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HOW HOLLYWOOD

HOW HOLLYWOOD. WORKS. Dominant companies have been around since 1930s 1990s saw major consolidations (Time and Warner, Disney & Capital Cities/ABC, Viacom/Paramount). Oligopoly. Market is dominated by small number of sellers Markets are characterized by interactivity

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HOW HOLLYWOOD

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  1. HOW HOLLYWOOD WORKS

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

  3. 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

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

  5. Release “windows” • Theaters • Video & DVD • Pay-per-view • Pay cable • Broadcast & basic cable

  6. 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)

  7. 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

  8. Horizontal Integration • Wide spectrum, including theme parks, music, print, etc.

  9. Vertical Integration • Controlling markets downstream • Theater chains • Cable TV • TV stations • TV networks • Home video outlets

  10. 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.

  11. 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

  12. “In bed” with the competition • Market control is critical • Studios often collude • Keeps market closed • Concern not with losing money, but with maximizing profits

  13. Feature film production • Average movie costs $60 million to produce • $20 million to market

  14. Feature film “cycle” • Production • Locations often subsidized • Distribution • Basis of Hollywood’s power • Presentation • Key is strong opening • But most money made in aftermarket

  15. 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

  16. 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

  17. Threats to Hollywood’s 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

  18. 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

  19. Provision of studio online subscription movie services • “Watermarking” master copies so camcorders can’t work • Pressure on wi-fi companies to go for streaming rather than downloading and transfer • Offering movie products to the consumer much sooner

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