Economics for Managerial Decision Making: The Film Industry

Economics for Managerial Decision Making: The Film Industry

| THE FILM INDUSTRY| Economics for Managerial Decision Making| Research Paper Fall 2011, Term2| | 12/7/2011| | Authors: Praveen Menon Introduction: The film industry consists of the technological and commercial institutions of filmmaking: i. e. film production companies, film studios, cinematography, film production, screenwriting, pre-production, post production, film festivals, distribution; and actors, film directors and other film crew personnel.

Though the expense involved in making movies almost immediately led film production to concentrate under the auspices of standing production companies, advances in affordable film making equipment, and expansion of opportunities to acquire investment capital from outside the film industry itself, have allowed independent film production to evolve. History: Like other major innovations such as the automobile, electricity, chemicals and the airplane, cinema emerged in most Western countries at the same time. As the first form of industrialized mass-entertainment, it was all-pervasive.

From the 1910s onwards, each year billions of cinema-tickets were sold and consumers who did not regularly visit the cinema became a minority. In Italy, today hardly significant in international entertainment, the film industry was the fourth-largest export industry before the First World War. In the depression-struck U. S. , film was the tenth most profitable industry, and in 1930s France it was the fastest-growing industry, followed by paper and electricity, while in Britain the number of cinema-tickets sold rose to almost one billion a year.

In the early 1890s, Thomas Edison introduced the kinematograph, which enabled the shooting of films and their play-back in slot-coin machines for individual viewing. In the mid-1890s, the Lumiere brothers added projection to the invention and started to play films in theater-like settings. Cinema reconfigured different technologies that all were available from the late 1880s onwards: photography (1830s), taking negative pictures and printing positives (1880s), roll films (1850s), celluloid (1868), high-sensitivity photographic emulsion (late 1880s), projection (1645) and movement dissection/ persistence of vision (1872).

For about the first ten years of its existence, cinema in the United States and elsewhere was mainly a trick and a gadget. Before 1896 the coin-operated Kinematograph of Edison was present at fairs and in entertainment venues. Spectators had to throw a coin in the machine and peek through glasses to see the film. The first projections, from 1896 onwards, attracted large audiences. Lumiere had a group of operators who traveled around the world with the cinematograph, and showed the pictures in theaters.

After a few years films became a part of the program in vaudeville and sometimes in theater as well. At the same time traveling cinema emerged: cinemas which traveled around with a tent or mobile theater and set up shop for a short time in towns and villages. The first feature film ever made was The Story of the Kelly Gang, an Australian film based on the infamous Ned Kelly. In 1906, Dan Barry and Charles Tait of Melbourne produced and directed The Story of the Kelly Gang, a silent film that ran continuously for a breathtaking 80 minutes.

It was not until 1911 that countries other than Australia began to make feature films. By this time Australia had made 16 full-length feature films. In the early 1910s, the film industry had fully emerged with D. W. Griffith’s The Birth of a Nation. Also in the early 1900s, motion picture production companies from New York and New Jersey started moving to California because of the good weather and longer days. Although electric lights existed at that time, none were powerful enough to adequately expose film; the best source of illumination for movie production was natural sunlight.

Besides the moderate, dry climate, they were also drawn to the state because of its open spaces and wide variety of natural scenery. Another reason was the distance of Southern California from New Jersey, which made it more difficult for Thomas Edison to enforce his motion picture patents. At the time, Edison owned almost all the patents relevant to motion picture production and, in the East, movie producers acting independently of Edison’s Motion Picture Patents Company were often sued or enjoined by Edison and his agents.

Thus, movie makers working on the West Coast could work independently of Edison’s control. If he sent agents to California, word would usually reach Los Angeles before the agents did and the movie makers could escape to nearby Mexico. The first movie studio in the Hollywood area, Nestor Studios, was founded in 1911 by Al Christie for David Horsley in an old building on the northwest corner of Sunset Boulevard and Gower Street. In the same year, another fifteen Independents settled in Hollywood.

Hollywood came to be so strongly associated with the film industry that the word “Hollywood” came to be used colloquially to refer to the entire industry. From about 1930, five major Hollywood movie studios from all over the Los Angeles area, Paramount, RKO, 20th Century Fox, Metro-Goldwyn-Mayer and Warner Bros. , owned large, grand theaters throughout the country for the exhibition of their movies. The period between the years 1927 (the effective end of the silent era) to 1948 is considered the age of the “Hollywood studio system”, or, in a more common term, the Golden Age of Hollywood.

In a landmark 1948 court decision, the Supreme Court ruled that movie studios could not own theaters and play only the movies of their studio and movie stars, thus an era of Hollywood history had unofficially ended. By the mid-1950s, when television proved a profitable enterprise that was here to stay, movie studios started also being used for the production of programming in that medium, which is still the norm today. The major business centers of film making are in the United States, India and Hong Kong. Distinct from the centers are the locations where movies are filmed.

Because of labor and infrastructure costs, many films are produced in countries other than the one in which the company which pays for the film is located. For example, many U. S. movies are filmed in Canada, the United Kingdom, Australia, New Zealand or in Eastern European countries. United States: The United States has the oldest film industry (and largest in terms of revenue), and Los Angeles (California), is the primary nexus of the U. S. film industry. India: India is largest producer of films in the world. In 2009, India produced a total of 2961 films on celluloid that include a staggering figure of 1288 feature films.

Indian film industry is multi-lingual and the largest in the world in terms of ticket sales and number of films produced. Hong Kong: Hong Kong is a filmmaking hub for the Chinese-speaking world and East Asia in general. For decades it was the third largest motion picture industry in the world (after Indian and Hollywood) and the second largest exporter of films. Major economic factors affecting the industry: Historically revenues in the film industry have been stabilized by the joint effect of seven different factors: 1. The blockbuster movies increased cinema attendance.

This movie was heavily marketed and supported by intensive television advertisement. Jaws were one of the first of these kinds of movies and an enormous success. 2. U. S. film industry received several kinds of tax breaks from the early 1970s onwards, which were kept in force until the mid-1980s, when Hollywood was in good shape again. 3. Coinciding with the blockbuster movie and tax-breaks film budgets increased substantially, resulting in a higher perceived quality and higher quality difference with television, drawing more consumers into the cinema. . A rise in multiplex cinemas, cinemas with several screens, increased consumer choice and increased the appeal of cinema by offering more variety within a specific cinema, thus decreasing the difference with television in this respect. 5. One could argue that the process of flexible specialization of the California film industry was completed in the early 1970s, thus making the film industry ready to adapt more flexibly to changes in the market. MGM’s sale of its studio complex in 1970 marked the final ending of an era. 6.

New income streams from video sales and rentals and cable television increased the revenues a high-quality film could generate. 7. European broadcasting deregulation increased the demand for films by television stations substantially. Movie production incentives are offered on a state-by-state basis throughout the United States to encourage in-state film production. These incentives came about in the 1990s in response to the flight of movie productions to other countries such as Canada. Since then, states have offered increasingly competitive incentives to lure productions away from other states.

The structure, type, and size of the incentives vary from state to state. Many include tax credits and exemptions, and other incentive packages include cash grants, fee-free locations, or other perks. Proponents of these programs point to increased economic activity and job creation as justification for the credits. Others argue that the cost of the incentives outweighs the benefits and say that the money goes primarily to out-of-state talent rather than in-state cast and crew members. Studies of the costs and benefits of incentive programs show different levels of effectiveness. Pros:

Proponents of production incentives for the film industry point to increases in job creation, small business and infrastructure development, the generation of tax revenue, and increased tourism as positive byproducts of the incentives. Supporters also maintain that MPIs are a net benefit to the states because they attract productions that would have gone elsewhere did they not exist and that they pay for themselves with the increased tax revenue that they foster. In Louisiana, for instance, after the production incentive bill was passed in 2005, the industry grew from supporting 5,437 jobs and having $7. million in output in 2003 to supporting 18,882 jobs and producing $343. 8 million in output in 2005. Similarly, according to comptroller Thomas DiNapoli, New York has seen a $7 billion influx into the state’s economy between 2004, when the incentives were instituted, and 2008. During that same period, the number of motion picture, video production, and post-production jobs also rose by 14. 2%. Cons: Movie production incentives do not necessarily result in the creation of jobs. Rather, the economic impact is that of a transfer of jobs from one location or state to another.

Additionally, unless the state in question has a consistent stream of productions, the project-based nature of the film and television industry generates short-term jobs that eventually leave specialized laborers out of work. States have a tendency to use vague language and refer to successes in other states when advocating in support of production incentives. Critics maintain that information is selected to present positive results, and that states rely too heavily on perceived successes in other states without adequately considering how available resources within the state will impact their respective economies.

States often incorrectly use economic measurements, such as a multiplier or an increase in different types of tax revenue, to promote film tax credits. When comparing multipliers across different projects, movie production incentive multipliers tend to be smaller than those for other investment projects (e. g. nuclear power plant, hotels). Revenue from alternate taxes not covered under tax credit policies do not always cover the original cost of the given film tax incentives. Grants require films to pass sensitivity tests in order to ensure a state is seen in a positive light, which may lead to censorship issues.

Politicians focus on immediate, short-term projects because it is politically easier to change these incentive policies. However, a focus on improving baseline tax policies to incentivize long-term private investment in industry would lead to higher levels of job creation, productivity and economic development. Cost-benefit analysis: Some states have attempted to evaluate the economic impact of their movie production incentives to establish whether the benefits outweigh the costs.

Considering Massachusetts as an example to demonstrate the effect of MPIs: In January 2011, the Massachusetts Department of Revenue released its third annual report detailing the impact of the state’s film tax incentive program, specifically focusing on the productions and tax credits of 2009. The report’s key findings for 2009 showed: 86 productions generated $82. 4 million in state tax credits. The film tax incentive program generated $10. 4 million in new tax revenue, partially offsetting the cost of the tax credits. Productions spent $310 million in new spending attributable to the tax credit program.

Accounting for production spending going to in-state people and businesses versus out-of-state people and businesses, the film tax credit program resulted in $32. 6 million in new spending for the Massachusetts economy. The film tax incentive program generated additional Massachusetts State GDP of $168. 5 million and personal income of $25. 2 million. The cost to the state for the jobs created by the film tax credit program was $324,838/FTE job. At a 2011 legislative hearing on the film tax credit program, policy analysts from Massachusetts think tanks criticized the film tax incentive program.

Critics have also complained that much of the tax credit money goes to cover the pay of celebrity actors. Debate within state government over the value of the tax credits in the face of budget shortfalls led Governor Deval Patrick to attempt to cap the tax credit in 2010. Although this effort was not successful, some point to it as a reason for a decline in film productions in Massachusetts in recent years. The industry’s market (competitive) structure: The Film industry is essentially an Oligopoly. An oligopoly is a market form in which a market or industry is dominated by a small number of sellers (oligopolists).

For example, six movie studios receive 90% of American film revenues. Time Warner, In the North American, Western, and global markets, the major film studios, often simply known as the majors, are commonly regarded as the six diversified media conglomerates whose various movie production and distribution subsidiaries command approximately 90 percent of the U. S. and Canadian box office. The term may also be applied more specifically to the primary movie business subsidiary of each respective conglomerate.

The “Big Six” majors, whose movie operations are based in or around Hollywood, are all centered in film studios active during Hollywood’s Golden Age of the 1930s and 1940s. In three cases—20th Century Fox, Warner Bros. , and Paramount—the studios were one of the “Big Five” majors during that era as well. In two cases—Columbia and Universal—the studios were also considered majors, but in the next tier down, part of the “Little Three. ” In the sixth case, Walt Disney Studios was an independent production company during the Golden Age; it was an important Hollywood entity, but not a major.

Most of today’s Big Six control subsidiaries with their own distribution networks that concentrate on arthouse pictures (e. g. , Fox Searchlight) or genre films (e. g. , Sony’s Screen Gems); several of these specialty units were shut down or sold off between 2008 and 2010. The six major movie studios are contrasted with smaller movie production and/or distribution companies, which are known as independents or “indies”. The leading independent producer/distributors—Lionsgate, Summit Entertainment, The Weinstein Company, CBS Films, and former major studio MGM—are sometimes referred to as “mini-majors”.

From 1998 through 2005, DreamWorks SKG commanded a large enough market share to arguably qualify it as a seventh major, despite its relatively small output. In 2006, DreamWorks was acquired by Viacom, Paramount’s corporate parent. In late 2008, DreamWorks once again became an independent production company; its films are distributed by Touchstone Pictures. The major studios are today primarily backers and distributors of films whose actual production is largely handled by independent companies—either long-running entities or ones created for and dedicated to the making of a specific film.

The specialty divisions often simply acquire distribution rights to pictures with which the studio has had no prior involvement. While the majors do a modicum of true production, their activities are focused more in the areas of development, financing, marketing, and merchandising. The marketing or business practices of firms in the industry: How Movie distribution works: * Here’s the path a film usually takes to get to your local theater: * Someone has an idea for a movie. * They create an outline and use it to promote interest in the idea. * A studio or independent investor decides to purchase rights to the film. People are brought together to make the film (screenwriter, producer, director, cast, crew). * The film is completed and sent to the studio. * The studio makes a licensing agreement with a distribution company. * The distribution company determines how many copies (prints) of the film to make. * The distribution company shows the movie (screening) to prospective buyers representing the theaters. * The buyers negotiate with the distribution company on which movies they wish to lease and the terms of the lease agreement. * The prints are sent to the theaters a few days before the opening day. The theater shows the movie for a specified number of weeks (engagement). * You buy a ticket and watch the movie. * At the end of the engagement, the theater sends the print back to the distribution company and makes payment on the lease agreement. Some of these steps may be combined and, particularly in the case of small independent films, additional steps may be necessary. As you can see, there is a lot that goes on before a movie is ever shown to a paying audience! How Movie marketing works: Movie marketing is also known as movie advertising and movie promotion.

Every major Hollywood studio and movie distribution company has an internal department devoted to promotion. The promotions department is responsible for designing and implementing an effective, cohesive advertising campaign across several different media platforms, including theatrical movie trailers, newspapers, magazines, television, radio, the Internet and billboards. The movie business is cyclical and seasonal by nature [source: Vogel]. Major studio releases are clustered during the summer, Christmas and long holiday weekends like Thanksgiving, Memorial Day and Labor Day.

With so many high profile movies fighting for the same audience, movie marketers need to figure out how to make their films stand out from the pack. In recent years, the general tactic has been to “go big. ” For expensive, blockbuster movies, the marketing campaign alone can cost as much as half of the total production budget [source: Vogel]. So if a film costs $80 million to make, the distributor might spend $40 million on advertising and promotion. In 2007, the average marketing budget for a theatrical release from a major Hollywood studio was $35. million [source: Motion Picture Association of America]. Every movie is different and the promotions department must figure out what type of campaign will be the most effective at reaching the target audience. This requires researching the tastes and media-consuming trends of the target audience. Based on this research, the movie marketers decide how much of their budget to spend on each different media outlet. According to the Motion Picture Association of America (MPAA), here’s how its member studios decided to allocate their marketing budget in 2007: Newspapers: 10. 1 percent Network TV: 21. percent Spot TV (purchasing commercial “spots” from individual TV stations): 13. 9 percent Internet: 4. 4 percent Theatrical trailers: 4. 2 percent Other media (includes cable TV, radio, magazines, and billboards): 24 percent Other non-media (market research, promotion/publicity, creative services): 21. 8 percent [Source: Motion Picture Association of America] The theatrical trailer is often the first chance to promote a movie to its target audience. Starting up to a year before the release of a major studio movie, distributors run movie trailers that are meticulously edited and audience-tested.

The idea is to give moviegoers a taste of the laughs, special effects and plot twists of the studio’s upcoming releases, while leaving them wanting more. It’s an art form that’s usually handled by special trailer production houses. About the same time that the first trailers hit the theaters, the movie studio will unveil an official Web site for the film. Typical movie Web sites allow visitors to view multiple versions of the trailer, watch behind-the-scenes interviews and mini-documentaries, read plot synopses, download cell-phone ringtones and desktop wallpaper, play games, and chat in forums and even pre-order tickets.

The official movie Web site is only the beginning of a much larger Internet marketing campaign. As the release date of the film draws closer, movie marketers try to get early favorable press coverage in newspapers, magazines and on entertainment TV shows. The main movie publicity tactic is something called a press junket. At a press junket, journalists, entertainment reporters and movie critics are flown out to a special location for a day or weekend of interviews with the stars and creators of the film. The actors, directors and screenwriters sit in separate rooms and the reporters are brought in one by one to ask their questions.

Press junkets are highly controlled environments where interviews are often attended by a publicist, who makes sure interviews never veer from positive topics [source: Rosenbaum]. If you’ve ever seen a TV interview with an actor sitting in front of a poster of their movie, that’s from a press junket. Weeks before the movie opens nationwide, the promotions department starts an all-out publicity blitz. The idea is to bombard the public with so many images and promos for the movie that it becomes a “can’t miss” event.

Movie marketers will plaster the sides of buses with huge ads, place billboards all around the city, run tons of teaser trailers on TV, place full-page ads in major newspapers and magazines, and the movie’s stars will show up on all of the major talk shows. The Internet is proving to be a prime spot for these publicity blitzes. Promoters can place rich, interactive ads on the Web sites most trafficked by their target audience. They can also release behind-the-scenes clips, bloopers and other viral videos on video-sharing sites like YouTube.

Or they can release different media clips and let the fans create their own trailers. Another popular strategy is to use highly visible product tie-ins and corporate partnerships. In the weeks leading up to the release of “How the Grinch Stole Christmas,” images of the green Grinch appeared on packages of Oreos, boxes of Froot Loops and cans of Sprite. Even the United States Postal Service got into the act, stamping letters with special “Happy Who-lidays! ” messages [source: Finnigan]. For marketing children’s movies, the Holy Grail is getting promotional goodies in McDonald’s Happy Meals.

One final movie marketing strategy is the publicity stunt, an orchestrated media event where someone does something incredibly silly, dangerous or spectacular to draw further attention to the opening of the movie. An example is when the promoters of “The Simpsons Movie” transformed dozens of nationwide 7-Eleven convenience stores into replica’s of Springfield’s own Kwik-E Mart [source: Keegan]. Unfortunately, movie promotion is not an exact science. Problems Associated with Film Marketing: The trickiest part of movie marketing is that every movie is different. Every film is its own standalone product with its own potential market segment.

Just because your last kid’s movie was a huge hit doesn’t mean that audiences will come in droves to the next one. There’s no formula for success, so marketers must be creative to grab the public’s attention. Moviemaking is an inherently risky business. Movie marketers try to alleviate some of that risk by heavily promoting expensive films. Unfortunately, in the process, they make the films even more expensive by adding on a huge marketing budget. There’s always a chance that the marketing campaign will stink just as bad as the movie, and suddenly the studio has thrown away twice the amount of money.

For example, Oliver Stone’s epic “Alexander” cost $155 million to make and $60 million to market domestically and only took in $167 million worldwide [sources: Box Office Mojo and Waxman]. The problem is that most big-budget movies are marketed to the widest audience possible. Ads are placed on every TV network and stuck in every newspaper and magazine. There’s no focus. Chances are that with every blockbuster movie marketing campaign, millions of dollars are lost on people who would never see the movie, no matter how good it is.

One solution is the idea of the nichebuster, a smaller movie marketed heavily to a highly specific audience segment, say skateboarding fans or religious groups [source: Schonfeld]. One of the proponents of this idea is 20th Century Fox, which recently launched a division called FoxFaith that will produce and market movies to a Christian, family-oriented audience. This is called demographic marketing rather than selling movies according to traditional genres like action, romantic comedy, thriller, etc. A final problem is that moviegoers are more media savvy than ever.

While children are highly susceptible to advertising, many adults recognize the publicity blitz for what it is: publicity. Some moviegoers are starting to complain about the sheer magnitude of hype that surrounds major studio releases. This is another reason why the Internet is proving to be a powerful marketing tool. If studios play their cards right, they can capitalize on social networks, viral video sites and other online communities to sell their movies for them. The Net Generation moviegoer is much more likely to trust his chat buddy’s opinion than some talking head on E! Entertainment Television.

Major opportunities and threats currently facing the firms in the industry Two big threats facing the film industry are: * Rogue websites * Piracy Rogue websites: Rogue websites traffic in stolen movies, TV shows, and music. These sites are located throughout the world, and while they often look legitimate – featuring advertising from reputable companies, accepting major credit cards – they’re really online havens for theft, enabling criminals to profit from content or intellectual property they had nothing to do with creating. The potential harm from rogue sites like lost jobs and income for creative workers – is profound.

In the U. S. , the motion picture industry alone supports more than 2 million jobs, including truck drivers, architects, accountants, make-up artists, animators, costumers, digital effects technicians, set-builders and more. Piracy: Film piracy is the illegal copying and distribution of movies in print, videos, DVDs or electronic files. New developments in digital technology make server-based or peer-to-peer (P2P) file sharing on the Internet convenient and relatively fast. A negative consequence of this new technology, however, is online theft of copyrighted material.

Counterfeit DVDs are sold on the street. Pirate websites stream illegally copied first-run feature films and copyrighted television shows, without any compensation to those who created and worked on them. While people might think they’re getting a steal when they download an illegal copy of the next big movie on the cheap, they’re actually stealing from American workers. Its theft, plain and simple, and people need to understand the detrimental impact it has on the working men and women employed in the motion picture and television industry and on the greater economy. The motion picture industry supports 2. million American jobs and contributes nearly $80 billion each year to the U. S. economy, according to the Motion Picture Association of America. Researcher Stephen Siwek, in a study for the Institute for Policy Innovation, found that the theft of movies through piracy results in the loss of more than 46,000 jobs in the motion picture industry and more than 94,000 jobs in other industries that otherwise would have been created. The notion that Hollywood and its movie moguls have no real worries is misleading. Along with the creators and artists there are droves of blue collar workers put at risk by piracy.

The technicians and craftspeople — who handle the aspects of motion picture making that many take for granted, such as editing, lighting, cameras, props, hair and makeup, costumes — all lose money when people steal, rather than buy, movies. That’s because those who work behind the scenes derive a substantial portion of their health and retirement contributions from the revenue that their work generates in what are called secondary markets — foreign distribution, DVD sales, and airings on TV — long after initial distribution on television or in a theater.

When motion pictures and television shows are stolen, the downstream revenue dries up, and the health and retirement plans of tens of thousands working men and women suffer. This in addition to the hardship suffered by workers if producers don’t make as many movies as their prospects to profit are diminished by theft. Recommended strategies that firms in the industry should implement over the next 10 years The first and foremost recommended strategy for the Film industry would obviously be to fight its major threats of Rogue websites and Piracy.

The Motion Picture Association of America with a broad coalition of businesses, labor unions, guilds, law enforcement, and other stakeholders, are working on solutions that will put a stop to rogue sites. There is a rogue site legislation that is currently being considered to take care of the inefficiencies in the current copyright laws like the Digital Millennium Copyright Act (DMCA). Operators of legitimate websites and the film industry should welcome this legislation.

The DMCA is often effective in removing copyrighted material from legitimate websites but it is not effective in targeting foreign rogue sites that are designed to sell pirated content. Rogue sites legislation targets foreign rogue sites. It goes after sites that are dedicated to pirating copyrighted works and peddling counterfeit goods. Legally operating sites will continue to have the same protections they have under DMCA. Aiplex Software, an Indian firm was recently hired to fight movie piracy though Denial of Service (DoS) attacks against film download and torrent tracker websites for movie distributors.

The firm was paid to search for sites that offer download of new films and serving them copyright takedown notices. The firm is also asked to carry out denial of service attacks. “Generally speaking 95 percent of providers do remove the content. It’s only the torrent sites – 20 to 25 percent of the torrent sites – that do not have respect for any of the copyright notices,” said Girish Kumar, managing director of Aiplex Software. When the sites do not take action after receiving takedown notices then Aiplex launches the denial of service attack against offending websites.

This approach differs from the one followed by firms hired by western firms wherein they search and file lawsuits against the offenders of their copyrights. Kumar expressed that the way to protect the movie from unauthorized downloads is through denial-of-service where the site is flooded with millions of requests to jam the site. Aiplex counts Bollywood studies among its major customers and also some film studios like 20th Century Fox.

Cable and satellite television sectors as well as the Internet sector is on the rise now: so filmmakers should target the country’s burgeoning cable and satellite television sector as well as the Internet for new sources of income to recover from box-office losses. The sale of cable, satellite and music rights, as well as DVDs, Internet and mobile phone downloads, is emerging as a potential money-spinner for studios keen to offset losses at the box office. Until recently, I filmmakers could be virtually assured of high box office returns, with cinema one of the few forms of entertainment and movie-goers traditionally loyal to big name stars.

But a combination of poor quality content, rising overheads, the global economic downturn and an increase in other ways for people to spend their spare time and hard-earned cash has hit studios in the pocket. Consider the Indian film industry as an example: Overall revenues fell 20 per cent in the last three years from $2. 3 billion in 2008 to $1. 85 billion in 2010, global consultancy firm KPMG said in its latest report on India’s media and entertainment sector. In the future, the contribution of local theatrical revenues to the overall industry is expected to reduce, while the share of cable and satellite rights is set to.

In the coming years, greater impetus is expected to be levied on leveraging alternate marketing and distribution platforms and tailoring content to suit changing consumer preferences. Studios have previously sold satellite television rights to multiple broadcasters, allowing viewers to see just-released movies which may not have fared well at the box office. Examples: * TV rights to the Indian sci-fi superhero movie “Ra. One” were reportedly been sold for $8. 88 million to Star India, months before its release. * The satellite rights for last year’s blockbuster “Robot”, starring South Indian star Rajinikanth, were sold for $5. million. Combined with home video and audio rights, the maker of “Robot”, Sun Pictures studio, is thought to have made $41. 6 million, virtually covering production costs even before bumper theatrical sales were counted. According to KPMG, cable, satellite and ancillary streams could make up nearly 20 percent of total revenues by 2015 – nearly twice the level seen in 2009. Some analysts estimate the figure could even be as high as 40 or 50 percent. Television is seen as particularly lucrative, with the number of channels mushrooming from just five in 1991 to 550 by August last year.

In 2010, the sector was worth $6. 6 billion and had nearly 600 million viewers. Some 138 million households now have television sets, making India the world’s third-largest TV market behind China and the United States. The country is also poised to become the world’s largest direct-to-home (DTH) satellite pay TV market by 2015, with a projected 70 million subscribers. Bollywood stars in particular have been quick to exploit the growth in television, increasingly appearing as game show and reality show hosts or simply to promote their latest films.

Hollywood studios also at one point of time made virtually all of their money from a single source: the box-office. But with the emergence of television, studios had to find new ways of making money. They therefore moved to home entertainment. Not only did movies in theaters provide a smaller share of the revenue in the new entertainment economy, but, because of the ever-increasing cost of marketing them, they yielded little, if any profit. Video, DVDs, Pay-TV and Broadcast, which have much lower marketing costs, now yielded almost all the profits for the corporate owners of the studios.

By 2003 the studios were taking in almost five times as much revenue from home entertainment– television, videos, and DVDs– as from movie theaters. (See Table 1) References: http://en. wikipedia. org/wiki/Film_industry http://www. mpaa. org/contentprotection/roguewebsites http://blog. mpaa. org/BlogOS/post/2011/11/15/Rogue-Sites-Legislation-and-the-DMCA-. aspx http://eh. net/encyclopedia/article/bakker. film http://www. nytimes. com/2009/03/01/movies/01films. html http://www. tted. gov. bc. ca/Publications/Documents/FilmandTVIndustryReview. pdf http://en. wikipedia. rg/wiki/Movie_production_incentives_in_the_United_States http://www. anderson. ucla. edu/faculty/andrew. ainslie/papers/movies_v1. pdf http://entertainment. howstuffworks. com/movie-marketing2. htm http://www. film-foundation. org/common/11041/pdfs/film_piracy_teachers_guide. pdf http://www. huffingtonpost. com/matthew-d-loeb/film-piracy-is-robbing-am_b_705121. html http://www. the-numbers. com/market/ http://topnews. com. sg/content/24842-film-industry-hires-firms-fight-movie-piracy http://www. dawn. com/2011/04/03/indian-film-industry-taps-new-revenue-streams. html http://en. wikipedia. org/wiki/Major_film_studio#Today. 27s_Big_Six

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