Theoretical framework
The idea that economies of scale can be applied in the motion picture industry is based on the theory of economies of scale. As already mentioned, this theory argues that when output increases, the average costs decline (Besanko, Dranove, Shanley, & Schaefer, 2013). Thus, filmmaking company’s budget could be taken as a fixed cost and company’s output could be measured by films produced, the number of viewers or box office receipts. For example, copies of a film can be seen by millions of people. This provides an opportunity for economies of scale to exist in movie’s consumption (Marvasti, A., 1994).
Prior studies of the film industry examined the importance of economies of scale. Wildman and Siwek (1988) researched if …show more content…
film industry nowadays, we will examine Warner Bros, Universal Pictures and Lionsgate companies in 2013-2014 periods. The three successful companies are taken to represent the U.S. film industry. Here an assumption has been made that company’s size can be evaluated by the level of its total revenues. In addition, total revenues will be compared with company’s average costs per film produced. Thus, to see if bigger companies apply economies of scale, following hypothesis has been derived:
When Warner Bros, Universal and Lionsgate in the U.S. market get higher revenues, average costs per film decrease (2013-2014)
Moreover, filmmaking companies often produce movie sequences that become movie franchises. Making sequences increases the output of films produced. However, producing movie sequences might drive average costs per movie up. Studios might need higher budgets to make additional movies to the first one. This is because original product and its extension need to be similar (Aaker, D. A., & Keller, K. L., 1990). Furthermore, the firms need to maintain same actors to fulfil this need for similarity. Thus, the supplier is able to use this circumstantial advantage to bargain and demand wages higher than the market …show more content…
Furthermore, stars can directly contribute to movie revenues as well because consumers might be attracted to a particular movie due to their interest in or loyalty to the star of the film (Donahue 1987; Vogel 2010). In addition, consumers tend to associate movies with its leading stars rather than the company that produces it, unlike for most products (Moul, 2005). Therefore, a shift of bargaining power from the studio to the stars may increase the studio’s cost of production directly through higher
The idea that economies of scale can be applied in the motion picture industry is based on the theory of economies of scale. As already mentioned, this theory argues that when output increases, the average costs decline (Besanko, Dranove, Shanley, & Schaefer, 2013). Thus, filmmaking company’s budget could be taken as a fixed cost and company’s output could be measured by films produced, the number of viewers or box office receipts. For example, copies of a film can be seen by millions of people. This provides an opportunity for economies of scale to exist in movie’s consumption (Marvasti, A., 1994).
Prior studies of the film industry examined the importance of economies of scale. Wildman and Siwek (1988) researched if …show more content…
film industry nowadays, we will examine Warner Bros, Universal Pictures and Lionsgate companies in 2013-2014 periods. The three successful companies are taken to represent the U.S. film industry. Here an assumption has been made that company’s size can be evaluated by the level of its total revenues. In addition, total revenues will be compared with company’s average costs per film produced. Thus, to see if bigger companies apply economies of scale, following hypothesis has been derived:
When Warner Bros, Universal and Lionsgate in the U.S. market get higher revenues, average costs per film decrease (2013-2014)
Moreover, filmmaking companies often produce movie sequences that become movie franchises. Making sequences increases the output of films produced. However, producing movie sequences might drive average costs per movie up. Studios might need higher budgets to make additional movies to the first one. This is because original product and its extension need to be similar (Aaker, D. A., & Keller, K. L., 1990). Furthermore, the firms need to maintain same actors to fulfil this need for similarity. Thus, the supplier is able to use this circumstantial advantage to bargain and demand wages higher than the market …show more content…
Furthermore, stars can directly contribute to movie revenues as well because consumers might be attracted to a particular movie due to their interest in or loyalty to the star of the film (Donahue 1987; Vogel 2010). In addition, consumers tend to associate movies with its leading stars rather than the company that produces it, unlike for most products (Moul, 2005). Therefore, a shift of bargaining power from the studio to the stars may increase the studio’s cost of production directly through higher