Strategic Management: Movie Industry

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Table of Contents

Industry environment analysis
Summary of Industry environment analysis
Reference List

Industry environment analysis

Threat of new entrants. Analysis.

Factors (affecting the threat of new entrants)	Analysis	Threat Rating of New Entrants
Economies of scale:	Large scale production is of essence for economies of scale. However, the movie industry can still succeed if it operates in small scale basis Small scale producers can rely on the home watchers as opposed to theatre loving clients.	High
Proprietary product differences:	Products in the movies industry are poorly differentiated. There is nothing unique that is offered by different stakeholders. The only differentiation that exists adopts the Hub and Spoke strategy where movie companies seek an identity in a specific line of production, but also venture into other forms of production.	High
Brand identity:	Some brands have a dominating identity such as 20^th Century, MGM, Waner Bros, Columbia pictures among others. New entrants may find it hard to compete with the established firms. However, if they have an interesting movie, then they can make major sales as the switching costs are low.	Medium
Buyer/customer switching costs:	Inexistent switching costs. There is no product attachment to customers in the movie industry. Any possible switching cost may be associated with movie theatres for customers with loyalty tickets and may opt not to switch to another competitor.	High
Capital requirements:	Massive movie production requires a high capital outlay. Small entrants may not be able to compete with existing producers or theatre owners. New producers can easily utilize existing market, both the individual market and the theatre market.	High
Absolute cost advantages:	Existing players, both producers and theatre owners have acquired comparative advantage due to the experience they already posses. Most existing theatres are already strategically placed. This disadvantages the new entrants.	Low
Government Policy:	The government has adopted a policy of market regulation. This has made it easy for new entrants to join the movie industry.	Medium
Expected retaliation:	The movie industry has always adopted a counter offer strategy (O’Regan, 2010). When one producer produces a new movie that is unique, the others quickly produces their versions killing the competitive advantage of the initial innovator. A good example is the 2005 production of Hotel Rwanda by Lions Gate Entertainment and the subsequent release of Sometimes in April, based on the same story of Rwanda’s genocide by Home Box Office. In keeping with this spirit, a major backlash for an innovation from a new entrant is expected.	High
Overall Rating: High-Medium

Bargaining power of suppliers. Analysis

Factors (affecting the bargaining power of suppliers)	Analysis	Rating of Supplier Power
Differentiation of inputs:	There is no differentiation of inputs as what is supplied to movie theatres is the same. Theatres should use different suppliers as opposed to sticking with one movie producers.	Low
Switching costs of suppliers and firms in the industry:	There are no switching costs associated with the change of the movie suppliers. All the benefits offered by one producer can be offered by another producer.	Low
Presence of substitute inputs:	There are no clear substitutes in the movie industry. However, rivalry among the suppliers denies them any considerable advantage due to the lack of substitutes. Thus, theatres enjoy as though there are substitutes.	Medium
Supplier concentration relative to industry concentration:	There are fewer suppliers compared to the overall industry concentration. The suppliers also have the theatre markets as well as individual markets. This makes them to have a considerable say as far as supplying of products is concerned.	Medium
Importance of volume to suppliers:	The costs related with production makes suppliers to prefer large scale buyers. Although it is easy for suppliers to sell to individual customers, it is more cost effective to directly sell to theatres. This is more so when the product is new in the market.	High
Cost relative to total purchases in the industry:	Most purchases are capital incentive. Purchases of patents, rights as well as initial payment made to actors are capita intensive. This makes one purchase of a new movie into theatre screens a highly costly affair.	Medium
Information about supplier’s product:	Suppliers are good at supplying the sellers with the required information. Due to their limited numbers, suppliers are known by the concerned buyers. This gives the buyers power over the suppliers.	Low
Supplier profitability:	Suppliers such as Lions Gate Entertainment, Home Box Office among others have maintained high rates of profitability. However, the dying culture of movie theatres is slowly keeling the profitability levels in the industry. The rise of internet marketing is compensating for this loss as suppliers can sell their products directly to global consumers (Chaffey, 2009).	low
Decision makers’ incentives	Incentives are purely based on product quality as opposed to external incentives. External incentives are of no relevance to the industry.	Low
Threat of forward integration	A possible integration of the current suppliers can spell doom to the buyers as they can force the already high market rates up. This, coupled with declining theatre culture would reduce the profitability of the direct service sellers.	Medium
Overall Rating: Low-Medium

Bargaining power of buyers. Analysis

Factors (affecting the bargaining power of buyers)	Analysis	Rating of Buyer Power
Differentiation of outputs:	The only available differentiators include: Price. Nature of the movie on the screens. Possible accompaniments. However, there is natural attachment of theatres and customers. This acts to ensure that the theatres maintain their clientele.
Switching costs of buyers:	There are no significant switching costs for buyers. Even where there is loyalty rewards associated with tickets, competitors can still come with better deals. This makes the bargaining power of buyers very high.	High
Presence of substitute outputs:	There are no true substitutes offered to buyers. However, the existence of similar products from other sellers makes the buyers to have a high bargaining power. Products offered by competitors can act as substitutes.	High
Industry concentration relative to buyer concentration:	The concentration of sellers is relative. This makes the competition among the sellers not to be too intense. Buyers have medium power to decide on what they want.	Medium
Importance of volume to buyers:	Volume purchases are not very necessary in this industry. Buyers have little effect to the prices offered by the sellers.	Low
Cost relative to total buyer purchases:	The prices are shaped by the relevance and newness of a film in the industry. Thus, costs are not associated with volumes, but the nature of the movie. Therefore, buyers have an insignificant role in determining the prices.	Low
Buyer information about the industry output:	Individual buyers have a choice of either purchasing or renting the product they want. Theatre buyers have to content with what the sellers have put forth. The bargaining power of buyers is low.	Low
Buyer profitability:	The rising social strain among buyers affects their ability to buy. This has led to reduced consumers of theatre services.	Medium
Decision makers’ incentives:	Theatres always offer incentives to attract clientele. However, common incentives are replicated by the competitors hence denying business a distinct comparative advantage.	Low
Threat of backward integration:	There is no threat for backward integration in the movie industry.	Low
Overall Rating: Low-Medium

Power of substitutes. Analysis

Factors (affecting the power of substitutes)	Analysis	Threat Rating of Substitutes
Relative price/performance of substitutes:	There are no clear substitutes in the movie industry. Only competing products can be seen as substitutes.	Low
Switching costs:	There are no switching costs associated with the perceived substitutes.	Medium
Buyer propensity to substitute:	Buyers can easily be swayed to perceived substitutes depending on the quality of products put forth.	Low
Overall Rating: Low

Intensity of industry rivalry. Analysis

Factors (affecting the intensity of industry rivalry)	Analysis	Rating of Industry Rivalry
Industry growth rate:	The movie industry has reached the maturity stage. This is more experienced when the theatre culture is examined. This spells uncertainties in the industry.	High
High fixed costs:	Fixed costs in the movie industry is relatively high. These especially true for producers as they must maintain a highly rewarded staff although on a contract basis. Theatres must maintain high rents as they occupy huge areas in prime areas.	Medium
Intermittent overcapacity:	This problem has never been experienced in the movie industry.	Low
Product differences:	There is little product differentiation in the movie industry. This makes it hard for one to strongly say that a specific service provider has an advantage over the other. Lack of product differences makes pricing an important factor in this industry.	High
Brand identity:	There is no player in the industry who can claim brand identity. This makes identity of a service provider to be seasonal depending on the nature of the existing product. Generational change further complicates the issue of brand identity as generation Y is known to have no brand royalty.	High
Switching costs:	There is no significant switching cost associated with this industry.	High
Informational complexity:	The industry is virtually affected by the volumes information that exists concerning the products. The movie industry is highly debated even in the social sites. This may help a service provider to bask in phenomenon fame which may translate to massive sales.	High
Concentration and balance:	The movie industry is not as concentrated as many other industries. However, the few players in the business have intense competition among them.	Medium
Diversity of competitors:	There is no significant diversity in this industry. The nature of the products cannot allow for diversification of products.	Medium
Corporate stakes:	There are little side activities that exists for the industry players. This makes the industry players to remain in business regardless of fluctuating markets. Thus, rivalry is intense.	High
Exit barriers:	There is little option left for most industry players. Thus most of them must remain in the industry regardless of the changing market. It is hard to sell the investments already made to other industry players.	High
Overall Rating: High

Summary of Industry environment analysis

The concept of industry environment analysis has been used for several decades now to analyze various factors that are external to the business, but remain critical in the quest for crafting a comprehensive competitive strategy.

In 1980, Michael Porter came up with a five force model that has remained instrumental in the analysis of the business environment. In this five force model, Porter established that there are various factors that need to be well catered for by any company that intends to craft a competitive strategy.

In his quest to come up with a competitive force model, Porter managed to group the external environment into five major categories that he named as the bargaining power of suppliers, the bargaining power of buyers, threats posed by new entrants, the level of rivalry that exists among the existing firms and finally the threats posed by the substitute products (Porter, 2008).

Conducting an environment analysis in the movie industry allows one to establish the extent of the existing opportunities as well as threats posed by external factors (Hill and Jones 2009). In the environmental analysis of the movie industry, it is evident that the threats that are posed by the new entrants are relatively high though they have been rated as High-Medium.

This indicates that the huge capital outlay that is required to venture into this business can discourage potential entrants form joining the business. However, this does not mean that it is impossible for new entrants to join the industry provided they can comfortably raise the required costs.

It is also evident that the lack of switching costs on the part of the buyers acts to the disadvantage of sellers such that the sellers can easily lose their clientele if it decides to switch to a competitor. The buyers can do so with ease as they have nothing to lose form an engagement where they choose the services of a competitor.

It is also evident that the general lack of clear substitutes in the movie industry makes the sellers to have an advantage especially due to the fact that they can easily retain the market share. However, the weakening power of buyers due to change in lifestyles as well as a changing economic factors have colluded to deny the movie industry valuable revenues that were initially associated with it.

As far as substitute products are concerned, the lack of clear substitutes in the movie industry has ensured that the power of substitutes has an insignificant influence as far as the extent of strategy crafting is concerned. Movies do not have a direct substitute hence the overall rating of this category of external environment is low.

When the intensity of industry rivalry is examined, it is evident that the movie industry is characterized by stiff competition among the main industry players. A shrinking market due to a change in the overall societal culture has led to intense competition especially to ensure that firms survive.

Lastly, the bargaining power of suppliers in the movie industry is low, despite their limited numbers. This has been occasioned by the nature of rivalry among the players as well as lack of a clear differentiation of the products offered.

Each supplier gets an opportunity to bask in glory when a specific product is fresh thus attracting thousands of viewers. However, due to the short product lifecycle associated with the industry, the suppliers have little bargaining power.

Reference List

Chaffey, D. 2009. Internet marketing: strategy, implementation and practice. New York: Prentice Hall.

Hill, C. and Jones, G. 2009. Strategic Management Theory: An Integrated Approach. Upper Saddle River: Cengage Learning.

O’Regan, T. 2010. Local Hollywood: Global Film Production and the Gold Coast Ben. New York: UQP.

Porter, M. 2008. On competition. New York: Harvard Business Press.

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Strategic Management: Movie Industry

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