A Horror Show at the Cinemaplex - Essay Example

? A HORROR SHOW AT THE CINEMAPLEX ID Number: BUS 499 Strayer Estimated Word Count 689 Date of Submission: November 25, 2011 A HORROR SHOW AT THE CINEMAPLEX Introduction The entertainment industry, especially the movie or film making business, underwent a few major changes over the past recent years. People today can get to view films in a variety of media such as cable television, DVD players and even from the Internet through live streaming. Like any major industry, most of the changes were brought about by new technologies, changing patterns of consumer behavior, the economic recession and competitive pressure among players. This brief paper is a case study of this entertainment sector that tackles major issues facing them. The word horror in the title of this case pertains to the financial bloodbath in this industry. Discussion The format of this paper follows a question-and-answer format and there are five major questions to be discussed in the case study pertaining to the film industry and its major players. 1. Perform a comprehensive analysis of the five competitive forces. Discuss what level of competition can be expected amongst industry rivals. A major determinant for industry profitability is the ability to provide content which are the films produced by the major movie studios. These studios dictate and control the release and the timing of new film releases, and with just a few major studios left today (without thinking of the independent film producers), supplier power is highly concentrated in these movie studios. A film distributor or a film exhibitor is at the mercy of these studios which can dictate their terms. The threat of new entrants is much less, taking into account the high cost of producing a decent movie which ranges in the US$100 million and above; therefore, the barriers to entry is a very prohibitive barrier indeed (Gove and Matherne, 2009, p. 218) with a third of the costs going to marketing and distribution expenses. The only threat are the few independents who can make a few films which may not do well at the box office. Costs of putting up a theater is going up. The availability of alternative modes of watching movies such as cable television and a DVD player gives the buyers (moviegoers) considerable discretion with regards to movies. This means people need not go to theaters purposely to watch a movie since they can do these at the comforts of their homes without all the aggravations and accompanying hassles. Buyer power is not so concentrated but if moviegoers decide not to watch a movie, then nobody can force them. Two key considerations are the core demographic group (12-24 year olds) is a very fickle group and the other key factor is that there is no magic formula when making movies as box office hit. Buyer power is also shown by flat ticket sales, with revenue increases due to higher ticket price. It is the threat of substitutes that had caused some movie exhibitors into bankruptcy. A slew of new technologies such as the DVD player, cable television and now, the Internet using a new mode of distribution which is movie streaming, are the main reasons for the sharp decline in movie attendance. Rental firm Netflix (and also Blockbuster before) has a considerable archive of classic and new films in addition to television shows (re-runs), sports and musicales. Better home viewing technologies like cheaper and larger television sets with flat screen has now made watching a movie at home a good approximation of the so-called “movie experience.” There is no more need to drive to a theater, find a parking space, buy snacks and then go back home. The degree of rivalry within this industry is bound to increase some more. With fewer people going to theaters because of all the hassles (long drives, sticky floors, projected pictures not in focus, noisy people chattering away in the next few rows and cellphone interruptions, etc.) and the core demographic group (target audience) growing more slowly than overall population, there is higher competition to attract moviegoers with industry players forced into consolidation. There is industry concentration because only four major exhibitors control 42% of total screens in the industry but analysts argue the industry has over-built (or over-invested in movie screens). With declining ticket sales, film exhibitors are fighting for their share of a shrinking pie. 2. Describe the advantages and disadvantages of each of the top four competitors' situations and strategic approaches. Regal operates in mid-sized markets (towns, cities and urban centers) and therefore has a bit of leeway in terms of pricing power as shown by its higher ticket prices ($7.43) thought as the highest among the major four exhibitors. The areas it operates in can be immune to economic recession or put differently, when the economy is bad, people see movies as a form of escapism. Its disadvantage is that people in more affluent areas can also afford to buy home audio or video equipment for their own home viewing experience and may opt out of going to the theaters too. Unlike Regal, AMC concentrates solely on large urban centers with big populations. Its approach is also different with regards to fixed asset investments; most of the screens it owns are megaplexes considered as state-of-the-art technology to appeal more to sophisticated moviegoers who can be very discriminating in their tastes. Cost per screen at AMC is almost the same of that at Regal and leaves little room in terms of pricing options or flexibility; this is disadvantageous. Cinemark intentionally operates in mostly rural areas, with 80% of its screens being the sole theater in many of those areas. Its overall corporate strategy jives with its pricing strategy. It charges the lowest average ticket prices ($5.11) among the four majors. Its disadvantage is that in operating in rural or remote areas, there are very few people who might want to see a movie. Moreover, people in these areas are not that affluent either and may not have that buying power in terms of discretionary incomes to be spent on entertainment; they rather spend on the basics. Carmike operates in areas or regions with populations of 100,000 or less (mid-sized); it specifically chose areas with few other entertainment alternatives or options such that people are forced to see a movie in its theaters. In consideration of the market it operates in, its ticket prices are on the average also in the mid-range ($5.89) but its advantage is it has the highest concession revenue ($3.05) per patron among the four major exhibitors. Its disadvantage is it could be quite vulnerable to a takeover by a larger chain due to the attraction of its high concession revenues. 3. Describe the financial considerations that affect the profitability of the major movie theater business. Exhibitors can have bargaining power with the major film studios if they are big; own a big enough number of screens by negotiating for a higher percentage of the gross receipts. The other considerations in the movie exhibition business are the other parts of the value chain which are concessions and advertising although these latter two are under pricing pressures as well. The logic is to maximize the revenues and profits from these three components in movie exhibition as there is little one can do about the fixed costs and expenses as operating margins are slim. It is only at 10% and so exhibitors have to concentrate more on concessions and advertising. 4. Describe what strategic options are feasible given the situation facing industry participants. Some options that can be pursued by each player to improve market position in looming industry shakeout are changing ticket prices (either lower or higher but primarily lower prices); the other option is to markedly improve product differentiation (enhance the overall experience) through friendlier customer service, more amenities available (such as waiting areas for patrons to sit while waiting for the current show to finish) and more convenient or bigger parking spaces. All the recommendations fall under Porter's generic strategies of cost leadership, differentiation and service focus. Another approach is to focus on moviegoers' frequent complaints such as loud chattering and cellular phone interruptions by some rude patrons, so ushers should be employed. 5. Describe what recommendations you would make to improve their likelihood of future success. Theater personnel should be taught to be more patient and courteous to these patrons so that these people will have a positive experience and keep coming back to see more films in the future. More ushers should be employed, especially when a blockbuster or hit film is shown and strict discipline should be imposed on patrons who disturb other patrons with unruly behaviors. The other options will be to ask for patron feedbacks after each film showing, asking for honest comments or suggestions to improve the overall theater experience for them. Besides convenient parking that was mentioned most frequently, their other major consideration was the presence of a good restaurant nearby, so theater operators should think of putting up a restaurant within the premises as an added come-on to potential moviegoers, such as lovers going out on a date. Conclusion The film industry as part of the larger entertainment industry is experiencing turbulence due to simultaneous changes from new viewing technologies, consumer habits and in dynamics of the entire industry. The choices available to a firm under competitive pressure can include the generic strategies advocated by Prof. Michael Porter but a close re-examination of its strengths and weaknesses should first be undertaken to align a firm's internal and external resources in a much better way (Porter, 1998, p. 22) and each firm should craft a very unique strategy for itself to maintain a sustainable advantage. Exhibitors must realize their industry is evolving in what a few business and management experts term as inflection points – Andy Grove of giant computer chips maker Intel calls these as crisis points (Grove, 1996, p. 150) in which important signals are not so obvious that drastic change is going to happen as it is drowned out by industry “noise.” A good manager is alert to these signals and takes appropriate steps to survive and flourish. Reference List Gove, S. & Matherne, B. P. (2009). A horror show at the cinemaplex. Business case study. 217-223. (by Virginia Tech and Loyola University of New Orleans). Grove, A. (1996). Only the paranoid survive: how to exploit the crisis points that challenge every company and career. Porter, M. (1998). Competitive advantage: creating and sustaining superior performance: with a new introduction. New York, NY, USA: Simon & Schuster, Inc. Read More