Movie Industry A and B

Movie Industry A and B

Name

Institution

Abstract

The ascendancy of the movie industry has been the subject of copious studies. It provides a fruitful research domain for the scholars in marketing and other disciplines. The industry has a high economic importance, which drives the researchers to gather numerous data that covers the entire products. The video viewers then use this information in making comparison of preference across the world.

This thesis reviews the economic, organizational and marketing issues between Movie industries A and B. Further, it utilizes the existing theoretical explanations for acquisition and persistence of the market dominance of their products. It concludes that major theaters ascend in market leadership and supremacy because they develop strategic management capabilities that are superior to the rival firms. It argues efficient marketing procedures create a unifying theory for industry’s enduring dominance because it accounts for the utilization of its resources in establishing the industry for over long periods. Charts, graphs and appendices are utilized to facilitate creation of a strategic analysis on competitive marketing (Rothaermel, 2012).

Introduction

Dominant firms that control the manufacturing sector and the flow of products have a horizontal power which enables them to leverage their positions to manipulate industry prices to their advantage. As long as sufficient demand exists, and only a few manufacturers controls supply, then manipulating industry prices will be easy. Vertical power exists when the dominant firm is vertically integrated and operates in two or more industry sectors. Production, distribution and retail are conductedwithin accurate thresholds. This strategy based on the vertical power is termed as ‘vertical integration,’ and provides the firm with the ability to erect barriers of entry, shift of the costs and revenues among affiliates in ways to disrupt efficient market operations.Vertical integration is important particularly when a firm seeks to create or exploit market power, or as a defensive move against competitors who possess significant market power or when the industry faces a risky and unreliable market. Alternatively, any emerging company must fast-integrate the market in order for its operations to flourish. Vertically integrated industries succeed by targeting segments where the leaders are weak or do not have full dominance. Consequently, the challengers develop their business to achieve the scales necessary to mount a serious market challenge on a wider front (Rothaermel, 2012).

The measurement of market power is based upon market shares held by industry leaders. The number of shares is proportional to the marketing power of a company. Market share is a comparative measure of firm performance relative to its rivals, and is often calculated on basis of a firm’s total sales or the volume of units sold relative to sales in the market.

Porters’ five forces analysis

This is a conceptual structure, which provides a basis for analysis of industry and business strategy.

Threat of entry

The movie market has proved to be profitable to industries actively involved in the business. The essence of profitability will lead to new entrants into the market that essentially leads to disbandment of any monopolistic competition that prior existed in the industry to embody a more perfect competition paradigm in the industry. Movie industries remedy this problem through formation of alliances. The movie industry provides an ideal setting for exploration of the role of strategic alliances. First, alliances in the movie industry are more consistent than in any form of industry. For example, biotechnology industries collaborate at different points of project development, leading to their dominance in the market compared to their rival teams. The boundary of the movie industry is also well established: a movie project has a short-term horizon and a clear starting and end. Conversely, projects in other industries are complex and less distinct or highly interrelated. Still, they have long-term horizons, making it difficult to identify the project boundaries. These features are essential as they provide grounds for analysis of meaningful distinction in the manners of business operations (Rothaermel, 2012, p.215).

Threat of substitute products or services

The existence of substitutes present a threat to dominant companies offering the same product since there is a possibility that the customers can switch to the new product. Movie industry A acts as a threat to Movie industry B by challenging the norm that is digital movie viewership to theatre. Piracy is highlighted as the major threat in the movie industry. It creates substitutes, which meet the need of the customers in an equal way to the genuine products. This limits the ability of the industries to raise the prices, which could lead to drifting of customers.

Power of suppliers

Suppliers that have autonomous mandate to the market input use this power to their will in defining their terms of compensation for provision of the good or service. Such suppliers may choose to levy high prices in return for offering goods or services unique to them. Movie industries share this bounty by having the privilege to dictate terms of service provision. In the previous year’s Movie industry A, the number of admission grew at much lower rate of 5% from 120 million to 420 million. The exhibition industry responded by lowering the number of screens from its peak of 500 million in 2000 to 420 million in 2002.

Rivalry

Competition is a common aspect of any market hence the defining aspect in the measure of rivalry is in the measure of the competition intensity between two industries. The difference in profitability is assessed along the number and size of the competitors, similarities and differences in products and services offered, and the height of entry and exit barriers, and the scale of economies. Notably, theater’s profitability would increase by 40% by running manageable exhibitions for a long time, and by procuring movies from larger set of movies running in the country over the same period.

Power of buyers

Customers also hold the ability to dictate terms concerning the nature of output by them having the capability to hold a company under pressure effectively dictating terms such as price set by the firm. Movie industries in most cases deal with the problem by endorsing schemes such as loyalty programs that restrain the customer powers. Perfect competition rule states that if there are many small firms in an industry, the industry is fragmented and exhibits low average profitability. If there are only a few large firms in an industry, this industry structure is more favorable and can exhibit higher industry returns. Moreover, the bargaining power of buyers can put on the seller’s company’s margin through demanding a lower price and a higher product quality. As result, strong buyers could reduce the company’s revenues (Rothaermel, 2012).

Analysis of industry A

Theatrical exhibition landscape is comprised of major theater chains and independent exhibitors. The movie industry has been over-screened. This means that the size of the movie-going population is not proportional to the number of theatre screen in the world. For instance, an examination of the total number of screens and theaters in this industry suggests that the movie industry started upward adjustment of the total number of screens in the year 2002. The growth rate between 1998 and 2000 (8%) and between 2000 and 2002 (9%) are lower than the corresponding growth rates in terms of the number of admissions (10% in 2002 and 2005, and 12% between 2005 and 2008).

By econometric modeling, it occurred that the relationship between screens and revenues for movies released in 2000 and 2002 was concave for the residents, but convex in international markets. Again, this concept was in line with the idea that the foreign market was under-screened while the internal market was over-screened.

Dominance of Industry A in 2002

Market Studio share market Rest of the industries Market share Annual cinema admission Average ticket price U.S.$ Annual Box Office U.S $ billion

1998 India N/A N/A 120 million $ 0.35 $ 0.21

1999 China 54% 46% 220 million $ 1.23 $ 0.59

2000 Europe 80% 20% 500 million $ 5.45 $ 1.045

2001 Japan 75% 25% 350 million $ 11.75 $ 7.85

2002 U.S 78% 22% 420 million $ 2.85 $ 1.05

Analysis of industry B

The profitability structure of this industry is more favorable than those of industry A. For example, the average rate of return on invested capital for the period between 2006 and 2008 was 20.6%, 3% more than what was realized in Industry A. The top five-exhibition chain including Regal Entertainment Group, AMC Entertainment, Carmike cinema, Cinemark and Lowes accounted 45% of the total number of screens in the market. It was conceivable that the movie industry would become even more concentrated in future, with countries such as U.S, Europe and China leading in the market.

Dominance of Industry B in 2008

Market Studio share market Rest of the industries Market share Annual cinema admission Average ticket price U.S.$ Annual Box Office U.S $ billion

2004 India N/A N/A 110 million $ 0.45 $ 0.25

2005 China 64% 36% 210 million $ 0.23 $ 0.39

2006 Europe 70% 30% 400 million $ 6.45 $ 0.045

2007 Japan 85% 15% 380 million $ 4.75 $ 5.85

2008 U.S 68% 32% 112 million $ 1.85 $ 2.05

Summary

The difference between the performances by these industries was attributed by a safe bet in the products and the consumer’s preference. Industry A had a lower standard deviation of the rate of return (1.64) compared to that of Industry B (2.21). When the PG rated movies are removed from the market, the difference in rate of return between these two companies will be statistically significant at the level of 4%.

High skewness indicates that the number of successful projects drives the success of each category, whereas low skewness indicates relatively unpredictable symmetric distribution. Very high skeweness indicates that the success is driven by the incompetence of the rival company.

Conclusions and recommendations

In most cases, companies concentrate on improving their profits in bid to remain successful. However, it does not happen automatically. Indeed, further improvement is required for the company to par its performance. It is therefore importance to consolidate different strategic skills in sustaining performance, both internally and externally.

It is important to measure the percentage output of a company from the inputs invested in the production of its export commodities. Such a strategic vision is efficient in determining the performance of a company in a given period. Moreover, this move will enable creation of a scorecard related to the entire performance of a company compared to that of the rivals.

Company should benchmark on their facets and profits. It is a fast track solution to unearthen the threats to the performance of a company; including the policies and the production processes that should be altered. A high growth niche is also commendable as it will lead to assimilation of the competitive products in the market. Some of the products in the market may be differentiated into different brands to increase the profits (Rothaermel, 2012.

The six sigma theory stresses on improvement of company’s infrastructure, thus reducing the barriers of a health market. The management should also focus on what the customers require. This resonates with the operating models and the products required in production of high quality goods. Redesigning could promote opening of new market channels.

References

Rothaermel, Frank. (2012). Strategic Management: Concepts and Cases. Irwin Professional Pub

Appendices

Appendix 1

Comparison of standard deviations

variable Std.dev (variable =1) N Std.dev (variable=0) Differences in std.devp-value skewnessPG-rated 0.9563 54 2.453 -1.6754 <0.0002 0.453 Sequel (a) 1.976 45 2.465 -0.241 0.1243 0.243 Sequel (b) 1.5634 65 1.976 -0.0243 0.215 0.432 R-rated 2.765 50 2.876 -0.234 0.142 1.542 G-rated 0.6464 55 2.789 -0.452 <0.0001 2.487 Pg rated or Sequel 1.0008 80 2.325 0.3065 <0.0001 0.985