Media and content industries Film industry case A study for IPTS Workshop: Economics of MCI Sophie De Vinck & Sven Lindmark Seville, 31 May 2011
Introduction • Background • •
Part of larger study on digital transformation of MCI sector 1 of 3 (5) case studies
• Objectives • • • • •
Analysis of the film industry Main economic developments Digitisation/Internet -> industry/value network Implications for European competitiveness Preliminary conclusions
• Structure of the presentation • • •
Background – characteristics of the “traditional” industry (value network, EU strengths and weaknesses) Digital transformation of value network, opportunities and challenges Conclusions
The film sector: background • Crossroads of economic and cultural value • Economic characteristics
• Prototype industry (high fixed/production costs, low • • • • • •
reproduction costs) Competition (value) not reflected in price Unpredictability of demand Semi-public goods -> Hit-driven (blockbuster), -> Strategies of control, economies of scale and scope, portfolio approach, versioning, stars, genres, sequels -> Copyright
The film sector: background
• Hollywood and European film • Despite public support, European film industries are fragmented
European film production levels on the rise Number of feature films produced
source: European Audiovisual Observatory (2010). Yearbook 2010 Online Premium Service.
Public support in Europe
European audio-visual (film, TV and other AV works) support funds (of more than €1million, excl. tax incentives) - 2004 budgets Source: Cambridge Econometrics, 2008, p. 25
European market shares do not follow suit Admissions in Europe by region of origin Region
2006
2007
2008
2009
2010 (prov)
US
63.4%
62.6%
65.5%
66.9%
68.0%
European films
27.9%
28.1%
28.3%
26.8%
25.3%
EUR inc/US 5.6% co-‐ producBons
7.5%
4.4%
4.0%
5.4%
Others
1.8%
1.8%
2.3%
1.3%
3.2%
source: European Audiovisual Observatory (2011). Focus 2011. World Film Market Trends. Strasbourg: EAO.
Cross-border circulation is problematic Admissions in Europe (millions) 300.0
Total admisssions for EU produced films
250.0
200.0
Admissions on national market 150.0
Admissions in EU outside national market
100.0
50.0
0.0 2001
2002
2003
2004
2005
2006
2007
2008
source: European Audiovisual Observatory (2010). Yearbook 2010 Online Premium Service.
Hollywood is common film culture in Europe and beyond
Commission of the European Communities (2009). Commission staff working document. Accompanying document to the proposal for a decision of the European Parliament and of the Council establishing an audio-visual cooperation programme with third countries MEDIA Mundus. Impact assessment report (No. SEC (2009) 3098 final). Brussels: European Commission.
10 leading media groups based on AV-turnover Rank Companies
Country Activities
Movie subsidiary Sony Pictures, PROD, DIS, VG, REC Columbia PROD, DIS, TV, VID, REC Walt Disney Studios
30245
3 Time Warner US News 4 Corporation US DirecTV Group 5 Inc. US
PROD, DIS, TV, VID
Warner Bros.
22769
PROD, DIS, TV, VID
20th Century Fox
22699
TV
21565
6 Vivendi
FR
PROD, DIS, TV, VG
/ Canal + Group (Studio Canal) (and 20% stake in NBC Universal)
7 Nintendo
JP
VG
/
15474
8 NBC Universal US
TV, PROD, DIS
Universal Studios
15436
9 Viacom
US
TV, PROD, DIS
Paramount Pictures
13619
US
TV, RAD
/
10684
1 Sony
JP
2 Walt Disney
US
10 CBS Corp.
Source: Adapted from : European Audiovisual Observatory
2009
25482
17133
Film industry value network
Source: adapted from OECD
European strengths and weaknesses Value network
Strengths
Weaknesses
-‐ Lack of integrated majors ProducBon
-‐ Large and diverse number of companies and films -‐ Auteur cinema tradiBon
-‐ Lack of selecBon and development -‐ Low investment levels -‐ Lack of private funding -‐ Dependent on public support
DistribuBon
-‐ Many films distributed -‐ Fragmented and concentrated -‐ Strong film fesBval market tradiBon -‐ Lack of markeBng tools
ExhibiBon
-‐ Large, mature and varied consumpBon
-‐ Theatrical and non-‐theatrical dominated by Hollywood -‐ Lack of cross-‐border circulaBon
Production costs Average budget per film 2008 Region
($M)
North America
22.96
Western Europe
6.13
All Europe
4.73
Far East
4.29
South America
2.86
C/E Europe
0.67
Asia
0.44 Source: Screen Digest (2009)
European strengths and weaknesses Value network
Strengths
Weaknesses
-‐ Lack of integrated majors ProducBon
-‐ Large and diverse number of companies and films -‐ Auteur cinema tradiBon
-‐ Lack of selecBon and development -‐ Low investment levels -‐ Lack of private funding -‐ Dependent on public support
DistribuBon
-‐ Many films distributed -‐ Fragmented and concentrated -‐ Strong film fesBval market tradiBon -‐ Lack of markeBng tools
ExhibiBon
-‐ Large, mature and varied consumpBon
-‐ Theatrical and non-‐theatrical dominated by Hollywood -‐ Lack of cross-‐border circulaBon
Release window system • Sequenced release • Different times at different prices • Typically 6-9-12-24 • Shortening (marketing and piracy)
European strengths and weaknesses Value network
Strengths
Weaknesses
-‐ Lack of integrated majors ProducBon
-‐ Large and diverse number of companies and films -‐ Auteur cinema tradiBon
-‐ Lack of selecBon and development -‐ Low investment levels -‐ Lack of private funding -‐ Dependent on public support
DistribuBon
-‐ Many films distributed -‐ Fragmented and concentrated -‐ Strong film fesBval market tradiBon -‐ Lack of markeBng tools
ExhibiBon
-‐ Large, mature and varied consumpBon
-‐ Theatrical and non-‐theatrical dominated by Hollywood -‐ Lack of cross-‐border circulaBon
(Europe) catching up with the digital impact?
Digital as the latest in a series of innovations • Innovations affecting film product: • • • •
Sound Colour Widescreen 3D
• Innovations affecting film commercialisation: • Television • Home video
Innovations often expanded the market Worldwide revenues, USD Billion 60.0
50.0
40.0
18.7
18.1
16.9
16.1
16.2
30.0 15.5 TV (including Pay TV, PPV)
11.6 20.0
21.1
10.1
10.0
6.5
4.9
2.6 3.3
6.8
6.2
6.5
1980
1985
1990
1995
2000
2.2
0.0 1948
13.1
7.4
4.1 8.5
11.9
22.8
22.6
19.8
17.9
Video/DVD Theatrical
8.7
8.1
7.0
8.2
8.8
2003
2004
2005
2006
2007
source: MPA and (Epstein, s.a.)
Digital as the latest in a series of innovations • Innovations affecting film product: • • • •
Sound Colour Widescreen 3D
• Innovations affecting film commercialisation: • Television • Home video
Digital technologies affect all aspects of the film value network
Digitisation effects on the film value network
Source: adapted from OECD
Elements and timeline of digitisation • 1980s and 1990s
• Sound production • Digital imaging (CGI computer generated imagery) • Jurassic Park and Toy Story (animation)
• • • •
Editing Digital cameras Digital sounds systems (cinemas) Home video – DVD
• 2000s – • Digital projectors and D-cinemas (replacing 35 mm reels), DCI standards • 3D revival • Digital Television, increased # channels, 2012 in EU • (Blue ray) • Internet retailing and ‘rentailing’ • Digital distribution – video on demand, streaming, Youtube etc.
Digitisation effects on the film value network
• The production process • The distribution and marketing of films • Film commercialisation: • Theatrical exhibition • Non-theatrical exhibition • Release window structure
Producing digitally • Cost-efficiencies and increased flexibility, non-linear work processes • Audience interaction (e.g. crowd sourcing) and finding content • Lower market entry barriers • Globalisation of production networks ? BUT • Availability digital masters? • European industry slower in digitising than US • Digitisation of production archive? ⇒ Producer-distributor relationship ⇒ New players, incl. UGC and audience involvement
Digital distribution and marketing • Cost-savings and easier customisation (Sub-titlling, dubbing) • -> (trans-‐naBonal) distribuBon of European films
• Substantial cost-savings in reproduction and distribution (even for off-line) • Online and viral marketing strategies • -> may alleviate European weakness in marketing
BUT • Hollywood benefits most from cost-savings? Reinforce “blockbusterisation”? • How to get attention in a world of abundance? (Brand-names, intergration, marketing even more important) ⇒ Role distributor reconfigured ⇒ New players specialised in online distribution and rights management
Theatrical exhibition: digital cinema • Cost savings (mainly distributors), better quality, programming flexibility • Flexible programming strategies opportunity for exhibitors BUT • Costly and difficult roll-out (chicken-and-egg problem) • Smaller exhibitors may disappear ⇒ Emergence of third parties to facilitate roll-out ⇒ Relationship distributor-exhibitor
Evolution of digital screens and sites in Europe Digital screens 9,000 8,000 7,000 Africa and Middle East
6,000
Asia and Pacific
5,000
Europe
4,000
Latin America
3,000
North America
2,000 1,000 0 2004
2005
2006
2007
2008
2009
Source: European Audiovisual Observatory (2010). Yearbook 2010 Online Premium Service.
• Transition driven partly by 3D Source: Gunnarsson, 2010, The outlook for Packaged Media.
Non-theatrical digital/on-line exhibition/consumption •
Dematerialisation -> cost and time of delivery, time and place shifting, linearity of consumption (?)
• • •
VoD model offers opportunities for growth Opportunities of long tail Cross-border circulation facilitated
BUT • Slow-down physical home entertainment (blu-ray) not compensated by VoD revenues – piracy • Continued dominance Hollywood films and US players • Multi-territory licensing not taken up by sector ⇒ New VoD players (Netflix, Apple, Microsoft, etc.) ⇒ Relations between theatrical and non-theatrical ⇒ Illegal marketplace
Online revenue small, but growing
Source: EAO 2010 yearbook
Online revenue small, but growing
Source: KEA European Affairs, & MINES ParisTech Cerna (2010). Multi-territory licensing of audiovisual works in the European Union. Brussels: European Union.
Online film • started to gain some prominence in the mid 2000s when Apple and other big Internet players (Netflix, Amazon, Google) launched services, followed by Hulu (TV) 2008, Epix 2009 • Difficult to overview the European landscape • Increasing number of providers (200-400) providing 500-1000 services • Often nationally or regionally based • Variety of players • TV Broadcasters, distributors (operators), content aggregators, content producers
• Variety of modalities • Delivery platforms, delivery and payment models
Looking for business models pay for films
download-to-own (electronic sellthrough) pay per stream pay per download subscription models advertising-based model sharing model
free models
An online European single market? 100% 90%
12.2
12.01
11.6
80% 70% 60%
49.2
58.1 62.8
50%
Other EU US
40%
French
30% 20%
36.6 22.6
10%
30.3
0% Theatrical
Video
VoD
Comparison of (consumption) market shares for films in theatrical, video and VoD (France, based on 2008 CNC data) (KEA European Affairs & MINES ParisTech Cerna, 2010, p. 94)
Release windows under pressure
• Shorter windows: • Piracy • Marketing effects for smaller titles reinforced by cumulative release
• Against shorter windows: • Cannibalization effects • ‘Hit and run’ character blockbuster strategies reinforced
Digital opportunities and challenges Value network Opportuni@es
Challenges
ProducBon
-‐ Stronger audience Bes -‐ Digital source masters availability -‐ Flexible and more cost-‐ -‐ Back catalogue digiBsaBon efficient producBon networks -‐ Increased (global) compeBBon
DistribuBon
-‐ Content customisaBon -‐ Cost-‐savings and flexibility -‐ Online and viral markeBng
-‐ Blockbuster-‐driven character of distribuBon increased -‐ Difficult to draw a`enBon in a world of abundance
ExhibiBon
-‐ Flexibility and differenBated theatrical programming -‐ VoD potenBal -‐ Long tail -‐ Increased ‘buzz’ for smaller Btles in shorter release window context
-‐ Digital cinema roll-‐out -‐ Slow-‐down home entertainment market -‐ Lack of strong pan-‐European VoD players -‐ Online licensing problems -‐ Piracy
Conclusions • • • • • • •
Hollywood majors dominate Despite public support, European film industries fragmented Digitisation affecting the whole value network Value network expanding and reconfiguring Single market potential not taken up for now Digital revenues do not offset non-digital losses New power players are (again) based in US
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