HOW HOLLYWOOD

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HOW HOLLYWOOD

• WORKS

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• Dominant companies have been around since 1930s
• 1990s saw major consolidations (Time and Warner,
  Disney Capital Cities/ABC, Viacom/Paramount)

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Oligopoly

• Market is dominated by small number of sellers
• Markets are characterized by interactivity
• Decisions of one firm influences - and are
  influenced by - the others

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The Big Six

• Warner Bros (AOL Time Warner)
• Disney
• Twentieth Century Fox (News Corp)
• Colombia (Sony)
• Paramount (Viacom)
• Universal Studio (GE)

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Release windows

• Theaters
• Video DVD
• Pay-per-view
• Pay cable
• Broadcast basic cable

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Box office back end sales

• Box Office 10 billion
• DVD/video sales, rentals 23.8 b
• (5-6 months after release)
• Cable, pay-per-view 2.2 b
• (7-8 months after release)
• Premium cable 10.4 billion
• (a year after release)

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Causes of Hollywood Oligopoly

• New contenders rarely survive, as they lack the
  advantages of the giants
• Cross-subsidization opportunities
• Privileged dealing with other units of the
  conglomerate
• Horizontal and, esp. vertical integration

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Horizontal Integration

• Wide spectrum, including theme parks, music,
  print, etc.

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Vertical Integration

• Controlling markets downstream
• Theater chains
• Cable TV
• TV stations
• TV networks
• Home video outlets

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• Theater release provides instantaneous
  national/international marketing outlets boosted
  by huge TV advertising
• Price discrimination (one pays less down the line
  of outlets)
• Importance of box office revenue falling (now
  down to 20) due to home video, pay cable and
  other revenue sources.

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Global Hollywood

• Strong international trade, protected by MPAA
• 18th most powerful Washington lobby
• Hollywood product dominates many foreign film
  markets
• Regular production of films encourages foreign
  buyers to deal with the majors
• International box office revenue increasing

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In bed with the competition

• Market control is critical
• Studios often collude
• Keeps market closed
• Concern not with losing money, but with
  maximizing profits

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Feature film production

• Average movie costs 60 million to produce
• 20 million to market

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Feature film cycle

• Production
• Locations often subsidized
• Distribution
• Basis of Hollywoods power
• Presentation
• Key is strong opening
• But most money made in aftermarket

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Hollywood Business Model

• USA an Ideal Market
• Highly-populated
• melting-pot
• wealthy
• strong media systems
• many cinema screens (now 37,000)
• easily cover costs on national market
• sell aggressively overseas

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Distribution/Exhibition Strategies

• First weekend fast, blanket release
• Selective openness to small-budget and
  international films
• Openness to independent producers and
  distributors (often have close ties to studios).
  
• International sales increasingly important
  (nearly 50 of rev)
• enhanced by co-productions, and increasing
  television outlets

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Threats to Hollywoods income

• Personal video recorders (skip commercials,
  subvert prime time, copy DVDs)
• DVD burners and recorders (no need to rent)
• Digital television (may intensify piracy)
• File-sharing services (undermine value of
  syndicated programs, sales of prerecorded shows
  and movies)
• Camcorders

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Studio/Network Response

• 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

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• 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
• Offering movie products to the consumer much
  sooner