Eliashberg, J et al ~ The Motion Picture Industry

Eliashberg, Jehoshua
Elberse, Anita
Leenders, Mark A.A.M.
The Motion Picture Industry: Critical Issues in Practice, Current Research, and New Research Directions


gives suggestions for future research
638: some statistics about size of film industry
640: “no major American industry ever operated with so little research of its market as did the motion picture industry during the period of its greatest influence, from its early years until the mid-1950s.”


The Success Rate of the Traditional “Green-Lighting” Process Can be Improved
641: “type II error”
“Type I errors, which involve rejecting a potentially successful project”

Studios Will Increasingly Pursue “Hit Franchises” Based on Established Intellectual Properties in an Effort to Reduce Risks
642: “In 2003, a major studio movie required nearly $64 million in production (“negative”) costs and another $40 million for prints and advertising costs”
“Managing increased costs with fewer potential investors has created a serious funding problem for major studios and independents alike.”
“It is increasingly important that the establishment of a movie franchise also seems advantageous in the home video window—sequels appear to have particularly strong DVD sales—and in ancillary windows such as video games and merchandising.”
643: “Studios’ eagerness to produce movie sequels, remakes, and movies based on properties established in other media—such as musicals, books, comics, old TV programs, and video games—is likely to continue.”

More Effective Portfolio Management Strategies Will Help Studios to Better Balance Risks and Returns
643: “2004d). Other portfolio dimensions include original versus familiar concepts (e.g., remakes and sequels), low versus high budget, in-house financing versus co-financing, track-record talent versus new creative talent, and acquisition versus in-house development.”
“co-financing helps soften release competition, particularly for high-budget movies.”

Conventional Contractual Arrangements with Talent Will Come Under Pressure
644: “Ravid (1999) finds no correlation between star participation and film revenues or profitability, which is consistent with the view that stars capture their “economic rent.””

The Benefits of Digital Technology Will Change the Production Process but Not Lead to Fundamental Shifts in Power Structures
646: “”I can safely say that I’ll never shoot another fllm on film” (George Lucas)


Box-Office Performance Will Increasingly Depend on a Small Number of Blockbusters
647: “Is blockbuster an ex-post or an ex-ante construct?”

Distributors Will Continue to Rely on High Advertising Budgets in Releasing Their Films, But Will Allocate Those Budgets Differently and More Evenly Across Media Vehicles
648: “overall spending on advertising by the studios and major independents was nearly $3.3 billion in 2003”
“all found evidence for a positive relationship between advertising and weekly or cumulative revenues.”
“the positive relationship between advertising expenditures and opening-week revenues is largely due to a second positive correlation between advertising expenditures and the screens allocated to a movie in its opening-week.”
“Television advertising, in particular in network TV, is the largest investment—it accounts for nearly 40% of total advertising budgets for new releases.”

Distributors’ Theatrical Release Timing Will Become an Increasingly Important Strategic Decision
649: “He finds that observed release patterns are closely aligned to observed patterns in sales, but not to the underlying demand. This implies that distributors could significantly increase their revenues by pushing some of their high-season releases to low-season dates.”
650: “Opportunities to save interest on investments, prevent piracy from cannibalizing revenues, and capitalize on the buzz that a movie has generated in the United States, all push distributors toward a simultaneous release strategy. But such practical considerations as the time it takes to subtitle the movie, the cost of additional prints, and the chance to learn from the U.S. performance and adjust marketing strategies for releases in other countries, all push distributors toward a sequential release strategy.”
“the time lag between releases moderates this relationship, which suggests that the buzz generated in the U.S. market may quickly wear out.”

Distributors Will Benefit from Shortening the Time between Theatrical and Nontheatrical Windows—But They Are Walking a Fine Line
650: “DVDs, which have become the largest revenue window, accounting for roughly $20 billion in 2003 – twice what is spent on U.S. theatrical tickets (Standard & Poor’s 2004). In fact, it is widely believed that most movies do not break even until they are released on DVD.”
“Films are normally first distributed to the market that generates the highest revenues over the least amount of time. They then “cascade” in order of revenue contribution down to markets that return the lowest revenues per unit time. Historically, that has meant that theatrical release was followed by pay-cable programming, home video, network television, and finally local television syndication. But DVDs are capable of generating higher revenue than theatrical tickets over less time, as are other new technologies such as Pay Per View (PPV) and Video On Demand (VOD).”
651: “Focusing on the cable television industry, Chipty (2001) finds that [vertical] integration tends to exclude rivals but does not harm, and may actually benefit, consumers because of the associated efficiency gains.”
“How much do they value the social aspect of movie consumption?”
“Given that going to the theater is a different social experience than watching a movie at home, intense concerns about the substitutability of the theatrical window seems misplaced.”
“domestic theatrical releases have become “loss leaders” for a stream of other products that earn the lion’s share of revenues.”

The Benefits of Digital Technology Will Continue to Outweigh the Costs for Distributors—At Least for the Foreseeable Future
651: “piracy is widely regarded as the key threat to movie distributors’ business models.” But not to film itself!
“There is evidence that piracy is not the significant threat the entertainment industry believes it to be.”
652: “It is not known whether a dollar lost to piracy is one the distributors could have collected, e.g., in theater tickets or DVD sales.”
“How can the impact of movie piracy be quantified? How does it affect production and innovation?”
“Consumers, they fear, might perceive high-quality copies made directly from a digital version (e.g., a DVD screener) to be particularly good substitutes for legitimate DVDs. However, to our knowledge, there is not yet any empirical evidence for this view.”


652: “Practitioners consider the theatrical performance of a movie in the United States to be a critical driver of its success in subsequent release windows.”
“theater attendance in 2003 is at record levels in the United States and overseas.”

Is the U.S. Theatrical Motion Picture Market Still Overscreened?
653: “Many industry insiders have argued that, during the 1990s, and possibly later, the U.S. market has been “overscreened,” i.e., that the number of theater screens was too high for the number of movie-goers, their movie-going frequency, and the supply of movies. Some statistics support this hypothesis.”
“The exhibition industry responded by lowering the number of screens from its peak of 37,396 in 2000 to 36,764 in 2001,35,280 in 2002, and 35,786 in 2003.”
“His results suggest that theaters are often local monopolists, and that “business-stealing effects” across theaters are small and decrease significantly with distance, and that theaters are likely to underprovide movie screens relative to a socially optimal number.”
“One rule of thumb used in the industry is that when the estimated movie-going frequency is 5.5 movies per year per person, one screen for every 10,000 people is needed.”
“What determines the optimal level of screens? How will it be affected by changes in home consumption of movies and other leisure activities?”

The Exhibition Market Will Become More Concentrated, More Integrated (Through Mergers and Acquisitions), and New (More Sophisticated) Players Will Emerge

The Contractual Arrangements Between Distributors and Exhibitors Are Inefficient and Will Change—So Will Admission Pricing Strategies
654: “It has two components: an after house allowance (“nut”) split, and a guaranteed minimum (“floor”).”
“The exhibitor’s key power bases appear to be the total number of screens it owns, their location, and the relative shortage (or surplus) of screens available at the time, while the distributor’s key power bases appear to be the expected success of the particular movie and the amount of promotional support the distributor is willing to commit.”
655: “What is an “event” movie, and what sort of unique strategic considerations does it deserve?”

Exhibitors Seeking to Effectively Manage Their Business Will Face a Highly Complex Strategic Space
656: “variables such as movie attributes and advertising expenditures, typically assumed to influence audiences directly, mostly do so indirectly, through their impact on exhibitors’ screen allocations.”
“They showed that the exhibitor could have increased the theater’s profitability nearly 40% by running fewer movies for longer periods, and could have increased the facility’s profitability by over 120% by procuring movies from a larger set of movies running elsewhere in the country.”
“MOVIEMOD, is designed to generate box-office forecasts and to support the strategic release decisions (number and type of screens as well as advertising) for a new movie after the movie has been produced, but before its national release.”
“We can distinguish two different behavioral processes: (1) movie-first-theater-second, and (2) theater-flrst-movie-second. Theater circuits have begun efforts to induce more consumers to adopt the theater-first-movie-second heuristic.”
657: “How can movies’ attendance best be understood as a collective decision-making process?”
“What role do layout, design, and atmospheric marketing play on consumers’ enjoyment of the theatrical experience?”

The Costs of Digital Technology Will Continue to Outweigh the Benefits for Exhibitors—At Least for the Foreseeable Future


657f: “we believe that research on consumer movie-going behavior is critical in addressing many of our proposed research directions”
658: “What is the nature of the power structure in the industry? How has it changed over time? What are its key determinants? What role will each player have in the future? How can media conglomerates best manage their motion picture assets and businesses? How can they find synergies with other assets? Knowledge of these “bigger-picture” issues will not only be interesting in its own right, but will also help frame potential studies on the managerial issues we discuss.”
“Technological advances emerge as an important driver of the research avenues that we propose. Technology has always played a major role in the evolution
of the motion picture industry but today—more than in the past—technological developments seem to be integral to all stages of the value chain.”
“The digital age has just begun, and its ultimate effects on film production, theatrical distribution, and exhibition, and nontheatrical media such as television, video, the Internet, and mobile devices remain largely unknown. It therefore seems wise to take a broad research perspective on the motion picture industry.”
“Consumer behavior within the domain of motion pictures (in all their formats) is critical for the development of new metrics”

About the author

Woitek Konzal

Producer, Consultant, Lecturer & Researcher. I love working where technology meets media in novel ways. Once, I even won an Emmy for digital innovation doing that. Be it for a small but exciting campaign about underground electronic music collectives or for a monster project combining two movies, various 360° videos, 72 ARG-like mini puzzles, and a Unity game, all wrapped up in one cross-platform app – I have proven my ability to adapt to what is required. This passion for novel technologies has regularly allowed me to cross paths with tech startups – an industry and philosophy I am all set to engage with more. I intensely enjoy balancing out my practical work with academic research, teaching, and consulting. Also, I have a PhD in Creative Industries, a M.Sc. in Business Administration, and love to kitesurf.

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