Vertical and Horizontal Integration

Industries

Vertical Integration in the film industry Vertical integration is the process by which a media institution - a media conglomerate - owns several

companies at different stages of production or the supply chain. Warner Bros. is owned by Time Warner, which is a huge multi-national media conglomerate.

Vertical Integration includes: e.g. The Conjuring 2 Production: Conjuring 2 was created by Warner Bros Distribution: It was then distributed by Warner Bros Marketing: Warner Brother’s horror hit The Conjuring 2 bucked the summer trend of sequel disappointments to

take top spot with over $40 million, above most predictions and only a 4% drop from the original. The success can be attributed to the popularity of the first movie, which was well received by fans and critics alike, the quality of this instalment, and the fact the movie services a targeted niche audience – it was the first wide-release horror in a good while so there was a good amount of pent-up demand to satisfy,

Exhibition: Conjuring 2 Studios will create reel’s that are sent to cinema’s. They will produce marketing materials (posters etc.) and

transport Since the earliest days of the cinema the development of vertical integration—ownership of the means of

production, distribution and exhibition by the same company—has been contentious. In December 1906 Pathé Frères, by then perhaps the most powerful producer in the world, opened one of the first purpose-built cinemas in Paris. By 1909 Pathé had a chain of 200 cinemas in France and Belgium. Pathé had also been a pioneer of the practice of renting film prints to exhibitors rather than selling them outright. This gave the distributor the valuable advantage of controlling which cinemas showed which films and for how long. It also led to the creation of a pecking order among exhibitors: those with the greatest market power could have releases first. The ‘first-run’ concept allowed a higher rental to be charged for new films.        In 1909 the Danish distributor Fotorama introduced 'stable customer service', probably the first instance of block-booking of films in cinema practice, which spread rapidly. Exhibitors had to sign up for a package of films of varying appeal in order to secure the most desirable titles

Horizontal Integration in the film industry

 Horizontal integration is the process of a company increasing production of goods or services at the same part of the supply chain. A company may do this via internal expansion, acquisition or merger.

Production expands into other areas in the industry. This means that the company can develop.

After reaching a certain level of success, Walt Disney has been considering ways to expand and increase profits. Disney started out as an animation studio targeting children and families, which also represent their currently core target audience. However, in the process of diversifying and developing their company, Disney did a horizontal integration into live action films (For example, Pirates of the Caribbean series). In this manner the company managed to reach new audiences and control a bigger share of the film industry.

Horizontal integration can prove to be a successful strategy when Your company competes in a growing industry Your competitors are lacking capabilities, skills or resources that you can provide The cooperation can lead to a monopoly that would be allowed by the government The economies of scale would have a significant effect. What works for a company doesn’t mean that is also going to work for you. There is no

magical recipe. The answer lies in your unique value proposition as well as you own resources and capabilities. Therefore the model that provides the greatest operating leverage and opportunity for success and growth is also based two important factors – The synergy that can be achieved by using a common brand name in order to promote different products or services, and on the most important element of the company, the value chain.