By: Kim Saline
February 24, 2010
To provide an analysis and make recommendations to increase revenue in the movie exhibition industry. Overview:
Ticket sales for movie theaters are at their lowest point since 1996. With the core demographic group expected to grow slower than the US population and with technological advances growing at speeds faster than the industry can keep up, ticket sales will continue to decline if the current business strategy continues to be followed. Concession sales and ticket sales are the two biggest sources of revenue for a movie theater. Both continue to increase in cost to the consumers and may have reached a price point that is starting to drive consumers away from going to see a movie. With the advancements in home entertainment systems consumers are investing thousands of dollars into their own home viewing systems. They have several options to stream video content into the comfort of their own homes. Theaters have implemented digital content and 3D but it’s not enough to keep up with the competition of technology. My analysis will give you information on the threat of competition from substitutes and the change in buyer behavior and demographics. I will use the five-forces model of competition and a SWOT analysis along with other sources of analysis. The information and recommendations that follow will provide you with the insight and building blocks to compete in the movie exhibition industry. Analysis:
1. Internal strengths: digital technology, 3D capability, the current real estate/locations of theaters, the venues lend themselves usable for many alternatives, economies of scale gives them buying power in the concession industry 2. Internal weaknesses: marketing of their product (movies), innovation, no competitive advantages, and the split of box office sales with distributers, reliance of concession sales and advertisements for revenue, costly to test products in advance, no focus on social experience of moviegoers, concession prices, rely on production companies for content, ticket price, disposable income drives sales, product differentiation 3. External opportunities: broader target audience, the growth of middle class globally, enhancing the consumer experience, healthier concession options 4. External threats: 3D televisions, home theater systems, shorter release windows to DVD, illegal downloads, streaming video, production studios innovating before theaters and going direct to consumers, new entrants with digital media skills, cloud computing, mobile apps ● Five-forces of competition
1. Rivalry among the sellers: Among the top 4 movie exhibition companies the rivalry is a weak force. There is no product differentiation and costs to consumers are relatively comparable. The consumers are attracted to a theater by location (close proximity to home), what the dining options are nearby, and the sound/seating quality. 2. The threat of new entrants: Entry barriers to the movie exhibition industry are high. Start up costs is high, the market is on the decline, and there has been a lot of vertical and horizontal integration in the business. Major companies have formed investment ventures with each other and the movie production and distribution industries in order to reduce digital conversion cost. Regal, AMC and Cinemark formed a joint venture in 2007 called Digital Cinema Implementation Partners (DCIP). DCIP has established a financing model between these theaters and several major movie studios to install digital projection and sound equipment in theaters. These theater companies also co-own National CineMedia, which organizes in-theater advertising, business meetings and non-feature content distribution. (1) Currently the threat of new entrants is low.
3. The bargaining power of suppliers: The movie theaters are very dependent on suppliers. Production studios control the...