This document discusses vertical integration in mass media industries. It begins by outlining the three vertical stages of production, distribution, and exhibition. It then provides examples of vertical integration in different media like movies, newspapers, and TV programs. The document goes on to define vertical integration as merging the ownerships of two successive operations so they are no longer separate entities. It discusses the economic efficiencies of vertical integration like reducing multiple markups and increasing retail consumption through lower prices. Finally, the document analyzes vertical integration and its impact in the Singapore cinema market. It discusses how integration allows firms to gain competitive advantages in distribution and exhibition through control of theater outlets.

1. Vertical supply structure of
media industries
Three vertical stages
Production – content creation
Distribution – packaging or transmitting content
Vertical Integration in Mass
Exhibition – delivery to or reception by end
Media Industries customers
Examples Upstream/Downstream of Supply
Movies
(wholesale)
Studios – Distributors – Theaters
Studios – Movie Channels – Cable System Production Upstream of
industry
Newspaper
Press Service – Newspaper – Circulation Distribution
TV programs Downstream of
industry
TV Producer – Syndication – TV Station Exhibition
TV Producer – TV Network – Stations (retail)
Vertical Integration
Merging ownerships of the two successive operations: Vertical Integration
The operations (firms) no longer are separate entities but a
concerted business decision-maker, considering costs and benefits
of both stages jointly.
Production Upstream of Production Upstream of
industry (wholesale) (wholesale)
industry
Distribution Distribution
Downstream of Downstream of
industry (retail) (retail)
Exhibition industry
Exhibition

2. Co-ownership of sequential
Full Vertical Integration
operations (vertical integration)
Economic efficiency gain
– Removing double (or even multiple) price
Production Upstream of markups
industry (wholesale) To reduce the additional profit-margins from the
retail price of the media product, charged by
Distribution middlemen
Downstream of – Increased retail consumption due to the lower
industry (retail)
Exhibition price
Vertical Integration vs Sequential Sale Stages Vertical Integration vs Sequential Sale Stages
Consumer surplus
shrinks with a
higher price
Demand Demand
Curve Curve
PD PD
PVI PVI
PU PU
Cost Cost Cost Cost
# Sold # Sold # Sold # Sold
More purchases due to a lower price- More price More price
mark, under vertical integration. markups markups
Reducing retail risks Cutting opportunistic behaviors
Reducing investment or financial risk in the Abridging opportunistic incentives of
content production (upstream) successively transacting parties
– To secure retail sale outlets for vending their – As both upstream and downstream traders can
products benefit from an increase to end-user sale, who
– To collect more direct and accurate should promote the end product?
marketing/demand info about retail consumers – “Tragedy of the commons”
– To brace for competition – VI can eliminate room for ambiguity or cheating

3. Market and Organizational Structure and
Competitive Strategies in the Local Cinema
Market
Competitive interaction between the theater
(chain) operators
Vertical Integration and Movie supply and distribution
Impact in the Singapore Structure of distribution-exhibition
operations and management responses
Cinema Market Strategies on film and theater acquisitions
Theater Locations in Singapore
Movie Market Players
Distributors Exhibitors (theater operators)
Golden Village Golden Village 8 58
Shaw Shaw 8 39
Cathay Eng Wah 6 29
UIP (Paramount/Universal) Cathay 2 16
Buena Vista (Disney)
Overseas 2 7
Columbia Tri-Star
Theaters Screens
Warner Bro
20th Century Fox
GV Shaw EW Cathay Overseas
Frenzy of Cinema Merger &
Process of Film Distribution
Acquisitions
This cinema marketplace, in the last decade, Movie release
– Negotiation between the distributor and the theater.
was fast-transformed from one once
– Contract terms: screening freq, promotion/ marketing,
composed of independent and single-screen exclusive or parallel releases, and the box office revenue
theaters operations into one dominated by split.
integrated multiplex cinema chains. Factors of bargaining power between the distributor and the
theater
After the flurry of property acquisitions, Degree of distribution and exhibition competition
virtually all previously freestanding the screen/theater holding
cinemas fell prey to integrated chains. the box office prospect of the film
the vertical positions

4. Upstream/Downstream of
Cinema Competition
Movie Industry
Theaters compete with each other in getting
popular films to screen
Theaters, of course, compete in attracting Production content creation
moviegoers
These two sources of competition are interrelated: Release the exhibition right
Distribution
– Having more strong films entices the crowd and sell to whom
better at the box office Downstream of
industry
– A robust box office receipt, and thus having a large Exhibition showing to
revenue pool, help bid for popular hits
end customers
Vertical Integration Integration and Competition in Distribution
& Exhibition
The Situation of the Singapore Market
Upstream Shaw GV Competing Competing
market Distributor Distributor Dist Dist
Production
Distribution Downstream
Shaw GV Eng Wah Cathay
market
Downstream of Theaters Theaters
industry
Exhibition
Not only that! The integrated firm, when
To reduce downstream competition, an
controlling many theaters, can threaten
integrated firm wants to exclude its rival
independent distributors not to release strong
theaters by keeping its films away from them
titles to its theater competitors.
Upstream Shaw GV Competing Competing
market Distributor Distributor Dist Dist Threaten
Upstream Shaw GV Competing Competing
market Distributor Distributor Dist Dist
Downstream
Shaw GV Eng Wah Cathay
market
Theaters Theaters
Downstream Shaw GV Eng Wah Cathay
A vertical firm may profit from
market Theaters Theaters
More favorable foreclosing its rivals
screening position • refuse to deal
• exclusionary deals

5. To reduce upstream competition, an integrated
To Think about the movies shown at
firm can also exclude its rival distributors by
Cathay’s Cineleisure! not carrying their films
Upstream Shaw GV Competing Competing
market Distributor Distributor Dist Dist
Upstream Shaw GV Competing Competing
market Distributor Distributor Dist Dist No show
Downstream
Shaw GV Eng Wah Cathay
market
Theaters Theaters
Downstream Shaw GV Eng Wah Cathay
market Theaters Theaters
Anticompetitive Effect of Vertical
Findings
Integration
VI exploited to foreclose or exclude rivals from the Integrated theaters carry a higher percentage
market, either down or up-stream of owned titles, for a much longer period
• By rebuffing requests for production input in control, an Drop independent titles much earlier
integrated firm can exclude other players, existing or
potential, from competition against its downstream branch.
• Symmetrically, the integrated firm can close out upstream
rivalry by refusing access to its controlled downstream outlet
from a competitive upstream supplier
Theater Location Discrimination in Theater Location Discrimination in
Movie Releases Movie Releases
Integrated firms appear location-selective in
GV renting out films so as to preempt competition.
Distributor – They tend not to release their movies to theaters near
their own screens.
Integration works to optimize screening coverage
of a film to collect box office receipts.
A GV Eng Wah Eng Wah – An integrated distributor wants to prevent its box office
Theater turfs from erosion by competitive screening while still
expanding its films’ reach to wherever it has no or low
screen control.
near far

6. Strategy of Integrated Operation &
Competitive Advantages
Vertical integration works to ensure
advantages both in distribution and
exhibition in a competitive environment
Key to the success of vertical integration
strategies – High control of theater outlets