The Canada Movie Industry Analysis - Case Study Example

Canada Movie Theatre Industry Analysis Introduction The growth of the movie industry has been astoundingover the past five years with its performance majorly relying on the failures and the successes of film releases. As much as the disposable income per capita has a direct influence on the ability of households to purchase dictionary services including movies, the blockbuster films’ popularity and the marketing efforts of the players in the theatre industry remain the major determinants of the annual revenue. In Canada, the internet service providers offer bandwidth caps that have greatly limited competition in the theatre industry. Through these packages, movie consumers access the films of their desires at the comfort of their homes and at reduced cost. To combat the falling attendance, movie exhibitors have been directing their focus on concession among other more lucrative methods that would generate revenue as compared to the ticket sales. The industry players use film-licensing agreements to split the revenue streams between them and the distributors. Through such concession sales, the industry has maintained high profits. This paper is going to analyze the theatre industry and its competition in Canada. Industry Analysis Driving forces Disposable income per capita The attendance of movies away from homes is a leisure activity that heavily depends on the level of disposable income of households. On the other hand, this disposable income is highly dependent on the rates of employment, rates of taxation, and the economic status of the nation at large. With a rise in disposable income, different individuals from various households increase in terms of their capability to spend on movie tickets among other discretionary services (Oxford Business Group 232). The reverse happens with a decrease in disposable income where individuals are less likely to attend movies as the reduced income is channeled to the basic needs. Given the projections of an increase in the per capita disposable income of Canada, the movie theater industry is faced with various opportunities for increased ticket sales and thus growth. External competition There has been an increase in the substitutes for visiting movie theatres including satellite TV, Cable, and online streaming, among other forms of entertainment accessed from the convenience of the house (Hoovers Business Press 44). This has greatly had a negative effect on the consumer demand in the movie theater industry. The cost of the substitutes is lesser than what one would pay for a single ticket at a movie theatre if the rating were based on a single program. Such an aspect increases preference for these alternatives among consumers of movies from theatre within Canada (Tremblay and Tremblay 99). With the increase in technology, it is definite that other forms of entertainment and easy access to movies will advance. Such an aspect poses a major threat to the movie theatre industry within the nation. Currency Exchange Rates Companies within the movie theatre industry incur the responsibility of striking deals and negotiating contracts with various distributors of films before they exhibit their films (Oxford Business Group 233). Most of the movies shown in the Canadian theatres are distributed by creators from different countries, with the vast being from the United States. As such, the exchange rate between the US dollar and the Canadian has a significant impact on both the profits received in the industry and the cost incurred in renting the films. In the case of appreciation of the value of the Canadian dollar of the depreciation of the US dollar, or both occurrences, the exchange rate index between the two currencies rise and thus leads to accessibility of films from distributors at reduced cost. With both Canada and the US having strong economies, the fluctuations in the rates are highly unpredictable and thus subject the industry to uncertainties where they could experience increased profitability in the future in response to increased rates, or experience losses in response to reduced rates (Levison 152). Age distribution A large part of the revenue gained from selling of movie tickets is contributed towards by individuals aged 19 years and younger. Most of the movies produced and thus exhibited within the industry are pitched towards individuals within the same age bracket (Levison 150). As such, an increase in the number of children attending primary and secondary school would lead to an increase in the movie tickets demand and thus industrial revenue. With a projection in the rise of number of these audiences, it is likely that the demand for movies in the nation will rise. Social-Cultural Factors The social characteristics and lifestyle of individuals in the metropolitan areas have increasingly evolved allowing for individuals to prefer visiting social areas including movie theatres to interact with one another. As such, most of the movies that go public are concentrated within the major metropolitan areas such as Montreal, Toronto, and Vancouver (Tremblay and Tremblay 95). As such, the rivalry in the theatre industry is based on the ability of the exhibitors to establish their presence in such metropolitan areas to obtain an increase in their market share. Cineplex, the industry leader clear demonstrates this strategy by generating most of its revenue from British Columbia, Ontario, and Quebec. Most of the competitors in the industry operate as small and independent circuits and theatres, established in only a few selected locations, competing in the highly remote areas or within the niche markets. The French-language based market in Quebec and Montreal also involves independent exhibitors (Tremblay and Tremblay 110). Technological Factors The cinema industry in North America has undergone a technological revolution over the past few years with digital projection being at the center of these changes. The technological changes were heightened in 2009 with the introduction of Avatar. By 2012, most of the players in the industry, including Landmark Cinemas and Empire Theatres adopted digital technology in all their circuits. The largest player in the industry, Cineplex also converted 98% of all its screens to Digital (Oxford Business Group 231). This digital technology has saved the exhibitors and distributors high amounts of money as they do not need to physically transported from country to country as they can be distributed through internet platforms. Economic Factors An increase in the disposable income in Canada means that there is an increase in demand for movies. Continuous growth in the country’s economic status has led to further improvement in the living standards of individuals, thus leading to embracement of entertainment away from homes, including visiting movies theatres. The company is ranked as having the tenth strongest economy in the entire globe, an aspect that describes the increase in disposable income. With the movie theatre industry being within the mature phase of the life cycle, a phase that involves restrained industry value added (IVA) growth, slow technological advancement, consolidation, and saturated markets; it experiences an increase in the purchasing power of the movie consumers (Oxford Business Group 230). The market is saturated with most of the consumers embracing the movie theatres as a viable solution to their entertainment needs. In addition, only a few large organizations dominate the industry, including Cineplex Inc. that has a 70% control for the total revenue from the industry (Oxford Business Group 237). With reduced competition within the industry, the large cake is shared by just a few organizations an aspect that further strengthens the reach out of these organizations to the consumers. With the projections of an increase of up to 1.7% of annual rates of disposable income per capital, it is evident that individuals will have more money at their disposal to spend on nonessential goods including movie tickets. Political Factors In Canada, the Government offers little direct regulations directed towards the movie theatres in the industry (Levison 189). This is a great impact on the operations of the industry, with the players and stakeholders within it left to predetermine operational procedures. In addition, the government does not offer direct assistance to the industry. No trade association has been developed to serve the needs of the distributors and instead the function has been left to the US National Association of Theatre Owners. As such, the growth of the movie theater industry in Canada is less influenced by political factors with most of the functions and regulations being carried out by private associations attached to the industry. Legal Factors The Legal environment in the Canadian Movie theater industry is also less developed with minimal laws established to govern the operations of players within the industry. In most cases, the laws applied are borrowed from countries that have well-developed theatre industries such as the US. For instance, a standard system of rating to be used all over the country has not been developed, an aspect that has led to most of the provinces including British Columbia, Alberta, Manitoba, Ontario, and the Maritimes provinces to borrow the system applied in the U.S. (Levison 189). In addition, there has been no establishment of nationwide laws for the disabled accessibility of the movies, leading to different provinces establishing their own laws. However, in most cases, these laws are not well elaborated and fail to cover all aspects. For instance, the Ontarians with Disability Act majorly covers issues to do with hiring and employee considerations and not issues related to consumer protection. Environmental Factors The environmental factors within the movie theatre industry in Canada are also large contributors to the barriers of entering the industry and growth within the industry, especially to the small players. One of the major challenges faced by entrepreneurs who looked forward to entering the industry is the large market share held by already existing players in the in the industry, particularly Cineplex Inc. (Hoovers Business Press 39). Cineplex runs most of the theatres within the lucrative urban markets such as Montreal and Toronto, an aspect that allows it to employ its scale, size and higher margins in upgrading its amenities and provide more screenings as compared to the smaller theatres (Hoovers Business Press 39). Another important barrier to entry in the industry is the high costs initially required to start-up a theatre. The cost required includes cost of renting property and accessing sufficient consumers. The renting or purchasing of projection equipment, speakers, screens, and seats, coupled with the cost for concessions is also a major barrier to entry into the industry for potential companies. Competition Internal competition The basis for competition in the movie theatre industry is defined by auditorium, film offerings, and ticket prices. The competition in the industry is moderate because of the dominance of Cineplex that has control of up to 75% of the market share (Hoovers Business Press 39). Film popularity coupled with the possession of the license to exhibit it is an influential factor in demand in the industry within Canada. As such, the thriving of a company in the industry is determined by its connection to distributors who manage the release of blockbusters. This would allow its circuits to show films that are most popular among the population. In this regard, Landmark Cinemas and Cineplex Inc. use their regional presence and market shares to access and exhibit the popular films from neighboring countries such as the US, to their competitive advantage (Oxford Business Group 113). On the other hand, the independent small companies are forced to show most of the films on their second or third runs, an aspect that results in low ticket prices. In addition, such small theaters fail to offer auditoriums of high quality or new amenities due to their thin margins, an aspect that places them further at a disadvantage. Theaters also compete based on the film language, with those that provide a mix of English and French gaining advantage over the theatres that offer a single language (Waugh, Winton and Baker 425). External competition The movie industry in Canada faces stiff competition from other mediums of accessing films such as home theatre systems, DVD players, and streaming or downloading content uploaded on the internet (Waugh, Winton and Baker 420). In addition, there is an increase in competition from other entertainment forms including sports and video game consoles. In-home entertainment equipment including projector screen TVs has rapidly spread through Canada, thus affecting the revenue of the movie theatre industry through competing for household disposable income directed towards entertainment. Nevertheless, the industry has a price advantage as compared to other forms of entertainment away from homes such as music concerts, sports events, or live theatre. In addition, the release window also provides an additional built-in advantage to external competition (Oxford Business Group 238). Conclusion It is evident that the movie theatre industry in Canada is experiencing moderate growth as a result of the dominant players within the industry. Rivalry is minimal as the large players, especially Cineplex have taken a large share of the market and thus is inevitably leading the way in the industry. With minimal growth in the technology within industry as a result of a complete switch to digital exhibition, the major players in the industry are taking advantage of their resources to embrace more expensive technologies such as the 3-D imaging in attracting more customers. The large players such as Cineplex are also banking on their links with distributors to access popular movies that create consumer loyalty to their brand. With a trend of increase in the disposable income per capita, it is evident that the consumer are increasingly developing purchasing power due to availability of income to be spend on nonessentials such as movie tickets. However, the industry faces competition from other substitutes such as the internet that provides for downloadable or stream content, DVD players, VOD, and other media. This poses a threat on the profit margin especially due to the increased pressure from distributors requiring the exhibitors to shorten the release window to allow for legal accessibility of the films within a short period after they are released. Work Cited Hoovers Business Press. Hoovers Handbook of Private Companies. Texas: Hoovers Business Press, 2010. Levison, Louise. Filmmakers and Financing: Business Plans for Independents. London: Taylor & Francis, 2007. Oxford Business Group. The Report: Thailand 2011. London: Oxford Business Group, 2011. Tremblay, Victor J. and Carol Horton Tremblay, Industry and Firm Studies. Armonk, New York: M.E. Sharpe, 2007. Waugh, Thomas, Ezra Winton and Michael Brendan Baker, Challenge for Change: Activist Documentary at the National Film Board of Canada. Kingston, Ontario: McGill-Queens Press, 2010. Read More