The Movie Industry Charlie Fraioli, Shelly Grinshpun, and Sheryl Quock.
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Transcript of The Movie Industry Charlie Fraioli, Shelly Grinshpun, and Sheryl Quock.
![Page 1: The Movie Industry Charlie Fraioli, Shelly Grinshpun, and Sheryl Quock.](https://reader035.fdocuments.us/reader035/viewer/2022062308/56649d345503460f94a0a7f2/html5/thumbnails/1.jpg)
The Movie IndustryCharlie Fraioli, Shelly Grinshpun, and Sheryl Quock
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Agenda Introduction
Industry Analysis
Pricing Strategies
Recommendations
Introduction Industry Analysis Price Strategies Recommendation
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Why the Movie Industry?Rapid changing movie consumption in the
information age
Unique Pricing Structures
Pricing Phenomenon with uniform pricing in each theater despite various levels of time, effort and money invested per film
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THE MOVIE INDUSTRYTHREE DIFFERENT SECTORS EXIST WITHIN
INDUSTRY:
1. Production
2. Distribution
3. Exhibition
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THE MOVIE INDUSTRYTHREE DIFFERENT SECTORS EXIST WITHIN INDUSTRY:
1. Production
2. Distribution
3.Exhibition
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THE EXHIBITION SECTORFIVE DISTRIBUTION CHANNELS WITHIN SECTOR:
1. Cinema
2. DVD/Blu-ray
3. Pay-per-view (PPV), video on demand(VOD), and video streaming
4. Free-to-air TV
5. Subscription-based TV channels (cable/satellite TV)
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THE EXHIBITION SECTORFIVE DISTRIBUTION CHANNELS WITHIN SECTOR:
1.Cinema2. DVD/Blu-ray
3. Pay-per-view, Video On Demand (VOD), and video streaming
4. Free-to-air TV
5. Subscription-based TV channels
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Cost Structure Rent & Utilities: theaters
compete on the basis of facility quality
Industry company’s largest single expense: rental of films for exhibition
This accounts for 32% of revenue
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Consumer DemandKey drivers of demand:
1. Disposable income (affected by employment rates, taxes, and the general state of the economy)
2. Leisure time
3. Marketing efforts of major motion picture studios
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Consumers Median age: 32.4 (see chart below) Total HH income of +$75k (frequent moviegoers)
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COMPETITION: MAJOR COMPANIES3 FIRMS ACCOUNT FOR 52.8% of market share:
1. Regal Entertainment Group – 21.2%
2. AMC – 18.7%
3. Cinemark – 12.9%
(Next highest in market share — Carmike Cinemas Inc.— drops down to 4.5%)
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COMPETITION: MARKET CONCENTRATION CR4 = 57.3
HHI Top four share 57.3% 2,000 smaller firms share 42.7%
HHI = 0.2122 + 0.1872 + 0.1292 + 0.0452 + 2000(0.000497142)
= 990.73
990.73 < 1000
INDUSTRY IS COMPETITIVE
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COMPETITION: BARRIERS TO ENTRYHigh barriers to entry due to:
1. High fixed costs Equipment for running movies High quality facilities necessary to compete
2. Distribution channels Licensing agreements
3. Economies of scale
4. Brand identification
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COMPETITION: EXIT BARRIERSNot as strong as barriers to entry, but some to consider:
1. Cost of ending licensing agreements prematurely
2. Compensating employees
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Internal Competition
Movie theaters compete on the basis of:
1. Film offerings
2. Ticket prices
3. Auditorium quality
4. Concessions offerings
Aside from these factors, most theaters offer the same products Internal competition is high for this reason
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External CompetitionCompetition from:
1. Piracy/illegal streaming
Source: IBISWORLD.COM
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Government Regulation: Piracy Illegal streaming can steal considerable
amounts of revenue from all distribution channels within the movie industry When US government shut down illegal streaming
site Megaupload, the website was accused of costing copyright holders more than $500 million in lost revenues
The government does not provide any assistance to the movie theater industry in terms of tariffs or subsidies
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External CompetitionCompetition from:
1. Piracy/illegal streaming
2. Increase in popularity of all other distribution channels
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External Competition
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Distribution Timeline
Sources: iTunes.com, xfinity.com, NATO, Technicolor, Redbox.com
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Comparing 2007 to 2015: VOD, PPV, and DVD/Blu-ray Release Dates
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Changing the TimelineTimeline of distribution is changing
Example: Netflix will release “Crouching Tiger, Hidden Dragon: The Green Legend” in 2015 on the same day as its theatrical release
Subscription streaming services on the rise: in 2014 HBO, CBS, and Lionsgate all announced online subscription streaming services
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Industry SummaryLandscape for industry is changing rapidly with
the growth of other distribution channels for movies
Highly competitive Both internal and external competition is high
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Main Pricing StrategiesSecond Degree Price Discrimination
Third Degree Price Discrimination
Tacit Collusion
Concession Markups & Bundling
The Uniform Pricing Puzzle
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Pricing DataCollected pricing data from 28 Regal Cinemas
locations across 27 different states
Controlled for theater size (14 auditoriums)
Analysis demonstrates how the movie theater industry utilizes:
Second degree price discrimination
Third degree price discrimination
Tacit collusion
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Second Degree Price DiscriminationVersioning
By timeDiscounted matinee rates in the afternoon
By qualityRealD 3DPremium Auditoriums IMAX
One of Regal Cinemas’ RPX Premium Auditoriums
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Matinee Standard 3D Matinee 3D RPX IMAX$0.00
$2.00
$4.00
$6.00
$8.00
$10.00
$12.00
$14.00
$16.00
$18.00
Average Adult Ticket Price for Different Movie Versions
Movie Version
Pri
ce
of
Movie
Tic
kets
($
)
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VersioningDiscounts for less crowded times
Average matinee discount = 19.27%
Premiums for additional features/better qualityAverage 3D premium = 32.09%Average RPX premium = 42.58%Average IMAX premium = 47.26%
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Third Degree Price DiscriminationGroups of moviegoers are
segmented by:Age
Adults, Seniors, and Children
Student or Military discounts
GeographyTicket prices vary by
location
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1$0
$2
$4
$6
$8
$10
$12Average Movie Ticket Price by Age
Adult Senior (60+) Child (3-11)
Age Category
Pri
ce
of
Movie
Tic
kets
($
)
Range of prices over the 28 the-aters analyzed
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Average senior discount = 25.5%
Average child discount = 26.7%
Senior prices were equal to child prices at 19 of 28 locations.
Only one location offered student and military discounts.
Price Discrimination by Age
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$0
$2
$4
$6
$8
$10
$12
$14
$16
$18
Geographic Price Discrimination for Movie Tickets
Adult
Senior (60+)
Child (3-11)
Location
Pri
ce o
f M
ovie
Tic
kets
($)
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$0 $250 $500 $750 $1,000 $1,250 $1,500 $1,750 $2,000$0
$2
$4
$6
$8
$10
$12
$14
$16
$18
R² = 0.510210844738698
Movie Ticket Prices vs. Housing Costs
Adult Tickets
Median Monthly Rent by Zip Code ($)
Pri
ce
of
Movie
Tic
kets
($
)
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Competitive AnalysisCollected data on the number of local
competitors for each of the 28 Regal theaters.
Collected proximity and price data on 4 Regal Cinemas and 8 AMC Cinemas in the New York Metro Area.
Data analysis indicated that tacit collusion may be occurring.
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0 5 10 15 20 25 30 35$0
$2
$4
$6
$8
$10
$12
$14
R² = 0.0676369165182233
Movie Ticket Prices vs. Number of Local Competitors
Adult Tickets Linear (Adult Tickets)
Number of Local Competitors
Pri
ce
of
Movie
Tic
kets
($
)
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0 to 5 mi. 5 to 10 mi. 10 to 15 mi.$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
Difference in Adult Movie Ticket Prices Between Nearby Competitors
Distance Between Two Competing Theaters (miles)
Ave
rag
e D
iffe
ren
ce
in
Pri
ce
of
Mo
vie
T
ick
ets
($
)
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Tacit CollusionMarkets with lots of movie theaters do not
display price cutting behavior
Competitors in close proximity have low variability in ticket prices
The three largest firms have nearly identical criteria for age segmentation:
Child Age Group 3 to 11 2 to 12 1 to 11
Senior Age Group 60+ 60+ 62+
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Used to be a monopoly of 8 studios/distributors
Directly and indirectly owned theaters
Controlled ticket admissions, show times, types of films
Forced independent theaters into block booking
1984 US V.S. Paramount - end of collusion
Concession History
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prohibition against price-fixing, joint ownership, major franchises and block licensing
End of Block Booking higher selectivity higher production cost led to less movies made per year, Higher licensing rate charged to theaters
Studios forced to sell theaters led to an increase in rent for movie theaters
Consequences
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Over 40 % of total theater profit is Concession
Concessions
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How much do theaters get from ticket sales?
1st week- between10%-25%
2nd week-25%-45%
3rd week-45%-55%
After 4th week- up to 80%
Admission Ticket Sales
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By placing a premium on concessions prices for tickets can be lower
This allows price sensitive consumers to see films
Research shows that there are proportionally higher sales during low attendance period-indicating the existence of people who are die hard movie goers and have WTP for expensive popcorn
Fun Fact: Research shows that people who purchase tickets online tend to buy more snacks
Why are the Markups High?
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Price Sold for Large Tub of Popcorn
Cost of large Popcornbag
Cost of Popcorn Tub
Cost to make of large Popcorn
$8.00 $0.22-$0.35 $0.85-$1.00 $0.08
Why are the Markups High?
Introduction Industry Analysis Price Strategies Recommendation
A tub’s worth of popcorn could carry around an 800% markup!
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Prices still high and almost the same as buying a la carte
Prices depends on Theater Chain
Examples: Regal-
For 2 medium drinks & large popcorn $18.50 for bundle, same price as a la carte
AMC- For large drink and large popcorn $13.75 for both a la carte and bundle
Muvico- For 2 medium drinks and large popcorn $16.50 for bundle and $17.50 for a la carte
Bundling
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Two Characteristics of Movie Industry
Movie Puzzle-price uniformity across movies that run at the same time
Showtime Puzzle-refers to the lack of price differentiation between weekdays and weekends or across seasons (Exceptions are Matinees)
Uniform Pricing Puzzle
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Demand Uncertainty
Variable Pricing can be complicated
Distributors can refuse to license to theaters that have variable pricing
Fairness
Why Does it Occur?
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Opportunity to have variable pricing based on popularity Research shows sequels do about as well as
originals Correlation between Revenue and Production Cost Success of film typically determined by sales on
the first weekend Allows for price adjustments that Monday
Opportunity for Variable Pricing
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Cons
Pressure from distributor
Raising prices would anger consumers- reduce # of price sensitive consumers
Lowering prices might seem like an indicator of quality
Variable Pricing
Introduction Industry Analysis Price Strategies Recommendation
Pros
Boost Independent Films (Non Blockbusters)
Encourage Early Purchase of Ticket Potentially boost
Concession sales
As prices go down more people will be WTP for tickets
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Investments Negative Protection Window Shrinking High Entry Barriers High Fixed Costs New Technology
Recommendations
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Pricing Strategies Continue 2nd and 3rd degree price discrimination Long Term- Variable Pricing Fluctuating Prices on Per Movie Basis Based on:
Popularity Performance over time
Disclaimer: Price Variability would only work in an ideal situation. Distributors still have power to prevent changes from occurring
Recommendations
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Questions?
Thank You!