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This report is aimed at discussing the opportunities and challenges faced by contemporary motion picture industry and especially movie theaters. In particular, it is necessary to show how various political, economic, social, or technological factors can impact this industry. Furthermore, this paper has to analyze the trends within this industry.
On the basis of this discussion, we will be able to make recommendations that can improve the work of these companies. Overall, it is possible to say that this market is wrought with contradictions such as increase of revenues and lower levels of attendance or changing demographic situation in the United States (Gove & Matherne, 2009, p 1). At this point we can say that skillful use of online technologies and ability to attract customers is the key to successful performance of these companies.
Summary of macro-environmental analysis
While discussing external factors influencing this industry we will rely on the so-called PESTLE model allows us to describe political, economic, social, or technological environment in which movie theaters operate.
First, we need to say that political factors continue to have beneficial impact on these companies and the government is still willing to protect their independence from film studios.
According to the Supreme Court decision in United States vs. Paramount Pictures that allows theaters to decide what kind of films they want to purchase (Melnick & Fuchs, 2004, p 128); moreover according this court decision the film producing companies are not allowed to own shares of movie theatres (Biagi, 2006, p 138; Gove & Matherne, 2009, p 2). Although, this decision was taken more fifty years ago, it remains important for movie theaters.
Economic factors are more likely to have a balanced effect on this industry. Despite ongoing economic recession, people still view movies as a good entertainment option. In part, it can be explained by the fact that it gives the best price-quality ratio. For instance, the price of ticket is $27 while the ticket to an amusement park costs $ 140 (Gove & Matherne, 2009, p 1). Nonetheless, one has to acknowledge that economic downturn is not a positive force for movie theatres as attendance throughout the country declines.
When speaking about social factors, we should focus primarily on demographic changes in American population. It is expected that the target audience of movie theaters (people whose age ranges from 12 to 24) will increase by 9 percent (Gove & Matherne, 2009, p 2). At first glance, one can argue that these changes will result in a larger number of viewers.
Nonetheless, one should bear in mind that overall American population is growing at much quicker pace, namely 17 per cent, while their main demographic group is expanding more slowly. In addition to that, we need to mention that the lifestyles of American people has been changed, for example, each year Americans spend approximately 3500 hours on entertainment, and only 0. 34 percent of this time (12 hours) at movies (Gove & Matherne, 2009, p 1).
Technological factors will produce a mixed effect on the performance of movie theaters. On the one hand, the emergence of HD (high-definition) television and Blu-Ray DVDs allowed the viewers to want high-quality videos at home (Gove & Matherne, 2009, p 6). Overall, rapid development of online technologies has made less attractive for many people.
Yet, we should note that increasing popularity of 3-D films can revive this industry (Nelmes, 2003, p 16). With its help, movie theaters can make the viewers’ experience more fulfilling and satisfying. This is why one should not suppose that technology should be regarded only a negative force.
The impact of legal factors is not beneficial. Namely, we need to speak about Internet piracy and numerous copyright violations (Segrave, 2003). Modern information technologies enable users to share not only songs but videos as well. Many people do not think that it is necessary to pay for the ticket when they can download the same film via Internet. Contemporary legislation provides virtually no safeguards against this infringement. Under such circumstances, film studios and movie theaters lose a substantial part of their profits.
Environmental factors will not produce profound effects on the functioning of movie theatres, but it is quite probable that in the future these companies will need to adopt technologies that allow more efficient use of energy, for example, solar water heaters, solar panels and so forth. However, these changes will not manifest themselves very soon. These are the major findings of macro-environmental analysis. At this stage, we need to discuss the trends within this industry.
Summary of industry analysis
Michael Porter’s model of Five Forces has been adopted to analyze this market. At first, we need to discuss the threats of new entrants. At this moment it is relatively high since there is no switching costs for the customer and a new company can entice viewers, if they manage to offer excellent quality of services.
Nevertheless, one has to take into consideration that the majority of modern movie theaters are either multiplexes or megaplexes which comprise from 2 to 16 screens (Gove & Matherne, 2009, p 3). Hence, a new company should first make considerable investment; otherwise it will difficult for them to compete with other market players.
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Secondly, the bargaining power of suppliers (film studios) is not very strong. Currently, they are not permitted to dictate their terms to the theaters, for example they cannot force them to buy several movies at a time (Biagi, 2006, p 138). Again, this is the result of the Supreme Court decision in United States vs. Paramount Pictures.
Furthermore, movie production companies are not allowed to discriminate against small theaters. Therefore, one can say that theaters are relatively independent of their suppliers. In contrast, the bargaining power of customers is very strong as they can easily switch from one movie theater to another. Furthermore, they have many resources for entertainment at their disposal such as Internet, home video devices etc.
Furthermore, one should consider the intensity of competition in this area. There are four major rivals in this industry (Cinemark, Carnike, Regal, AMC and Regal); these companies control approximately 40 percent of market (Gove & Matherne, 2009, p 3). Moreover, they are much smaller companies. The key issue is that their offerings are not essentially different in terms of prices or services (Moul, 2005). Still, while competing with one another they focus on such issue as location of the theater, in particular, its proximity to cafes and restaurants or convenience of parking.
Thus, one can say that competition is not very intense. Finally, we need to discuss the threat of substitute products; at the given moment it is very high, especially if we are speaking about the growing popularity of HD television. More importantly, it is worth mentioning that the time between theatrical release and DVD release is becoming smaller; at this moment it equals 23 weeks while before 2000 it was 37 weeks (Gove & Matherne, 2009, p 6). This is another reason why substitute products enjoy demand among customers.
This discussion indicates that in the future the performance of movie theaters will significantly depend on their ability to implement new technologies such as 3-D displays. These technologies are still emerging and they can give competitive advantages to those companies which adopt them first. However, this advantage will be temporary; the key to success will be the quality of services that they offer to clients.
Biagi S. 2006. Media/Impact: An Introduction to Mass Media. NY: Cengage Learning
Gove S & Matherne B. 2009. A Horror Show at the Cinemaplex? Case Study pp 1- 6.
Melnick. R. & Fuchs A. 2004. Cinema treasures: a new look at classic movie theaters. Ney York: Voyageur Press.
Moul C. 2005. A concise handbook of movie industry economics. Cambridge: Cambridge University Press.
Nelmes J. 2003. An introduction to film studies. London: Routledge.
Segrave K. 2003. Piracy in the motion picture industry. NY: McFarland.
United States Congress. 2010. “Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010”. The Library of Congress. Accessed from https://www.congress.gov/