Managerial Economics - Market Structures

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and modems are tacked onto customers cable bills as well.

Film Industry - Summary

The film industry has been making motion pictures for over 100 years. Back in the ‘Golden Age’ of Hollywood (1930’s-1950’s), there were five major movie studios. Today, there are dozens of movie studios, but they are divided up among six major conglomerates: Time Warner, Fox, Viacom, Disney, Comcast, & Sony (“The Oligopoly…”).

Film Industry - Why it’s an Oligopoly

The film industry fits the definition of an oligopoly because it has several major players (the six conglomerates listed above), barrier to entry is difficult but not impossible (if a hot new movie studio popped up, it would like be acquired by one of the big six - similar to Disney acquiring Pixar in 2006), and there is a general lack of competition (independant studios don’t make enough revenue to truly threaten the top studios).

Film Industry - Number of Firms

There are approximately 73 movie studios operating in the United States ("Movie Studios A-Z", 2017). Below is a simplified chart that shows how each major studio is a parent company for the others

Film Industry - Market Power

The film industry exerts great market power within its circle of studios. Anytime an independant studio emerges, they are usually acquired quickly by one of the larger firms. This keeps competition virtually between the ‘Big Six’.

The major studios in Hollywood have consistently demonstrated that they possessed superior promotion capabilities than rival film industries. As new technology emerged, studios adapted their media strategies to take advantage of the advertising opportunities presented by those new media (Silver, 2007).

Film Industry - Barriers to Entry

One of the main barriers to entry in the film industry is the vertical integration that has taken place among the studios. For example, in addition to making movies through several different studios, Disney also owns ABC television - giving Disney an additional channel to show their movies after their theatrical run.

Studios are also able to spread out the risk of their projects more than smaller studios. Many movies can recoup losses from their theatrical runs on the home video market. Big studios also have the luxury of global distribution, which gives their projects a wide and diverse set of markets to possibly succeed.For example, The Mummy starring Tom Cruise was not a big hit in the U.S. but it was a big hit in China (Zhang, 2017).

Film Industry - Profit

The film industry brought in roughly $11.3 billion in North America in 2016, about $3 billion of which was profit. However profits fell about 17%, with a revenue growth of only 2%. Ticket sales also fell from 1.4 billion in 2006 to 1.3 billion in 2016 (Faughnder, 2016).

There are several reason for the dip in profits. One of the bigger reasons is the emergence of digital streaming and rentals. If people want to watch a movie, they no longer have to go the local theater or movie rental store. With streaming channels like Netflix and Amazon, they don’t even have to leave their couch. People are also showing more patience and are willing to wait until a movie is available on one of their at-home options.

With the rise of the internet, piracy has also cut into Hollywood’s profits. Not only do pirates not have to go to the theater to see the movie, but they aren’t paying for the movie at all.

Film Industry - Product Characteristics

A movie (also known as feature films and motion pictures) is a video production that is a top entertainment option in the U.S. Most movies run between 90 and 120 minutes. They can been live action or animated - or even a combination of the two. A typical movie can take two years from conception to release, including two to three months of filming and up to a year of post production. Most movies employ hundreds of people, including writers, directors, actors, and crew.

The majority of major movies are released in theaters, most of which are independently owned and operated by national chains like Cinemark and AMC. A movie stays in the theater for about 4-6 weeks on average, but it could be longer or shorter depending on its success.

After a movie is pulled from theaters it is released for sale on home video, with both physical copies in stores and digitally. In an effort to encourage the purchase of movies, most aren’t immediately available for home rental until a few weeks later. Finally, the movie is licensed out to streaming and television channels.

The bigger budget movies often have very large advertising campaigns and product tie-ins like toys, clothes, video games, and more.

Analysis of the Producers and Market Structures

Compare and contrast advertising expenditures across the market structures of the two industries

One might wonder why a monopoly would feel the need to advertise when they don’t face any direct competition. But even in a monopoly it is important to keep goodwill amongst the public and keep them aware of your product. For example JEA, a utility company based out of Jacksonville, Florida, spent $1.5 million on advertising in 2004. JEA says it focuses its message on safety and ways customers can conserve energy to lower their bills and protect the environment. However, that advertising expense of $1.5 million is a very small percentage of their overall $1 billion budget (Galnor, 2004).

Monopolies also need to advertise in order to increase revenue. They don’t need to differentiate their product from any competitor’s, but they still need to tell people how they will benefit from their product. For example, in the age of ‘cord cutters’ Comcast will tell customers how wonderful it is to have cable and to introduce new products such as their voice activated remote control ("The X1 Voice Remote Overview").

Oligopolies on the other hand, need to differentiate their products as much as possible since they can’t change their prices. For example, two movies playing at the same theater will cost the same even if one is longer than the other or cost more to produce. So it’s up to the studios to use advertising to entice customers to watch their movie over any other movie that is released at that time. For example, 2014’s Transformers: