Recently, as thanks for a minor accommodation, I received a Vue cinema gift card. Though it was a generous and thoughtful gesture for a trifling matter on my part, I did what most people do when given gift tokens: I stuck it in a drawer and forgot about it.
Having recently come to try to use it — not part of the anticipated run of things, as we will see —rr I was surprised and a bit disappointed at some of its terms. Cue a full-blown JC microanalysis.
A gift card as a “unilateral contract”
A gift card is an unusual type of private debt security. It is a negotiable IOU for an interest-free loan. “Negotiable” because it is transferable and expected to be transferred: generally, the person who buys a gift voucher isn’t the person who redeems it. Unlike most negotiable instruments, the person who buys a gift card normally gives it away, rather than srelling it.1
Herewith a curious fact: as between the awardee of the gift card — me — and the cinema chain, there is no contract. I have provided no consideration for it, either to the chain, or the person from whom I got it. I may have done him a kindness, but that was then, and of course not in expectation of reward of any kind, let alone a Vue gift card. It is an axiom of the common law: “past consideration is no consideration”.
If the law allowed things to stand this way, it would make for frightful injustice: Vue could refuse to honour the card, saying it had no obligation to me, and my only remedy would be to ask the person to launch legal action on my behalf. And even then he would be hard-pressed to demonstrate any loss.
As I am already off my intended track and in danger of digressing further, let us just say that the law contrives a fictional thing called a “unilateral contract” which a merchant offers to all the world by issuing its gift tokens, and which can be accepted by acquiring the token, and the law will care not from whom one acquired it or how. Best not look under that rock, or ask what consideration I gave for it.
In any case, as the Vue Gift Card Terms and Conditions say:
11. Gift Cards should be treated as cash. The balance of a Gift Card may be used by anyone presenting it at a cinema operated by Vue or a group company of Vue in the United Kingdom. Vue accepts no liability for lost, stolen, damaged or altered gift cards.
A gift card as a bill of exchange
Another way you could regard this gift card is as a kind of pre-funded bill of exchange, drawn not, as would be usual, on a bank, but a cinema. It is like a cheque: there are three parties: the person who buys it at first is a “drawer”. The person to whom she gives it is a “beneficiary” or a “payee”: she discharges her debt (of gratitude) by directing the cinema to make its accommodations available to a specified sum.
The cinema is the “drawee”. It must stand ready to accommodate the beneficiary whenever she arrives. When a bank does this it pays first and collects from the drawer later, and harvests some interest in the meantime. When a cinema does it, it requires payment in full up front. It is pre-funded for its potential liability. Happily — for Vue, at any rate — it pays no interest, and should the deadline for presentation pass, it need not honour the gift card at all.
In any weather, transfer of the gift card is intrinsic to its value. You could buy a gift card for yourself, keep it and then redeem it yourself, but that wouldn’t make sense: you would be better just to keep your money and spend it when you need to.
Though we rarely think of it in such terms, and it does not attract much scrutiny from the financial regulators of the world, a cinema gift card is, therefore, a transferable bearer financial instrument representing money lent on uncommonly generous terms, even where the gift card does get redeemed.
As often as not, it doesn’t. Then, these are amazing terms. Those gift cards we never retrieve from the drawers in which we absent-mindedly stuff them represent, for their issuer, a loan it will never repay. That is the best kind of capital funding.
It is down to the uniquely odd economic dynamics that give rise to gift tokens in the first place.
Gift cards are meant to be lost
And this is the first thing to say about gift card economics. They are designed for oubliettes. From Vue’s perspective, the perfect place for its gift card is your “odds and sods” draw in the washroom — you know: the one with the chequebook stubs, broken mouse traps, old keys and packets of stale spaghetti. Over the entropic effluxion of time, the card will make its way to the bottom of the back of that draw, stuck with bits of chewing gum or smeared with grease, and with a fair wind it will slide down the back of the unit altogether where it will never be found until the next owners of your house, who bought it from the executors of your estate, get around to renovating it in 2045.
That is how gift cards can best fulfil their intended purpose, which is as a gift not to the recipient, but to the company that issued them.
Person A has done some kindness to Person B, who wishes to show gratitude without reducing things to the grubby business of cash. A gift card is perfect: it has a tangible value, it’s thoughtful, gift-like and, in its safe non-specificity, carries less risk of the beneficiary having that disappointed, “Oh, well: I suppose it’s the thought that counts” feeling.
As between giver and beneficiary a gift card neatly satisfies an unquantified moral obligation. For the giver, it is the thought that counts: what happens after she hands it over is no concern of hers.
As long as the beneficiary sees things the same way — most do — all is well. Those given to over-analysing things (hi!) might grumble: after all, a gift token is measurably worse than cash however you look at it: it’s less negotiable, it often has an arbitrary expiry date,2 and it carries a risk of outright worthlessness should Vue fail, be taken over, or just change its terms and conditions.3
But: as long as it is only the thought that counts, of course, none of this much matters.
As in so many other ways, irrational psychology trumps the crystalline logic of the market. Gift tokens have their place.
Token-gifting is a happy, three-way dynamic: the person who buys and gives it is satisfied at the instant of delivery: her “debt” is thereby discharged; thanks are conveyed, the gesture made, and everyone feels better about each other as a result. Does it matter who ends up going to the cinema? Does it matter if no one does?
It certainly does not, to the issuing cinema chain: indeed, that is its optimal outcome. What does it care? It has been paid, in advance of having to do anything, interest-free. If it is never called upon to perform its debt, so much the better.
So, there my gift card was, covered in shards of linguine and smeared with dried cheese, at the back of the oubliette drawer, well on the way to memorial oblivion. But what are children for but to keep their befuddled parents straight? My dear daughter Antagonista remembered it. She suggested that we might go to the pictures that evening. The Sinners was on. Apparently, it is very good.
Capital idea: what is more, the tickets will be free! Now, what did I do with that gift card?
The gift card effect
And this is the second thing to say about gift card: They give rise to a kind of mental accounting: the “gift card effect”.
A gift card that can only be used for certain things or at a specific venue resembles already spent money. In a way, that is exactly what it is. I might not spend my own money on a £7.20 bucket of oily popcorn, but since I am only in a place where I can spend this token at all for a couple of hours, and there is nothing else to spend it on, I might as well. Oily popcorn it is.
And not only that: since I want to get full value out of the card, and Vue won’t give me any change back off it,4 I will overspend, too. I am just exhausting something that I would otherwise throw out — or leave to moulder in my spaghetti and chequebooks drawer, by kicking in some of my own money to round everything up to buy something I don’t really want.
Gift cards thereby have different practical values among the three parties to the transaction they represent.
To a giver, a gift card is an asset worth its face value.
To the receiver, it is an asset worth whatever value the beneficiary places on the goods and services thereby redeemed. It is hard to believe anyone in their right mind would consider a bucket of popcorn, however large, to be worth what they ask for it at the Vue complex in North Finchley.
To the drawee, once purchased, a gift card is a liability, but only to the tune of the net cost of the goods or services redeemed with it. The larger the margin on those goods, the smaller the out-of-pocket liability the card represents.
Vue hopes you redeem against high-margin items
This is the third thing to say: sure, Vue would rather you did not redeem the gift card at all but, if you absolutely must, it will want to nudge you into “spending” it on the highest margin items it has to offer.
So, our movie trip. Being a model modern netizen, I went online to book tickets, only to discover that Vue would not accept gift cards for online transactions!
“Vue gift cards can be purchased online, in person at one of our venues or from many high street retailers. Your gift card can only be redeemed in person at one of our venues”.
How strange! You buy your Vue cards online. Why on earth could you not redeem them there?
Cinema economics
To help answer that, a quick word about cinema economics. Despite what you might think, film tickets do not drive cinema profits. Cinemas may retain as little as 20 per cent of box office revenue for blockbusters — the rest goes to the studio. For cinemas, tickets aren’t high-margin items.
They can’t afford to be: at the point where a punter decides to buy one, the cinema is competing with the bowling alley, the local pub, the ice rink and any number of nearby restaurants for the punter’s attention for the evening. It can hardly afford to price-gouge.
But once you’ve bought your ticket, the cinema has you more or less captive for a couple of hours.
The ticket is a loss-leader to get you into the venue. From there, the question is how much the cinema can upsell to you.
Enter the popcorn.
Cinemas make much better margins on popcorn, soft drinks and sweeties than they do on tickets. The BBC once estimated popcorn markups at 1,500%.
They are nudging you to buy popcorn
Abusiness that wishes to optimise redemption against the highest margin items it carries, should arrange things as best it can so that the gift card can only be used for those. A cinema should nudge punters to use their gift cards on popcorn and not tickets. If the cinema can persuade you to blow a gift card entirely on popcorn at a 1,500% markup, the cost to the cinema of a £100 gift card is £6.67. This is good business.
Now, Vue can only get anyone into its venue to buy its extortionate popcorn if it first sells them a ticket. These days, most people buy tickets online. Most people don’t buy popcorn online. You would need to be certifiably insane to buy popcorn online at the prices Vue charges for it.5 Therefore, it would be bad business sense to accept gift cards online. There, you are guaranteed to redeem first against your lowest margin item!
Since at the point of purchase, the cinema has been paid in advance £100 for goods and services to be provided on demand, its priorities are, in order:
Firstly, you never redeem the gift voucher at all.
Secondly, if you really must redeem the gift voucher, do not redeem all of it.
Thirdly, that part of it you do redeem, do not redeem on tickets. Redeem it for popcorn. Therefore, the gift card can only be redeemed in person at the theatre.
So here is JC’s bloody-minded contrarian advice, for ne’er-do-wells who wish to maximise the value of their gift cards: turn up and buy tickets at the venue, take your own popcorn, and if you are still hungry, hit Nando’s after the film.
The Sinners was great, by the way. Two thumbs up.
Playlist
Strictly speaking, you are not allowed to sell it, but since Vue doesn’t record the purchaser and does not yet have omniscient insight into our private dealings, it is difficult to know how it would police this. Among some silly terms and conditions, Condition 12 of the Vue Gift Card Terms and Conditions says:
12. Gift Cards may not be sold, resold or exchanged or used for any other commercial purpose without Vue’s express prior written permission.
This may be there to rebut the assertion that this is a regulated securities offering. I don’t know. But it does not make much practical sense.
Vue’s does:
15. The balance of a Gift Card is valid for 12 months from the last transaction which includes activation, a balance enquiry or a purchase.
Vue would probably justify this for accounting reasons — no one wants undated contingent liabilities – but it is essentially arbitrary.
It purports to be able to do that, too:
18. Vue reserves the right to change these terms and conditions at any time without notice to any bearer of a gift card. Such changes will be posted on www.myvue.com.
But good luck enforcing that with consumer protection legislation.
Condition 13:
13. The balance of a Gift Cards may not be exchanged for cash or credit.
While Vue is happy to advertise its popcorn online, it does not carry prices. Remarkable!
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