Motion Picture Industry Value Chain Analysis

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Register to read the introduction… All stages are undergoing consolidation and technological changes, but the basic three-phase structure has gone largely unchanged since the 1920s.

Studios produce the lifeblood of the industry; they create motion picture content. Content drives attendance, and studios are highly concentrated. The top six studios in 2012 created 17 percent of the films for the year, but these films accounted for 76 percent of the box office gross (see Exhibit 5). The top 10 studios constitute over
90 percent of box office receipts. This concentration, coupled with highly differentiated content, gives the studios considerable negotiating and pricing power.
Studios are increasingly managed as profit centers in large corporations. Management is risk-averse because investments are large and a formula for success is elusive. Consider the fate of two comic book-inspired films in 2011. Warner Bros.’s Green Lantern was considered a flop, grossing $219 million ($116 million domestic, $103 million internationally) and ending plans for a series. That same year, Paramount’s Thor
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Single-theater and single-screen firm exhibitors fared poorly as studios retained the upper hand in setting rental rates. Exhibitors sought to increase bargaining power and economies by consolidating, thus multiplying the bargaining power of individual theaters by the number of screens managed.

This reached its zenith in the 1980s with the mass rollout of the multiplex concept.
Maximizing bargaining power based on multiple screens while minimizing labor and facility costs, exhibitors constructed large entertainment complexes, sometimes with two dozen or more screens. Most of the original, local, single-screen theaters that had survived were doomed because they were unable to compete on cost or viewing experience and unable to gain access to the capital needed to construct multiscreen locations. Today, the typical exhibitor location has 7-12 screens and is likely to be operated by Regal, AMC, Cinemark, or Carmike. These four operate 1,061 theaters in the
U.S. (just 19 percent), but control 45 percent of the screens (see Exhibit 8). This market concentration provides exhibitors with negotiating power for access to films, prices

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