view art? This question came to mind during the recent flare up over the pricing of cable television. Yes, cable television and art museums (and amusement parks!) have something in common.

Those of you who subscribe to cable television know that even the most basic package contains a lot of channels, many of which you never intend to watch. Comcast’s “Digital Starter” has about eighty channels, including ESPN, PBS Arts, Spike, Jewelry Channel, a collection where it is impossible to imagine anybody watching all of them. Why can’t we just buy the few channels we will actually watch? Those who are not sports fans get particularly annoyed that cable prices are rising as different sports channels come online and increase the fees to all subscribers, even those with no interest. Matt Yglesias suggests that lack of competition amongst cable providers is the real problem, but I don’t agree: if offering channels to customers a la carte were a good deal for viewers, some entrepreneur would start a service that offers such a model. But that hasn’t happened.

The reasoning was first explained in 1971 by Walter Oi, in what he called the “Disneyland dilemma.” Consider an amusement park, which has to decide what to charge for admission, and what to charge per ride. The higher the one price, the lower the other must be to continue to attract customers. He showed the solution to this “two-part pricing” problem is to first set the price of rides at the cost of providing a ride to one more customer (what economists call “marginal cost”), and then set the admission price according to the demand for admissions given the ride price that has been selected. If the cost of providing a ride to one more customer is effectively zero, then give free rides, and price admission accordingly.

In cable television, channels are like rides – customers pay a subscription fee, and then can watch whatever channels are in that basic package for free, for as many hours as they like. And this makes sense, as the marginal cost of providing those extra channels and viewing time to the customer is zero (it doesn’t cost my cable provider anything if I happen to watch Jewelry Channel at 3:00 a.m. when I can’t sleep). I don’t watch every channel, just as most people who go to Disneyland don’t ride every ride, and I don’t read every article in my New Yorker subscription. We pay the admission fee because of the channels, or rides, we do like, and find it worth it. We can’t ask Disneyland for a discount if we say we are not interested in It’s a Small World, and we don’t get a discount from our cable provider if we don’t want to watch Fox News.

And now let’s go back to the museum, which also has a two-part pricing problem. It can charge an admission fee and offer free “rides”, which in this case are all the different rooms and exhibits, for as many hours as you like, or it could lower its basic admission price (perhaps all the way to zero) and charge per room viewed, or per hour of viewing. But for almost all museums, the marginal cost of allowing the customer to stay for another hour is zero – I don’t impose costs on the Frick by staying for three hours instead of two. And so it doesn’t make sense to charge me extra for that third hour. (Note there might be “special” exhibits where we depart from this rule, in the same way we pay extra if we want HBO with our cable – we’ll talk about these exceptions in a later post).

The one exception that makes sense is where the museum is so crowded that my staying an extra hour really does impose a cost – I am making the museum more crowded for all the other visitors. And this is where the analogy of a car parking lot makes sense – the car is taking up scarce and valuable space. But the museums that face that issue are few. For the vast majority, giving visitors as much time as they want under a single admission fee, even if they don’t use it, makes sense the same way big bundles of cable channels make sense.

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This is For What It’s Worth, a blog about pricing the arts. Here we will talk about setting prices for museums, performances, festivals, and all the other things arts organizations sell once the visitor is in the door. We’ll talk about hot topics like dynamic pricing, but also perennial issues such as single performances versus subscriptions and memberships, student and senior discounts, scaling the house, bundling, two-part pricing, and pricing to further the mission of nonprofit arts organizations. We’ll see what we can learn from others, whether in the hospitality industry, sports, travel, groceries, fairgrounds, anything that might provide some insights.

I’m happy to hear from all readers with comments, observations, and, especially, topics you would like to see covered. Thanks for reading!

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Comments

  1. says

    Welcome to ArtsJournal, Mr. Rushton. May your blog become a place where issues regarding the arts and economics are wisely considered.
    So perhaps this isn’t a “wise” or smart comment, but I don’t see why most publicly funded museums should charge anything at all. In NYC where I live the Met has been charging, although as founded its mandate was to be free (and I understand the charge is currently being contested in court by board members). MOMA charges $20, which is certainly a deterrent to any family or people who do not have much disposable income to visit, whether for five minutes or 6 hours. Both of these institutions receive considerable City support — or, if it’s cut, have been beneficiaries of grants from our billionaire mayor. Both have nearly full-time fundraising efforts that result in the wealthy contributing in response to glamorous dinners and balls. Both have large gift shops and pleasant, rather overpriced restaurants. What percentage of their incomes and annual budgets are gained from admissions? How does one estimate the “cost” to underprivileged kids and underserved communities that fees prevent from taking advantage of institutions that enjoy tax right-offs (as do their donors)? In Chicago, where I grew up, free access to the Museum of Science and Industry and the Art Institute allowed young people to educate themselves. Now both of those museums charge hefty entrance fees. So much for an avenue of upward mobility, or cultural sophistication being available to all citizens, regardless of income. I can understand that the cost of mounting special exhibitions must sometimes be paid for by attendees. But I believe public museums are like public libraries, and ought to be in most cases for everyone free. Is that no longer feasible? If not, please explain. City and private contributions reduced? Costs rising? So how do we balance those circumstances with the public good?

    • says

      I agree with Howard completely. In an ideal world, museums should be free.

      In London, where I lived for many years, all national museums are free (beneficiary of Tony Blair’s Labor reign). They do charge for special exhibits and have timed tickets with blockbusters.

      Currently, Los Angeles County Museum of Art is limiting members to two tickets each for their huge Stanley Kubrick show.

      So there are ways to manage attendance and try somewhat to balance budgets. But maybe some wealthy donors would choose to give an endowment for free entrance?

  2. says

    That’s interesting to consider, but to take the pay-as-you-go model to its conclusion you’d turn museums into nickelodeons, with works of art like peep shows where you put in a coin (or swipe your card) for a few minutes of viewing. If I were running a museum I wouldn’t want my audience weighing the cost of walking into the next room, or checking their watch to see if their time was almost up. I’d want them to roam freely, particularly in an encyclopedic museum where visitors can study the relationships between cultures. How about charging per hour for a seat in the library reading room? Even in a museum with only one or two discreet exhibitions, I’d want visitors to leave financial concerns at the door and focus on looking and thinking. Nevertheless, some special pricing is needed to alleviate crowding at the heavily marketed museums in our major cities. – Jason

  3. says

    Museums are indeed like libraries in that there is an ideal that access to education may open the opportunity for self-improvement, social advancement, spiritual well-being and even for some, enlightenment. Museums should not become a commercial enterprise, even if sound principles of cultural economics may play into the design of their services. We live in an era of commercialism, predator capitalism and crass vulgarization of all experiences. Museums offer a perspective that art may survive the decline and demise of economic models.

    By the way, people are abandoning cable for services like Netflix, Roku and Hulu, in a desire to pay less and tailor their programming, but the comparison is not apt, as cable is a commercial enterprise.

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