The movie industry refers to the businesses that primarily deal with the exhibition of movies. It comprises of the film festival exhibitors, cinemas, outdoor and drive-in movie theaters. The PESTLE comprises of the political, economic, social, technological, legal and environmental factors. Both PESTLE forces and the Porter’s forces affect the performance of the movie industry.
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The paper will discuss the forces as well as evaluate the main strategic issues affecting the movie theatres. In addition, strategic initiatives that can help exhibitors in handling the strategic issues will be evaluated (Katkin 6).
The meaning of the PESTLE analysis entails evaluating each of the PESTLE components and the way in which they influence the movie industry.
The government plays a major role in the way the movie industry operates. Some governments protect intellectual rights and patents for the movie industry. The protection of intellectual properties helps in preventing the copying of technological processes that negatively affects the company profits, sales and product prices. Government’s role in the release of films affects the industry (Katkin 6).
Some jurisdictions control the release of films by protecting morals and culture, banning movies regarded as highly sexual and with violent subject matter and regulating the content of each movie. This is associated with the uncertainty regarding the date of the release of the movies.
In addition, the movie industry is subject to the FCC, as well as the regulations imposed upon it. This affects the production of film and TV due to the fines imposed by the FCC (Slamanig 1).
The industry is extremely expensive, which makes it very valuable to capture a small portion of the market share. The movie industry has a high cost of capital that makes it difficult for new firms to enter the industry (Slamanig 2). This is due to the high cost of production associated with movie products.
Economic forces such as the recession and high unemployment rates negatively affect movie attendance. This occurs when theatre owners charge higher ticket prices in order to maintain the sales for box office (Slamanig 2).
There are several technological changes taking place in the movie industry over time. The use of internet platforms to facilitate entertainment has led to the growth of the industry in meeting advertisers concerns on the reduction in advertising opportunities due to piracy (Slamanig 4).
In addition, the use of mobile devices and the introduction of the new video format shows the level at which advancement in technology has propelled the movie industry to achieving higher quality. It is therefore essential for companies to adapt to the new technology that deals with online streaming in order to remain relevant in the industry (Slamanig 4).
The movie industry has set a line between what it may or may not produce. There are different regulators who monitor the operation of the industry. Companies that engage in activities not allowed by the law, faces litigations that attract huge fines and penalties (Katkin 4).
The legal environment has recently allowed the companies in the movie industry to buy phone companies as part of their franchise. This can help the movie industry in integrating into other fields, thereby creating bundles for generating more customer loyalty as well as the ability to raise switching costs, hence creating a barrier to entry (Partridge 76).
The frequent changes in moviegoers in different age groups affect the performance of the movie industry. Movie and film venues that cater for the older group get higher real revenue in the short and long run. These moviegoers often drive the industry. The increased use of websites by customers affects the movie industry (Partridge 76).
Theatres currently compete with other movie viewing options such as cell phones, televisions and computers. This has made theatres to become one of the many options available for consumers to watch a film. As a result, several theatre chains have gone bankrupt and eventually closed. The movie industry is also highly affected by piracy over the internet as well as the physical copies (Slamanig 3).
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Environment plays a role during the production process and the climate and location may either lower or raise costs. The rise in the environmental concerns of individuals all over the globe influences the movie industry to some degree. The movie industry must address issues related to noise pollution and global (Katkin 7).
Analysis of the porter’s factor model demonstrates the way in which they influence the whole movie industry. One of the forces is the competitive rivalry. This involves the level of rivalry that exists between companies in the movie industry.
The bigger companies in the industry represent a large portion of the market share making it difficult for smaller firms to compete effectively (Katkin 2). This is the main reason the industry has high profitability due to the existing competition between the large companies. This has led to the high competitive landscape in the industry (Katkin 2).
The other Porters force is the threat of new entrants. This force has been on the rise recently. Media streaming has attracted a high demand, thereby raising the threat of new entry. The increase in licensing agreements in the industry affects or rather puts the providers of entertainment at risk (Katkin 2).
The increase in the number of new entrants in the industry who are able to produce programming increases the levels of competition in the market. High costs of productions acts as a barrier of entry to new entrants. Most of the existing firms’ use economies of scale in their production. This reduces production costs while making it very costly for new entrants (Cheverton 30).
The customers bargaining power is moderate in the movie the industry. Customers are able to choose among the several available companies providing the movie services on which to spend their money. There are several products in the industry from which customers can make a choice. The choice of the consumers creates impact on the ratings, which, in turn, affects the expenditure of advertising (Cheverton 30).
When companies fail to produce high quality products, then customers bargaining power comes into play by switching, thereby reducing the advertising expenditure making it possible for competitors to capture it. There are now different segments of consumers in the industry due to growth of delivery methods. Companies that satisfy all the segments remain competitive in the market (Hill and Gareth 43).
In the movie industry, the suppliers bargaining power is low. Most of the suppliers in the movie industry are easily controlled by the movie companies. This makes it difficult for the suppliers to act freely and they are thereby, left at the will of the industry (Katkin 4).
Threat of substitutes is the other Porter’s force. Competitors in the industry together with new entrants both also act as substitutes of products in the business. There are increased entertainment substitutes in the industry in addition to theatre, TV and film (Katkin 4).
These substitutes have taken steps that have made them more competitive in the industry. For instance, the showing of movies in plays has recently increased in popularity, which acts as a substitute for other forms of entertainment. The advancement in technology has increased the availability of different substitutes in the industry (Katkin 4).
The movie tickets purchased by movie watchers highly determines the profitability model of the movie industry. Additionally, movie theatres sell other items such as popcorns to those who attend the movies. This refers to as the concession sales. Some studies indicate that concession sales represent almost 40 percent of the total net income of movie theatres (Katkin 4).
The markup generated from the sale of tickets is small as compared to that of concession sales. Those who operate the movie theatres charge low prices for tickets in order to attract a large volume of viewers. The viewers thereby end up purchasing concessions that are highly priced. This in turn increases the company profitability.
The current attendance is at lower levels and in order for the theatre operators to compensate for the reduced ticket sales, they have increased the prices of the tickets, but more significant is the highly increased prices of secondary items such as popcorns (Silver 3).
Digital technology is one of the strategic issues affecting the movie theatre industry. New technologies affect different media verticals including video games, TV, film and music. This in turn affects the advertising industry, the management of digital rights and management of customer relationships.
The emergence of these digital markets will therefore affect the volume of sales and overall profitability of the movie industry since most consumers will turn to digital technologies instead of attending movie theatres (Silver 3).
The changes in the digital technology when well analyzed can create opportunities that come up with them that yield success in the business. Content owners can therefore deploy multi-format contents of delivery platforms so that they may be able to utilize or rather maximize the revenue opportunities that accrue from the use of the new digital markets (Silver 3).
Personally, I would recommend that companies adapt to the new technology that deals with online streaming in order to remain relevant in the industry. Firms must use internet platforms and other mobile devices as well as introducing new video formats in order for them to achieve higher quality. This will also ensure that the movie industry remains relevant in the market (Silver 3).
In summary, the paper has critically analyzed the Porter’s and the PESTLE forces in relation to the movie industry. Different forces affects and impacts on the movie industry in different ways.
Technological advancement in form of digital technology is one of the main strategic issues that affect the movie industry. The adoption of the new technology by movie theatres can facilitate in accessing various opportunities related to the business.
Cheverton, Peter. Key Account Management in Financial Services: Tools and Techniques for Building Strong Relationships with Major Clients. London [u.a.: Kogan Page, 2004. Print.
Hill, Charles W. L, and Gareth R. Jones. Strategic Management Theory: An Integrated Approach. Boston, MA: Houghton Mifflin, 2010. Print.
Katkin, Michael 2013, External Analysis of Time Warner Inc. in The Entertainment and Film Industry. PDF file. Web.
Partridge, Lesley. Strategic Management. London: Financial Times Management, 1999. Print.
Silver, Jon n.d., Are Movie Theatres Doomed? Do Exhibitors See The Big Picture As Theatres Lose Their Competitive Advantage, Brisbane, Queensland, Australia. PDF file. Web.
Slamanig, Markus. Pest Analysis Hungary: Country Evaluation and Selection of Hungary. München: GRIN Verlag GmbH, 2012. Internet resource. Web.
Appendix A – Porter’s Forces
|Threat of Rivalry|| |
|Threat of Substitutes|| |
|Threat of Buyers|| |
|Threat of Suppliers|| |
|Threat of Entry|| |
Appendix B – PESTLE Forces
|Barriers to Entry checklist||Level|
|Life Cycle Stage||Growth|
|Regulation & Policy||Light|