Cinema Industry Environment Analysis

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Table of Contents

Introduction
Summary of macro environment analysis
Summary of industry environment analysis
Other critical factors for the movie industry
Future directions/recommendations
Reference List

Introduction

The movie industry has seen it all: Both best moments and worst moments. Some few years ago, movies could only be watched at the theatres and people loved watching them in big screens and with theaters and studios being the only place where big screens could be afforded, people really enjoyed.

However, with technology advancements and visual and audio systems becoming cheaper, the movie industry has been experiencing lagging growth because few people nowadays visit the theaters and studios and those who visit these places do it with other motives in their minds for example being away from their parents, dates among other things. This means that if there could be alternatives most people would not go to watch movies.

Summary of macro environment analysis

There exists several macroeconomic factors which influence the way managers or leaders in a certain company make their decisions. These macro environment factors include issues such as changing laws, government policy, and demographic issues among others.

They are analyzed under a model called PESTE. The model seeks to analyze what factors influence the performance of the industry and if these factors are threats or opportunities to the industry (Bensoussan& Fleisher 2008).

The political or the legal factors which have affected the industry as indicated in the case study include the 1948 ruling between the United States and the paramount pictures. Before this ruling, studios used to control the audiences and thus captured the whole profits; they used to do this by owning the theaters.

Theaters were not expected to show pictures produced by the rivals. The Supreme Court ruled against the monopolization and as a result, theaters divested as they were now allowed to negotiate film access and rental even with the rival companies. This worked to the advantage of the industry theaters were used efficiently. When one studio was not having a movie to be shown, the other from the competitor was allowed to show allowing theaters to operate full time.

In the economic dimension, with the economy just recovering from the previous recession, most people might not afford the high cost of buying tickets and with television being easily accessible at home, most of them might prefer the option of watching the same movies in comfort at their homes since its cheap.

The socio-cultural dimension is another dimension which is likely to have a negative dimension on the growth of the movie industry. Theaters and studios are no longer able to provide to the viewers what they used to miss at home.

The reason why the youth go to theaters being just for dating and just to be out of the house (nothing like enjoying the movie). As a result, this means that if these viewers could get another excuse of getting away from home, they could even never go to watch movies.

The advertisements between the movies are also another thing which has been discouraging viewers from attending the movies. People go the theaters to watch movies without breaks. That’s why it’s a movie not a TV program.

The technological factor is the other dimension which is likely to have a negative effect. With technology advancing and most people being able to afford the large, high definition, inexpensive and yet impressive systems, most people prefer watching the movies at the comfort of their homes than go and be unable to follow the movie due to the noise in the theater.

People have nowadays become environmentally sensitive and do not want to hear or be around sources of loud noise (Downey 2007). The noise pollution which goes on in the theaters therefore negatively affects the success of the movie industry. The visual and audio experiences at home where one has the opportunity of even adjusting settings to own desire plays to the disadvantage of the movie industry.

Summary of industry environment analysis

Environmental analysis is usually discussed under the five competitive forces which were developed by Michael Porter. In his book Competitive strategy: Techniques for analyzing industries and competitors he explained the five competitive forces which determine how successful the company is likely to be (Porter, 1980). These five competitive forces will be discussed below and how they are likely to affect the cinema industry.

The first competitive force as in the case of Cinemaplex is the bargaining power of suppliers which in our case was high since the industry was dominated by few companies. It is indicated that about 10 studios produced over 90% of the Box Office receipts and that there were only four major exhibitors.

With the supplier customers being fragmented, the studios are aware that only those aged between 12 to 24 years concentrate on them since they buys about 40% of all the theater tickets. When such conditions exist, the industry is said to be faced by high pressure margins from the producers and this relationship reduces the strategic options for the motion picture industry (Grant 2005)

The second competitive force which Porter analyzed was the consumer bargaining power. In the case of Cinemaplex, the consumer bargaining power is high since the number switching to alternatives is high. Most customers prefer watching the movies at home where conditions are favorable compared to visiting the theaters or cinema halls where it is hard to follow the scene or the program.

If the competition in an industry is high, it is easier for rivals to penetrate and change the whole dimension of the market. Currently the market is dominated by the four exhibitors, Regal, AMC, Cinemark and Carmike. With few players in the market, it becomes very hard for a new market entrant to penetrate and satisfy new customers since the four exhibitors have already built a reputation while the new market entrants will have to start from the scratch. Also with the falling rate of ticket sales, it would be hard for a new market entrant to have an impact at all.

The threat of substitutes is more felt when there are alternative products with lower prices of better performance parameters for the same purpose (Koontz& Weihrich 2006). The emergence of home viewing technology is a big threat to the cinema industry.

With home televisions having high definition sets and yet inexpensive, they present a major threat to the cinema industry and also due to the comfort the television sets come with at home where movies will never delay nor will you have to be distracted by another party.

With the presence of players in the industry being low, the competition between the rivals is not high. There is little differentiation in the offerings by the major theater exhibitions with prices within the market differing very little.

The competition between the exhibitors is only portrayed by the parking convenience and proximity to places such as restaurants. The different chain exhibitors concentrate on different segments with Regal focusing on the mid size market while AMC concentrates on the urban areas.

Cinemark concentrates more on the smaller markets. The other player, Carmike concentrates on the small to mid size thus the different market players concentrate on appeasing different market segments.

Other critical factors for the movie industry

The other critical factors lie with the strategies which the different companies in the movie industry use. Regal company, their tickets are sold high in line with the target population. The company focuses on the mid size markets.

This means that with their ticket prices being high at 7.43$, if they just achieve normal attendance in their theaters; they could still compete with their rivals in terms of high returns in the end. However, with a change in economic situation; customers may prefer attending to the other cheaper theaters due to the reduced purchasing power due to the economic hardships (Rao 2009).

AMC on the other hand concentrates on urban areas with large population centers. With the high population turn out; their tickets need not be too expensive since there is an assurance of attracting large crowds, however, a low customer turn out can lead to the company making losses due to the costs involved in maintaining the big facilities which the company possesses.

Cinemark serves smaller markets and the company operates 80% of its markets. Their tickets are the cheapest but this is in line with their target market thus they were able to attract the large market shares in this segment. The disadvantage of such an approach is that low viewers turn out would lead to huge losses (Porter, 1998)

Finally, Carmike the last major competitor in the industry concentrates on small to midsize companies. Their ticketing is average due to the mixture of the market segment. Targeting both the mid and the small size markets.

This strategy is advantageous since the company is able to enjoy the benefits from the two market sizes. A disadvantage of such an approach is that it fails to target a specific segment thus fulfilling the needs of the two segments is both hard and costly (Henning-Thurau, Houston& Walsh 2006).

Future directions/recommendations

To change the situation facing the industry, the leaders in the cinema industry need to improve the theater experience since that’s where most of the revenues seem to have been lost with many movie goers complaining that it hurts to pay some few dollars to go and watch movies only for other viewers to be on phone through out the show thus distracting the attention of many movie lovers.

It would thus be important to set rules and regulations which govern the behavior of the viewers.

They should also lower the ticket prices so as to attract more viewers to the shows since most people nowadays prefer watching movies from the comfort of their homes since it’s cheap.

With the prevailing harsh economic conditions, the industry need to migrate and move towards providing attractive packages to their customers by slashing the prices of the tickets so as to ensure that most of the customers who have been preferring watching movies at home can start visiting the theaters.

Reference List

Bensoussan, B., & Fleisher, C.S. 2008, Analysis without paralysis: 10 tools to make better strategic decisions. FT Press, New Jersey.

Downey, J. 2007. “Strategic analysis tools”. Web.

Grant, R. 2005, Contemporary Strategy Analysis. 5^th Edition. Wiley-Blackwell, New Jersey.

Henning-Thurau, T., Houston, M. & Walsh, G. 2006, Determinants of Motion Picture Box Office and Profitability: An Interrelationship Approach. Web.

Koontz, H. and Weihrich, H. 2006, The essentials of management. 7^th Edition. New Delhi: Tata McGraw-Hill Education.

Porter, M.E., 1998, Competitive advantage: creating and sustaining superior performance: With a new introduction. New York: Simon and Schuster Publishers.

Porter, M.E., 1980, Competitive strategy: Techniques for analyzing industries and competitors. New York: Free Press.

Rao, V., 2009, Handbook of pricing research in marketing. Massachusetts, USA: Edward Elgar Publishing.

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