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EXPLAINING HOLLYWOOD

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... (Time and Warner, Disney, Capital Cities/ABC, Viacom ... 2. Disney (Walt Disney Corp) 3. Twentieth Century Fox (News Corp) 4. Sony Pictures (Sony) ... – PowerPoint PPT presentation

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Title: EXPLAINING HOLLYWOOD


1
EXPLAINING HOLLYWOOD
  • National and International Market Supremacy

2
2003 Retail Sales Estimates
  • 10 billion box office revenues (admissions up
    30 over decade)
  • 23.8 billion video/DVD sales, rentals (5-6
    months after release)
  • 2.2 billion from cable, pay-per-view
  • (7-8 months after release)
  • 10.4 billion from premium cable channels (a year
    after release)

3
Douglas Gomery The Economics of Hollywood
  • (From Alexander et al., pp. 193-206)
  • 1990s saw major consolidations (Time and Warner,
    Disney, Capital Cities/ABC, Viacom/Paramount)
  • Dominant companies have been around since 1930s

4
6 Majors (2000s) control 80-90 of US movie
business
  • 1. Warner Bros (Time Warner)
  • 2. Disney (Walt Disney Corp)
  • 3. Twentieth Century Fox (News Corp)
  • 4. Sony Pictures (Sony)
  • 5. Paramount (Viacom)
  • 6. Universal Pictures (Matsushita-Seagrams-Vivendi
    , now NBC)

5
Distribution Affiliations
  • Disney has ABC
  • Twentieth Century Fox has Fox
  • Time Warner has WB network, HBO, Time Warner
    cable, Warner video
  • Viacom has CBS, UPN and National Amusements
  • Universal has NBC
  • Sony has Loews multiplexes

6
Global Power
  • Independents distribute via Big 6
  • Each Major up to 50 offices overseas
  • Horizontal and vertical integration
  • Product tie-ins (theme parks, music)
  • Local govt and federal subsidies
  • 50 of business in most countries
  • Exploding outlets (36,000 US screens)
  • Overnight data electronically generated

7
Causes of Hollywood Oligopoly (1)
  • Hollywood is classic oligopoly
  • New contenders rarely survive (DreamWorks SKG
    still going MGM virtually dropped out) they
    lack advantages of the giants, namely
  • Cross-subsidization opportunities
  • Privileged dealing with other units of the
    conglomerate
  • Horizontal and, esp. vertical integration
    theaters, cable, terrestrial TV, networks

8
Causes of Hollywood Oligopoly (2)
  • Robust survival of theater provides instantaneous
    national/international marketing outlets boosted
    by huge TV advertising
  • Price discrimination (one pays less for each new
    window )
  • Importance of box office revenue falling (now
    down to 20) due to home video, pay cable and
    other revenue sources.

9
Causes of Hollywood Oligopoly (3)
  • Strong international trade, protected by Motion
    Picture Association of America
  • Regular production of films encourages foreign
    buyers to deal with the majors
  • Hollywood product dominates many foreign film
    markets
  • Joint deals with foreign companies to build
    theaters co-productions
  • International box office revenue is increasing
    relative to domestic, now approaching 50

10
Development of the Hollywood Business Model
  • (1) Characteristics of USA Market
  • Highly-populated, immigrant melting-pot of
    internationalism and unity, English-speaking,
    wealthy, good transportation an/communication
    links, strong media systems, many cinema screens
    (now 37,000). Hollywood could easily cover costs
    on national market (7Bn,1998) and sell
    aggressively overseas

11
(2) Advantages of Location
  • Hollywood offered (originally) non-union labor,
    cheap land, easy access to diverse scenery, mild
    climate
  • High-concentrated industry (LA), with dense
    networks of multi-media services, supplies,
    producers, distributors, linking in with
  • Local culture of flexibility, seizure of
    opportunity, inventiveness.

12
(3) Industrial Production
  • Market driven
  • Assembly line production
  • Star system assisted promotion
  • Genre system assisted promotion, gave economies
    of scale in production
  • Horizontal and vertical integration
  • Increasingly pushed envelope in matters of
    content relative freedom from censorship
  • Blockbusters
  • New technologies sound, color, wide screen,
    digital animation etc. enhanced competitiveness

13
(4) Investment Strategies
  • Huge markets attract large investments for highly
    competitive product (Prod. cost for top-ranking
    films,1999, ranged 10m-55.m, yielding gross of
    22m-85m ).
  • Huge additional marketing investment (averaging
    25m per film in 1998)
  • Attractive to German, other foreign investors
  • Product-placement links with Pentagon

14
(5) Distribution/Exhibition Strategies
  • First weekend fast, blanket release
  • Control of critics
  • Selective openness to small-budget and
    international films
  • Openness to independent producers and
    distributors (though these are not necessarily
    alternative and may have close ties to
    studios).
  • International sales increasingly important (46
    of revs in 2000), enhanced by co-productions, and
    increasing television outlets

15
Dangers
  • Threats to income from
  • Personal video recorders (allow skip
    commercials, subvert concept of prime time, copy
    DVDs)
  • DVD burners and recorders (do away with need to
    rent)
  • Digital television (may intensify piracy)
  • File-sharing services (undermine value of
    syndicated programs, sales of prerecorded shows
    and movies)
  • Camcorders
  • Wi-Fi (makes it easier to copy and to set up
    file- sharing networks)

16
Studio/Network Solutions
  • Sue to prevent automatic ad-skipping and online
    sharing
  • Recording devices that delete shows after a
    period of time
  • Limit hard drives of recording devices
  • Set-top boxes that make only one copy of
    cable/sat shows, and prevent copies of
    pay-per-view programs
  • Suing customers of file-sharing networks
  • Provision of studio online subscription movie
    services
  • Watermarking master copies so camcorders cant
    work
  • Pressure on wi-fi companies to go for streaming
    rather than downloading and transfer
  • Piracy taxes on hardware and software
  • Offering movie products to the consumer much
    sooner
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