Movie Production and Distribution Industry

Industry Overview A major influencing factor in the general environment of the movie production industry is the implementation of new technology. The improvement of technology has always been a driving force behind the filmmaking industry. There are various kinds of technology forthcoming. A major one is the development and use of 3D, IMAX and digital film. These new developments have changed the way that movies are made and affect the cost and method of film production. New cameras and recording methods are required in production and this is forcing the directors, actors and other staff to adapt their techniques. Due to the vast array of technologies that can be utilized for movie production there are low barriers of entry for suppliers. The production industry has been able to maintain leverage over these new corporations through their economies of scale and their ability to influence the end user of the product. Another important technological development is the digital streaming and downloading of videos. This new technology is having both positive and negative effects for the filmmakers. The ease of digital proliferation has allowed production companies to widen their brands and make more films and television programs. This has created greater revenue for the industry. Digital streaming has made way for a new kind of company focused on this delivery method. The improvement of digital animation has also increased the profitability of production studios by lowering the operating budgets of projects without losing revenues. This new technology has bred new studios and an entirely different genre of films that cater to a specific market segment. Some of the major production studios have moved quickly to integrate these new studios. On the negative side there is an inherent danger of increased piracy due to the digital nature of film distribution. In an attempt to slow the negative effects of piracy many large production companies have invested heavily in bills such as Stop Online Piracy Act (SOPA). This bill would expand the legal enforcement of online copyright infringement and protect the intellectual property of the companies.
Another influencing factor in the general environment of this industry has been the global and national economy. The recent global and national recession has lowered the per capita disposable income of most people. The movie industry relies heavily on a vibrant economy. With the annualized per capita income estimated to improve by 2.4% for the next five years the movie industry is expecting an increasing market for their product. There is also a major economic impact from digital proliferation, as stated above. The free and easy access to digital entertainment is driving the demand for movie production down despite all of the improvements in cinema experience and technology. Advertising and marketing of related merchandise has a large impact on the profitability of this industry. Product placement and the development of products that are being released in conjunction with films provide a major revenue stream and are also dependent on the state of the economy.
The movie production industry has many suppliers that range from camera and film equipment companies to talent agencies and script writing guilds. Movie production companies are generally able to exert leverage over their suppliers due to their economies of scale and the large amount of substitutes that can provide them with what they need. There are very few barriers to entry in talent and script writing agencies. At the same time some talent agencies are able to exert leverage on the production companies by influencing the end users of the film product. They do this by marketing and otherwise representing famous actors, writers and directors. The success and failure of most films is predicated on the inclusion of household names and this gives the talent agencies significant negotiating power.
The buyers of the movie production industry are also various and include cinemas, digital streaming film companies and cable providers and networks. All of these industries are similarly concentrated so none gain an advantage in this respect. The major contributing factor to leverage in this relationship is the ability to influence the end user. The movie production companies, through the use of trailers and other marketing devices, are able to create demand for their products. The buyers are forced to bid on these products to provide their consumers with superior entertainment. Most of the buyers are in competition with one another to pay the most for what the production companies create.
There are several large competing companies in this industry. The top four companies make up approximately 67% of the revenues in this industry and concentration is medium to high. It fluctuates a great deal due to many mergers and acquisitions. The larger firms tend to be significantly more effective in this industry due to their ability to absorb large losses. Movie production tends to be a high risk investment and many projects fail based upon consumer tastes and unforeseen circumstances. The major companies in the industry pursue competitive advantages by focused differentiation strategies. These strategies are based on market demographics and typically fall in line with the age groups of end users. There is still major competition for high quality talent in acting, directing and script writing, but most of the key players have carved out their respective niches in the market. There is a high value associated with the digital rights to film projects and companies experience a wide array of legal disputes in respect to the dissemination of their products. Due to the large size of the major competitors in the industry there is a trend of vertical integration going backward and forward in the supply chain. Companies are attempting to realize economies of scope by this integration and are diversifying themselves. There are a myriad of substitutes for this industry in the broad sense of entertainment. Sporting events, both televised and live, as well as live theater performances, musical performances or any number of other activities that an end consumer might spend their disposable income on. Movie production has ingrained itself into the American culture to such an extent that it is difficult for any one of these substitutes to present a major threat to its target demographic.

Warner Bros Studios are a producer in the movie production industry and ranked third among the leading film studios. They add value in coordinating the production of movies by utilizing A-list talent and producing films with large budgets that appeal to the public with new special effects technology.
Warner Bros lends much of its success to their key work with vertical integration. They have created a company that is able to manage costs because it manages all aspects of production by cutting out the middleman companies. They cover everything from hiring the talent for their films, to working closely to develop the music in their movies, to creating their own trailers for marketing the films to the general public and their buyers. Most of their competitors are not able to recreate this formula, but the ones that have done so effectively are Disney and NBCUniversal. Vertical integration cuts down on overall costs and is difficult to recreate. Competing and startup production companies are not able to avoid the traditional costs of the industry and often do not even know whether or not their product will be successful. With a high-risk product, production studios must be able to absorb a relative amount of cost in the event that their product fails to garner success. Smaller studios essentially cannot afford not to put up a successful product because they depend on the revenues to fund further projects. Warner Bros is very effective in how they handle this portion of the production process. They have a huge leg up on most of their competitors and that has helped lead them to be successful.
Warner Bros pursues this strategy because it gives them a strong foothold among their competitors and helps secure a larger amount of revenue when their films gain popularity. They’ve been relatively successful thanks to vertical integration. Being a company owned by Time Warner, they have direct access to not only the individual film studios such as New Line Cinema, but they then have their own, technical operations, television, animation, music, and video gaming companies that can work directly with them on production, marketing, and actual distribution. They have a history of either monetizing or co-monetizing all of their film projects and maintaining complete worldwide distribution rights to all of their properties. This way they maximize profitability and they are able to practice relative risk-mitigation. They typically employ between 5,000 and 15,000 people depending on the current number of projects on hand. They are split into multiple divisions and projects, with much of the labor being contracted out. Actors, directors, conceptual artists, grips, cameramen, etc are often contract employees for a limited number of films or projects and other departments such as prop fabrication, costume design, and even post-production work fall to Warner Bros in-house departments.
The culture at Warner Bros is aggressive and expansion-based. The company seeks to reach the largest possible slice of market share and tries to instill this drive into it’s employees. This leads to many of its productions aiming for an epic scale. Culture at Warner Bros is centered around expansion and sustainability. They have a penchant for expanding into local markets, assisting with productions by local directors and actors, or utilizing international locations during filming to promote economic growth which secures their ability to profit despite economic fluctuations globally. They make it very clear in their promotional content that they want to be known as an international studio, not just associating themselves with the U.S., their global headquarters.

Disney is a widely diverse company spanning its operons of all areas in the entertainment industry, but what the company is known for is its memorable movies. This is what has allowed the company to expand not just from the movie production industry, but also diversifying to other areas in the entertainment industry. Due to the nature of the industry Disney contracts the producers, directors, actors, and production teams on each movie production, which uses postproduction studios to create its special effects for each movie. In order to have a competitive advantage Disney has been able to vertically integrate its operations creating Disney DVD and owning a substantial amount distribution company’s such as Hulu and Youtube. This enables the company to sell directly to the consumer. Not only does Disney sell directly to the customer by way of its distribution companies but they have also licensed its movies to movie theaters and other video distribution company’s.

Disney is currently the top competitor in the movie production industry. Its success mainly stems from its goal driven mindset inside the company’s culture. This mindset has allowed the company to acquire many successful companies’ making them one of the most diverse company’s in the industry. Recently Disney’s strategy seems to be a differentiation by focusing all its talents on expanding the worlds on its most popular franchises. This gives them a competitive advantage on its main competition. Disney’s aggressive diversification and focus on its characters has set the bar for the other studios competing in the industry. Disney is known for its memorable characters and worlds created by the movies it produces allowing the production company to become a powerhouse in family movies. However, in recent years in order to stay competitive Disney has become diverse in many aspects of the industry. Some have been vertically and horizontally integrating. An example of this is its acquisition of studios such as Pixar, Lucasfilm, and Marvel. The company’s ability to diversify has allowed the company to eliminate some of its competition as well as giving them more control in its movie production. These acquisitions have also allowed the company to expand its portfolio of memorable characters and target audience. Disney has given these studios strict guidelines to follow allowing them to continue to add value to Disney’s family friendly brand. Disney’s ability to diversify into different parts of the industry is what allows Disney to have a competitive advantage. All of these acquisitions have been companies that have been ground breaking and pioneered a different aspect of the industry. One could call the corporation a lion, waiting to pounce and devour any aspect of the industry that befits them. With that being said, one could say that the culture inside the corporation is strict and reward driven. This type of culture is the reason why the company has been so successful in acquiring the types of business it has and has continued to be, for the most part, successful with its franchises.
Structurally, Disney seems to have a divisional structure. The acquisitions of the studios are in different segments of each market. This has allowed the company leave each studio with its own team working on its films while leaving the parent company to regulate its operations. However since the recent acquisition of Lucasfilm Disney has since announced a reorganization of its company. The reorganization of the company could mean that its going for Matrix organizational structure which would allow the company to allocate all of its resources into the different types of movies the company produces making for a more efficient production.

NBC Universal Media, LLC is an entertainment and media company that is involved in the production and marketing of entertainment, news, and information products and services to a global audience. NBC began its succession through the strategy of diversification. They began with the formation of two NBC cable television networks, CNBC and America’s Talking, but also had ownership of sports and other cable channels. While other major companies such as Disney were focusing on content and theme parks and Time Warner was putting all their attention into internet, movies and publishing, NBC narrowed their focus to being experts in television and being the premier content provider for television and digital platforms covering all time slots and genres. NBC started to expand their name when they began to operate NBC Desktop Video, a financial news service that gave public videos via computer and with the agreement with Microsoft gave them the opportunity to create MSNBC. Later, they thought their name, NBC, was strong enough to venture out of the United States and to international territories with the help of Dow Jones & Co. NBC was successfully creating an image for themselves to the global public and towards advertisers. Being the first coast to coast broadcast, the first license for a commercial television station, the first to offer an early morning news program and being the first major television network to unveil a full scale web offering has also given them a head start over other competitors and is the reason why they are one of the leaders in this industry. NBC has become an aggregate audience for advertisers. NBC’s revenues mainly consist and traditionally come from advertisers, but they avoid advertisers that seek to advertise through multiple media and focus on those that want television.
Television plays an important role for advertisers trying to reliably reach a broad or targeted audience. Advertisers use all the media they can so media companies always try to give them discounts for an account, but NBC differentiates themselves by being the only constant on screen program. This gives them a competitive advantage. Advertisers seek a media company who has the ability to advertise throughout the whole day and NBC offers them that which sways advertisers their way. NBC is trying to consolidate their process, operation, and IT into a single unit. This gives them the ability to know how to market, sell, and price inventory across broadcast network, cable properties, and digital platforms. They also know which show or channel an ad should run on. NBC’s strength didn’t all come from relying on diversifying its media offer, but rather the brand differentiating itself by being the only constant on screen program from day to night. NBC is selling its brand as a seamlessly integrated package to effectively reach the wealthy, international, educated consumers. People like choices and CNBC draws viewers who are interested in finance, MSNBC gathers viewers who are interested in general news information and Telemundo gives the US Spanish-speaking their own program. They were successfully branching their NBC name into global audience interests and needs through their variety of different programs. Soon they became hot headed and overly confident with all the expansions over international land. They soon hit a major financial crisis and due to the recession their owner, General Electric, started cutting back on NBC program development so they would be able to focus on their own core strengths. Comcast, who is involved in the cable and internet service in the media market, took an initiative to buy out NBC Universal from GE. With the merger of Comcast and NBC they would both benefit. Comcast would be able to speed up the availability of on-demand movies bringing them closer to DVD release date by using NBC’s content. They would also be able to provide more hours through cable, over the air, and on-demand and online programs that NBC has. This includes local news, children shows, and Spanish language content. The Comcast and NBC consolidation would expand Comcast vertically as they combine video production, NBC, and the video distributor, Comcast, into a single, powerful entity. Comcast would also be able to expand horizontally as they would be able to add NBC’s programs such as Bravo, E!, and other channels into Comcast programming and NBC’s broadcasting station into their video network. These two companies, through vertical and horizontal integration would position themselves to deny other competitors access to programming or to raise the cost of that programming. In fact Comcast and NBC would have a competitive advantage as they would be able to drop the prices of distributing videos due to the three distribution products Comcast has. Broadcast, tv, and internet, are all merging into the network. The competitors would be at a disadvantage and would have to come up with a new business model to convince content owners and programmers to work with them. This merger would give the Comcast cable system the largest multichannel video programming distributor in the United States and the largest residential internet service provider. NBC Universal culture has committed themselves to attracting and retaining the best and most diverse talent. It provides them with a significant advantage in the media and entertainment field because of the different opinions and ideas coming from a diverse group from different backgrounds, cultures, demographic locations, and life experience. NBC is increasing diversity and creating programs that will encourage diverse individuals to pursue careers in media and entertainment. As they work with others who are as concentrated in diversity as they are. NBC Universal commits themselves to making employees feel their contributions are valued and they are benefited by the fact that it promotes work/life balance, professional growth and development, health and wellness. Cinemark Holdings is a buyer of the movie production industry and is the third largest member of the domestic movie theater industry. They add value to film viewing by providing comfortable and accessible locations with the latest in technical innovations, as well as providing high quality concessions for moviegoers and leading customer service in the industry. They have recently made efforts to update all of their first run theaters to digital projection and development of the XD theater experience, in which the movie screen stretches from floor to ceiling and wall to wall in their auditoriums. They are also converting the majority of their theaters to stadium seating to provide added comfort and an enhanced movie going experience.
They are able to compete well with other companies in the industry due to their adherence to a strict policy relating to demographic analysis and focus on the development of lower cost and suburban market development. They have also chosen to focus on the movie theater industry in Latin America. Another key to their success is consistent organic expansion. Their willingness to build and open new theaters has built positive relationships with their suppliers in the movie distribution industry as well as the confectionary and grocery wholesale industries. As a large movie theater company they are able to realize economies of scale in revenues generated from concessions and ticket sales that many smaller chains cannot compete with. They pay close attention and dedicate a great deal of research to the development of real estate in growth markets and are always on the lookout for locations near suburban shopping centers where the majority of their customer base tends to be. They have made an effort to own, rather than rent, many of their properties and this provides them with enhanced cash flow from those locations. This company has also chosen to invest in second run theater locations where they charge a substantially lower amount for the actual film ticket but are able to realize high levels of revenue from concessions. They have chosen Latin America as an area of focus because they perceive it as a growth region in the cinema industry. It is a relatively untapped area for this industry and they face little to no large competition there. They intend to continue an organic growth in both their Latin American market as well as in the United States.
These policies correlate with a strategy that is centered on focused differentiation. Cinemark has chosen to focus on a specific market segment that is largely ignored by some of their competitors. Regal Cinemas as well as AMC tend to focus on urban developed areas and areas where there is an established major market. They also cater to first run showings of films for high prices. While Cinemark maintains a presence in urban areas and they operate many first run theaters, they focus more on providing high quality theaters to midsized markets and the surrounding suburbs of major markets. Due to this strategy there is a large amount of weight put on to the study of demographics. The company studies trends in both per capita expendable income in an area as well as the tastes and population increases in that area. The focus on less developed markets provides a benefit of lower real estate costs and allows Cinemark to build multiplexes (Theaters with a large amount of screens) and to lower their prices in relation to the competition. In this way they are able to be cost leader in many markets. This is not their key strategy, but it can benefit them in the low income markets where they operate and consumers tend to make more frugal decisions with their expendable income.
There is not much published describing the structure of the business, but logic would dictate that it is primarily functionally organized. In order to recognize the economies of scale that benefit the theater chain they would be organized in a manner that maximizes efficiency and provides them with a wider view of the company at large. This company relies on maintaining higher profit margins than their competition for success. The current CEO, Mr. Mitchell, was also the founder of the company so he would be particularly concerned with the centralized control of all aspects of his company. Cinemark is also focused on a growth strategy and to do this they need to have financial analysis and accountability at a company wide scale. With access to knowledge about company performance as a whole they can make better decisions about where to expand and the degree to which expansion is appropriate. There would also be some divisional organization on a regional basis due to the size and geographic proportions of the company. This is especially true in the Latin American segment of the company where financial reporting would have to be separate from the U.S. markets. With the companies’ strategy focusing so heavily on theater location they would also need to make real estate decisions on a regional basis due to irregularities in regional prices and tastes of consumers. Each theater would also have to maintain its own management structure to ensure proper ordering and receipt of delivery of specific films and concessions as well as customer service and individual reporting of financial figures. The company employs a large number of relatively unskilled laborers that range from ticket sales to concession operators and film projection specialists. The majority of theaters have been converted to digital projection so the highly skilled projectionists that were required for old projectors have been mostly replaced. Despite the regional division of the company there has to be a final functional corporate structure to facilitate demographic and financial information consolidation and the building of relationships between movie production companies and grocery wholesalers. This organization would allow effective decision-making about what films to feature and what concessions to provide for the whole company.
In a company that is so consumer focused the culture has to revolve around the customer. In the theaters themselves employees are trained to focus on providing a fun and happy atmosphere for customers to feel comfortable and cared for. This involves a high value placed on customer interaction and satisfaction. Many employees of Cinemark theaters are young people and this is their first job. There is high turnover at the lowest levels of customer service but the nature of the industry attracts many young employees. At the corporate level there is a high regard for the industry that Cinemark takes part in. As stated above, the founder and CEO has been with the company since it’s inception and has been in the movie industry his entire career. The effect that a founder can have on the attitude of a company is profound and he has undoubtedly ingrained one of reverence for the entertainment industry as well as an intention for providing the best experience available for the consumer. It is also obvious that this company is aggressive and is constantly trying to expand. This aggressive nature would certainly create a culture where growth is a central theme. With strong corporate goals in place there is a high level of emphasis put on pleasing the customer in everything from theater amenities to the concessions provided to patrons.

With the traditional method of entertainment delivery declining, Netflix goes the other way around of recorded sales of over 3.6 billion dollars in 2012. Netflix has become the major competitor in a fast changing entertainment distribution industry where utilizing the combination of technologies from different era has revolutionized the way consumers getting their fix of video entertainment. Netflix managed to drift the traditional video renters from video store to their mailboxes and internet. Netflix has successfully ride along the new technological wave of how media content is being delivered. Started as a subscription based DVD mail-in rental service, it expanded its delivery method to its customers with internet streaming using its website Netflix.com.
Netflix rises to the promenade as the major player in video rental industry due to the struggle Blockbuster as its main competitor. Unable to maintain its profitability, Blockbuster struggled to keep up with the high operation cost of its retail stores and the rise of the internet media entertainment. Without retail facilities to maintain and its centralized operation based clearly enabled Netflix to cut cost and offers very appealing price point to its customers. The delivery method that offers consumers the convenience of walking to mailbox and their computers to access their movies are game changer for the industry. The extensive and wider collection of its videos library also a major factor that keep Netflix has the competitive advantage towards its competitors such as the revamped Blockbuster, Hulu Plus, Redbox, Amazon Prime and Apple’s iTunes.
Before Netflix was founded, the CEO Reed Hastings was a technology entrepreneur by establishing Pure Software as one of the world’s largest software company before its sale to Rational Software in 1997. After the sale, Reed Hastings went on to start Netflix together with Marc Randolph (Netflix.com). As an organization, Netflix has its own interesting culture in where employee autonomy is not just a slogan but actually reflected daily in the workplace. The executives trust the staffers to make their own decisions on everything. Netflix’s full time salaried workers are allowed to take vacation days as long as possible without having to ask permission from their supervisor. There is also no requirement for them to clock in or out of their office hours. It is one of the very few company that managed to survive its instilled working culture since the company’s inception and after it went publicly traded. Being in highly technological and entertainment industry, this kind of culture is absolutely needed. In a way it helps to attract the creative talents from the industry that majority are younger in age and not used to the constrained work environment.
Netflix’s core operation started with its DVD mail-ins and slowly introduce its internet streaming facility. Initially the DVD mail-ins and internet streaming was offered as a bundle. But with the growing number of internet streaming, in 2007 Netflix begin to separate the division of mail-ins with the internet streaming by charging them separately to customer. The separation was not received well both by consumers and shareholders in the beginning, but it has proven as a right strategy as it allows Netflix to focus in investing aggressively in the quality and quantity of their streaming libraries as well as enable them to venture outside the United States using the existing infrastructure of internet streaming. The strategy has tripled its revenue from $1.2 billion in 2007 to $3.6 billion in 2012 with 13% increase in 2012 sales came from overseas growth.(Hoover)
The challenges that Netflix has is the competition from its main competitors such as Redbox and Amazon Prime are mostly on the way it secured its forward integration. While Netflix has competitive advantage where it has secured good contracts from major movie studios contributing to its extensive library, but the lack of forward integration could cause Netflix to lose its position as market leader. Netflix’s main competitors are companies that have strong backward and forward integration such as Apple’s iTunes with its iPhone and iPad hardware lines, Amazon Prime with its’ Kindle, Redbox with Verizon’s solid cable TV and internet structure, and Comcast’s Streampix with its cable internet. The over reliance of internet bandwith from ISPs as well as compatible hardwares as channel to stream Netflix contents potentially become the Achilles heel of Netflix future growth.

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