I. Case Synopsis
Motion pictures are a key driver of the market for entertainment products, one of the largest export markets in US. Motion picture industry consists of three stages: studio production, distribution, and exhibition. The studios produce the lifeblood of the industry, the films that are its content. The biggest players at this level are the majors, big studios which integrate production and distribution, as do the slightly smaller mini-majors. The next stage is distribution. Distributors are the intermediaries between the studios and exhibitors. Distribution entails all steps following a film’s artistic completion including marketing, logistics, and administration. Distributors coordinate the manufacture and distribution of the film to exhibitors. Finally, exhibitors are movie theaters owners, controlling anywhere from a single-screen theater in a local community to a nationwide chain of multiplexes. Exhibitors are not vertically integrated with distributors and fully independent to pursue their own profit-maximizing strategies. There are three primary sources of revenue for exhibitors: concessions, advertising, and box office receipts. Exhibitors seek to maximize their profit from selling movie tickets and concessions. Overall, the exhibitor has limited control over both revenues and profits. Attendance allows for profitable sales of concessions and advertisements, but there are significant caps on the volume of concession sales per person, and selling prices seem to have reached a maximum. Advertising remains an attractive avenue for revenues and profits, but audiences loathe it. In the late 90s, the industry began converting to digital distribution, a format that is now becoming economically viable. However, the cost for a digital release print is far lower than traditional film; but these cost savings most directly benefit the studio while, in the meantime, exhibitors pay to convert their theaters. Financing these investments was a significant issue for exhibitors due to the total costs. Movie theaters offer many experiences for moviegoers, but the unique value proposition offered by movie theaters, large screens, the long wait for DVD release, and advantages of theatrical sound systems also appear to be fading. Increasingly larger television sets, DVD content, and the adoption of high definition (HD) technology are all eroding these advantages. With the advancements in home entertainment systems consumers are investing money into their own home viewing systems. They have several options to stream video content into their comfort of their own homes. Movie theaters have implemented digital content and 3D but it’s not enough to keep up with the competition of technology. One of the most ominous reasons is recession. There has been a long-standing effect between economic recession and depression and movie attendance: as the economy declines, attendance increases. There are some possible alternative business models to be applied in movie industry, some theaters has expanded food offerings, has on-site restaurant or bar service, some also offers valet parking and childcare. Opera’s Live in HD also an alternative content leader. Exhibitors continue to experiment with alternative content, mostly for individual sporting events where exhibitors must compete directly with home viewing. Exhibitors were focusing their attention on the international market where growth is highest. Internationally, both attendance and receipts are growing. There appear to be opportunities to increase revenues from increased attendance and ticket price increases.
II. Problems / Issues Identification
The condition of movie exhibitors in U.S are threatened. With the core demographic group expected to grow slower than the U.S 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. There is...
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