Eric Tinoco
Strategic Management
Apple Case Questions
Assignment Questions
1. What are the chief elements of Apple’s overall competitive strategy? How well do the
pieces the strategy evolving?
Apple’s overall competitive strategy involves positioning itself to dominate the markets for
smartphones via the iPhone, media players via the iPod, tablet computers via the iPad, and
personal computers via the Mac and MacBook Pro. Apple’s strategy within the personal
computer market is to differentiate its PCs from other PCs via its proprietary operating system
and strong graphics-handling capabilities. Overall, Apple creates simple, sleek, well-designed
products known for their ease of use.
2. What are the key elements of Apple’s strategy in computers, personal media players, and
smartphones? Have its strategies in its core businesses yielded success? Explain.
Although Macs and MacBook Pros are priced at a premium and involve a longer learning curve
for users, Apple computers have developed and maintained a strong cultish following while
appealing to more customers through the popularity of its non-PC products. Although Apple did
not create the first digital music player, its iPod held a 73% market share in 2010 and the name
“iPod” has become a generic name to describe all digital media players. The first version of
Apple’s iPhone was released in 2007. It’s highly desired features and functionality prompted
Time magazine to designate it “Invention of the Year” for 2007. Apple’s iPad was introduced in
2010 and sold more than 3 million units within the first 90 days. Overall, Apple’s nonPC
products accounts for a majority and ever-growing percentage of its profits.
3. What does a competitive strength assessment reveal about Apple’s computer business, as
compared to the leaders in the personal computer industry? Use the methodology in Table
4.2 on page 97 in your textbook to support your answer.
In addition to its tangible resources, Apple has strengthened its position by differentiating itself
by cultivating a unique brand image. Its iPod has become so successful that the name “iPod”
itself has become synonymous with digital media players. Its Mac PCs enjoy strong “buyer
loyalty” via its cult-like following. It has also fostered a company culture based on unique design
and ease of use of its products. It is interesting to note that the iPod, iPhone, iPad, and Mac were
not the first of their kinds. However, through unique design they were able to differentiate
themselves from all other similar products on the market. This is the reason why Apple has been
able to command a premium price for their products.
4. Does it appear that the company’s competitive positions in personal media players and
smartphones or stronger or weaker than its position in computers?
The iPod’s dominant market position remains, as seen in its level of sales as compared to
Microsoft’s Zune, Archos’s Vision models, and Sony media players. However, through 2012 and
2013 Samsung Galaxy’s Android series has come to dominate the market for smartphones.
Collectively, Apple’s non-PC products such as the iPad, iPhone, and iPod account for more sales
revenue than does its Mac PCs.
5. Does it make good strategic sense for Apple to be a competitor in the computer, personal
media player, smartphone, and tablet computer industries? Are the value chain activities
that Apple performs in computers, personal media players, tablet computers and
smartphones very similar and “compatible” or are there very important differences from
product to product? Which of the four products lines---computers, tablet computers,
personal media players, or smartphones---do you think is most important to Apple’s future
growth?
Yes, it makes sense for Apple to compete in the computer, personal media player, smartphone,
and tablet PC industries. All of its products involve dynamic applications, media players, and
wireless connectivity. Overall, tablet computers are rapidly gaining market share over desktop
and lap top computers. I believe that this is a key area of future growth at Apple.
6. What is your assessment of Apple Computer’s ratios? Use Table 4.1 on pages 94-96 of
the text as a guide. Compare the performance during the timeframe of the case to the
recent performance.
Apple’s performance has somewhat leveled off. It currently keeps large amounts of cash on the
balance sheets of overseas subsidiaries. This cash must be put to use through innovative
initiatives. However, Apple is concerned about U.S. corporate taxes.
7. What recommendations would you make to allow Apple to strengthen its position in its
most important markets? What steps should it take to ensure that the iPad becomes a
success in the marketplace and a major contributor to the company’s overall performance?
The first recommendation I would make is that Apple repatriate the significant amount of cash
currently held overseas. It must show that these funds are being put to use in innovative projects.
Also, I applaud Apple’s recent deal with a Chinese company to gain market share in the Chinese
market. To ensure that the iPad remains a success in the marketplace, I would recommend
adding wireless functionality and adding the ability to run more applications that currently only
run on desktop and laptops.
Eric Tinoco
Strategic Management
Industry Table
Industry definition
This industry comprises establishments that primarily produce and
distribute motion pictures. Distributors work with theatrical and home
media entertainment products, including digital and physical versions.
Movie producers also hold movie libraries that receive revenue from
cable and network TV; however, companies that primarily broadcast
and produce TV content are excluded from this industry.
Market size and growth
rate
Market Share Concentration
Concentration in this industry is low
In the Global Movie Production and Distribution industry, the top
four companies are estimated to account for about 28.4% of
revenue. This indicates that the industry has a low industry
concentration level, which is expected to continue through 2018.
The average number of industry employees per establishment is
estimated to be 15 in 2013. Specialized and boutique companies
are normally dependent on a core group of employees with
managerial and creative control. They often concentrate on niche
products or media, and can often be dependent on one or two large
accounts.
Small companies offset larger corporations, which are more
successful in this industry because they are better able to mitigate
the risks involved in movie production. For example, revenue from
popular movies often balances out losses from less successful
productions, giving large studios with a diversified movie portfolio
an advantage over smaller, specialized production studios that lack
the resources to produce and release a wide variety of movies each
year. However, newly developed technologies that cut production
and distribution costs will helping mitigate the aforementioned
risks to smaller studios in the future. As these costs continue to
decrease, movies that have a relatively small marketing budget are
increasingly accessible to the general public, leading to more,
small movie-production companies.
Revenue Growth
Year
Revenue $ billion
1999
67.2
2000
71.6
2001
72.2
2002
75.0
2003
83.4
2004
100.4
2005
94.6
2006
93.5
2007
91.0
2008
88.6
2009
89.2
2010
89.8
2011
87.3
2012
88.2
2013
89.5
Key rivals & market
share
Growth %
0.0
6.5
0.8
3.9
11.2
20.4
-5.8
-1.2
-2.7
-2.6
0.7
0.7
-2.8
1.0
1.5
News Corporation
Market Share: 8.4%
Time Warner Inc.
Market Share: 7.1%
The Walt Disney Company
Market Share: 6.8%
NBCUniversal Inc.
Market Share: 6.5%
Viacom Inc.
Estimated market share: 4.2%
Ramoji Film City
Estimated market share: Less than 1.0%
Scope of competitive
rivalry
Basis of Competition
Competition in this industry is high and the trend is increasing
Movie producers compete against movies produced by other
studios and production companies. Prior to production, competition
occurs between studios for the rights to a film (artistic properties),
the talent and facilities used, exhibition outlets and public interest.
The number of movies released in any given period may cause
oversupply in the market and make it more difficult for a movie to
succeed. In addition, TV networks produce programs internally,
which may reduce consumer demand for movies and network
demand for movie products. Other forms of external competition
include sporting events, theme parks, theaters and other
entertainment providers.
Production
Competition focuses on gaining the rights to an original or
innovative script or story (artistic properties), or the right to use a
"known" character that is integral to the movie, such as Superman.
Production companies generally win these rights based on fees
paid to the IP owners. However, in some cases production
companies that offer an IP owner some artistic control, or meet the
artistic expectations of the IP owner, will succeed in winning the
rights.
It is important that the movie is properly cast; in most cases,
movies produced by Hollywood studios will have notable actors
that draw higher US and worldwide box office and DVD returns.
Casting reflects an actor's domestic and international profile and
suitability or talent for the role.
Winning financing to produce the film is another major element of
competition; for the majority of releases, funding is extremely
difficult to access and is dependent on self-financing, government
grants, or private investment/loans. At the upper end of the
industry, financing is internally generated, meaning fewer funding
issues and a higher per production budget for major theatrical
releases.
Location can be integral to the success of a film; however, a sense
of location can also be recreated in any landscape, or by using
digital technology in the studio. A movie producer must find the
cheapest location, taking into account labor costs and tax
incentives and rebates. Financial incentives are one way in which
countries compete against each other to host the production of a
film. Most countries offer generous incentive schemes depending
on a movie's budget and if local labor is used.
Postproduction
The employment of skilled postproduction staff will improve the
look and sound of a movie. The success of production talent is
generally dependent on the equipment used and the technical
capacity of studio facilities, such as the use of computer-generated
imagery (CGI).
A distribution company, which is often vertically integrated with
the production studio, must ensure the film is seen on as many
cinema screens around the world as possible, thereby increasing
audience potential, and that home media and TV distribution is
timely. Distribution relies on personal and professional networks.
Distribution companies can differentiate themselves from one
another by experience, quality and price.
Companies seek to differentiate their product by advertising often
three to six months in advance of a film's release, including
advertisements targeted directly at the key audience demographic
and product tie-ins, such as cinema ticket or merchandise
giveaways with food and drinks. Generally, the larger the
advertising expenditure, the greater is audience and exhibitor
awareness. Release dates are determined by several factors,
including release dates by competing studios and the timing of
holiday periods.
Concentration vs.
fragmentation
Major Markets
Home media products
The majority of industry revenue is derived from the sale of home
media products such as DVDs and Blu-ray. Returns from DVD
sales reflect a movies' popularity at the box office, film reviews, a
producers' or studios' advertising of the product and the extra
features added to a DVD, such as deleted scenes, outtakes,
commentary and interviews.
The capacity of home media products, their versatility and the
increasing penetration rate of DVD and Blu-ray players and
recorders into households in advanced economies have
significantly increased returns from this medium. The popularity of
home media products has helped hasten the decline of box office
revenue as a proportion of total industry revenue. A downside to
digital media is the increasing prevalence of movie piracy, which
reduces the total value of industry revenue.
Cinema and theaters
The cinema is the first point of market entry for a movie and films
are shown on cinema screens around the world for a limited time.
Movies shown on this medium are generally the larger budget
productions from major studios with a well-known cast. However,
there is a range of cinemas that specialize in exhibiting
independent and low-budget productions.
Production companies spend a large amount on advertising a
cinema movie to consumers. Advertising has been shown to
increase audience numbers, but also affects exhibitors' behavior
and persuade them to show a film. This is a very important factor
outside the United States, where there are fewer movie screens on a
per capita basis and competition for exhibition space is much
higher. Studios also meet significant costs involved with providing
exhibitors with film, while the more screens on which a movie
plays, the greater the more distribution costs.
Over the past five years, worldwide box office returns and
audiences have generally increased as a result to growth in Asia,
Latin America China, India and Russia. This trend is expected to
continue through 2018.
Pay- and free-to-air TV
Producers distribute movies to subscription pay television, pay-perview and video-on-demand services in the first instance and later to
free-to-air TV networks. The license agreements generally provide
for a specified number of exhibitions of the movie during a fixed
term in exchange for a license fee. The higher the potential viewing
audience for the TV broadcast, the higher the license fee for the
film. Given that US cable/satellite audience growth has been robust
in the United States and Europe, license fees are likely to have
increased substantially over the past five years. The license
agreements reflecting the pay-per-view and video-on-demand
service arrangements generally provide for a license fee based on a
percentage of the licensee's gross receipts from the exhibition of
the program, and in some cases, a guaranteed minimum fee.
Moreover, revenue from network TV has been healthy. This is
largely due to the fact that studios do not have to pay any
advertising or marketing costs out of the license receipts as they
had to prior to cinema release and even home media release. As
such, the TV license fee and sales from film libraries is almost total
profit.
This industry has also benefited from the vertically integrated
nature of the entertainment industry, especially in the major US
market. For instance, the major movie producers and distributors
(Fox, Time Warner, Sony, Universal, Paramount and Disney) and
the American broadcast networks (CBS, NBC, ABC, FOX and
WB) have the same parent companies.
Demand determinants
Demand Determinants
Studios and independent production companies make and
distribute movies to meet consumer demand. The movie product
appears as one of many genres or styles and production companies
generally understand that genres' audience demographics and how
best to market to that demographic. Often movies fulfill more than
an entertainment function and are demanded by governments to
buoy domestic artistic creativity, and as a means to boost domestic
film production skills.
Higher levels of disposable income increase the likelihood of
people spending on entertainment, such as cinema attendance and
DVD and Blu-ray purchases. Changes in disposable income are
affected by changes in interest and tax rates and labor market
growth. Attending a cinema is also often in competition with
buying a DVD or Blu-ray, or attending other entertainment and
performing arts activities.
Demand for movies is greater when publicity has been widespread
or reviews have been good. Production companies can generally
control the level of publicity a film generates. However, reviews of
the movie are based on artistic merit and the opinion of the
reviewer and are therefore less easy to judge or control.
Certain films appeal to a specific demographic (age, gender,
education, income and marital status being the most important). If
the number of people in a certain demographic group increases,
then the potential size of the audience for the product increases.
The more time that people have to dedicate to leisure or
discretionary time, the greater the possibility that they will
purchase the movie product or be exposed to movies on TV or on
the Internet (broadband internet connections and access to
cable/satellite TV is also an important direct mode of industry
advertising and boosting demand for the product by providing old
films for viewing consumption.
The greater level of digital media and technology adoption by the
population in general, the greater will be the potential size of the
audience. This is particularly true for DVD and Blu-ray purchases.
Over the current performance period, the household penetration
rate of DVD players has increased rapidly, while the number of
film titles on DVD has also increased.
Degree of product
differentiation
Genre generally refers to shared similarities in the narrative
elements from which films are constructed. Film genre is typically
derived from the director's use of setting or location; mood, or a
film's emotional delivery; and format, which is a more technical
characteristic that can be achieved by the use of certain equipment,
or because the film is presented in a certain manner. Examples of
setting include war, a particular city or country, or a focus on
sports or science fiction. Examples of mood include action,
comedy or horror, while format includes categories such as
animation, musical or documentary.
Genres have discernible audience demographics and
complementary publications, such as magazines or websites, to
support them and reach the desired demographic. Film genres are
therefore extremely useful tools for marketing efforts and as
categories for critics and consumers to help determine their ideas
about the product. The following breakdown is sourced from data
in the Internet Movie Database, for films released and to-to-be
released in 2013, compared with 2008.
Short
The Academy of Motion Picture Arts and Sciences, a professional
organization of filmmakers, defines a short film as "an original
motion picture that has a running time of 40 minutes or less,
including all credits." In 2013, the proportion of shorts to fulllength feature films is expected to be 21.7%. This is less than the
29.6% of movies that were shorts in 2008 because technological
advances have sped up the content creation process, making it
easier for even low-budget productions to make a full-length film.
Drama
Dramas tell a story, usually involving conflicts and emotions.
About 19.3% of movies that are released in 2013 are expected to
be in the drama genre, compared to just 16.5% in 2008. Drama has
gained popularity during the past five years with the success of
blockbuster franchises including the Harry Potter series and the
Twilight Saga.
Comedy
Comedy is composed of dramas that are specifically intended to
make an audience laugh. It has also become a more popular genre
during the past five years; about 11.5% of films released in 2013
are expected to be comedies while only 10.7% of movies were
comedies in 2008. The popularity of the genre fluctuated from year
to year, however, with a low of 10.5% in 2008 and a high in 2012.
Documentary
Defined as a nonfictional motion picture intended to document
some aspect of reality, primarily for the purposes of instruction or
maintaining a historical record, the documentary has decreased in
popularity since 2008, when 13.4% of movies were categorized in
this genre. About 8.5% of films released in 2013 will be
documentaries. The steady decline in popularity for documentaries
through the past five years may be due to increasing international
communication facilitated by online applications like Twitter,
which enable locals and reporters to provide real-time coverage of
world events.
Thriller
The number of thriller movies spiked to 5.6% of movies released in
2013, after hovering at about 3.4% throughout the past five years.
Similarly to the drama genre, franchise films like Transformers and
The Expendables have also popularized thrillers. Indeed, the
blockbuster Dark Knight series borders the two genres and could
be categorized as either.
Other
Other genres include horror, action, romance, family, crime,
fantasy, sci-fi, biography, adventure, mystery, animation and
western. From year-to-year, the variety of movies has stayed
relatively constant across genres. However, the category has
expanded as a share of movies produced from about 26.4% in 2008
to 33.4% in 2013.
Key success factors
Key Success Factors
IBISWorld identifies 250 Key Success Factors for a business. The
most important for this industry are:
Control of distribution arrangements: The ability to negotiate
contracts with movie producers and library holders regarding
movie distribution rights with a variety of end users (i.e. theaters,
home media, internet, mobile devices), both domestically and
internationally, is critical.
Ability to quickly adopt new technology: Adopting new
technology and using that technology appropriately can improve
the visual and artistic outcome of movie production and can limit
labor costs.
Having marketing expertise: Advertising is an important
indicator of the number of screens on which a movie shows and the
box-office revenue it generates. Advertising drives the behavior of
audiences and exhibitors.
Effective cost controls: Movie productions often run over budget,
severely undermining the likely profitability of the venture.
Delivering a product on budget will increase the chances of a film
being a financial success.
Prompt delivery to market: Movies that tap into current issues or
follow social trends will be popular. Prompt delivery of movies to
exhibitors around the world ensures good box office returns, while
a home media release will meet demand from consumers and
minimize piracy.
Supply/demand
conditions
The Global Movie Production and Distribution industry creates and
disseminates motion pictures to audiences across the world, so it
relies directly on discretionary spending. The industry suffered
when disposable income dipped and stayed low due to the Great
Recession, especially in developed regions. About 39.0% of
industry revenue is generated from North American audiences,
while another 23.5% of revenue comes from Europe. However, the
disposable income levels of consumers from rapidly developing,
newly industrialized nations like Brazil, Russia, India and China
(BRIC nations) are rising quickly and expected to support industry
revenue expansion of 1.5% in 2013. Consequently, revenue is
expected to grow at a five-year annualized rate of 0.2% to $89.5
billion.
A world audience that can increasingly afford to pay for movie
content and new communication technologies that have diminished
distribution costs are supporting industry profit expansion by
boosting demand. Technology change is also supporting new
revenue streams for movie producers and distributors who rely on
paid and ad-supported viewership across a variety of exhibition
methods, from traditional cinema to video streaming on mobile
devices. As a result, industry profit is estimated to increase from a
low of 4.0% of revenue in 2009 to about 4.2% in 2013.
Nonetheless, profit remains below the 2008 average margin of
4.3%.
In the next five years, more audiences in BRIC and in emerging
nations are anticipated to consume movie content on a regular
basis. Disposable income is expected to rebound from Great
Recession lows, and newly developed revenue streams will be
better understood by the industry. Revenue is forecast to rise
during the next five years at a 2.0% annualized rate to $98.9
billion. Major firms, which are mainly headquartered in the United
States, are expected to increasingly invest in developing markets in
order to capitalize on audience growth in these countries. Six
production studios in the United States dominate the production
and distribution of movies: Fox, Time Warner, Sony, Universal,
Paramount and Disney. There are few entities outside the United
States that have similar production capabilities in terms of
infrastructure, production financing, marketing and distribution
reach. Nonetheless, industries in other regions, particularly
Northern Asia and India, are anticipated to expand rapidly during
the next five years.
Analysis of stage in life
cycle
Industry Life Cycle
This industry is mature
The products offered by industry operators are a fundamental part
of the entertainment media. However, the highly competitive
nature of this geographically concentrated, studio-dominated and
high production cost industry will continue to place pressure on
small-scale participants to close operations or merge with larger
entities to maintain profitability. During the 10 years to 2018, the
Global Movie Production and Distribution industry is expected to
contribute to a diminishing share of the world economy due to
much faster growth in less-established industries. As measured by
industry value added (IVA), the industry's contribution to the
economy over the 10 years to 2018 is estimated to rise at a 0.9%
annualized rate, while global GDP is projected to rise at a 5.4%
average rate per year.
The sophistication and application of postproduction and specialeffects technology has increased significantly over the past five
years. The resulting faster processing times and more automation
have helped cut costs for studios. Such systems and processes are
expected to continue to rapidly evolve during the next five years,
encouraging new businesses to enter into the industry. IBISWorld
estimates that the number of enterprises will grow at a 1.8%
annualized 10-year rate to 884,900 in 2018.
The adoption of technology is facilitating and enhancing the
distribution and exhibition of movies, which is rapidly altering the
landscape of the industry. Consumers continue to embrace a range
of home media products such as Blu-ray discs; cable, satellite and
video-on-demand TV; and downloadable and streaming videos.
Movies are also increasingly disseminated in digital formats that
are compatible with personal entertainment equipment, such as
smartphones, tablets and gaming consoles. Such technological
adoption is increasing the consumption of videos. High-definition
TVs, digital movie screens and 3-D technologies are also
enhancing the viewing experience for consumers, justifying higher
pricing for select products.
Life Cycle Reasons
Advances in recording and editing technology are cutting labor
costs, speeding up the production process and improving
product quality
Mobile and in-home devices with internet or satellite
connections are facilitating public access to industry products
Digital distribution is helping industry operators cut costs by
drastically reducing shipping time and costs
Pace of technological
change
Technology & Systems
The level of technology change is high
Production
Advances in video equipment and storage are allowing for
increasingly high-resolution movies to be produced, even with a
low budget. Video cameras have more automatic settings,
decreasing the need to re-shoot scenes. Also, digital production and
editing software have cut costs and time in post-production.
Distribution and exhibition
As cinemas adapt to digital distribution methods, the distribution
process will also be less costly for producers. The number of
digital movie screens has increased rapidly over the current
performance period. However, the number is still very small
compared with those that operate using film. The benefits of digital
distribution appear to be lower costs for producers/distributors,
which must presently pay $1,000 to $1,500 per film print for new
releases. Moreover, sound quality is generally better, as the audio
files have not been compressed. Visual quality has yet to surpass
film to the extent that exhibitors are willing to purchase, maintain
and more frequently replace digital equipment. In countries that are
currently under-screened, which is most of the world outside the
United States, digital cinema numbers are likely to increase rapidly
if cost factors can be overcome. The most obvious candidates are
in Asia, including China and India, due to the quickly rising
disposable income amongst large population groups in those
countries.
To increase revenue flow, it is important to harness new digital
media like the internet to allow paid-for downloads and free movie
trailers. Over the long-term, improvements in digital format should
boost viewing quality and facilitate electronic efforts to stem
movie piracy.
Special effects
Special effects are visual elements used to simulate reality on film.
The desired effect is often impossible or impractical to produce
first hand, such as a spaceship in space, an earthquake or a
particularly large crowd scene. The growing use of computer
animation and computer-generated imagery (CGI) has produced
increasingly realistic visual effects and there is a correlation
between movie budget and box-office success. The largest movie
studios usually have their own special effects department.
However, private companies, such as George Lucas's Industrial
Light and Magic, do provide outsourced services.
A full-time special effects department for small and medium-sized
producers would not be economically viable, given that special
effects are not always required or can be achieved by industrystandard technology in post-production. Many films are lowbudget and do not feature cutting-edge technology. Such films
differentiate themselves by the quality of their script and acting, as
well as directorial creativity. However, the majority of major
theatrical releases (i.e. those generally produced in the US studio
system and of the disaster, science-fiction or horror genres) rely on
special effects as a mode of competition.
Barriers to entry
Barriers to Entry
Barriers to entry in this industry are low and are steady
Barriers to Entry checklist Level/Impact
Industry Competition
Industry Concentration
Life Cycle Stage
Capital Intensity
Technology Change
Regulation and Policy
Industry Assistance
High
Low
Mature
Medium
High
Medium
Medium
The major deterrent to new companies considering entry into this
industry is the powerhouse of major US studios. Those studios (see
Major Companies section) form a barrier because they spend
significant financial resources on marketing that draw the major
crowds away from films with smaller budgets. Also, they are
highly vertically integrated and have global distribution arms that
often provide pre-finance for a film, thereby mitigating the
problems of finding up-front finance, as the lag time between a
movie's conception and commercialization is a major barrier.
Further, major studios, as the primary suppliers to exhibitors, have
significant sway over cinema owners. This ensures that studio
releases get screen priority and long run times. They may also have
relationships with major cast names that prevent talent working on
films for other studios and independent productions.
A movie of good visual and artistic quality can be produced with a
minimal budget given the right level of skill and talent. However,
the ability to rent expensive technical equipment, location and
premises and other inputs could prove difficult for new companies.
There is also a high level of skills outsourcing by the major players
for niche aspects of industry production work and a need for a
large number of ready-made performance venues, such as cinemas,
that show major releases, independent films and others. Regulation
in some regions restricts artistic freedom and could also inhibit
some companies from entering the industry.
Regulation/deregulation
Regulation & Policy
The level of regulation is medium and the trend is steady
Most countries protect the right of all artists and producers to
create works freely and in them express political or social and
cultural views contrary to government policy and other widely held
societal norms.
A motion picture rating system categorizes films with regard to
suitability for children and/or adults in relation to portrayals of sex,
violence and profanity. In some countries (e.g. Australia), an
official government body decides on ratings (i.e. a de jure system);
in other countries (e.g. the United States), it is done by industry
bodies with no official government status (i.e. de facto).
Certification normally involves classifications that show a film is
suitable for all ages, where parental guidance is recommended, and
when films are suitable for those aged 15 years and above and 18
years and above.
In most countries, movies that are considered morally offensive
and beyond the certification system have been, and can be, banned.
Banning a film occurs much less frequently than in previous
decades as morality considerations change and digital piracy makes
a ban very difficult to police. Most Western countries, such as the
United States, rarely ban films unless there are legal or civil
violations, or if the film is a threat to national security.
The industry has to comply with copyright laws in terms of
receiving written approval for the use of images, music and scripts
used in the production process, and royalty payments may have to
be made to copyright owners. Once a product has been made, it
becomes subject to protection from unauthorized copy. Due to the
relative ease of copying content, the industry is extremely
susceptible to piracy. Piracy is especially prevalent in Asia, where
movies are commonly illegally copied and sold.
Globalization
Industry Globalization
Globalization in this industry is high and the trend is increasing
Several entertainment conglomerates, including the four major
companies, have production and distribution networks worldwide and financial interests in a number of independent companies that
produce or distribute content domestically. The production and
distribution of movies is dominated by six production studios in the
United States, namely Fox, Time Warner, Sony, Universal,
Paramount and Disney. There are few entities outside the United
States that have similar production capabilities, in terms of
infrastructure, production financing, and marketing and distribution
reach. Major feature films produced in the United States tend to
have a higher production budget than elsewhere, and are supported
by a significant level of marketing by distributors.
Market share for domestically produced movies in countries
outside of the United States, some of which have well-established
film industries, is very low. Apart from the United States, India
also harbors a strong local movie industry and culture that
dominates the local market. The remaining countries around the
world primarily enjoy foreign movies. This is further facilitated by
digital distribution, which has enabled consumers and distributors
to more easily share motion picture content.
Trends
Industry Outlook
In the five years to 2018, higher GDP and employment growth are
anticipated to spur gains in household disposable income and
consumer sentiment, leading to increased spending on entertainment.
Along with the international 3-D movie revolution, these positive
trends will stimulate movie production revenue. As a result,
IBISWorld estimates that the Global Movie Production and
Distribution industry's revenue will rise at an annualized 2.0% as
movie output increases at a moderate rate, and as broadcasting and
consumer demand rise steadily through 2018.
Revenue is expected to grow by 3.2% in 2014, due to a forecast
recovery in global economic conditions. The general availability of
risk capital and finance will improve dramatically as the worst of the
global recession and associated credit squeeze fades. By 2018,
industry revenue is forecast to total $98.9 billion.
Gradual expansion
The industry is anticipated to garner slightly less revenue from the
cinema segment during the next five years, reflecting generally
sluggish growth in cinema attendance across most advanced
economies. Attendance has been negatively affected by the
convenience and privacy afforded by home media products like
DVDs and Blu-ray, and the rise in digital piracy associated with
broadband internet connection. Moreover, the increasing penetration
rate of pay cable and satellite TV has made accessing movies more
convenient. The vertically integrated nature of the movie and
entertainment sector is likely to result in pay-TV siphoning off
theatrical releases shortly after cinema and DVD or Blu-ray release,
as a means of attracting larger license fees.
Slow growth in industry employment, largely in developed
countries, is also anticipated during the next five years. This growth
will occur despite rising competition, as global economic growth
increases and boosts profit. In emerging markets, the industry
remains skewed toward the cinema segment. During the next five
years in particular, cinema chains are expected to build new
multiscreen facilities that are digitally enabled to attract expanding
middle-class audiences. For example, Bollywood, as the Indian
movie production industry is known, produces a vast number of
movies in many languages and dialects. Movies tend to have low
production value and, due to the large number produced, are rotated
quickly, unlike major US theatrical releases, which are limited as a
means of retaining consumer demand. IBISWorld estimates that the
Indian market is not yet saturated because there are about 86,000
people per screen, compared with about 7,500 people per screen in
the United States. This suggests that the country will expand its
exhibition capacity during the next five years, especially because
disposable income in India is projected to grow quickly during this
time. With this expansion, cinemas would have to compete harder to
win consumers.
Movie technology and trends
Movie distribution costs may continue to decline with the increase in
digital distribution, including to cinemas. Some of the cost savings
may have to be shared with cinema operators as they undertake
significant upgrades in audio and visual technology to screen digital
products, particularly for 3-D movies. Industry employment is
expected to increase at an annualized 0.6% over the five years to
2018 to about 884,900 workers. This increase will result from
significant expansion of emerging market presence in movie
production.
Home media, particularly cable and satellite TV with digital product
and movie access enhancements, will be important revenue streams
during the next five years as consumer access to these services
expands globally. Also important will be the increasing demand
from new technology and products, including streaming movies on
smartphones and tablets. Easier dissemination of movies will also
support industry enterprise growth, especially as investor uncertainty
drops during the next five years. IBISWorld estimates that the
number of businesses will rise at a 2.0% five-year annualized rate to
54,900 firms in 2018.
Piracy concerns
The piracy of movies has become easier due to the introduction of
digital format products and the increasing household penetration of
broadband internet access that enables illegal downloading. In its
broadest form, piracy relates to the manufacturing, selling or
distributing of a motion picture without the consent of the copyright
owner, such as the producer or distributor. The increasing
availability of movies for at-home audiences while the films are still
in theaters is a concern for the industry because it may facilitate the
piracy of high-quality motion picture content.
Efforts to fend off internet piracy have proven mixed due to the
increasing penetration rate of broadband internet into homes in most
advanced economies. Internet piracy does not yet cost the major
producers as much as hard-goods piracy, and internet piracy is
generally committed by individuals. The major studios have sought
to meet internet demand for movies by introducing their own legal
download websites: Disney, Sony, MGM and NBC Universal offer
movies and TV shows that can be burned and used on other devices
through CinemaNow. Meanwhile, Movielink offers movies to
download from Fox, Warner Bros., Sony, MGM, Paramount and
NBCUniversal.
Revenue Outlook
Year
Revenue $ billion
2014
92.4
2015
94.9
2016
96.7
2017
97.5
2018
98.9
2019
99.9
Growth %
3.2
2.7
1.9
0.8
1.4
1.0