Overview of the Movie Industry

Movies

HISTORY OF THE MOTION PICTURE

Motion pictures and television are possible because of two quirks of the human perceptual system: the phi phenomenon and persistence of vision. The phi phenomenon refers to what happens when a person sees one light source go out while another one close to the original is illuminated. To our eyes, it looks like the light moves from one place to another. In persistence of vision, our eyes continue to see an image for about 1/10 second after the image has disappeared from view.

The Edison Lab and Other Early Experiments

Thomas Edison and William Dickson developed the first practical motion picture camera and viewing device. Dickson developed the idea of taking many pictures simultaneously by using sprocket-fed film to run past a camera lens. In 1889 the pair developed the Kinetoscope, a viewing device that allowed a single person to see the projected film through a peep hole. Edison erred, however, in thinking that film profits would be made by selling the hardware rather than mass admissions to see the film itself. Edison later recanted and developed a projection version of his machine, in 1896, which he called the Vitascope. Vaudeville theaters soon began showing early “films” in-between acts as novelty features, attractions that proved highly successful for a time.

The Nickelodeons

Public interest was soon rekindled when early filmmakers found that movies could be used to tell a story. Many early films, such as George Melies’ A Trip to the Moon, were shot with stationary cameras, much like having a front row seat at a stage production. Then a few American filmmakers saw the aesthetic potential of mobile camera placement and film editing techniques to make films more lifelike and exciting, among them Edwin Porter’s The Great Train Robbery in which he was the first to use mobile camera placement and cut-away scenes.

Nickelodeons, 50-90 seat theaters that charged a nickel admission sprung up almost overnight to accommodate the new demand for narrative films. To keep audiences returning, films had to be changed often—sometimes daily—to attract repeat customers. The demand for new films soared, and along with new film studios to meet that demand.

Zukor and Griffith

In 1912 Adolph Zukor experimented with the medium by charging audiences $1 to see the four-reel film Queen Elizabeth. His experiment proved that middle class audiences would pay a premium amount to watch long but well made films. Later, D.W. Griffith added to the experiment with his three-hour-long and racially biased 1915 film, Birth of a Nation. In response, two African-American brothers successfully produced and marketed a film aimed at black audiences.

Birth of the MPPC

Trying to bring order to a rapidly expanding industry (and to trim rising legal fees for copyright violations and patent infringements), the leading film and equipment makers banded together, pooled their patents, and formed the Motion Picture Patents Company (MPPC) in order to restrict moviemaking to the nine companies that made up the MPPC. Instead of squelching competition, however, the MPPC actually encouraged it. Annoyed by its repressive and conservative regulations, independent producers began offering films to exhibitors at cheaper rates. Smaller film-makers soon found themselves a new, and quieter, home in Hollywood. By 1917 the MPPC was extinct.

The Star System

Independent film-makers quickly recognized that the public was interested in particular actors and actresses (the MPPC refused to even identify their performers). Promoting these stars, independent studios began to capitalize on the audience drawing power of certain performers, such as Florence Lawrence (perhaps our first star), Theda Bara, Lillian Gish, William S. Hart, Charlie Chaplin(the Tramp), and Mary Pickford (America’s sweetheart). Eventually many of these stars joined together to form their own studio—United Artists. Fan interest in star-featured films soon gave birth to longer movies and cries for more comfortable and elaborate movie theaters than the nickelodeons.

Consolidation and Growth

To insure continued high profits, film producers aggressively branched out into all three divisions of the film industry: production, distribution, and exhibition. Film-makers became distributors as well as chain theater owners, while some theater owners moved toward buying their own film studios. A new practice called block booking helped solidify power as well; under this system distributors told theater owners that they would have to accept a certain number of lower quality films if they wanted to continue receiving the top feature movies. By the end of WW I in 1918, American film-makers controlled 80 percent of the worldwide film market.

The Roaring Twenties

Endorsing the idea that the only way to make money was to spend money, Hollywood soon began spending record amounts on salaries and production costs (a 1500 percent increase from 1914-1924).

Along with new-won fortunes came untamed excesses, and, under growing public pressures, the film industry tried to regulate itself. One direct result was the creation of the Motion Picture Producers and Distributors Association, which successfully averted the imposition of government controls.

The Coming of Sound

Silent films, which had never really been silent thanks to play-along pianos and organs, essentially came to an end in 1927 with the production of Warner Brothers’ The Jazz Singer, starring Al Jolson.

With the advent of sound, voices that didn’t “fit” well with existing film actors ended several silent film careers. Directors now had to contend with sound as a vital element of film making, and the cost of shooting films rose because of the new advantages (and restrictions) that sound imposed.

Not surprisingly, the Depression era economics of the 1930s cut into film profits, and Hollywood responded by introducing the practice of showing double features, two films for the price of one. Studios also began experimenting with Technicolor and animation to help encourage attendance.

The Studio Years

Hollywood’s studio years lasted between 1930-1950, featuring such famous studio names as MGM, 20th Century Fox, RKO, Warner Brothers, Paramount, Universal, Columbia, and United Artists. The studios created hundreds of acres of back-lot movie sets, constructed elaborate sound stages, and built up showy stables of creative talent, carefully groomed for stardom. Since music was easier and cheaper to put on film than dialogue, musical films also became popular at the time. The musical extravaganza emerged as a film genre, the main practitioner being New York dance choreographer Busby Berkeley. The situation comedy, a 1930s film genre that blended romance with light banter and comedy, also became a public favorite. But perhaps the most significant period for motion picture achievement was the time between 1939-1941 with the premier of such all-time film classics as Gone With the Wind, The Wizard of Oz, Stagecoach, and Citizen Kane.

Another development that significantly changed the industry was government’s 1938 suit against them which claimed that Hollywood’s vertical control of film production, distribution, and exhibition constituted a monopoly. In 1948 the courts ordered film-makers to divest themselves of at least one type of holding; most chose to get out of their theater chains, or the exhibition end. The court also stopped block booking, thus depriving the studios of a guaranteed exhibition for all their films.

The Film Industry Reacts to TV

As the new TV medium began cutting into movie profits in the late 1940s, Hollywood tried to fight back in several ways: studios refused to advertise their films on TV, refused to release old films for showing on TV, and they even tried to bar their film stars from appearing on television.

Hollywood also attempted to lure audiences back with technical wizardry, featuring such novelties as 3-D, Cinerama (a film shown using three projectors and a very, very wide screen), the “spectacle” film (noted for its lavish sets, casts of thousands, big name stars, and wide screen effects), musicals, and finally, movies with adult-oriented themes that TV couldn’t match. These attempts to compete did not work. Then, belatedly, Hollywood saw that it was in its best interests to cooperate with TV, and in the late 1950s the studios began supplying programs to network TV and began releasing pre-1948 films.

Realignments: Film in the 1960s and 1970s

Major studios began losing their industry influence, and studios began working closer with television. The continued rise of the independent producer also led a concomitant loss of power by the studios. Contracts with creative talent were terminated, and many artists quickly created their own independent film companies. They were often so successful that by the mid-1960s over 80 percent of all films were made by independent production companies. Many remaining film companies were simply absorbed by larger conglomerates.

In the 1960s film controls loosened, and a switch took place from regulating content to regulating audiences, the later through the Motion Picture Association of America’s G-PG-R-X film codes. That same period saw an even greater blend of Hollywood and television as studios began making movies expressly for television.

Film Industry Trends in the 1970s

. revenues and budgets increased
. advent of blockbuster films
. small-budget film hits that could pay back investors a hundred fold
. an increased use of market research
. continued close ties with TV
. the rating system changes: PG-13 is added, and X replaces NC-17



MOTION PICTURES IN THE DIGITAL AGE

Whatever the timetable, the film industry’s conversion from analog to digital technology will affect films at all levels; this, in turn, will put motion pictures through a significant transition period.

Making Movies

Making digital films (cameras, editing, and special effects) is a technology still relatively young. But digital’s cheaper costs and greater editorial flexibility will certainly hasten its use and development.



DEFINING FEATURES OF MOTION PICTRES

• high production costs along with sizeable marketing and distribution costs (the average marketing cost to a blockbuster film has surpassed $200 million)
• dominated by big conglomerates
• the most expensive mass medium on a per title basis
• film has a strong aesthetic dimension, the one medium most discussed as an art form
• going to the movies continues to be a social experience


ORGANIZATION OF THE FILM INDUSTRY

Production

Films are produced by a variety of organizations and individuals. In 1996 independent producers made more than two-thirds of all films, and four out of the five Oscar nominated films in 1996 were independently produced. Major studios today are generally used mainly for finance and distribution purposes.

Distribution

The industry’s distribution arm is responsible for making multiple copies of a movie, then booking and supplying prints of films to theaters around the world, as well as to TV, DVD, video, and pay-per-view outlets. Distribution people are also responsible for advertising and promoting the film.

Distribution companies are firmly entrenched in the industry for several reasons:

. big studios already have a world-wide studio-to-theater communications network set up
. unlike independents, big studios can offer theaters a steady stream films with big name stars
. distributors also serve as major sources of financial underwriting for independent film-makers

Exhibition

Perhaps the biggest trends in exhibition are the increase in theater screens, now just over 37,000, as well as theater upgrades such as digital surround sound, stadium seating, better sound proofing, and gourmet concession stands. The negative side is that the exhibition industry may have overbuilt a bit too much since several major chains are experiencing thin profit margins.


OWNERSHIP IN THE FILM INDUSTRY

As of 2015, the top six film conglomerates and their studios are:

. The Walt Disney Company (Touchstone and Buena Vista)
. Time Warner (Warner Brothers)
. Viacom (Paramount)
. Sony (Sony Pictures Entertainment)
. Vivendi (Universal)
. News Corporation (20th Century Fox) a Rupert Murdoch enterprise


PRODUCING MOTION PICTURES

Departments

Though differences exist, a typical studio might be organized along these departmental lines:

. distribution
. film production division
. TV production division

Preproduction

There are three distinct phases in moviemaking:

. preproduction
. production
. postproduction

All films begin with an idea, such as a novel or play. The next phase is to write a narrative of the film and then draft/polish the final working script. All the while the producer may try to nail down financing, talent, behind-the-camera personnel (director, cinematographer, film editor, etc.), filming locations, and a general investment interest in making the film.

Production

Production if the actual filming stage of the movie. Shooting even a moderate-budget film can cost $300,000 to $500,000 a day, and the average shooting schedule for a typical film is about 70 days. Each day’s shooting results in an average of less than two minutes of usable film. Most exhibitors favor  films that are about 100 minutes long so that a theater can run through two showings in the same evening.

Postproduction

When the film is complete, the film editor begins the postproduction stage of the film. This includes deciding how long scenes should last, special effects additions, sound editing, and finally the making of the release print of the film. Later, preview audiences fill out special preview cards that indicate their reactions to the film; only fine tuning changes are generally made at this point.


ECONOMICS

Movies are an expensive medium. In the late 1990s, the average film cost $60 million to produce and another $20-25 million to market and promote. Today, the "average" Hollywood produced film costs more than $200 million, with many films costing an ADDITIONAL $200 million to market.


Financial success is a function of U.S. and foreign box office revenue, DVD/video sales, cable fees, broadcast TV rights, airline showings, pay-per-view, hotels, and satellite channels.


Financing Films Finance sources include:

. direct loan from distributor (in return for distribution rights and/or studio equipment rentals)

. pickup distributor agrees to buy finished film for a set price at a later date; meanwhile, the
producer gets a bank loan for production. A third party, a completion guarantor, is brought
in to make sure the loan gets repaid.

. a limited partnership finances the picture through outside investors

. under a joint venture agreement, several film production and distribution companies pool their
resources and agree to finance one or more films

The producer and distributor also agree on how the distributor’s gross receipts from the film will be divided. Since the distributor takes the greatest risks, the distributor is the first to be paid. Finally, the actual film production loans are paid.

Dealing with the Exhibitor

A distributor’s license with an exhibitor sets the terms under which the showing of the film occurs, such as run length (number of days theater must show the film), holdover rights (dates film will be available), and clearance rights (the time that must elapse before film can be shown at a competing theater). A license also specifies how the receipts will be divided between distributor and exhibitor; some of the most common schemes are:

. split percentage: exhibitor splits receipts with distributor according to a pre-agreed formula

. sliding scale: as box-office revenues rise, so does the money exhibitor must pay distributor

. 90-10 deal: exhibitor first subtracts operating expenses, then pays distributor 90 percent while
exhibitor keeps the remaining 10

In terms of other revenue, theaters can make up to 90 percent of their profits from concession sales.

Promoting the Film

The first three days a film opens (usually a weekend) is crucial to its success; films that open poorly seldom do well. Consequently, a good deal of promotion, marketing, and advertising is targeted to getting people into theaters for that opening weekend. Common promotion methods include:

. a pre-opening media promotion and advertising blitz
. using trailers (film clips from the movie) during a theater’s “Coming Attractions” segment
. opening the film simultaneously in every available theater
. engage in a merchandising tie-in with a fast food company
. scheduling a film’s opening during historically prime movie times (big Holiday weekends-- Thanksgiving, Memorial Day, Independence Day, summer breaks (when schools are out), etc.)

FEEDBACK

Box Office

Film industry feedback centers on weekly box-office figures (taken from 1600 theaters in 24 urban markets, which also accounts for about ¼ of the film’s total gross income).

Market Research

Because of rising film costs, market research has become a much more important factor in the film production process. The first step is generally to test promising plot lines, followed by an analysis of the script. That’s followed by issuing a rough cut of the film, which is in turn used for a series of test screenings. Often a focus group (10-15 random members of a target audience) is used to get a detailed analysis of the group’s reactions toward the film.

Motion Picture Audiences

Hollywood puts little faith—or money—into doing audience analysis, preferring instead the bottom line figures of box-office revenues for guidance. But we do know a few things; for example, one out of two audience members are under 30, teenagers account for 30 percent of the audience, and older fans are now more likely to go to a movie than they were five years ago.

Frequent movie goers (they see at least 12 films a year) account for 77 percent of all film admissions. Of these frequent goers, most are single, 16-39, they are more educated, from middle-class families, and they live in urban areas. The audiences for movies are largest in July and August, smallest in May. Worst two weeks of the year for exhibitors: the first two weeks in December.

The number of tickets sold domestically each year appears to have leveled off, with only slight differences over the past 20 years.

For example, the number of tickets expected to be sold in 2015 is 1.26b, and the number sold in 1996 was 1.27b. The difference, of course, is that there are considerably more people today (322m) than in 1996 (269.4m), so the rate has dropped precipitously. Put another way, in 1996 the average person went to just under 5 movies per year; in 2015 that number is less than 4. That's not a positive trend.

Annual Ticket Sales

	1995	1996	1997	1998	1999	2000	2001	2002	2003	2004	2005	2006	2007	2008	2009	2010	2011	2012	2013	2014	2015
Tickets (billion)	1.22	1.27	1.42	1.45	1.44	1.39	1.44	1.58	1.55	1.47	1.39	1.41	1.40	1.39	1.42	1.33	1.28	1.39	1.34	1.27	1.26
Revenue ($bn)	5.29	5.59	6.51	6.78	7.30	7.48	8.13	9.18	9.35	9.11	8.93	9.25	9.63	9.95	10.65	10.48	10.14	11.07	10.90	10.36	10.53

Note: Figures for 2015 are at an annualized rate.

Through November 1st of 2015, Universal is leading the pack in worldwide revenue:

January 1–November 1, 2015
Overall Gross: $8.960 billion

Rank	Distributor	Market Share	Total Gross*	Movies Tracked	2015 Movies**
1	Universal	26.1%	$2,340.5	19	17
2	Buena Vista	16.6%	$1,490.8	13	9
3	Warner Bros.	16.0%	$1,437.8	34	22
4	20th Century Fox	11.6%	$1,039.2	19	12
5	Sony / Columbia	7.5%	$672.4	17	13
6	Paramount	6.5%	$579.4	12	8
7	Lionsgate	4.1%	$364.9	22	20

The top 7 studios collectively account for nearly 93% of all market share. If one were to include the mini-major studio of The Weinstein Brothers, then the number is nearly 96%. All other film studios combined (and there are hundreds of them) account for only 4% of revenue.