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Lesson 4 industry


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Lesson 4 industry

  1. 1. Starter Task Make a list of as many film studios as you can What is the job of film studios? How do film studios make their money?
  2. 2. Learning Objectives Complete short history of Hollywood Identify key terms: Vertical Integration Horizontal Integration Synergy Case Study Two: Film studios
  3. 3. ‘Golden Age’ Hollywood was established as the film making centre of the world during the early past of the 20th century However, Hollywood was not always the centre of filmmaking excellence During the first 20 years of the 20th Century most of the cinemas pioneers operated in Europe, specifically Germany In an effort to escape war and persecution, many filmmakers and future studio bosses fled to the USA as political refugees Hungarian born ADOLF ZUKOR – founder of ‘Paramount Pictures’
  4. 4. ‘Golden Age’ During the Golden Age Hollywood was dominated and controlled by the so-called ‘BIG FIVE’ MGM … and THREE ‘minors’ Paramount RKO FOX (later 20th Century FOX) Warner Bros.
  5. 5. Studio System As these EIGHT studios controlled almost all output from Hollywood they were able to establish the Business model and rules for the industry they controlled Key aspects of the ‘Golden Age’ studio system were: • • • • • Studios were ‘Vertically Integrated’ Factory like process – they produced standardised products (reliance on stars and genre) Each aspect of production controlled by the studio Little scope for self expression and artistic flair Trouble makers were punished and ‘black listed’
  6. 6. Vertical Integration What is ‘Vertical Integration’? The process in which several steps in the production and/or distribution of a product or service are controlled by a single company or entity The studio will plan, film and complete post production in studios they own with equipment, personal and departments they also own. Every aspect of the films production will be carried out by the studio Film Production
  7. 7. Vertical Integration What is ‘Vertical Integration’? The process in which several steps in the production and/or distribution of a product or service are controlled by a single company or entity The same studio will create the ‘reel’s’ that are sent to cinemas. They will produce marketing materials (posters etc) and transport the film to theatres Film Production Distribution
  8. 8. Vertical Integration What is ‘Vertical Integration’? The process in which several steps in the production and/or distribution of a product or service are controlled by a single company or entity The film will be played (exhibited) in cinema chains owned by the studio. The cinemas will only play films made by the same studio. They are also responsible for all premiers / public screening etc Vertical Integration gives complete control and ownership to the Studio that produced the film Film Production Distribution Exhibition
  9. 9. Vertical Integration What are the Pro’s and Con’s of ‘Vertical Integration?
  10. 10. Decline of the Golden Age Until 1945 Hollywood enjoyed great success under the ‘Vertically Integrated’ Studio model They maintained total control over their products and collected 100% of the profits However after WWII Hollywood saw a fall in profits, less people attending cinemas and the established studio systems existence came under threat Several factors contributed to the sudden demise of ‘Old’ Hollywood Can you think of any?
  11. 11. Decline of the Golden Age Post WWII there was a ‘Baby Boom’ – a sudden and dramatic increase in the number of children being born The increase in the number of families led to a shift in entertainment, with many families opting for ‘home entertainment’ The population also led to the urbanisation of America The Paramount Decree Read the ‘Paramount Decree’ Article
  12. 12. Decline of the Golden Age After WWII America’s Economy exploded and the invention and sale of consumer electronics increased dramatically The most popular of these inventions was the Home TV Set 1947 – 14,000 Households owned TV sets 1950 – over 4,000,000 (million) TV Sets owned Post war Americas were attracted to new Media Technologies and newer forms of entertainment the most popular being Rock ‘N’ Roll
  13. 13. Rise of the small screen TV Set ownership 4500000 4000000 4000000 3500000 1947 - 1950 3000000 2500000 YEAR TV SETS OWNED 2000000 1500000 1000000 1000000 500000 0 14000 1947 172000 1948 1949 1950
  14. 14. 1950’s Hollywood As a result of the cultural shift following WWII, Hollywood found itself facing a series of major challenged to their dominance of the entertainment industry: • • • • Large back catalogue of films Falling cinema attendances Reduced control over their stars Reduced control over the exhibition of films (Paramount Decree) • Competition for audiences • Time and money spent on alternatives to cinema • Falling profits The studios came to a sudden realisation – If you can’t beat them, join them!
  15. 15. 1950’s Hollywood It became clear to the studios that their current ‘Vertically Integrated’ business model was out dated and needed updating They realised that they must branch out in to emerging markets such as TV Paramount Studios branched out in to TV production and found huge success with the Star Trek series
  16. 16. Hollywood’s Strategy Studios also began the following: • Mergers with, or take over of TV companies • TV Movies • Use TV show as a showcase for back catalogue (rerun old movies generating new profit) • By 1958, 3700 pre-war films had been sold or leased to TV for over $220,000,000 • New approach to cinema – New Technologies offered ‘New Cinematic Experiences’ e.g. Cinemascope, 3D, Technicolor
  17. 17. Horizontal Integration What is ‘Horizontal Integration’? Horizontal Integration is the consolidation of holdings across multiple industries. Through the ownership of many different media outlets, conglomerates are able to sell the same product many times. For example, is a film franchise that is also sold via the following formats:
  18. 18. Synergy The ultimate goal of Horizontal Integration is too create ‘SYNERGY’ SYNERGY is the interaction of multiple elements to produce an effect greater than the sums of their individual parts Studios can take ONE property, such as ‘Spiderman’, and create several revenue streams:
  19. 19. Horizontal Integration What are the Pro’s and Con’s of ‘Horizontal Integration’?
  20. 20. Case Study - Disney
  21. 21. Disney Financials 2012 According to the Forbes Fortune 500, Disney are the 66th largest corporation in the world Revenue: $42.3 Billion Net income: $6.1 Billion TV Networks (ABC & Disney) reach on average: 23% of US Households Disney Channel: reaches 40 million US Homes EPSN: 80 million US Homes
  22. 22. Disney Financials 2012 Where does the money come from? Media networks: 20.36 Parks & Resorts: 14.09 Studio Ent: 5.98 Consumer products: 3.56 Interactive: 1.06 What does this table indicate about the modern film industry?
  23. 23. Case Study - Disney
  24. 24. TV: (30%)
  25. 25. Case Study - Disney By ‘diversifying’ their business film studios like Disney no longer rely just on cinema for profits Disney are able to sell their products via multiple outlets and create several cash flows for the same products
  26. 26. Case Study - Disney Horizontal Integration also allows for: Ability to share resources and products across many different formats: • Films •TV Shows • Video Games • Comics / Novels • Toys & Merchandise This is known as SYNGERGY SYNGERGY: The added value created when joining two separate firms allows a greater return than from the sum of the individual parts
  27. 27. Case Study - Disney To demonstrate the benefits of Horizontal Integration, look at Disney’s fiscal performance in 2013 John Carter: Loss of over $200 million Theme Parks: profit increase on previous year 9% $3.4 Billion Film Studio: $313 (Avengers re-coupe losses of John Carter Other media networks: $4.7 Billion Read the handout and highlight the key points, includig financial information and how Synergy contributed to Disney’s outstanding performance
  28. 28. Case Study – Part 1 All of the major studios in Hollywood are subsidiaries of larger, global conglomerates Using one of the following companies, you must complete a detailed case study of the businesses ‘Horizontally integrated’ structure and list all of the different companies and media outlets they own You must include a detailed breakdown of all the companies and subsidiaries they own
  29. 29. Case Study – Part II Identify ONE franchise owned by your chosen studio Compile a list of the financial information for this franchise (budgets and box office figures) Research how the horizontally integrated business creates ‘SYNERGY’ from the franchise (you must include specific examples of the different forms the franchise takes – merchanise, TV shows, themes parks etc) You must include sales figures for the spin-off products
  30. 30. Studio: LucasFilm ltd. Director: G. Lucas, I. Kershner, R. Marquand Number of films: 7 Total Box office revenue: $4,485,672,683 Star Wars: $797,900,000 Empire Strikes Back: $534,171,960 Return of the Jedi: $572,700,000 Phantom Menace: $1,007,044,677 Attack of the Clones: $656,695,615 Revenge of the Sith: $848, 988,877 ‘Clone Wars’: $68,161,554 Kenner (78-85) Hasbro (1995-2011) Total sale: $12.1 Billion Books: $1,820,000,000 Video Games: $2,900,000,000 Other: $1,34 Billion Total Revenue: $27 Billion
  31. 31. As you can see here, the Star Wars movies are only a small percentage of the total value of the brand. Lucas Film has been able to create SYNERGY through its various companies. Such as:
  32. 32. This table breaks down all of the different revenue streams Lucasfilm have created. The modern film industry relies on more than just cinemas to generate profit. Horizontally integrating allows for the sale of one franchise across many different platforms.
  33. 33. You have 30 mins to write an essay style answering to the following question: How important are film franchises to film studios? You must include: A detailed case study of a film franchise A definition and explanation of Horiontal Integration