.

Before anything else, a movie is a merchandise, a product, a good produced through human labour; and before any social effects take place due to its content, to its messages, a movie will generate financial loses or financial gains (even if it was produced with the support of public funds). Secondly, films are cultural goods, since they express and represent, in a higher or lower degree, the ideas that circulate in the societies that create them. However, they are initially produced with more or less commercial hopes. The hopes of private agents that happen to be film producers and have some expectations for money in order to – at least – provide for their human needs, and probably, some expectations about producing another feature in the future. And the hopes of civil servants which would like to show that the movies produced under their administration were rather successful instead of seeds for new fiscal deficits. In this commercial and cultural sequence, films will be sold to be consumed and they will be consumed to occupy part of the consumers’ “free” time and to enrich or entertain or just fill their individual or collective environments.

The value of films comes from the meanings – which are immaterial objects – carried by the material strips – or sequences – of photographic representations on celluloid – or digital files – that are put through a hardware device to generate projected images, in which the meanings are embedded, and from which consumers’ minds extract pleasure or utility, whatever that is for each individual (Sedgwick & Pokorny, 2005, p. 10-11). If the set of projected images – contained in the film material – generates high amounts of utility among many consumers, if the meanings are ‘commercial’ for a certain audience market/target, the potential value of a film – the producer’s economic expectations – will be confirmed and realized: “the exchange of a film screening for the price of a cinema admission [or video rental, pay-per-view cable transaction, or DVD purchase for that matter] results optimally in pleasure and profit [or inefficiently in boredom and loss] for consumers and suppliers respectively” (Sedgwick & Pokorny, 2005, p. 12).

According to this definition, both producers and audiences run a risk, respectively, when putting together a visual story and when paying premium prices for tickets and popcorn at a multiplex theater before actually watching that visual story, before actually trying to understand the meanings that some ‘film professionals’ put together while earning their salaries. Audiences do not know what pleasures or boredoms they will enjoy or endure until they see the film; and producers do not know with any certainty how the market is going to treat their product. The truth will only become apparent at the point of audience experience of the product. Films are always first time “experience goods”, with consumers getting to experience every new film for the first time with past film experiences having no value when a new films is to be consumed. Films will be rejected – and a negative word of mouth spread – or it will become a hit, and a cluster of films with similar story and aesthetic characteristics will be engendered to grow and die at the end of their thematic life-cycle. But these outcomes are unknown, hence the risk.

As it will be shown below, the stakes of the movie game, especially for independent “one-off” producers or production companies, are very high. But a thrilling game it is, with lots of players ready and willing to roll the dice. The following sections will describe the characteristics of film as an economic object, the structure of the industry in which it is produced and from which it is distributed, and the types of industry players that dare to try to manage it.



3.1.1. Film as an audiovisual product

The film commodity carries the basic characteristics of audiovisual products and film, of course, was the first audiovisual commodity. This type of commodity has a mixture of public and private good characteristics (Sedgwick & Pokorny, 2005, p. 12-15) that determine the economics of the industries in which such goods flow.

a) A movie is non-diminishable, indivisible, indefinitely enlargeable, infinitely reproducible, relatively slow in the deterioration of its physical materials, but still excludable in nature. These features mean that two or more people can use/consume a ‘whole’ film at the same [leisure] time without having to divide it, as it would be the case with, for example, an ecstasy pill (another consumer entertainment product widely used for leisure time purposes in capitalist societies). Additionally, once a film has been projected/used, the same – undiminished, not deteriorated – material can be projected again for new consumers (in the ecstasy example new consumers would require new pills). Potentially, a film could be as long as its producers want it to be, and the meanings it carries are susceptible of indefinite extensions (for example, the extensions of the Star Wars films or the long films by R. W. Fassbinder). Once the original film template (master copy) has been completed – usually at a very high cost/investment – it can be reproduced many times at a fraction of the original cost (the ecstasy industry also has this characteristic – high R&D investment for the first pill prototype followed by very cheap infinite copies).

But nevertheless, these characteristics do not imply that films are not exclusive goods. Film materials do deteriorate, screens and sound systems are not as big or as loud to reach and satisfy everyone’s eyes and ears with the same ‘VIP’ treatment, and it is in the interest of the industry to create excluding mechanisms for consumers in order to assign prices to its products and maximize demand according to their expectations. Although some of these characteristics give films a near-public-good configuration, films are still pretty much private commodities.

b) The consumption of films implies a rapidly diminishing marginal utility for the consumer. The pleasure derived from consuming a film after the first time will be lower than the expectation of new film pleasures/consumptions. This characteristic means that repetition of films tends to be rare among spectators.

c) Every film is unique. The film product is always a prototype to be tested in the market, with the audience confirming its status as a commodity through cinema admissions, video rentals, DVD purchases at mass retailers’ stores, or internet clicks.

d) Films have very short life cycles. Once they are released they only have some months, even weeks, to extract revenues from the market. With the appearance of new exhibition windows beyond cinemas, like TV and Video, films’ life cycles were extended, but their commercial fate will be still derived from the mass (or niche) audience approval – or disapproval – after they are first released. Good audience acceptance will make the initial life cycle, and the subsequent releases in other exhibition windows, relatively longer and more profitable.

e) Even if films were as abundant and as free as air, they are not indispensable. Even if they were price free they still cost time and attention to consumers, and in that sense films compete with other alternative uses of time and attention that individuals might consider better options. This characteristic is another enemy of repetition of already seen films, and even of first time viewing experiences.

The interest in excluding consumers through price mechanisms deserves additional attention. When users are not allowed to consume an available good in order to keep an existing pricing system in place, there will be a loss in terms of economic welfare (exclusion of users). The expression of this loss or inefficiency in the case of films corresponds with the empty chairs of a theater during any afternoon – or even evening schedules. The theater’s capacity is not fully exploited. This underused capacity points at a welfare loss and exclusion, via price, of consumers that would be interested in attending the theater (or buying a Pay Per View screening on TV) at cheaper prices; and at an economic loss for the industry since additional revenue – at a very low marginal cost – is being lost by not allowing more consumers to ‘use’ the good at cheaper prices. This fact has brought the introduction of variable prices – at the best style of the air travel industry – according to expected demand at different time slots, types of rooms, and even types of movies, in order to correct the economic loss for both, the film supply chain and the consumers.

The exclusionary mechanism – a price for the tickets or for a cable subscription – allows the film industry to get its revenues, cover its costs, and generate economic value (currently at low rates due to competition from other leisure/cultural industries and when compared to other more financially attractive sectors, like weapons and oil). Prices for final audiences are set as an attempt to maximize profits and it is fair to say that in current times (given the ticket prices at Multiplexes anywhere in the world) exhibitors have so far chosen to get revenues, not from more sales volume and low margins, but from less but worthier consumers paying higher premium prices through several stages of distribution (Henson, 2005). This strategy is called windowing and is structured as a sequence of ‘sale windows’ or versions (Shapiro & Varian, 1999, p. 3) of the same film content, distributed to the consumers in different formats: movie theatres, airplanes, rental video, satellite and cable TV, retail video, open TV, and now, the internet.

In summary, films are human labour’s products, made at a cost, and are far from public goods such as air, which still is abundant and free (although probably not for long). Films, in whatever format they are distributed, are expensive ‘content objects’ to produce and market and somewhat cheap to reproduce. Such a feature gives them near-public-goods characteristics, but they are as private as any other commodity traded in any other market, and money is needed if people want to have access to film content.

3.1.2. Economies of Scale and Economies of Scope

According to these previous points a central characteristic of Films as economic objects (and of many other audiovisual products) is the high-risk investment linked to the high first copy costs of the production. However, after the master copy has been produced the following copies will cost just an additional fraction of the master cost, that is, the film industry, in spite of its high risk tends to have decreasing marginal and average costs, and increasing marginal returns as the audience expands. Then, the higher the success and consumption of the film, the lower the marginal cost of the next copy produced and distributed and the higher the marginal profits (the mentioned increasing marginal returns). Decreasing marginal costs allow the film industry to reach economies of scale and economies of scope.

a) Economies of scale are based on high volume production which reduces the share of fixed costs of an operation with every new item produced (Doyle, 2002, 13). Film, as described, enjoys this industrial quality since the majority of its costs, both fixed and variable, take place before the master copy is finished. If a movie is successful, economies of scale will be easily reached and large marginal and accumulated profits will result. This positive characteristic might be cancelled out to some extent by the risk involved in every film production and the fact that successful films are the exception (Doyle, 2002, 108). In such an industrial context, access to consumers and a marketing mixture of ‘content push’ and ‘audience pull’ strategies are key to gather the minimal amount of consumers to recoup the initial investment in a film and the biggest possible audience to generate economies of scale.

b) Economies of scope are also based on concentration of fixed and variable costs in the process of production of the master copy. This strategy consists in using the same original material to produce additional and differentiated media product lines (Doyle, 2002, 14). In the case of movies, the economies of scope include videos, dvds and sountrack records; packaging/formatting of the content for transmission through several TV platforms; ‘making of’ TV documentaries and books, merchandising and toys; marketing booklets and video bits for journalists and newscasts; and of course, as many sequels as possible. Each of these product lines are less costly because the high master copy costs where already carried out, the main material that makes the new products possible was already produced.

This complex ‘lateral’ production extension goes beyond more products to sell. It also structures an obvious ‘audience pull’ marketing strategy, which film scholars have named as ‘intertextuality’, based on the distribution of different lines of the same media product in order to boost total audiences and total sales. Intertextuality means that audiences encounter information about a movie, its theme and its stars in many media platforms and consumer products with texts referring to each other explicitly and implicitly, triggering audience expectations and their consumption propensity (Phillips, 1999, p. 206). Economies of scope are key not only to expand the main product into different markets but also to promote it (and its sub-lines) through different cultural spaces.

One increasingly important product line to derive from films is their potential as media vehicles, carrying brands and showing their performance to audiences in a subtle way, extending intertextuality beyond media products and into an interaction with other types of products and services. Advertisers can buy such communication potential as an alternative medium to reach an audience. In the case of movies, their advertising component is not strategic in terms of revenues but product placement deals are becoming more relevant and frequent in high-concept/high-budget projects and definitely more important for advertisers in a world where the mix between commerce and culture is intensifying at fast pace.

3.1.3. Catalogues versus Risks

The high risk implied in making movies, as mentioned above, has to do with their nature as experience goods (every film is a prototype) and the uncertainty of the outcome of such experience, that is, the potential contraction of the expected audience once the film is released. In contrast to other types of products, if the demand for a film does not take off, the producers will not be able to cut costs down as a response/defence to demand shortages, and any further “rescue” marketing investment will be a painful and even riskier decision.

The high risk in which the film business evolves is well exemplified by the Small-Sample/Extreme-Outcomes model (De Vany & Walls, 1999, p. 313-315): the film industry – in every country – has to operate in an environment where failures are the rule, successes are unpredictable and rare, and there are just a few chances – small sample – of making a movie (for a movie director or a Hollywood studio or a National Film Industry).

Producers’ themes selection and expectation of movies sales performance tend to be based on past successes (see King Kong for the third time). Even if this ‘recent experience’ strategy (sequels and spin-offs) is successful in the short run it will interfere with new learning and experimentation in the long run. Success comes from an unlikely event in a small sample, therefore it is not reliable to extrapolate past successes into the long term future. Exploration and innovation are essential to success in the future, and although such innovations can be positioned in an environment that improves the chances of success (high production values and use of stars, the reputation of the studio and producer ‘brands’, use of expensive creative talent, cross-marketing with ancillary products, content pre-testing, editing of films for different markets, advertising and reliance on foreign markets) the experiential nature of the film good still implies that its fate will be decided by the audience – through a complex dynamic of personal interaction between viewers and potential viewers that overwhelms those initial risk-minimizing-conditions.

In this sense a strategy of choosing portfolios of movies and spread risk between them is preferable than the selection of specific projects based on past experiences. Hollywood majors do apply a portfolio strategy for their ‘small sample’ production schedules (they do it as individual companies but also as an aggregate industry) whereas small national film industries operate on a film by film basis out of an even ‘smaller sample’ of projects, making their whole quest riskier. This is the logic behind business strategies of diversification, or horizontal integration, to spread risk across a wider portfolio of business units or, as is the case in the movie industry, a portfolio of films. This structure works in favor of integrated industries of the type of Hollywood studios, which produce a wide spectrum of commodities for different media platforms under the same roofs. At the same time, Hollywood studios are part of the portfolio strategies of bigger conglomerates like Sony or General Electric.

But thematic, formal and aesthetic changes or innovations do not happen randomly. Past experience does matter because it is the base on which audiences learn their tastes. The expectations of audiences, acquired from previous film-going experiences, are likely to be strongly formed within cultures in which film-going has been a popular leisure activity, with film-goers holding firm preferences – but also historically habituated – as to what they like. Those expectations do not correspond to a state of mind bounded once and for all, but rather as a potentially modifiable set of ideas subject to change as distinctive aesthetic regimes emerge and affect the way in which things are looked at and pleasures derived (Sedgwick & Pokorny, 2005, p. 11).

3.1.4. Mapping the Film Industry & Hollywood Standards

The Film Industry value chain can be represented as a vertical multi-layered supply chain, horizontally supported by non-core industry sectors, and permeated in higher or lower degrees by government regulations which affect the three core sectors of Production, Distribution and Exhibition and the audiences at the consumption side (see Figure 3.1. below).

The contemporary industry structures of the three main sub-sectors vary widely. The production segment is composed by thousands of professionals (writers, directors, producers, and other creative and technical personnel) that compete to get financing for their ideas and talent to be transformed into a film product. Hollywood studios, but also independent film financiers and state film support programs in every territory, receive permanent idea-projects pitches and decide, under permanent conditions of uncertainty, on the projects they like and the people they will employ to produce them. The production segment reflects a structure of monopolistic competition with many players, differentiated ideas, lower barriers of entry, and low concentration as no individual talent or group of talents achieve more than 50% of market control of the production segment. The studios, in fact, depend on this ‘flexible specialization’ of the production sector for lowering some of the costs implied in the development of projects and talent (Zuleta et al., 2002, p. 21).

On the other hand the sectors of Distribution and Exhibition reflect an oligopolic structure with extreme degrees of concentration. In 1999 the Top 4 Hollywood conglomerates (C4 concentration ratio) controlled around 78% of the distribution market in the United States, replicating that share overseas (with few exceptions like India and France). The Top 6 conglomerates concentrated 99% of the distribution market by 1999 in the US (Albarran, 2002, p. 126).

On the exhibition side the situation is not different. In the US the Top 9 theatre chains control 80% of theatrical exhibition revenues and 47% of the 30,000 screens in the country, of course, the screens located in top urban and suburban spots. In Canada, the Top 2 companies control 65% of annual theatrical revenue (Vogel, 1998, p. 76 – 79). This exhibition oligopoly reinforces the high restrictions on independent products, since it is from the Hollywood majors that exhibitors receive the more profitable, better-marketed, less risky hits, and a permanent flow of them.

Oligopolic power allows the Majors to act as distribution and film-financing gatekeepers, selecting which types of films will be produced or distributed to which territories, and in which screens of those territories will they be shown. Oligopolic practices include cross-collateralization (drawing revenues, or covering costs, through other business activities); reciprocity (cooperative behaviour or mutual back scratching); horizontal and vertical integration; price discrimination for the different exhibition windows; subtle block booking (package deals, including popular and unpopular films, that are more or less obligatory under conditions of reciprocity and retaliation-avoidance); blind bidding practices (selling to exhibitors movies they have not seen-evaluated); and heavy investment in lobbying at top government levels to push for policies that will favour the lobbying players.

Control over the key distribution segment, and their participation as financial producers, allows the majors to choose from the many ideas developed by independent producers; to dominate exhibitors through a mix of the mentioned block-booking/blind bidding negotiations and a degree of business reciprocity received as big successful suppliers; and to cut diversity for consumers by reducing the development of other types of products to enter the market, with the ‘other types of products’ mainly developed by independents.

The recent waves of vertical and horizontal industry integration of the Majors with bigger media conglomerates with interests in theatre chains, TV and Cable Channels, Internet platforms, publishing houses, etc, is an additional – and new – strength for the Hollywood oligopoly to keep its grip on the majority of film markets (Balio, 1998, p. 206-214). With control of distribution and guaranteed exhibition, the majors are able to commit significant resources both to production and marketing (P&A) and to build worldwide audience awareness for their product. The Majors’ sequential control of the industry structure, their ability to produce a steady outflow of films that allows them to carry cross-collateralization of their costs and profits, and their financial size, are the key elements of the Hollywood dominance and success.



3.1.5. Independent pictures

Independent producers, are at a disadvantage and without chance to integrate the three core segments of the industry for their benefit: they are constituted by small, undercapitalised companies, competing for financing in a very uncertain market, without guarantees of distribution, and without the chance to build a successful track record; investors get scared from an atomised independent sector with unfavourable risk/reward ratios where the financial producers are the last ones to get paid; independents can only spread risk by selling their distribution rights but they lack the marketing support for their movie releases, weakening their sales possibilities. Exhibition – in any window – is never guaranteed unless the independent project is picked up or financed by a big distributor or a television channel with leverage to negotiate with – or ownership of – one or more exhibition outlets, with the difficulty that distributors and television channels prefer commercially safer and well known (even if second hand) Hollywood productions (Doyle, 2002, 114).

Although audiences do support Hollywood films through the consumption of their products, it is true that usually they do not have the chance to learn about other available products. To watch an independent film requires more effort from the audience – not only thematic effort but also logistical effort in terms of information search and less availability of independent content. The fact that people know about the latest Hollywood release, before, during and after the event, and that it is available around the corner is a huge economic incentive to watch it (in terms of convenience) in contrast to the effort – cost – of looking for and moving to a more distant location in order to see other types of content.

These trends and structures constitute the virtuous circle in which Hollywood flows and the vicious spiral of independent films (Doyle, 2002, p. 110), National Film Industries, and interested audiences in alternative content.



3.1.6. The Basic Business Model of the Film Industry

The film industry offers a special kind of output on media marketplaces, which are like any other markets where consumers and suppliers meet each other and exchange their resources/products. The film industry draws audiences and revenues through several different forms of exhibition or windows. It starts with the box office and continues through other windows as home video, pay-per view, premium cable, syndication sales and international distribution through all the windows again (Albarran, 2002, p.119).

When considering the three main stages of the Film Industry – Production, Distribution, and Exhibition – a basic question is how these different players recoup their money and make profits. Doyle (2002 p. 108) and Vogel’s (1998, p. 76 – 79) revenues dis-aggregation offers the basic idea of how the business model works at the first window of exhibition, the Box-Office (many times producers are excluded from other windows revenues which are controlled by the Studios and their distribution arms). The cost structure of each player, their abilities to negotiate singular or package deals, and the success of the movies they are involved with, determine their potential profits:

“When the film’s release date arrives and the theatrical revenues begin to flow, the cinema covers its own cost first. The cinema-owner takes a cut directly from the gross box-office receipts to cover the costs of running the venue. After deduction of these expenses (house nut) the remainder is divided between the exhibitor and the distributor… It varies depending on the film’s success, the duration of the theatrical run, prearranged contracts-packages between distributor and exhibitor… and other circumstances. The distributor’s gross goes back to the distributor, who deducts [sales] commissions and costs, including all marketing costs. Anything left after this is then passed on to the equity investors or financiers who have covered production costs, and who deduct a premium for covering risks, etc. Finally, any profit remaining goes back to the producer” (Doyle, 2002, p. 108).

Since the producer wants to produce the picture and the exhibitor needs to exhibit it, it is the distributor – with its financial contacts and its flexible buy/sell cross-collateralization structure – the one that gets most of the business benefits. This is one of the reasons behind the big Hollywood studios decision to stay with production and distribution and divest their exhibition operations when they were obliged to break their vertically integrated structures after the famous Paramount case in 1948.

Once a film is released into other windows it is the success of the movie in the theatrical window what will set the business expectations for the subsequent windows. Because big distribution companies are the only ones with the commercial infrastructure to operate in different territories, and different windows, within those territories, films that want to travel into different markets will depend on generating deals with the big majors distributors. However the big distribution firms are mainly focused on moving Hollywood product around, and under those conditions, the theatrical success of an independent film, and the negotiation power and leverage of the production team behind it, will determine the possibilities of the film to make it into different markets and territories. If a wider distribution deal is reached the producers of the film will only receive the residuals of any window once the distribution costs and distributor’s commissions have been covered, and the percentage of the residual will depend on the negotiation power of the producers. One of the conflicts between producers and the major distributors is caused by the many video distribution deals in which profits never reach the producers, while the distributors explain that revenue only covered the distribution costs (Vogel, 1997, p. 81).



3.1.7. A closer look at Hollywood’s scale and scope

The Hollywood majors – the seven companies that dominate almost all international film markets – have been able to capitalize on the economic conditions of the film product: its scale and scope economics. They did build their marketing infrastructure during the early twentieth century, not without enduring and overcoming several crises, like the collapse of the Studio System in the late 40’s and early 50’s when diminishing audiences in the US and the advent of Television made the industry tremble (Schatz, 1992, p. 184).

In the early 1900’s, Europe was a stronger competitor of the US film industry (among other reasons because the ‘industry’ as we know it had been invented in France at the end of the 19th century by the Lumiere brothers). Three important elements (Acheson & Maule, 2005, p. 332-335) allowed Hollywood to dominate the film industry since its beginnings. First, the two world wars – especially the first one – made the European film industry bleed to an extreme in which a definitive advantage was given to the US film companies based in Southern California since the 1910’s (Bakker, 2005, p. 26, 43). The bleeding included a lot of creative talent that in many occasions escaped to work in the United States, the break down of European film production, and the accumulation by Hollywood of film inventories ready to show in Europe when the wars were over and consumer expenditure and entertainment wishes were back on track.

Second, the cluster of film producers and companies located on US soil in the early twentieth century found themselves producing for the largest English language market, and the largest market in the world in terms of revenue potential. Additionally the US market was (and still is) the product of immigrants from many other countries and regions of the world. This characteristic was inherent to the thematic and narrative experimentation of film producers (many immigrants themselves) who attempted to create film products that were attractive to the ‘ethnic and cultural pudding’ that constitutes the United States. In doing so, they developed products that were able to cross-cultural boundaries and easier to export to other countries, facilitating the international distribution and sale of Hollywood films and themes.

Third, the rapid commercialization of new technologies and the conjunction of an aggressive, marketing oriented managerial culture and an open financial system (that understood the opportunities of the new cultural industry and sent its agents to learn about it), allowed Hollywood to sell mass products since the beginning while receiving the financial oxygen to enlarge the sector in every direction.

These ‘historical accidents’ helped the US companies to perfect the development of varied film product lines through escalated investment in production values and production innovations. Distribution strategies and innovation in the types of business contracts with the different agents of the industry value chain were also developed during this period.

By the 1920’s Hollywood companies had changed from a widespread international network of sales-distribution agents to a widespread network of in-house distribution arms. The logic of this strategy of ‘distribution reach’ was that given the high first copy costs involved in a film production, movies “should be distributed as widely as possible, up to the point where the additional revenues obtained from distributing into one more movie theatre just covered the additional costs associated with the making of new prints, the transportation of new and/or existing used prints, and publicity and distribution overheads” (Sedgwick & Pokorny, 2005, p. 13-14).

Such wide reach and costly production and distribution strategies have been sustained by the guaranteed demand of the big and wealthy domestic US market. As their main field of operations, it allows the Hollywood Studios to cover their costs internally, and reach higher internal and external economies of scale and scope than any other film industry in the world. The Hollywood model has allowed the majors to achieve between 70 and 80 percent (or more) market share in every film market in the world (Doyle, 2002, p. 106, 110), with the exception of France and India (respectively, a very protected market and a very prolific, big and culturally specific one).

In the case of Hollywood, the benefits to be gained from economies of scale are in the middle of a permanent tension between the production and marketing costs inflation of studio movies – with average prints and ads costs at $34 million per release in 2004 and production budgets around $60 million (Chaffin, 2005: 9) – and the powerful oligopolic grip that studios have on distribution markets around the world, which allow them to use the domestic US market to recoup part or all the production money and get profits from overseas (O/S) markets – even with such high costs.

In summary, the key factors that have influenced and shaped the Hollywood Industry are (Vogel, 1998, 36):

· Technological advances in the filmmaking process itself, in marketing and audience sampling methods (especially in the case of Hollywood; see Wyatt, 1994), and the technological development of new exhibition windows like television, video recorders, cable and satellite services, DVDs, computers, and now the Internet.

· The need for ever-larger pools of capital in order to launch Hollywood motion-picture projects. This inflation accounts for rising salaries of stars, for more expensive and unique special effects, and for higher investments in marketing in order to compete with other forms of entertainment. This trend has generated a polarization of production standards, practices, and costs between Hollywood projects and National Film Industries (even independent cinema in the US) with higher barriers of entry for smaller/new players.

· De-regulation related to vertical and horizontal integration, especially of the Distribution and Exhibition stages, allowing the big companies to have an even stronger grip, through consolidation, across the film value chain in the majority of territories.

· The emergence of large multiplex theater chains in new suburban locations (especially in the US) and in the big urban conglomerations of the third world. This exhibition strategy has brought with it price segmentations during the day and across different geographical areas (districts, regions, countries) in an attempt to maximize revenues; multiple movie choices to consumers at different times; the transformation of the film going experience into a premium commodity everywhere, excluding from such experience the socio-economic segments with less purchasing power in every society.

· The constant evolution and growth of clusters of independent production and service organizations, making the production side of the chain a highly competitive environment with permanent flow of ideas, independent projects, lower entry barriers for new players, and new services. This multiplicity of projects and service companies fulfill the vital function of research and development (Garnham, 1990, 180) but then they have to submit themselves, in a weak negotiation position, to the gate-keeping cartel of the eight studios in the US and to their five main distribution arms around the world. In its turn, the cartel, by occupying the key distribution spot, does not take the innovation risks and costs assumed by independents, but it does pick up the rewards.

This type of sector structure (atomized and competitive production; concentrated financing, purchasing and distribution; and competitive and diversified exhibition) spreads oligopolic costs across the industry and the world: less consumer choice, higher inflation, unemployment pressure in the sector and higher entry barriers for national/independent cinemas.

Times have changed considerably since the 1980’s. Cinema box office was by far and away the most important source of revenue for Hollywood Studios (Doyle, 2002, p.116) but by 2000 worldwide theatrical income was around 20% of the total revenues of the US Majors (see table 3.1. below). Nowadays DVD and traditional videos generate the strategic income for film companies, with Home Video representing in 2000 between 37 and 45 percent of total US film products revenues (Vogel, 1998, p. 55; Kindem, 2000, p. 327; Epstein, 2005). Pay-Cable represented in 2000 between 10 and 15 percent of studio’s income. But the symbolic power of the box-office still exists, with the future revenue success of a movie depending on the reputation and publicity-advertising that good theatrical/box-office openings offer, and the studios relying on box-office performance to negotiate release terms for the DVD and Television markets (Chaffin, 2005). But the movie game is now played at home; movies are Home Entertainment on DVD and Home Theaters or on Pay Cable and Open TV.

3.1.8. Technological twists

Future technological changes influencing the industry processes will affect the three stages of production, distribution and exhibition (Doyle, 2002, p.116), stages which, under current trends of ‘multiple convergence’ – multiple kinds of media content, including film, available for consumption through multiple media hardware, from theatre to laptop, from cellphone to high definition TVs – and window sequencing collapse, might change the names of the sub-sectors to Creation – Management – Delivery, as stated on the tagline of the high-tech exhibition of the 2005 International Broadcasters Conference (IBC) in Amsterdam.

The appearance of digital techniques like the use of digital cameras, ‘laptop’ editing and other cheap new hard-softs, has greatly reduced the capital and labour costs potentially involved in Creating feature-length productions. Digital technology is also affecting the ways in which audiovisual content (films included) is Managed across multiple distribution windows by the owners of the copyrights and, specially, by the owners of the distribution infrastructures.

Additional sources of revenue will include Delivery services on television such as pay-per-view, near video-on-demand (NVOD) – more choices at more time slots – and video-on-demand (VOD). Another area where digital technology could cut down on distribution costs is on delivery of film to cinemas (electronic delivery to exhibitors). Movie studios are interested in partnering with theatre chains to equip/update movie theatres with the needed technology to show digital movies (Albarran, 2002, p.128) as it happened in the late 1920’s and early 30’s with the implementation of sound and color technologies. These technologies will not only eliminate many distribution costs but will also have a major impact on the economics of the motion picture industry: new windows, new sequencing, new delivery, new price strategies will emerge.

Additionally, the Internet is currently playing a big role in changing the value-chain of the film industry. A lot of films are illegally downloaded from the Internet crating a new market on ‘content protection’ software and hardware development; services that deliver feature films to consumers for a fee are on development stages with business models that will range from pay-per-scene (an innovation from the on-line porn market) to subscription payments with unlimited old-and-new content access, to on-line DVD renting using a mail delivery/return system (a model developed by the firm Netflix in the US) (Orwall, 2001 in: Albarran, 2002, p. 128).

All these technologies show a diversification of exhibition and consumption options and the multiplication of production through cheap technologies. But it is in the ownership of the distribution platforms and in the marketing support for new products, again, that the bottleneck between independent producers and consumers will be located. It seems that, again, star driven content, high-concept budgets, and intensive intertextual marketing will have the upper hand in the future film market, as has been the case for the last one hundred years.