Movie Distribution Report

Topics: Film, Movie theater, Film distributor Pages: 6 (1678 words) Published: November 5, 2011
Movie Distribution Industry
Group 7

Market Overview

The market analyzed in this report is the distribution sector of the movie industry. In order to focus the scope of this report we are specifically looking at the distribution of films to movie theaters in Canada and the United States, and distinguishing the roles of movie producers and distributors. It should be noted that home video viewing is also a large part of the movie distribution market, but is too dispersed and complex to include in this report.

Figure 1 - Market Share of Film Distributors (USA & Canada) Figure 1 - Market Share of Film Distributors (USA & Canada) In movie distribution the top six firms gross eighty percent of total revenues. The top grossing firms based on 2010 numbers listed from highest to lowest are: Warner Bros., Paramount Pictures, 20th Century Fox, Walt Disney, Columbia Pictures, and Universal Pictures (see Figure 1)1. Much of the discussion will revolve around the processes of these six main distributors.

Cost Structure

In order to gain an understanding of the cost structure for movie distribution, it is important to briefly discuss the structure of the movie industry.

At first, a script and rights to produce a film are purchased by a production company. Second a distributor will buy the license to distribute the film. For most large production films, the distributor provides most, if not all, of the funding for the production. This practice transfers most of the risk to the distributor, but also gives the distributor rights to more of the profit. After the film has been produced, the distributor will screen the movie for buyers that represent the theatres. Next, the distributor will work with the theatres on a lease agreement to bring the film to their screens. Finally the consumer buys a ticket and views the film2,3.

With this understanding of film distribution, we will now take a look at the breakdown of costs for a distributor. The largest portion of costs are the licensing fees, accounting for 32.4% of revenues. These are variable costs as they depend on the deals that distributors strike with the producers. The second biggest percentage of revenues goes to marketing at 16.3%. The distributors are responsible for marketing movies in order to drive demand. Another 14% of the revenues go to producers as royalties. These costs are rising due to the fact that producers are doing more in-house distribution and can bargain for higher royalties. Packaging, shipping and other physical distribution costs account for 6.5% of revenues. These are expected to drop dramatically over the next five years as distributors make the transition to digital transfer to theatres. Fixed costs including rent, depreciation, administrative costs, utilities make up 11.5% of revenues. Wages make up much of the remainder at 15.9%. The remaining revenue is profit at 3.6%4.

Figure 2 – Movie Distribution Industry Fixed Costs

The largest opportunity that distributors are looking to exploit is the transition to digital transfer, currently making up more than 40% of the screens in US and Canada5. This number will continue to grow rapidly in the coming years and will allow distributors to reduce the 6.5% of revenues that is currently spent on shipping films to theatres6. With net profits of 3.6%, there is huge potential to increase earnings. IBIS

One of the largest threats to distributors is the producers attempt to create in-house distribution for their movies, made possible by digital transfer7. This will force distributors to pay more in royalties and marketing in order to prove to the producers that they provide value. With royalties already taking up 14% of revenue, distributors will need to prevent royalties from rising any higher.

Market Demand Drivers

In the last few years there have been several significant shifts in the demographics of moviegoers. Also there has been a rapidly increasing cost for movie tickets....
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