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.
1) “Blockbuster-ability”, or the ability to consistently produce awide 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 lifecycle and gererate revenues far into the future.
Film profits are rare and difficult to measure. There are high promotional and marketing costs which include fees paid to exhibitors, distributions fees, overheads, interset and expenses ( paid usually to studios distributors). These combined costs greatly reduce the revenue sream 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 guarentee 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.
Thousands of screenplays are in developement 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.
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