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Chapter%209 - CHAPTER NINE Motion Pictures Snapshot of the...

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Unformatted text preview: CHAPTER NINE Motion Pictures Snapshot of the motionpicture industry in 2010 James Cameron is the currently most important commercial force in the motionpicture industry. Our context in COM 25000 is Hollywood, where six companies command 80 percent of the nation's market for motion pictures. Motion pictures have hitandmiss structural similarities to book publishing and sound recording (i.e., absence of product continuity) "Hollywood is a hitdriven business, and most studios bounce from boxoffice hit to dud with depressing regularity." (BusinessWeek, 3/31/08) Defining characteristics of motion pictures the media industry with the highest content production costs the electronic media industry that produces content most likely to be valued as art, although artistic merit is a secondary consideration compared with profit the only mass medium with a social dimension to audience membership A depression/recessionproof industry Throughout its history, the motion picture exhibition business has performed well during economic downturns. A look back The history of motion pictures is fascinating. Let's start with the photography of motion. How do still photographs give viewers the illusion of movement? Images on a motionpicture screen are discrete. The individual images do not, themselves, move. Rapidly presented discrete images give the illusion of movement via a characteristic of our human perceptual system known as persistence of vision. Eadweard Muybridge pioneered the photography of motion with multiple cameras (1880s). Thomas Edison extended Muybridge's work by devising a way to photograph motion with a single camera. Three important Edison innovations: Kinetograph, a camera designed to use roll film pioneered by George Eastman (Kodak) Kinetoscope, a coinoperated device that reproduced roll films for one viewer at a time Vitascope, a projector that reproduced rolls of film on a screen for multiple viewers. Production of early films The earliest movies were made in the film factories of New York and New Jersey; some in Chicago. Establishment of the Motion Picture Patents Company (MPPC) brought the first effort to consolidate the filmmaking industry--on the east coast. The MPPC did not promote actors and actresses via publicity. Independent filmmakers not affiliated with the MPPC moved to California. Those same California filmmakers established the star system to compete with the MPPC. The star system focused on intense marketing efforts to publicize actors and actresses for the purpose of generating demand for films. Distribution of early films Early distributors were independent wholesalers who acquired movies from producers and rented them to exhibitors. In the 1920s, distribution was combined with starsystem marketing. By 1930, the combined roles of distribution and marketing, known simply as "distribution," had become a central function of the major production studios. Exhibition of early films Movies were first projected for group audiences in rooms of various sizes (wherever space would permit). Such establishments became known as nickelodeons. As films became longer, exhibitors built comfortable and elaborately decorated picture palaces. The longer movies shown in picture palaces cost significantly more to produce than earlier short subjects made for nickelodeons. Patrons gladly paid higher admission prices to enjoy viewing movies in picture palaces. Vertical integration of the motion picture industry The second wave of industry consolidation occurred when three major motionpicture companies expanded via vertical mergers of content producers with content distributors: Paramount and Fox (two motionpicture studios that built chains of theaters), and Loews/MGM (a chain of theaters that built a motion picture studio). Vertical integration led to the practice of forcing independent exhibitors (theaters not owned by studios) to accept block booking of films. Talkies and color Warner Brothers introduced optical recording of sound (soundonfilm) in 1927. By 1929 the silent movies were history. The Technicolor company developed a color system by 1932 that featured three strips of film running through a camera at the same time (one each for primary colors red, green, and blue). Technicolor was the principal method of producing color films from 19321952. The golden era of the motion picture (19301950), a.k.a. "studio years" began along with the talkies in the late 1920s, and faded with the emergence of nationally distributed television in the early 1950s. The Great Depression left eight major studios dominating the movie industry for roughly 20 years: MGM, 20th Century Fox, RKO, Warner Brothers, Paramount ("Big Five"); Universal, Columbia, and United Artists ("Little Three"). During the studio years, motion pictures were produced in assemblyline fashion. The studio system peaked in achievement between 1939 and 1941 (Gone With the Wind, Wizard of Oz, Citizen Kane). The Paramount Decree The justice department was uncomfortable with a handful of companies dominating a given industry in the way the Big Five controlled production and distribution of motion pictures via vertical integration. In 1948, after a decade of litigation, the vertically integrated studio system ended via consent decree. The Paramount Decree: broke up coowned studios and theater chains prohibited block booking fostered a reemergence of independent motion picture producers resulted in industry restructuring of the former studios as deeppocketed financiers and experienced distributors of cultural products made by independent motionpicture producers Around the same time as the Paramount Decree, the motionpicture industry faced a new competitor . . . television. Perspective: Motionpicture industry executives have resisted each new technological innovation in home entertainment. Hollywood's first reaction was to fight the new medium via: restrictive contracts prohibiting movie stars from appearing on TV refusal to advertise upcoming movies on TV refusal to rent old films for TV broadcast gimmicks (e.g., early 3D) big screens (e.g., Cinerama) bigbudget productions adult themes not permitted on TV Hollywood's second thought: Motion pictures and television could thrive in symbiosis. TV provided: new life for old movies a new market for filmmaking. By the mid 1970s, the Hollywood studios produced more movies made specifically for TV than for theater exhibition. Industry self regulation Early public criticism of the motion picture industry centered on artist scandals questionable depictions of gangsters. Industry selfregulation began with production codes that specified certain types of content from the mid 1930s through mid 1960s. Since 1968, the film industry has regulated itself via audience restrictions (presently G, PG, PG13, R, NC17) The film industry in 2010 DVD sales and rentals have replaced theater exhibition as the primary revenue stream By 2007, 80% of U.S. households had DVD players. One way motionpicture producers minimize the risks associated with making cultural products for a young audience is by focusing on presold stories (e.g., successful novels, movie sequels and remakes, video games). Industry structure in 2010 An oligopoly of six major players control 80 percent of the market. The big production companies each produce about 20 films a year. Those same companies handle the marketing and distribution of movies to exhibitors. Exhibitors pay distributors large percentages of boxoffice receipts in return for rights to screen films. The motionpicture industry typically cashes in at multiple stages of a movie's life cycle: rental to cinemas sales of DVD copies in stores rental to cable/satellite/payforview TV rental to premium TV (e.g., HBO) rental to basic cable and terrestrial TV Digitization and new media are bringing about disintermediation and restructuring of motionpicture production, distribution, and exhibition. Mailorder DVD renter NetFlix pays the U.S. Post Office $600M annually to ship 100,000 titles to subscribers. In 2010, motionpicture revenues (in rank order) DVD sales and rentals (70% of profits; sales declined 13.5% in the first half of 2009; NetFlix revenue went up 21% during the second quarter) TV boxoffice receipts (up 8% in 2009) Upshot: People are watching more movies, but buying fewer copies of them. Rental giants Netflix and Redbox have Hollywood managers worried. Possible changes include revising agreements to give studios larger shares of rental fees delaying the start of rentals until 45 days after DVDs are offered for sale in stores. A postDVD future? HD DVD might have a limited lifespan, as consumers and major studios are warming to the idea of accessing movies and other video from the Internet. Some industry analysts predict that Bluray might be the last physical movie product that we can purchase and bring home in a box. Movie piracy In 2004 the motionpicture industry began suing individuals who swapped movies via the Internet. A 2005 Supreme Court ruling permitted lawsuits against the makers of software that encourages illegal downloading. One promising development is the latest generation of 3D projection: truly spectacular (we want to see it) virtually pirate proof (because it cannot be reproduced satisfactorily outside a cinema) By limiting what consumers can access, some think Hollywood managers are attempting to preserve an outdated business model that is no longer efficient. On the other hand, keep in mind that over the years, the major studios have developed complicated layers of relationships with exhibitors and other platforms (TV, on demand, online). The clash between an industry that wants to control who sees what and when, and audiences who want to watch whatever they want whenever they want, is slowly resolving in favor of the audience. Four traditional means of financing a movie borrowing money from the major distributors, in return for distribution rights Because the distributor takes the greatest risk, most contracts specify that the distributor is the first to be paid. pickup arrangements in which a distributor agrees to pay a certain price for a movie if produced and delivered by a specified date joint ventures in which majorplayer film companies pool resources, usually to produce a potential blockbuster (together, Fox and Paramount made Titanic in 1997 for $200M) limited partnerships of individual investors How do exhibitors make money? Theater owners enter into various types of exhibition licenses with distributors. One type of agreement allows the exhibitor to deduct from boxoffice receipts theateroperating expenses a set amount of profit. The distributor then receives 90 percent of the remainder. Ownership of the nation's 39,000 screens is concentrated; three major players dominate the market. Although only 3,600 of those screens are 3D ready, industry experts expect the number to reach about 9,000 by 2011. Exhibitors say we are willing to pay 30 percent more for a ticket to see a movie in 3D, and maybe 15percent more for an IMAX (ultrahighdefinition screen) viewing experience. So far only 280 U.S. cinemas have IMAX screens. In addition to box office receipts, exhibitors also derive significant revenue from concession sales ("restaurants that also show movies") intheater marketing (e.g., lobby displays, premovie ads). National CineMedia is the biggest U.S. movie theater advertising company. Audience resistance to movie ads has steadily declined. Research suggests that compared with TV audiences, movie audiences tend to be in a relaxed frame of mind. They also can't fast forward or mute! Audience like the recordedmusic industry, little public data 60 percent of moviegoers are younger than age 40 75 percent of all moviegoers attend 12 or more movies each year frequent moviegoers tend to be young and single Feedback traditionally a bottomline business, with boxoffice receipts reported weekly in Variety (50,000 screens in 14 countries measured by Nielsen Entertainment Data) audience input from test screenings (these can prompt content changes prior to final release) Hollywood: Location, or state of mind? Cashedstrapped states are giving tax incentives to lure film and TV production companies from greater Los Angeles. Michigan (40% tax credit) New York (35% tax credit) Illinois (30% tax credit) CAREER OUTLOOK Go to www.bls.gov for current employment data. ...
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