The Movie Industry Analysis
(Works Cited at end of article)
Introduction
The Movie Industry is one of the most exciting and informative
business in the world, a business where the revenue of a single
feature film can approach or exceed $1 billion. In 1994, U.S.
consumers spent over $6 billion on movie tickets and another $34
billion on cable TV and video purchases and rentals. In 1996,
worldwide gross revenues generated by motion pictures in all
territories and media (including music and ancillaries) amounted
to over $40 billion.
These figures were only a fraction of total entertainment outlays
worldwide, spent mostly on American-made movies. Over 70% of the
population rents or goes to movies regularly, this accounts for
over 1.5 billion movie attendance’s each year in the United
States.
Strategic Issues:
1) “Blockbuster-ability”, or the ability to consistently produce
a wide variety of popular films at a profit;
2) Expanding distribution channels into the ancillary markets
where profit margins are higher; and 3) The value and depth of
film libraries, which extend a film’s life cycle and generate
revenues far into the future.
Key Problems
Cost – Film profits are rare and difficult to measure. There are
high promotional and marketing costs which include fees paid to
exhibitors, distributions fees, overheads, interest and expenses
( paid usually to studios distributors). These combined costs
greatly reduce the revenue stream flowing to the producer and net
profit participants. In addition, certain management decisions
made in the beginning, whether or not to hire “star” talent as
opposed to an unknown can be quite costly, although this sort of
decision may guarantee box office success of the movie.
Diversification & Integration – The ability to exploit a movie in
many markets diminishes investment risk and increases earning
potential. Diversification and integration into ancillary markets
can turn a movie that has lost money theatrically into a video
market winner. Unfortunately, if the studio is a small
independent it may cost prohibitive to diversify. If the studio
is a “major” that is not already diversified, the competition and
cost to do so would be significant factor.
Barriers to entry for independents – The most obvious barrier to
entry is the high cost of acquisition. Larger studios owe their
survival to ample resources, which afford them the ability to
weather box office disasters. Small studios would not necessarily
be able to survive box office failures.
Major studios also have an advantage in their ability to maintain
distribution networks across the country and in foreign markets.
This ensures that their films get to theaters and television
screens.
Competition – Thousands of screenplays are in development at any
given time but only 450 to 500 actually become motion pictures.
Of those, approximately 173 are actually released to the
theaters. Even then, the success at the box office is not
guaranteed because that success is always subject to public
preference.
Historical trends in the industry – Feature motion pictures have
historically had one major source of revenue in the United States
and abroad,”The movie theater.” Industry statistics reveal that
in the past ten years there has been an overall increase of at
least 30% in many ancillary markets and over 200% in the case of
home video. Today much of the world is undergoing a mass
communications revolution; hence, new movie markets such as home
video, cable and pay-per-view have been growing so rapidly that
they are no longer just ancillary markets to the basic theatrical
market but have become basic markets in themselves.
The latest technological frontier for motion picture companies
was in direct-access TV through telephone lines.
With the advent of the new computer-based technologies, “cable”
markets and direct digital-delivery of motion pictures via
satellite and the Internet are expected to increase dramatically
over the next five years, creating an accelerated demand for
original and re-run motion pictures.
DATA ANALYSIS
What is the competitive environment? There are thousands of
screenplays in development at any given time, however each year
only 450 to 500 of these are produced into motion pictures.
Although the majority undergo principal photography in the United
States, approximately 60 to 80 are shot offshore (including
Mexico and Canada). Of these approximately one-third come from
the majors (Disney, Sony, (Columbia-Tristar), Warner Brothers,
Universal, Paramount and Twentieth Century Fox) and approximately
two-thirds from the “independents”.
“Independents” are those companies engaged in the production
and/or distribution worldwide in all media of all motion picture
and television programs that are not generated by the recognized
major studios. It includes those independent productions, even
those distributed by a major studio, in which the producer
retains a significant ownership interest and is at risk for a
significant portion of the production cost.
Of the 450 to 500 feature films produced each year, only 155 were
given a theatrical release in 1994, 169 in 1995 and 195 in 1996.
Thus a significant number of features do not get a theatrical
release but are released directly to home video and other media.
Producing and/or financing these movies are approximately 6 major
studios, 50 to 80 major independent production companies and over
1,200 smaller independent production companies. The domestic
market share is evenly distributed.
Any major changes in the market?
*** (The Movie Industry by James Jaeger). Increased foreign
demand for U.S movies is reflected in the fact that recent export
sales to foreign markets hit an all time high in 1997. The
European foreign market accounts for 56% of global revenues
generated by English language.
One of the most attractive markets is centered around the Far
East, Japan being the largest. Focus on Asian themes has
produced many movies that clearly reflect this trend.
Generally speaking, if an English-language film made for U.S.
release does well domestically, it becomes popular in foreign
markets, particularly in Europe.
All of this popularity and success internationally has not come
without a price. Some countries began to complain about the
spread of American culture due to the movie industry. In order
to soothe these complaints, Disney and Miramax announced in
October 1994 the creation of a company to promote the
distribution of French films in the United States and increased
funding to French filmmakers.
Relaxed enforcement of the 1948 antitrust decree under Reagan
administration which allowed Universal, Paramount, and Columbia
to acquire interests in various theater chains.
Rapidly changing demographics. Shrinking population of 13 to 25
year olds who would traditionally see as many as 12 films per
year. Real growth audiences were becoming both younger and
older. The older group (40-49) appreciated mature themes; those
with children were also attracted to family oriented movies.
Distribution media is dynamic. Beginning in the late 1980’s,
ancillary markets (videos, TV, cable, or pay per view) began to
emerge as the high-growth segment in the industry. This growth
had a negative impact on box office sales as ticket growth was
limited by the relatively inexpensive availability of movies
outside the traditional theater.
Key Industry Financial Statistics: * Admission Revenues *
Average Cost per Film * Profitability (by Operating Margin
Percentage)
Results of past marketing strategies and current marketing
strategies –
Control and expansion of distribution channels has always been a
primary objective of major studios. In 1950, many theaters were
owned by major movie studios. This represented a trend toward
vertical integration into theaters. This risk-reduction strategy
combines the production, distribution, and exhibition functions
under the studio’s control.
The distribution pattern seen in theaters was reproduced in
ancillary markets. As with theater exhibition, films in the
motion picture industry began to vertically integrate into these
media, owning cable stations, TV networks, and video chains.
Even more recently, technology has improved to include such state
of the art viewing options as Pay-Per-View, Digital Video Disc
(DVD’s), satellite television, and Home Theater (surround sound).
Interactive Video and computer games are another huge new market
that is rapidly expanding.
Ancillary markets have proven to be invaluable sources of revenue
as in the case of Star Wars and Jurassic Park. There were such
spin-offs as toys, games, T-shirts and novelty items. These
spin-off sales may eventually be as significant as revenues the
picture has already earned in various other markets.
Significant socio/economic trends
*** (Entertainment Industry and the Environment – Internet) Many
studios and production facilities have developed comprehensive
environmental policies. Many studios have organized task forces
made up of various department heads to oversee the implementation
of these policies. They began recycling programs and then closed
the loop by purchasing recycled products, including office paper,
tissue products, towels and toner cartridges.
The movie industry has proven they are in tune with consumer
preferences when between 1991 and 1993, movie companies cleaned
up their films by increasing the number of G rated movies.
Works Cited:
1. Gunther, Marc. “The Rules According to Rupert.”
Fortune October 26, 1998 issue
2. Family Motion Pictures – Industry Statistics
http://www.familymotionpictures.com/merch/
3. Jaeger, James. “The Movie Industry.”
http://www.mecfilms.com/moviepubs/memos/moviein.htm
Copyright (c) 2002 Peter D. Marshall / All Rights Reserved
Recent Comments