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Copy of Economics-Movie Studio Industry

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Rita Medina-Fagerholm

on 13 June 2014

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Transcript of Copy of Economics-Movie Studio Industry

Managerial Economics of the
Movie Studio Industry Welcome to
Theater Warner Bros. Paramount Disney Top Grossing Movies History: I swear I picked only the good stuff! History in Movies Cont'd. Ticket Sales and Market Share by Year Recent Financial Trends Recommendations Market Structure Government Regulations Steven Toto MPAA and its rating system Oligopolistic, with large monopolistic segment
6 out of a total of 574 since 1995 have lead the market Difficult entry and exit
Non-Price Competition
Mutually interdependent-Trends & Technology Risk and Uncertainty Requires big investment
Involves a great amount of uncertainty
Tens of thousands of movies get made each year BUT... only about 100 actually make any $$$
Try using a formula or bet on established properties-Comics, Novels, Kids' Books Reducing Risk with Regression Analysis Example for Calculating
Opening Weekend
Office Gross Studios were busier than ever until about 1930, the industry saw those profits turn into hefty debits.

Hollywood’s first encounter with the hard facts of America’s dying economy
The dream factory was stricken along with the steel factory
Hollywood would suffer badly!

Which film company turned that around? 1929 Wall Street Effects the Film Industry Fast forward to 2012…The Film Industry Herfindahl-Hirschman Index-
Market Concentration                  Demand for Movie Tickets World's 2nd largest media producer after Disney Assets: Warner Bros. A Subsidiary of Time Warner Inc. (TWX) NYSE: $52.99 6,650 feature films 50,000 television titles 14,000 animated titles Film Features Academy Award Winners & Classics 1903 Starting Out exhibit The Great Train Robbery at carnivals OH & PA sold bicycle shop purchased a building in New Castle, PA

1905 W BFounded opened studio in CA during WWI-first nationally syndicated film, My Four Years in Germany

1923 Rin-Tin-Tin name given to a dog adopted from a WWI battlefield-23 films Credited for saving the Warner Bros. from bankruptcy

1927 Big Break 1st film presented as a talkie-Vitaphone (sound-on-disc)

1931 Little Ceaser 1st gangster movie-started the gangster era & embraced
42nd Street FDR’s New Deal w/musicals & stories reflecting ND
Gold Digger

1937 WW2 Propaganda anti-German film The Life of Emile Zola

1944 WB Cartoons bought Schlesinger's cartoon renamed it-WB Cartoons

1948 Conspiracy Anti Trust Act Harry Warner and six other movie studios were caught in a conspiracy in violating the Sherman Antitrust Act which prohibits certain business activities that reduce the marketplace to gain a monopoly Timeline 1950’s WB Split-Youngest brother Jack, secretly bought out his brother’s shares gaining full power of the studio

1960-72 Excel

1972-89 Warner Communications & Columbia join forces followed by mergers & acquisitions

1990-06 Creation of Time Warner Inc.

2006-13 WB renamed CW & more ventures,ongoing & global Timeline cont'd. Industry-Entertainment
Founded-April 4, 1923
Founder(s)- The Warner Bros. : Albert, Harry, Sam, & Jack now owned by Time Warner (TXW)
Headquarters-Burbank, California, United States
Products-Motion pictures, television programs, video games
Gross Sales for WB film in 2012, $4.3 billion ($1.66 billion domestic, $2.67 international Total for TWX:Revenue-$11.7b
Operating income-$844 million USD (2012)
Parent-Time Warner
Website-wb.com Raw Data-Warner Bros. is Vertically Integrated, Oligopoly Warner Brothers
Production Budget: $30,000,000
Both major characters in the movie are big Tony Bennett fans
WB’s initial offer to Tony Bennett for a performance is only $15,000, but they ended up paying $200,000.
Problem: WB determined to buy the performance and had bought it (sunk cost), but forgot to ask the price first! Analyze This The Payoff Matrix for Warner Bros. Advertising Game:
No. indicates $ in millions from box office sales (only) Movie demand vary with the movie’s life cycle

Movie demand occurs moreso during the summer months and at Christmas and within the first two weeks of opening

Average box office receipts during the first
weekend of a movie account for about 30% of total box office revenues

Top 6 distributors account for about 75 percent of total box
office revenues

Substitutes, and income take away from film revenues Supply & Demand Forces
1. the agencies pushing their talent
2. the distributors demanding certain release slates

Warner Bros. does a bit of packaged properties from specific agencies and develop in-house or out of a tight-knit group of "independent" production companies.
Warner Bros & IMAX agreed to release up to 20 Warner Bros. films in 3 yrs in the immersive IMAX Experience®
Has many platforms Differentiation HBO
Time Inc. & (IPC Media)
Grupo Editorial Expansión
Turner Broadcasting System
Warner Bros. Entertainment , Pictures & Television, Media
Venture Capital Unit Current Assets AOL (2001-2009)
Atlanta Braves
Atlanta Hawks
Atlanta Thrashers
Comedy Central (50% with Viacom)
New York Cosmos
Pittsburgh Pirates (48% with John W. Galbreath)
Six Flags Theme parks Former Assets Invest in independent film companies to expand on real life lessons…more documentaries
Focus more on social responsibility and message to audience relating to drugs, sex, violence
Set up more scholarship programs to help future actors and folks embarking in the entertainment industry
Sell more ancillary items relating to brands
Broaden the line up to inspiring actors Recommendation 1918 My Four Years In Germany 2013 Beautiful Creatures Rita Medina Lorrie Federico Nader The Key to Disney's success? Source:www.the-numbers.com/market/distributor/Buena-Vista * In millions. ** # of total movies tracked that were released in 2013. Studio Market Share Not off
to a good start Will the 2013 short "Paperman" save the day?
Blending hand drawings with computer animation Overdue for something to bring them over the top again! Family friendly differentiation-More than half of the Top 25 movies of the last 18 years have been rated G or PG

Strategic timing of releases

Big names doing voice work as well as live-action films

GREAT STORYTELLING- Even with nothing but images and sound, no dialogue “After delivering another record year of growth in 2012, we're off to a solid start in Fiscal 2013,”said Robert A. Iger, Chairman and Chief Executive Officer, The Walt Disney Company. Due to decrease in home entertainment and theatrical distribution with an increase in TV and SVOD Studio Entertainment is the only one suffering. Disney claims it's due to increased costs in other areas and comparatively lower productions costs in previous quarters. So, what about the movies? “Our ongoing success is driven by our long-term strategy, the strength of our brands and businesses, and our high quality family entertainment.”
-Bob Iger Spend less time on sequels:
Saving on costs, but watering down the brand

Stick with what you know in family
entertainment and maintain leadership

Monitor advances in technology-Not just the CGI stuff

New Threats? Are independent companies better investments? Will movie theaters still be around in 10 years? 5 years? 1923- Start of the Disney company first known as The Disney Brothers Studio

1928- Release of first Mickey Mouse Cartoon

1932-"Flowers and Trees," first full-color cartoon and first Academy Award

1937-"Snow White and the Seven Dwarfs," First feature-length animated film

1940-Walt Disney Productions issues its first stock & releases "Fantasia"

1950-"Treasure Island," Disney's first completely live-action feature

1955-Disneyland opens and Mickey Mouse Club airs on TV

1970's and 1980's focused on expanding into other entertainment industries, parks and television

1984-Michael Eisner and Frank Wells become Chairman/CEO & First film released under Touchstone Pictures, "Splash" 1991-The Walt Disney Company joins the Dow Jones Industrial Average

1994-"Beauty and the Beast," the first Disney Broadway show, opens in New York.

1995- Purchased ABC and 25% of the California Angels (Then sells the team in 2003)

2004-Disney acquires the Muppets properties

2005-Robert A. Iger becomes president and CEO

2006-Disney acquires Pixar Animation Studios.

2009-Disney Nature Launched & Marvel Entertainment joins the family

2009- Finalized distribution agreement with DreamWorks Studios. Films including "The Help" and Steven Spielberg’s "War Horse" are released via Touchstone.

2013- Short "Paperman" wins an Oscar. But really getting ready for... Warner Bros. Disney Paramount Django Unchained
King's Speech
Silver Linings Playbook Only Top 6 firms
with any significant
market share 2013
Best Picture
Winner How Movie Distribution Works Studio or independent investor purchases right to film

Studio makes licensing agreement w/distribution company

Distributor shows screening and negotiates w/buyers for theaters

Theaters show for specific engagements, and pay lease agreement "Let's all go the lobby!"
Why is popcorn so expensive? Theater negotiates fixed house allowance, or nut, to pay each week

% Split for GROSS and NET box office is set, amount left after nut, distributor takes whichever is greater

Length of engagement set

Movie is considered a "loss leader" to theater owner, needs to make money on concessions Loss Leader Celebrating 100th year!
Filmed Entertainment arm of Viacom
Produce movie blockbusters such as:
Star Trek
Indiana Jones
Joint partnership on some DreamWorks films
Kung Fu Panda
Focus is to win Academy Awards for excellent Paramount Pictures Short for VIsual & Audio COMmunications
$57.86 as of close on Feb. 27
Pays $0.28 quarterly dividend Viacom Won Eleven Academy Awards for Best Picture
The First!
Wings (1927)
Most Recent
Forrest Gump (1994)
Braveheart (1995)
Titanic (1997) Academy Awards Differentiation Source: http://www.paramount.com/inside-studio/studio/business-conduct/smoking-and-tobacco-depiction-policy Smoking and Tobacco Depiction Policy
Effective Jan 1, 2013
“Paramount Pictures recognizes the serious health risks that accompany tobacco use… developed policies to decrease depictions of smoking and tobacco products in the films it produces”
“no product placement, tie-in or other promotional arrangements with tobacco companies for any of its films, regardless of rating” Differentiation (cont.) Source: http://www.boxofficemojo.com/studio/ 5th in market share 2013 Need to compete!
Forget 15 movies per year

Purchase/partner with overseas studio

Lower variable costs

Buy back Marvel

Keep an eye on Weinstein Co. Recommendations Changed Fiscal Year end from
December 31 to September 30

New strategy - We’re #4! (11.9% market share)
Make no more than 15 movies per year
Were averaging 22 movies/year in the last 17 years
#1 Warner Bros – averages 32 movies/year
#2 Disney – averages 28 movies/year
#3 Sony Pictures – averages 32 movies/year

Goal: “Compete for creative talent, including producers, actors, directors and writers, and scripts for motion pictures, all of which are essential to our success”
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