First Research Industry Profile - Motion Picture Production and Distribution
-
Upload
victoria-yampolsky -
Category
Documents
-
view
225 -
download
0
Transcript of First Research Industry Profile - Motion Picture Production and Distribution
8/7/2019 First Research Industry Profile - Motion Picture Production and Distribution
http://slidepdf.com/reader/full/first-research-industry-profile-motion-picture-production-and-distribution 1/14
INDUSTRY PROFILE
Motion Picture Production andDistributionSIC CODES: 7812, 7822
NAICS CODES: 51211, 51212
QUARTERLY UPDATE 1/25/2010
Industry Overview
The US motion picture production and distribution indus try includes about 11,000 companies with combined annual
revenue of $33 billion. Major com panies include Disney, FOX, MGM, Paramount, Sony Pictures, Universal, and
Warner Bros. The indus try is highly concentrated: the 50 largest companies account for about 80 percent of
revenue.
The top motion picture studios are generally part of larger media companies. Most companies in the industryengage in both production and distribution of motion pictures; about 500 firms are solely distributors.
COMPETITIVE LANDSCAPE
Consumer spending drives demand. The profitability of individual companies depends on creativity, marketing, and
distribution. Large companies often have the advantages of long-term contracts with key actors and directors, a
permanent s taff of technical employees, and wide distribution networks. Small companies can compete
successfully by creating marketable movies, often for niche audiences, on low budgets. Although production work is
labor-intens ive, the value of the product results in high average annual industry revenue of $300,000 per employee.
PRODUCTS, OPERATIONS & TECHNOLOGY
The motion picture industry produces mainly first-run movies and secondary releases, distributed first through
theatres and later on various media through a variety of commercial outlets. Secondary releas es, mainly on DVDthrough wholesale and retail channels , contribute 50 percent of industry revenue, while first-runs account for about
20 percent. Other products include comm ercials, mus ic videos, special features, and post-production and technical
services. Some companies sell m erchandise or earn fees from licens ing brand names to third-party manufacturers.
Distribution of previously released products is through theatres; wholesalers and retailers; network, local, cable,
and satellite TV; the Internet; and other dis tributors. Companies that both produce and distribute product account for
97 percent of industry revenue.
Production may be on a proprietary or fee-for-service (contract production) bas is. Because long-term profit from
successful motion pictures can be very high compared to upfront production costs, companies often prefer to
produce movies on a proprietary bas is and own the product. When cus tomers own the product, they pay fees for
production and dis tribution services, a comm on arrangement for non-movie products, such as commercials,
educational features, music videos, and direct-to-video DVDs. Independent production companies increasingly
contract with major studios for distribution services, which include marketing.
Creating a m ovie goes through four phases : development, pre-production, production, and post-production. In
development, the producer creates or acquires a screenplay, gets tentative commitments from a director and
principal actors, and develops a budget. Once these e lements are in place, the producer secures financing from a
movie studio or independent source. Much of the work of producers involves ass embling a pre-production packagethat financial backers will approve.
After project approval and financing, the movie goes into pre-production. The producer finalizes director,
cinematographer, and lead actor contracts, and most details of the screenplay; hires a production crew; ensures
development of a detailed schedule that identifies timing and need for cast, costumes, equipment, and other
production elements; and monitors rehearsals. Filming (“principal photography”) for a movie may run from a few
weeks to several months.
1/30/2010 First Research Industry Profile - Motion…
…nyu.edu:22153/industry.aspx?pid=28… 1/
8/7/2019 First Research Industry Profile - Motion Picture Production and Distribution
http://slidepdf.com/reader/full/first-research-industry-profile-motion-picture-production-and-distribution 2/14
Once shooting is complete, the movie goes into post-production, which includes processes and tasks such as
editing, mus ic scoring, audiovisual synchronization, special effects, and titles. The resul t of the cumulative pos t-
production work is a master negative that will serve as the source for exhibition copies of the movie. The indus try
refers to expenses through production of the master negative as “negative costs.” An independent company may
produce one movie per year; larger studios may produce over a dozen.
Distribution of finished product typically goes through the large s tudios, which have relationships with extensive
numbers of theatres, TV networks, major retailers, and other secondary outlets. Dis tribution of first-release m otion
pictures includes marketing to theatres (“exhibitors”) that rent (“license”) movies ; obtaining exhibitor contracts;
advertising; and providing promotional materials and copies of the film. Contracts specify what percentage of gross
ticket sales go to the exhibitor, the dis tributor, and the production company.
License fees from multi-phased distribution are important to the financial success of mos t projects. Usually,
movies first go into theatrical release, then to video or DVD after about six months, then to cable and pay-per-view TV
channels, and eventually to free TV. A production company typically sells licenses separately for dis tribution through
these different outlets. To ensure revenue, independent producers may enter a “negative pickup” contract through
which they sell their ownership rights in the master negative, as of a specific date, to a studio or an independent
dis tributor before completing the film. Typically, the new owner pays costs, the producer finishes the film, and the two
parties split net profit.
The industry uses advanced technology for business forecasts and production. Computer forecasting models help
predict success of projects and decis ion-support tools help determine a marketing and distribution s trategy. The
technology in movie production changes rapidly, due to the increasing power, visual, and sound capabilities of
computers. Many crews use digital cameras to shoot m ovies and s pecialized computer software for editing. Special
effects are mainly computer-generated imagery (CGI). Digital files have enabled electronic dis tribution to
customers.
SALES & MARKETING
Typical customers for first-run movies are theatres and independent distributors. Large studios m arket to a wide
network of theatres, while s mall production companies typically use independent dis tributors. Major studios usually
have distribution contracts in place prior to filming, but smaller independent producers often find distributors during
the production process or subs equently “acquire” them after screenings at film festivals like Sundance and Cannes.
Major types of marketing are exhibition showings to theatre owners and independent distributors; TV, magazine, and
newspaper ads ; in-theatre previews (“trailers”); and a movie’s website. Production companies rely primarily on
executive relationships and a sales force to secure exhibitors and distributors, but may also use brokers and agents,
particularly for other countries.Marketers add citations to marketing materials for movies that win awards at events like the Oscars and Golden
Globes and at festivals like Cannes and Sundance. Consumer tastes, culture, and trends have more to do with what
movies a studio decides to produce than awards do. A project may take years from concept to opening day. Awards ,
however, may affect the release of a movie that the company has completed, but not yet released, or may extend a
movie's first-run release.
Product prices are actually license fees from theatres and secondary outlets. Production companies license theatrecorporations to show movies, usually on a film-by-film and theatre-by-theatre basis for a specific timeframe and
within geographical film licensing zones . In zones with competing theatres, competitors may bid for the exclus ive
right to show a new movie or the dis tributor may allocate films to theatres. In zones with no competitors, theatre
owners choose the films they want and negotiate the license fee with the distributor. License fees for theatres
depend on adm iss ion revenue and usually are on a s liding scale – often over 70 percent of initial admis sions ,
declining to 30 percent by the seventh week. License fees m ay also be based on admiss ion revenue minus acertain allowance for expenses.
Production companies also negotiate license fees for secondary-release distribution in other media formats, such
as DVD or computer games, and outlets other than theatres, such as broadcast media and retail stores. Secondary
releases , especially consumer products like DVDs, comprise about 50 percent of industry revenue and are
important sources of sales comm issions.
FINANCE & REGULATION
The cash flow of movie production is highly uneven, because costs typically occur several years in advance of
revenue. Movies can cost from under $1 million to tens of millions to produce. Working capital for production comes
from studio financing, financial backers who operate essentially as venture capitalists, or loans from banks or other
firms, usually with divisions that specialize in the movie industry. Borrowing from financial ins titutions, usually
1/30/2010 First Research Industry Profile - Motion…
…nyu.edu:22153/industry.aspx?pid=28… 2/
8/7/2019 First Research Industry Profile - Motion Picture Production and Distribution
http://slidepdf.com/reader/full/first-research-industry-profile-motion-picture-production-and-distribution 3/14
supported by a completion bond, can be difficult for sm all companies because failure rates of movies are high.
Movies can bring huge returns, but many projects never recoup production costs.
To contain financial risk, studios or producers may form an independent corporation for a specific movie and carry
high levels of insurance. Companies capitalize production costs of unreleased movies as inventory. Companies
usually lease production equipment, which is expensive to buy. Firms that provide technical services may make
large periodic investments in computer equipment and software.
Financial deals are the economic model that enables the movie production industry to function despite delayed
revenue. Deals revolve around the allocation of risks and potential rewards, including the acquisition and sale of
rights, options, profit participations, co-production, residuals, and licenses. Many producers seek studio deals
(“pacts”) for marketing and distribution advantages. Companies that produce and finance their own films, but
depend on large s tudios for distribution, typically pay a fee of 10 to 15 percent of ticket sales . Availabi lity of studio
financing for new productions tends to be cyclical, depending on the need to lim it overhead. A typical studio pact for
a new movie may last about five years and guarantees producers annually between $500,000 and $1 m illion for
overhead, a $2 million advance on production fees, and about $500,000 in discretionary funds. The largest studios
may have up to 30 current pacts, though most have far fewer. Renegotiating pacts is comm on.
The indus try largely self-regulates, main ly involving movie content. The Motion Picture Association of America
operates a ratings system that indicates to consumers the amounts of sex and violence in s pecific movies. TV
networks and s tations that broadcast movies scrutinize them to ensure compliance with federal regulations,
restricting the time of day that certain types of content can air. Legal disputes in the industry are common regarding
contracts, promises, guarantees, rights, intellectual property, and licenses. Parties may sue each other and yet
cooperate on another project at the same time.
REGIONAL & INTERNATIONAL ISSUES
More US movie companies are filming projects at locations other than in Los Angeles . In a typical month, the industry
may film as much as 50 percent of total active projects at a wide variety of US locations and about 30 percent in other
countries, though the percentages can vary widely. Many larger-scale projects film in multiple locations in the US and
abroad.
Production companies sell international dis tribution rights by country or region and typically include local rights to
most or all outlet channels. International movie distribution is through sales agency representatives or distributors.Sales agents represent movie producers or owners and sell licenses in exchange for a comm iss ion of 15 to 20
percent, typically for a term of seven or more years. Distributors provide guarantees , often in the form of a bank
comm itment, that enable the producer to cover part of the movie budget. The dis tributor typically receives 25 to 35
percent of license fees that independent foreign dis tributors pay, and pos sibly a percentage of profits (profitparticipation).
Film festivals in Cannes , Milan, and at the American Film Market in Los Angeles are major markets for selling
licenses to foreign dis tributors and for selecting international m ovies to distribute in the US.
HUMAN RESOURCES
Industry employees are highly skilled specialists, many performing jobs unique to m ovie production, and
accordingly, receive average hourly pay significantly higher than the average national wage. Annual personnel
turnover is high becaus e of competitive hiring.
Production companies manage relationships with many talent agencies and unions. Talent agencies represent
creative personnel, including actors and cinematographers , in finding roles and production opportunities. A variety of
unions represent actors, writers, directors, and production personnel for mos t movie work. Many productionpersonnel, including actors, work on a project basis and may be unemployed for parts of the year. Companies
manage large numbers of temporary workers, in addition to permanent s taff.
Industry Employment Growth
Bureau of Labor Statistics
1/30/2010 First Research Industry Profile - Motion…
…nyu.edu:22153/industry.aspx?pid=28… 3/
8/7/2019 First Research Industry Profile - Motion Picture Production and Distribution
http://slidepdf.com/reader/full/first-research-industry-profile-motion-picture-production-and-distribution 4/14
Average Hourly Earnings & Annual Wage Increase
Bureau of Labor Statistics
Recent Developments
INDUSTRY INDICATORS
Total US consumer spending, an indicator for movie ticket and merchandise sales, rose 1.5 percent, primarily from
nondurable goods expenditures, in November 2009 com pared to the same m onth in 2008.
US personal income, which drives how much consumers might spend on movies, fell a slight 0.3 percent in
November 2009 compared to the sam e month in 2008.
MONTHLY NEWS
Marvel shareholders approve acquisition
Orlando Sentinel, 01 January, 2010, 366 words
Shareholders of Marvel Entertainment Inc., home of Spider-Man and the Hulk, on Thursday approved the com pany's
acquis ition by the Walt Disney Co., as expected. Marvel said the $4.3 billion acquisition will close at the end of the
day, ...
Corporate News : Studios Make Bigger Push for Digital Sales
The Wall Street Journal, 28 December, 2009, 666 words
The Showtime cable-television network has begun selling episodes of its hit series "Weeds" online, weeks ahead of
the DVD release. The tactic, by "Weeds" producer Lions Gate Entertainment Corp., is the part of a more aggres sive
effort ...
'Let's m ake movies'; What execs had to say during the confab
Daily Variety, 08 Decem ber, 2009, 367 words
Predictions, opinions , concerns and quips were plentiful Tuesday among the participants at Variety's Future of Film
confab in Santa Monica. A sampling of notable quotes : "Let's make movies, not deals . Let's write movies , not
scripts." -- ...
1/30/2010 First Research Industry Profile - Motion…
…nyu.edu:22153/industry.aspx?pid=28… 4/
8/7/2019 First Research Industry Profile - Motion Picture Production and Distribution
http://slidepdf.com/reader/full/first-research-industry-profile-motion-picture-production-and-distribution 5/14
QUARTERLY INDUSTRY UPDATE
MGM Mulls Sale - MGM is considering putting itself up for bid as the beleaguered studio ponders its future. Options
also include finding a partner or remaining a stand-alone company, according to Variety . The studio's debt holders
extended a payment deadline until January 31, 2010, the second extension in recent months. An asset sale would
potentially include MGM's 4,000-title library, logo, United Artis ts operations, rights to the James Bond franchise, and
half-ownership of the upcoming Hobbit films . Time Warner, News Corp., and Lionsgate are among the potential
buyers.
Brighter Lending Picture Emerges - Lenders are expected to be more willing to finance US film indus try projects in2010. Foreign financing in particular could lead a resurgence in film industry lending, evidenced by India-based
Reliance's recent $825 million investment in DreamWorks. Foreign investors are especially interested in companies
with a strong track record. Government incentives such as those of Louis iana, Michigan, and North Carolina have
also been ins trumental financing tools for film studios. Meanwhile, industry insiders do not expect hedge fund
money to return to Hollywood any time soon, according to Variety .
Writer Diversity Still a Challenge - Women and minority writers have seen little to no improvement in employment
and earnings in the film industry, according to the 2009 Hollywood Writers Report from the Writer's Guild of America,
West. Women and m inorities comprise 18 percent and 6 percent of all feature film writers respectively. The
percentage of minority film writers has stayed the same since 1999. White males continue to dominate the film
sector, and earnings gaps between men and women and minorities have grown. Annual film earnings for female
writers s lid from $62,500 in 2003 to $57,151 in 2007, while male writers enjoyed an $8,000 pay raise over the same
period.
Business Challenges
CRITICAL ISSUES
High Production Costs - The high expense of financing movies well in advance of revenue has prompted producers
to find ways to spread the financial burden and lower costs. Producers may seek financing from a variety of backers,
simplify production and processes, or find lower-cost locations. Foreign tax incentives lure US companies to film in
other countries, in what the industry calls "runaway" productions .
High Failure Rate - Despite a large number of outlets for movies, many productions are financial failures. Illegal
copies or a disappointing first-run in theatres can limit a project’s prospects for revenue from secondary releases ,such as on TV and DVD. Producers and big studios spend large amounts on market research and forecasting
models , but the industry has poor ability to predict public acceptance of any single production. Producers and
studios constantly look for new and interesting script ideas and monitor consum er preferences and demographic
and cultural trends.
OTHER BUSINESS CHALLENGES
Dependence on Distributors - Distributing movies has become m ore complicated, due to the larger number of
poss ible outlets. This market fragmentation increases dependence on distributors. The big dis tribution
organizations like Dis ney, FOX, Viacom, and Time Warner have an advantage due to their reach. Only large
distributors have established relationships and efficient access to hundreds of movie theatres, cable channels , and
foreign markets.
Audience Saturation - US in-theatre and TV audiences have reached saturation points, limiting the reach of twomajor outlets for movies. Audience attendance at movie theatres has been essentially level for several years,
increas ing competition for the ticket-buyer’s dollar. Second releases on TV also face a saturated audience: TV
viewers ’ hours in front of the set haven't changed for 20 years, averaging about 4.5 hours per day. Although cable and
satellite TV offer more outlets, that market has fragmented rather than grown.
Transition to Digital Filming - Many producers are switching to digital technology for creative and business reasons,
despite its expense. Secondary releases on TV and cable networks are important sources of industry revenue,
making the US government-mandated transition to digital TV in 2009 im portant for movie production. The all-digital
TV mandate reduces the broadcast value of nondigital m ovies. Investing in updated equipment challenges many
sm aller production companies because expenses can precede new revenue by months or years.
Digital Piracy - Digital technology increases the ease of illegal copying and distribution of copyrighted material,
1/30/2010 First Research Industry Profile - Motion…
…nyu.edu:22153/industry.aspx?pid=28… 5/
8/7/2019 First Research Industry Profile - Motion Picture Production and Distribution
http://slidepdf.com/reader/full/first-research-industry-profile-motion-picture-production-and-distribution 6/14
affecting industry revenue. The industry worries about massive piracy by consumers downloading illegal Internet
copies, in addition to buying illegal DVDs. The industry has proposed various means to counter the threat, including
encryption, building monitoring devices into computers, and anti-piracy laws. Hollywood studios want government
intervention and pressure on electronics manufacturers to develop technology that prevents machines from playing
illegally obtained copyrighted material. The Motion Picture Ass ociation says that US studios los t $6 billion to
worldwide piracy over the Internet in a recent year.
Public Concern About Movie Content - For many years, critics and Congress have charged that the movie industry
exploits violence, sex, and off-color language in its products. Critics say that depictions of violence coarsen viewer
sensibilities, especially children's, and promote violent behavior. Public criticism resulted in the industry’s voluntary
rating system for movies. Restrictive legislation remains a threat, although the First Amendment protects freedom ofexpress ion, a deterrent to censorship.
Antitrust Concerns - Consolidation and joint ventures among movie distributors creates antitrust concerns. Studios
reduce financial risk by forming join t ventures, which can result in partners not introducing new movies that would
compete with other investments, even if competitor studios are the major investors. The Department of Justice is
investigating the anticompetitive effects of joint ventures. Identifying and preventing antitrust activities becomes more
complicated as multinational companies consolidate and cross-promote m ovie, TV, Internet, and m usic properties.
Foreign Quotas - The success of US movies in the international market has prompted protectionist legis lation in
som e countries. France, for example, requires that a high percentage of movies in its cinemas be of local origin. The
quotas essentially limit the number of US imports.
Trends & Opportunities
BUSINESS TRENDS
Growth of Large Media Companies - Several media giants produce a majority of US films. Many major movie
studios are part of larger media organizations that include TV and radio stations, cable TV networks, cable channels,
newspapers, magazines, and other media. These vertically integrated companies have the financial resources to
produce their own movies, the m arketing resources to promote them, and national and international distribution
systems. In addition to running their own production s tudios, the conglomerates acquire and run as separate units
formerly independent producers like United Artists, New Line Cinema, Touchs tone, and Miramax.
Co-Financing, Risk-Sharing - Movie production and distribution companies are forming joint ventures more
frequently to share the risks and cos ts of developing movies and bringing them to market. Often the deals are
between rival studios in which one company is the producer and the other distributes. For example, Lucasfilmproduced Star Wars: Episode One and FOX dis tributed it.
Retainer Agreements - Maintaining formal and informal relationships with creative talent is a major preoccupation
for most movie companies. The major film studios often maintain "overhead" arrangements with producers,
directors, and actors that give the studio the right of first refusal for new projects, in return for paying part of ongoing
overhead and other costs.
Technical Innovation - Computers and digital recording have enormously affected movie production and distribution,
beginning with the production of new special effects for the first Star Wars movie in 1977. Computer-generated
special effects and digital editing of movies are now common. Advances in technological capabilities for use in the
industry are ongoing. Digital movie dis tribution is increasing and became m andatory for secondary releases to TV
when US broadcasts transitioned to all-digital in 2009.
Expanding Product Placements - Production companies , typically the major s tudios, receive revenue frommanufacturers for using their products in movies and ancillary products, a practice called product placement. Ford
reportedly paid $35 mil lion to swi tch James Bond’s car from a BMW to an Aston Martin Vanquis h in Die Another Day .
Ford products appeared m ore often than those of any other company in major US movies in from 2007 through m id-
2008, according to Brandchannel.
INDUSTRY OPPORTUNITIES
Multiple Distribution Channels - The growth of distribution outlets has created strong demand for more
entertainment products in a variety of media. The DVD market and the proliferation of cable channels , in particular,
have increased demand for movie availability in multiple media formats. Internet distribution enables consumers to
buy movies online from sites like iTunes. Some companies produce short films and clips for viewing on cell phones .
1/30/2010 First Research Industry Profile - Motion…
…nyu.edu:22153/industry.aspx?pid=28… 6/
8/7/2019 First Research Industry Profile - Motion Picture Production and Distribution
http://slidepdf.com/reader/full/first-research-industry-profile-motion-picture-production-and-distribution 7/14
Film Libraries Increase in Value - Demand from cable channels has greatly increased the value of the libraries of
old movies that many major s tudios have produced or acquired. License fees from previous movies provide a s teady
source of revenue to compensate for the uncertain and uneven income from new productions. Major studios have
extens ive collections: MGM’s film library has approximately 4,000 titles.
Digital Production, Distribution, Exhibition - Digital recording of movies, rather than us ing actual film, can cut
production and distribution cos ts over the long run, although upfront investment in new equipm ent is high.
Production companies shoot digitally, send copies of daily filming (“dailies”) to editors, and us e high definition digital
video to evaluate special effects and animation. Companies can send and share digital files as needed, allowing
faster delivery of dailies and edi ting cuts, and greater freedom of collaboration among the director, sound track
producers, and editors. Companies send digital copies to dis tributors, which in turn furnish digital media to theatres.
Internet Marketing - Major studios now use the Web to promote new films by showing trailers, providing movie
information and photos of the actors, and displaying promotional items, like T-shirts, CDs, and pos ters.
Independents use websites to garner interest in their projects at various stages of development. Many companies
use “guerrilla marketing” by planting positive comments on popular webs ites and depend on “web-of-mouth”
recommendations. Research shows that group opinions highly influence decisions to attend a movie or buy a
related product.
Foreign Markets - Some producers and distributors now get more than 50 percent of revenue from international
markets. The capital-intensive nature of developing movies limits domestic production in many countries. The
relatively low cost of TVs and DVDs has created a large m arket for movies and related products in many regions ,
including those without traditional theatres.
Executive Insight
CHIEF EXECUTIVE OFFICER - CEO
Maximizing Film Library RevenueThe bulk of financial returns for new films m ay occur several years after production money has been spent, so
companies develop s teady income streams by managing their libraries of films for syndication, re-release, or re-
make. Companies leverage their existing libraries as existing films are market-tested.
Developing Distributor RelationshipsDespite the large number of outlets for movies , project failure rate is high. The large dis tribution organizations
control a considerable num ber of possible release outlets. Entertainment conglomerates, like Dis ney, Viacom, andTime Warner, have direct relationships with theatre chains and owners, while smaller s tudios s truggle to compete
with the dominant players. Smaller studios may distribute directly to selected outlets or find smaller distributors at
film festivals or other promotional events.
CHIEF FINANCIAL OFFICER - CFO
Smoothing Cash FlowCash flow for movie production is uneven, due to cost incurrence well in advance of revenue generation. Studios with
libraries of old movies syndicate them and use the license fees to even out revenues. The increasing num ber of
cable channels has increased the value of old movies, which many studios are licensing to add som e predictability
to earnings.
Reducing Project RiskMovie development and production costs can be substantial and occur as much as several years before revenue
returns. Producers may seek financing from a movie studio or independent sources; studios increasingly form joint
ventures to spread the financial risk. To contain costs, companies scale back original screenplays to simplify
production or film in lower-cost locales, including abroad.
CHIEF INFORMATION OFFICER - CIO
Transitioning to Digital ProductionThe federally mandated transition to digital TV broadcasting in 2009 has encouraged the use of digital movie
formats. Digital productions require expensive equipment that independent filmmakers and many sm aller studios
are resisting, since revenue significantly lags production investment costs. Major studios have moved to digital
production, because it reduces production costs and has a higher dis tribution value.
1/30/2010 First Research Industry Profile - Motion…
…nyu.edu:22153/industry.aspx?pid=28… 7/
8/7/2019 First Research Industry Profile - Motion Picture Production and Distribution
http://slidepdf.com/reader/full/first-research-industry-profile-motion-picture-production-and-distribution 8/14
Defending Against Digital PiracyBecause DVDs and electronic versions of movies are cheap and easy to reproduce, piracy is taking a larger part of
indus try revenue. The indus try has proposed various means to counter the threat, including encryption, building
monitoring devices into computers, and anti-piracy laws . Studios lobby for government intervention and are
pressuring electronics manufacturers, with little success, to des ign machines that won’t play illegal material.
HUMAN RESOURCES - HR
Managing Labor Issues
Since the movie indus try has multiple unions representing different trades, labor issues can arise and occasionallyresult in work s toppages. Production companies strive to maintain harmonious relations with the unions , but rapidly
changing technologies, giant media mergers, and dwindling industry profits strain the ability to avoid labor strife.
Companies work closely with unions to resolve grievances and disputes to avoid s toppages.
Designing Retainer AgreementsHaving ready access to creative talent is important to movie studios. Major studios have retainer agreements with
producers , directors, and actors that give the company the right of first refusal for new projects. In exchange, the
studios pay annual overhead and other expenses .
VP SALES/MARKETING - SALES
Determining Distribution NetworkDistributing movies has become m ore complicated with the larger number of possible outlets and consolidation of
major s tudios. Large distributors dominate the dis tribution part of the business, making it more difficult for sm aller,
independent filmmakers to find dis tribution partners. Independent filmmakers seek to release through large s tudios
to take advantage of their dis tribution arrangements.
Increasing Foreign MarketingWith higher developm ent and production cos ts, expanding dis tribution is critical to a project’s profitability. The
importance of international markets has increased dramatically and may account for more than half of a producer’s
or dis tributor’s revenue. A ready market exists in many countries that lack a movie production industry. In many
countries, secondary releases do well in TV and video formats.
Call Preparation Questions
CONVERSATION STARTERS
How is the company addressing the high cost of financing movies?The high expense of financing movies well in advance of revenue has prompted producers to find ways to spread the
financial burden and lower cos ts.
How does the company determine the potential success of a movie?Despite a large number of outlets for movies, many productions are financial failures.
What strategies does the company use to reach the large number of potential outlets for its products?Distributing movies has become m ore complicated, due to the larger number of poss ible outlets.
What opportunities does the company have to expand into new media and distribution channels?The growth of dis tribution outlets has created strong dem and for more entertainment products in a variety of media.
How does the company take advantage of its film library?Demand from cable channels has greatly increased the value of the libraries of old m ovies that many major studios
have produced or acquired.
How is digital technology changing the way the company produces and distributes movies?Digital recording of movies, rather than using actual film, can cut production and distribution cos ts over the long run,
although upfront investment in new equipment is high.
QUARTERLY INDUSTRY UPDATE
1/30/2010 First Research Industry Profile - Motion…
…nyu.edu:22153/industry.aspx?pid=28… 8/
8/7/2019 First Research Industry Profile - Motion Picture Production and Distribution
http://slidepdf.com/reader/full/first-research-industry-profile-motion-picture-production-and-distribution 9/14
Where is the company pursuing financing?Foreign financing in particular could lead a resurgence in film industry lending, evidenced by India-based Reliance's
recent $825 million investment in DreamWorks.
How might a sale of MGM affect the company's competitive landscape?MGM is considering putting itself up for bid as the beleaguered s tudio ponders its future.
OPERATIONS, PRODUCTS, AND FACILITIES
Is the company involved in production, distribution, or both?
Companies that both produce and distribute product account for 97 percent of industry revenue.
What non-movie products does the company produce or handle?Companies may produce movies, commercials, music videos, and special features, and sell or license
merchandise.
What services does the company provide?Services may include actual movie production, post-production and technical s ervices, marketing, creative talent
managem ent, distribution, and financing.
How many movies will the company produce or distribute this year?The major s tudios each release from 15 to 25 new m ovies per year.
What percentage of the company’s revenues comes from first-runs or secondary releases?Secondary releases, mainly on DVD through wholesale and retail channels, contribute 50 percent of industry
revenue, while first-runs account for about 20 percent.
If a production company: Does the company prefer to produce its own products or do contract production?Production may be proprietary, where the production company owns the product, or fee-for-service (contract
production), where the customer is the owner.
How many facilities does the company own?Small companies may rent, rather than own, facilities.
CUSTOMERS, MARKETING, PRICING, COMPETITION
Who are the company's major customers?Typical customers for first-run movies are theatres and independent distributors.
How does the company find new customers?Major studios usually have distribution contracts in place prior to filming. Smaller independent producers often find
distributors during the production process, or subs equently “acquire” them after screenings at film festivals like
Sundance and Cannes.
What types of marketing are most effective for the company?Major types of marketing are exhibition showings to theatre owners and independent distributors; TV, magazine, and
newspaper ads; in-theatre previews (“trailers”); and a movie’s website.
How significant are license fees compared to other sources of company revenue?License fees, the movie industry’s equivalent of product prices, typically contribute most of a production com pany’s
revenue.
What advantage or challenges does the company have in negotiating license fees?
Production companies and dis tributors negotiate license fees for theatres to show movies and for other outlets, likebroadcast media and retail stores. License fees also cover distribution in other formats, such as TV programs,
DVDs, or computer games .
How has competition changed in recent years?Consolidation and joint ventures have concentrated funding and distribution power in a few major com panies.
REGULATIONS, R&D, IMPORTS AND EXPORTS
How does the company respond to criticism of too much violence and sex in movies?Production companies can submit movies for a rating by the Motion Picture Ass ociation of America.
How effective, in the company’s view, are industry efforts to self-regulate?The industry’s rating system is a means of self-regulation, with the aim of minimizing the potential for government to
1/30/2010 First Research Industry Profile - Motion…
…nyu.edu:22153/industry.aspx?pid=28… 9/
8/7/2019 First Research Industry Profile - Motion Picture Production and Distribution
http://slidepdf.com/reader/full/first-research-industry-profile-motion-picture-production-and-distribution 10/14
impose its own codes.
What concerns does the company have about federal restrictions of TV content?Many movies later appear on TV, which is subject to federal restrictions on the time of day that certain types of
content can air. The indus try is concerned that restrictions erode freedom of speech.
How does the company protect itself from potential lawsuits?Legal disputes regarding contracts, promis es, guarantees, rights, intellectual property, and licenses are comm on.
How important to the company are projects written or produced in other countries?
Some companies film movies in other countries to lower production costs; some readily seek projects from other
countries.
How significant are the company's exports?Other countries provide s ignificant revenue for some companies , especially for secondary releases of movies and
ancillary products, like TV and video versions .
ORGANIZATION AND MANAGEMENT
Is the company an independent entity or part of a larger media company?Consolidation in the entertainment industry in recent years has concentrated power and revenue in only a few
conglomerates, which own the largest movie studios.
Is the company privately held or public?Despite consolidation, mos t movie production and dis tribution companies are sm all and privately held.
How large is the company’s permanent staff?Companies manage large numbers of temporary workers, in addition to permanent staff.
What challenges does the company face operating in other countries?Many companies use agents or dis tributors that specialize outside the US, and some companies film mainly in
lower-cost countries.
FINANCIAL ANALYSIS
How have the company’s profits varied in recent years?Producer profits vary greatly from year to year.
What sources does the company use for working capital?
Working capital comes from studio financing, financial backers who operate essentially as venture capitalists, orloans from banks or other firms, usually with divisions that specialize in the movie industry.
What challenges exist in obtaining financing?Borrowing from financial ins titutions, usually supported by a completion bond, can be difficult for small companies ,
because failure rates of movies are high.
How important are studio deals (pacts) to the company’s success?Deals revolve around the allocation of risks and potential rewards, including the acquis ition and sale of rights,
options, profit participations, co-production, residuals , and licenses .
How large an inventory of unreleased productions does the company carry?Companies capitalize production costs of unreleased movies as inventory.
BUSINESS AND TECHNOLOGY STRATEGIESHow effective are market research and forecasting models in predicting project success?Producers and big s tudios spend large amounts on m arket research and forecasting models, but the indus try has
poor abil ity to predict public acceptance of any single production.
What challenges do small companies have in competing?Large s tudios dom inate production and distribution; large independent dis tributors have advantages of size and
resources.
What plans does the company have to improve its success in coming years?Companies may upgrade technology, produce products in additional media formats, expand d istribution, increase
exports, and engage in creative financing deals.
1/30/2010 First Research Industry Profile - Motion…
…nyu.edu:22153/industry.aspx?pid=28… 10/
8/7/2019 First Research Industry Profile - Motion Picture Production and Distribution
http://slidepdf.com/reader/full/first-research-industry-profile-motion-picture-production-and-distribution 11/14
Financial Information
COMPANY BENCHMARK INFORMATION
Motion Picture and Video Industries - (NAICS: 5121)
12 Month Rolling Data Period Last Update September 2009
Small Company Data Sales < $741,891
Table Data Format Median Values
US Private Company Data
Aggregate Small Company
Company Count in Analysis 362 91
Income Statement
Net Sales 100% 100%
Gross Profit 65.4% 65.4%
Operating Income 3.3% 3.1%
Net Profit After Tax 2.0% 0%
Balance Sheet
Cash 8.3% 11.0%
Accounts Receivable 17.2% 1.3%
Inventory 0% 0%
Total Current Assets 28.0% 14.6%
Total Fixed Assets 22.3% 28.9%
Other Non-Current Assets 49.7% 56.4%
Total Assets 100.0% 100.0%
Accounts Payable 4.6% 0.8%
Total Current Liabilities 42.4% 3009.1%
Total Long-Term Liabilities 3.4% 6.6%
Net Worth 54.2% -2915.6%
Financial Ratios
(Click on any ratio for comprehensive definitions)
Quick Ratio 1.07 0.93
Current Ratio 1.6 1.61
Current Liabilities to Net Worth 32.0% 9.5%
Current Liabilities to Inventory 571.0% 362.0%
Total Liabilities to Net Worth 53.0% 17.5%
Fixed Assets to Net Worth 28% 20.5%
Collection Period 24.3 8.1
Inventory Turnover NA NA
1/30/2010 First Research Industry Profile - Motion…
…nyu.edu:22153/industry.aspx?pid=28… 11/
8/7/2019 First Research Industry Profile - Motion Picture Production and Distribution
http://slidepdf.com/reader/full/first-research-industry-profile-motion-picture-production-and-distribution 12/14
Assets to Sales 36.0% 38.0%
Sales to Working Capital 4.8 2.7
Accounts Payable to Sales 2.0% 1.0%
Return on Sales 2.0% 0%
Return on Assets 4.0% 0%
Return on Investment 35.0% 55.0%
Interest Coverage 4.0 0.3
Financial industry data provided by Fintel -- offering leading benchmarking with a database of over 900 industries. Utilize financialanalysis through profitability, liquidity, sustainable growth rate, business valuation, custom research, and other tools. Visit us on the
web at www.fintel.us/firstresearch to find out how we can help you.
ECONOMIC STATISTICS AND INFORMATION
Annual Construction Put into Place - Census Bureau
VALUATION MULTIPLES
Motion Picture Production and Distribution
Acquisition multiples below are calculated us ing at leas t 3 private, middle-market (valued at
less than $1 billion) indus try transactions completed between 8/2002 and 6/2007. Data
updated every six months. Last updated: September 2009.
Valuation MultipleMVIC/Net
Sales
MVIC/Gross
ProfitMVIC/EBIT MVIC/EBITDA
Median Value 0.5 1.1 N/A N/A
MVIC (Market Value of Invested Capital) = Also known as the s elling price, the MVIC is the
total consideration paid to the seller and includes any cash, notes and/or securities that
were used as a form of payment plus any interest-bearing liabilities ass umed by the buyer.
Net Sales = Annual Gross Sales, net of returns and discounts al lowed, if any.
Gross Profit = Net Sales - Cost of Goods Sold
EBIT = Operating Profit
EBITDA = Operating Profit + Noncash Charges
SOURCE: Pratt's Stats™ (Portland, OR: Business Valuati on Resources, LLC) To purchase more deta il edinformation, pl ease ei ther visit www.BVMarketData.com or call 888 -287-8258.
1/30/2010 First Research Industry Profile - Motion…
…nyu.edu:22153/industry.aspx?pid=28… 12/
8/7/2019 First Research Industry Profile - Motion Picture Production and Distribution
http://slidepdf.com/reader/full/first-research-industry-profile-motion-picture-production-and-distribution 13/14
Industry Forecast
The output of the US motion pictures and video indus try is forecas t to grow at an annual com pounded rate of 5
percent between 2009 and 2014. Data Published: October 2009
Motion Picture & Video Industries Growth Levels
First Research forecasts are based on INFORUM forecasts that are licensed from the Interindus try Economic
Research Fund, Inc. (IERF) in College Park, MD. INFORUM's "interindustry-macro" approach to m odeling the
economy captures the links between industries and the aggregate economy.
First Research Industry Growth RatingThe First Research Industry Growth Rating reflects the expected indus try growth relative to other industries, based on
INFORUM's forecas ted average annual growth for the combined years of 2010 and 2011. INFORUM forecasts were
prepared by the Interindus try Economic Research Fund, Inc.
Demand: Tied to consum er income
High costs, uncertain revenue
Risk: Slow economy limits spending on non-essentials
First Research Industry Drivers
Changes in the economic environment that may positively or negatively affect indus try growth.
Technology Innovation: Advances in science and technology, including information technology
Web Links & Acronyms
INDUSTRY WEBSITES
Alliance of Motion Picture and Television Producers (AMPTP)Collective bargaining issues .
Directors Guild of America (DGA)Monthly news related to directing.
Motion Picture Association of America (MPAA)Industry issues , statistics.
Motion Picture Editors GuildNews about editing and pos t-production.
Screen Actors Guild (SAG)News and is sues related to acting.
Variety
1/30/2010 First Research Industry Profile - Motion…
…nyu.edu:22153/industry.aspx?pid=28… 13/
8/7/2019 First Research Industry Profile - Motion Picture Production and Distribution
http://slidepdf.com/reader/full/first-research-industry-profile-motion-picture-production-and-distribution 14/14
Film news , box-office and production charts.
Writers Guild of America, WestIndustry news.
GLOSSARY OF ACRONYMS
AFM - American Film Market
AMPTP - Alliance of Motion Picture and Television Producers
CGI - computer-generated imagery
DGA - Directors Guild of America
MPAA - Motion Picture Association of America
SAG - Screen Actors Guild
“The purpose of the Profiles is for sales call preparation and general business and i ndustry ana lysis. Profiles provide general
background i nformation only and are not intended to furnish detail ed information about the creditworthiness of any indi vidual
borrower or purchaser or to be used for making any loans, leases or extension of credit to any individual borrower or purchaser. First
Research, Inc. is not an investment advisor, nor is it in the business of advising others as to the value of securities or the advisability
of investing in securities, and the Profiles are not intended to be relied upon or used for investment purposes.”
© Copyright 2009, First Research, Inc. All Rights Reserved. This data cannot be copied, sold, or distributed in any manner without the
written permission of First Research Inc.
1/30/2010 First Research Industry Profile - Motion…