Motion Picture and Video Production Industry Analysis I have to critique the project. I already choose one and I attached below. Manimu 300 words M4: Preli

Motion Picture and Video Production Industry Analysis I have to critique the project. I already choose one and I attached below. Manimu 300 words M4: Preliminary Report
Patrick Cassidy & Steve Gallatin
June 2, 2019
Motion Picture and Video Production Industry Analysis
Brief History
The motion picture industry began in the early 1890s in the laboratory of Thomas Edison and
his assistant, William Kennedy Laurie Dickson. Dickson invented the kinetoscope, which
allowed a viewer to see a moving image through a peephole1. Dickson’s invention was iterated
and improved upon throughout the following decades, and by the 1920s, the film industry
began to flourish – particularly in Hollywood, California which has maintained the position as
the center of most film production in the United States through the turn of the millennium.
The industry has dramatically evolved throughout the decades. The eras of innovation
“Hollywood” has gone through include2:
–
1920s: Silent Era
1930s: Growth of the Studios and ‘The Golden Age of Hollywood’
1940s: The War and Post-War Years, The Beginnings of Film Noir
1950s: The Cold War and Post-Classical Era, The Era of Epic Films and the Threat of Television
1960s: End of Hollywood Studio System and The Era of Independent, Underground Cinema
1970s: Last Golden Age of American Cinema and the Advent of the Blockbuster Film
1980s: Teen-Oriented Angst Films and the Dawn of the Sequel, with More Blockbusters
1990s: Mainstream Films and “Indie” Cinema, Rise of CGI, Re-makes, Re-releases, and Sequels
2000s: Advanced Special Effects (CGI and Performance Capture) and Era of Franchise Films
2010s: Major Changes in the Film-Making Industry
Current Status of the Industry
The motion picture industry has undergone its greatest period of disruption over the course of
the last decade. Several trends have eroded traditional profit centers for the industry and are
forcing industry titans to adjust their business models and paving the path for new players.
– Shift from physical to digital: the emergence of “cloud” technology has allowed viewers to
stream content on any device directly over the internet and watch videos on demand. This
innovation comes at the expense of Blu-Ray and DVD rentals and purchases. As of 2018,
subscription streaming accounted for more than half of consumer spending on home
entertainment, while Blu-Ray/DVD sales continue to plummet (-15% year-over-year)3.
– Decreasing theater attendance: theater attendance in the U.S. and Canada reached a lowpoint since 19924. The advent of digital streaming, improvements and cost reductions in the
home theater market (a substitute for movie theaters), and rising ticket prices all factor into
the decline. Studios and cinemas were able to maintain revenue via increased ticket prices,
but this approach alone is unsustainable.
– Rise of streaming services (e.g. Netflix, Hulu): the shift to digital media was pioneered by
Netflix and quickly followed by a multitude of other services. These new entrants have
already disrupted how viewers watch movies and television shows at home and introduced
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June 2, 2019
the concept of “binge-watching.” More recently the streaming services have turned
themselves into studios and are producing original content further competing with traditional
industry players.
Potential New Entrants: “No matter what anybody tells you, words and ideas can change the
world.” – John Keating, Dead Poets Society
Historically, the threat of new entrants would be a low risk due to the substantial upfront costs
associated with the production of a movie. Nowadays, with advancements in camera’s and the
internet, the ability to create a high-quality movie and distribute over non-traditional channels
has increased the potential for new entrants to a medium threat. For example, the top-20 most
profitable films had production budgets over $250 million, however, when comparing on a ROI
perspective the top film was called Facing the Giants a 2006 production with a budget of
$100,000 that return an ROI of 38,451%, or $38.5 million6.
Original Programming: As the advancements in technology yield increasing opportunities for
individuals and businesses to penetrate the movie production business, we continue to see
well-healed corporations break into the field. Companies like Netflix, Wal-Mart and Amazon
with billion-dollar budgets are attempting, and succeeding, at disrupting the production
industry. Netflix has produced 700+ original series, everything from series’ like Nailed It, a
cooking show adaptation, to social media fervent movies like Sandra Bullock’s Bird Box7.
Protectionist Tactics: In today’s environment, production companies are learning the true value
of their product. Online and streaming services have paid substantial fees to include
programming on their platform. For example, Netflix pays Warner Media $100 million per year
to stream Friends and are currently in negotiations with NBC Universal to continue streaming
The Office. One recent caveat has begun to present itself, as companies develop their own
streaming services, we’re beginning to see content protectionism, particularly with the most
popular and most streamed shows (i.e. The Office and Friends). Currently, NBC Universal is
developing a platform that will stream their unique content, and with Netflix’s contract to air
The Office ending in 2020, concern is growing within the industry of silo-ing8 9. This has already
occurred with Netflix and Disney in 2017 when Disney pulled their programming from the
service, with varying agreements regarding distributions rights until Disney’s service is
running10.
Power of Customers: “Hey, stay away from the chicken, bad chicken, mess you up!” – Kramer,
Seinfeld
The power of customers in the motion picture industry is very high due to a multitude of
factors, including consumer tastes and consumption options. Hollywood has the high-pressure
job of enticing individuals to get off the couch and travel to the movie theater, particularly
during the opening weekend when the revenue split is more beneficial to the production
company, to see the feature film. As the rise of Netflix, Hulu and other VOD options gain
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June 2, 2019
prominence the battle for the viewer intensifies, such as the rise of luxury movie theaters with
reclining seats, food and beverage packages and lay flat beds. Hollywood, in partnership with
theater companies such as AMC and Bowtie must evolve to meet the demand and changing
taste of the consumer.
Consolidation: The intensifying global demand for high quality movie productions has resulted
in consolidation within the industry. Most recently, Disney acquired 20 th Century Fox to create
the largest production studio by market share, shrinking the six major film studios into five.
This isn’t only a benefit for Disney to increase its product offerings to the consumer, but will
increase their Hulu stake to 60%, helping to hedge against any declines in box office viewership
while increasing an equity stake in a popular VOD service. Disney purchased 21st Century Fox
for $71 billion, a staggering sum to ensure the consumers’ demand for entertainment are
met…and at any cost11.
Evolve or Dissolve: Bankruptcy continues to be an ongoing event in the movie production
industry, a film with bad reviews that doesn’t hit on the current consumer demand could, and
has, shutter a film studio. A prime example is United Artists, at the time they were a wellrespected 60-year-old firm with a wealth of experience and knowledge regarding the movie
production business. However, the 1980 film Heaven’s Gate produced by rising star Michael
Cimino received scathing reviews including Roger Ebert stating, “the most scandalous cinematic
waste I’ve ever seen.” The film cost (in 2019 dollars) $136 million and after only two weeks in
theaters, generated $4 million in revenues, ultimately shuttering United Artists 12 13. The power
of the customer is alive and well within the movie production industry, going to show that one
bad movie that misses the mark could shutter an entire business.
Threat of Substitute Products: “…I know, darling, a talk, even a lovely long talk, is a poor
substitute.” – King George VI, The King’s Speech
The threat of substitution indicates the level of risk of replacement by other products or
services that offer comparable utility. In the case of the motion picture industry, whose chief
output is entertainment, the risk of replacement is extremely high. There are several categories
of replacement risks for the major studios in Hollywood, some of which include: video ondemand (VOD) entertainment, user-generated content, and content pirating.
VOD Entertainment: in a society that values instant gratification, it is not surprising to see the
radical success of on-demand and streaming content. Viewers who once could only see new
release motion pictures in theaters now have a multitude of fresh content from streaming
services like Hulu and Netflix, along with many other fast followers. Not long ago, the motion
picture industry thrived on a model where audiences would pay a premium to see a new
release in theater, then after several weeks or months the picture would be available for
physical/digital rental and purchase (both options which have all but gone extinct) and then
after a few years would be available on mainstream cable networks – allowing the industry to
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earn multiple streams of revenue. The rise of subscription streaming services such as Netflix
and Hulu, among many others, has shaken the motion picture industry to its core. The average
U.S. viewer has clearly voted with their wallet, dramatically decreasing spend on theater tickets
and adding monthly subscriptions to streaming services. The major motion picture studios are
now forced to play catchup with the likes of Netflix which “is on the brink of 150 million
subscribers.5”
User-generated content: most notably, platforms like YouTube that allow users to produce and
distribute their own content for free is one of the most popular tools for younger generation
viewers (the future for the motion picture industry). As of January 2018, 96% of 18-24 year old
U.S. Internet users use YouTube, and 95% of 25-34 year olds14. One of the major benefits
offered by YouTube’s user-generated content is that it provides maximum relatability to
viewers. They can find content from people that look and sound just like them, who are
producing content that is relevant to their interests. Big budget motion pictures are costly
endeavors with less ability to provide targeted content.
Pirating: represents the most significant threat to industry profitability. Worldwide, in 2016,
there were an estimated 5.4 billion downloads of pirated wide release films and primetime TV
and VOD shows using peer-to-peer protocols15. When content is pirated, it reduces the
producer’s ability to recoup their initial investment. This forces producers to be more selective
in the projects in which they will invest – ultimately hurting the industry and consumers alike.
Pirating is also a major threat because it is very challenging to enforce. There have been many
awareness campaigns geared toward the ethical violations of pirating, though the effectiveness
is limited. While many content pirates do so because they want to avoid paying for the
content, many (especially worldwide audiences) are forced to pirate due to content restrictions
that vary by country. Worldwide audiences have shown that they will find a way to watch the
content they desire, even if illicit methods are the only avenue available.
Competition: “Feel the rhythm! Feel the rhyme! Get on up, it’s bobsled time!” – Sanka Coffie,
Cool Runnings
To be completed
Power of Suppliers: “I’m gonna make him an offer he can’t refuse.” – Don Vito Corleone, The
Godfather
To be completed
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June 2, 2019
References
1. “Inventing Entertainment: The Early Motion Pictures and Sound Recordings of the
Edison Companies.” The Library of Congress, www.loc.gov/collections/edison-companymotion-pictures-and-sound-recordings/articles-and-essays/history-of-edison-motionpictures/origins-of-motion-pictures/.
2. Dirks, Tim. Film History by Decade, AMC filmsite, https://www.filmsite.org/filmh.html.
3. Richter, Felix, and Felix Richter. “Infographic: Streaming Dominates U.S. Home
Entertainment Spending.” Statista Infographics, www.statista.com/chart/7654/homeentertainment-spending-in-the-us/.
4. Sakoui , Anousha. “Hollywood Had a Terrible 2017.” Bloomberg.com, Bloomberg, 2 Jan.
2018, 3:18 PM, www.bloomberg.com/news/articles/2018-01-02/hollywood-s-2017-is-abomb-as-moviegoing-slumps-to-25-year-low.
5. Pallotta, Frank. “Netflix Added Record Number of Subscribers, but Warns of Tougher
Times Ahead.” CNN, Cable News Network, 17 Apr. 2019,
www.cnn.com/2019/04/16/media/netflix-earnings-2019-first-quarter/index.html.
6. “Movie Budget and Financial Performance Records.” The Numbers – Where Data and
Movies Meet, https://www.the-numbers.com/movie/budgets.
7. Spangler, Todd. “Netflix Eyeing Total of About 700 Original Series in 2018.” Variety, 12
Apr. 2018, https://variety.com/2018/digital/news/netflix-700-original-series-20181202711940/
8. Rodriguez, Ashley. “If Netflix Wants to Keep ‘The Office,” It’s Going to Be Very, Very
Expensive.” Quartz, Quartz, 24 Jan. 2019, qz.com/1531346/if-netflix-wants-to-keep-theoffice-its-going-to-be-very-very-expensive/
9. “NBC Streaming Service: Release Date, Cost, News.” Den of Geek, 14 May 2019,
www.denofgeek.com/us/tv/nbcuniversal/281097/nbc-streaming-service-release-datecost-news
10. Katz, Brandon. “Disney Will Remove More of Its Content From Netflix-How Long Before
It’s All Gone?” Observer, Observer, 18 Dec. 2018, observer.com/2018/12/disneycontent-removed-netflix-hbo-fox-sale-disney-plus-hulu/.
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June 2, 2019
11. Alexander, Julia. “Disney Now Owns 21st Century Fox, X-Men, and Most of Hulu.” The
Verge, The Verge, 20 Mar. 2019, www.theverge.com/2019/3/20/18273142/disney-foxacquistion-final-hulu-marvel-streaming-21st-century.
12. Canfield, Jared. “12 Movies So Expensive They Bankrupted Their Studio.” ScreenRant.
28 Apr. 2016. https://screenrant.com/movies-bankrupted-studios/
13. Welkos, Robert. “’Heaven’s Gate: The film flop that reshaped Hollywood.” Los Angeles
Times. 12 Jun 2004. https://www.latimes.com/entertainment/movies/la-et-mnheavens-gate-flop-archive-20040612-snap-story.html
14. “U.S. YouTube Reach by Age Group 2018 | Statistic.” Statista,
www.statista.com/statistics/296227/us-youtube-reach-age-gender/.
15. “The Threat of Online Piracy.” alliance4creativity.Com,
www.alliance4creativity.com/mission/the-threat-of-online-piracy/.

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