Business Policy & Strategy

MGT4394 Business Policy & Strategy Days 2-3 Mini-Case A Horror Show at the Cinemaplex? Steve Gove, Virginia Tech Brett Matherne, Loyola University of New Orleans If the motion picture industry’s performance in 2007 were a feature presentation, the marquee would read “Massive Box Office: Smashing Records the Sequel!” At $9.63 billion, box office revenue set another record in 2007, a full 5 percent above the record set in 2006’s.1 An astonishing 1.4 billion tickets were sold in 2007. But beyond the headlines, the industry is a study in contradictions: the number of theaters is declining, but the number of screens is at an all time high (Exhibit 5) revenues are up, but attendance is largely flat – that 1.4 billion tickets is little improved from 1997 when 1.35 billion tickets were sold and a fraction of the 4 billion sold in 1946. Then the average person attended 28 films a year, today it is 6.2 (Exhibits 1 & 2) the U.S. population is increasing, but the size of the market in the core demographic group is growing more slowly (Exhibit 3) Americans spend more time than ever on entertainment – 3,500 hours annually – but only 12 are spent at the movies.3 The average person spends as much time watching TV every 3 days. Movies remain as popular as ever, but opportunities for viewing outside the theater have greatly increased. While motion picture studios increased revenues through product licensing, DVD sales, and international expansion, the exhibitors – movie theaters – have seen their business decline. Movies are more available than ever, but fewer are venturing to the theater to see them. Many theaters have ceased operation, driven from the market by consolidation and as patrons stayed away. Will the marquee at the local theater exhibitor soon change to: “A Horror Show at the Cinemaplex?” How has this come to be? What can exhibitors do to respond? The Motion Picture Industry Value Chain The motion picture industry value chain consists of three stages: studio production,