So is the next Kickstarter campaign going to be funding the salaries of Warner Bros. executives? Come on, people.
— Tim Goodman (@BastardMachine) March 13, 2013
So stormed Tim Goodman of The Hollywood Reporter, joining a chorus of pundits railing against the success of Wednesday’s Veronica Mars Kickstarter campaign. Underlying their criticisms is the premise that these payments represent a kind of crowd-sourced corporate welfare—an argument that misses the point entirely. With Kickstarter, Warner Brothers isn’t acting like a non-profit asking for charity; it’s being a capitalist, applying price discrimination to create economic surplus for itself and its customers.
Despite the apparent appetite for the movie (WB has raised more than $3 million in under 48 hours), before the Kickstarter campaign, it wasn’t clear Warner Brothers could make a profit from this latent demand. In its last season, Veronica Mars averaged just 2.5 million viewers, ranking it 138th out of 142 network shows. Even if every single viewer paid $12 to see the movie, the film would have earned just $30 million at the box office, far below the production budgets of such TV-to-film adaptations as Sex and the City ($65 million) and Firefly follow-up Serenity ($39 million). Under a traditional production model funded through flat ticket sales, there likely isn’t a large enough audience for Warner Brothers to justify The Veronica Mars Movie.
But while Veronica Mars’ fan base may be small by Hollywood standards, it is passionate. For many super-fans, the value of being able to watch the movie is far greater than what they would pay at the box office. In economic terms, if the movie existed and tickets cost $12, there would be a large consumer economic surplus; however, the consumer surplus would never come into being because Warner wouldn’t make the movie at that price point.
With Kickstarter, Warner Brothers is engaging in price discrimination to get past this paradox. By getting those super-fans for whom The Veronica Mars Movie is worth a lot to voluntarily pay some portion of the economic surplus they would receive from the movie’s existence in exchange for low-cost extras (t-shirts, digital downloads, etc.), Warner Brothers is able to capture enough of the movie’s value to society to support its production. Through the Kickstarter campaign, super-fans get the movie they want at a price they are happy to pay (the average contribution is currently $66); casual fans get the standard film at the standard price; actors and crewmembers get to pay rent; and the studio will produce a film that was unlikely to be made while guarding against losses for the company. Without Kickstarter, it is likely that this economic surplus would simply have been lost; with it, everybody wins.
While Kickstarter may be the most innovative use of price discrimination in the film industry today, it is hardly the only one. Indeed, movie studios have increasingly been using a different technological advancement to drive price discrimination, producing the same film in multiple formats and charging differently for each version. For those still distraught about Warner Brothers’ use of Kickstarter, I recommend taking solace in knowing that at least we won’t be subjected to Veronica Mars: The 3D IMAX Experience. Yet.