Media and content industries Film industry case study Final workshop Sophie De Vinck & Sven Lindmark Sevilla, 27 October 2011
The research focus It s strengths and weaknesses The European film sector Going digital: opportunities and threats
Building blocks 4 Implications Strengths & Weaknesses Opportunities & Threats 2 The European film value network in a global perspective Digitisation across the value network 3 1 The film sector and its main economic/cultural, technological and policy features
I. Characteristics (1) economics of a cultural industry Economic value (job creation, VA, trade etc.) In EU: 75 firms, 60 bn sales, ca 20bn VA, 370 empl. Spill-over effetcs (creativity) Cultural value (social, aesthetic, etc.) policy and industry dynamics Particular economic characteristics Prototype (fixed vs. reproduction costs), strong economies of scale and scope, pricing (value largely not reflected in price), uncertain demand, semi-public goods, hit-driven Strategies for business control Portfolio approach, concentration & integration, formatting (stars, genres, sequels), versioning (release windows) Copyright
I. Characteristics (2) value network Four streams Multitude of players across the value network From individuals, SME, national companies specialized players, broadcasters etc. Hollywood majors Source: adapted from OECD
10 leading media groups based on AV-turnover Rank Companies Country Activities Movie subsidiary 2009 Sony Pictures, 1 Sony JP PROD, DIS, VG, REC Columbia 30245 2 Walt Disney US PROD, DIS, TV, VID, REC Walt Disney Studios 25482 3 Time Warner US PROD, DIS, TV, VID Warner Bros. 22769 News 4 Corporation US PROD, DIS, TV, VID 20th Century Fox 22699 DirecTV Group 5 Inc. US TV / 21565 6 Vivendi FR PROD, DIS, TV, VG Canal + Group (Studio Canal) (and 20% stake in NBC Universal) 17133 7 Nintendo JP VG / 15474 8 NBC Universal US TV, PROD, DIS Universal Studios 15436 Paramount, 9 Viacom US TV, PROD, DIS Nickelodeon, MTV 13619 10CBS Corp. US TV, RAD / 10684 Adapted from : European Audiovisual Observatory
I. Characteristics (3) Policy European tradition of public support: aimed at strengthening fragmented European (national) film industries vs. omnipresent Hollywood majors Total 2.1 bn. spend in 2009 280 funds of which > 1.9 billion by national (and sub-national) funds Almost 0.6 bn in France 69% to production (creation) of which 62% to feature films 20-25% (up to 60% of budget) of production publicly funded Increasing number of films, dependency on support. Less commercial orientation European level Support: Eurimages (co-productions) & MEDIA (not production) Harmonization, copyright, competition policy, and state-aid policy.
I. Characteristics (4) innovation Digital the latest in a series of major innovations Innovations affecting the film product Sound (1920s-1930s) Colour (1930s-1960s) Widescreen (1950s) 3D (1950s, now) Innovation affecting commercialisation Television (1950s-1960s) Home video (1970s-1980s) Long transition periods Sector traditionally reluctant vis-à-vis innovation Drivers of transition: costs, standards, audience response, content availability Hollywood on top after each transition period Digital (1990s-) affects all parts of the value network
Innovations often expanded the market Worldwide revenues, USD Billion source: MPA and (Epstein, s.a.)
II. The European film value network 1. Production (negative stream) 2. Distribution and marketing (P&A stream) 3. Exhibition (theatrical & non-theatrical) 4. Auxiliary activities
II. 1) Production Strengths Large and diverse range of companies and films Acclaimed strong creative (director) tradition ever more films
European film production evolution # films per year source: European Audiovisual Observatory (2009, 2010). Yearbook 2010 Online Premium Service.
II. 1) Production Strengths Large and diverse range of companies and films Acclaimed strong creative (director) tradition Weaknesses Lack of resources into early development and selection -> less mature films go into production Lower investments Problematic financing (lack of private financing) Leading to a dependency on public support
Investment gap large and increasing Average budget per film 2008 Region ($M) North America 22.96 Western Europe 6.13 All Europe 4.73 Far East 4.29 South America 2.86 C/E Europe 0.67 Asia 0.44 Source: Screen Digest Total film production levels investment levels
II. 2) Distribution and marketing Mirrors production Increasing share of costs
The importance of marketing Total production and P&A costs (in US$ million) for the average MPAA film
II. 2) Distribution and marketing Mirrors production Increasing share of costs Large # of films finds their way to distribution, but not across borders Distribution dominated by majors European distributors territorially fragmented Marketing weakness Strong film festival tradition main alternative A struggle to connect the glut of films with their audience
II. 3) Exhibition - Release window system Sequenced release Different times at different prices Typically (was) 6-9-12-24 months Shortening (DVD, marketing and piracy)
II. 3) Exhibition Theatrical window Large and diverse exhibitor sector less screens/consumption than US Trend towards consolidation and multiplexes smaller cinemas at risk favoring US blockbusters US films dominate in Europe and outside Europe European films do export well outside their national home market European film consumption is nationally based, with only Hollywood as common factor
US movies dominate (increasingly) in Europe European theatrical market shares Region 2006 2007 2008 2009 2010 (prov) US 63.4% 62.6% 65.5% 66.9% 68.0% European films EUR inc/us coproductions 27.9% 28.1% 28.3% 26.8% 25.3% 5.6% 7.5% 4.4% 4.0% 5.4% Others 3.2% 1.8% 1.8% 2.3% 1.3% source: European Audiovisual Observatory (2011). Focus 2011. World Film Market Trends. Strasbourg: EAO.
..and elsewhere 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. Hollywood is common film culture in Europe and beyond
European films do not travel well other home market Admissions millions source: European Audiovisual Observatory (2010). Yearbook 2010 Online Premium Service.
II. 3) Exhibition Home video window Total VHS, DVD and Blu-ray sales ( million) Source of growth since the 1980s Driven in 2000s by DVD Shift from rental to retail Recent signs of decline Dominated by US films perhaps more than for theatrical movies despite early hopes for a long-tail Source: EAO
II. 3) Exhibition - TV Important investor in European films, but screen time reserved for Hollywood films 59% screen time of US films Prime-time probably higher
European strengths and weaknesses Value network Strengths Weaknesses Production Large and diverse number of companies and films Auteur cinema tradition Lack of integrated majors Lack of selection and development Low investment levels Lack of private funding Dependent on public support Distribution Exhibition Many films distributed Strong film festival tradition Large, mature and varied consumption Fragmented and concentrated market Lack of marketing tools Theatrical and non theatrical dominated by Hollywood Lack of cross border circulation
III. Digitisation across the value network (1) 3 decades of digital transition 1980s and 1990s Sound production Digital imaging (CGI computer generated imagery) Editing Digital cameras Digital sound systems (cinemas) DVD 2000s now D-cinema and 3D Digital Television (Blu ray) Internet retailing and rentailing Digital distribution VoD, sharing platforms etc.
III. Digitisation across the value network (2) affects whole value network Benefits Cost / efficiency Flexibility Quality improvements
III. Digitisation across the film value network 1. Production 2. Distribution and marketing 3. Commercialisation: impact on release windows 4. Exhibition: theatrical 5. Exhibition: non-theatrical
III. 1) Producing digitally Cost-efficiencies and increased flexibility, non-linear work processes Lower entry barriers Audience interaction and crowd sourcing Internationalization of production networks? BUT Rising costs for block-buster prod. Availability digital masters and division of costs European industry slower in digitising than US Digitisation of production archive Low cost country competetition? Producer-distributor relationship New players, incl. UGC and audience involvement
III. 2) Digital distribution and marketing Substantial cost-savings in reproduction and distribution (even for off-line) Easier customisation offers opportunities for transnational circulation Online and viral marketing strategies may help European sector BUT Hollywood benefits most from cost-savings blockbusterisation How to get attention in a world of abundance importance of branding, marketing reinforced Role distributor reconfigured New players specialised in online distribution and rights management
III. 3) Exhibition - release windows Industry, pricing and copyrights aligned to old system Trend to shorter windows: Piracy (and legal online) Marketing effects for smaller titles reinforced by cumulative release Arguments against shorter windows: Cannibalisation effects Hit and run character of blockbuster
Piracy Rose with the growth of home video market DVD in particular Put aside because of growth of legal DVD market Online augmented piracy (increased supply and demand) to levels where it begins to be a (perceived) threat Un-nuanced partly ideological doom-gloom debate Real direct (substituting) and indirect negative impact - threat
III. 4) Theatrical exhibition Better, more consistent quality Cost savings (mainly for distributors), Flexible programming strategies opportunities to diversify the theatrical experience BUT Costly and difficult roll-out (for exhibitors) Smaller art-houses even more at risk Emergence of third parties to facilitate roll-out Relationship distributor-exhibitor
Evolution of digital screens and sites in Europe Source: European Audiovisual Observatory (2010). Yearbook 2010 Online Premium Service. Transition behind but in full swing, driven by: DCI standard Business model innovations, 3 rd party integrators VPF 3D boom
III. 5) Non-theatrical digital exhibition Dematerialisation impacts on consumption (cost and time of delivery, time and place shifting, linearity of consumption) VoD offers opportunities for growth Opportunities of long tail Cross-border circulation facilitated BUT Slow-down physical home entertainment (DVD) not compensated by VoD (or blu-ray) Continued dominance Hollywood films and other (new) 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: KEA European Affairs, & MINES ParisTech Cerna (2010). Multi-territory licensing of audiovisual works in the European Union. Brussels: European Union.
Online revenue: forecasts Total European consumer spending on physical and online home entertainment (2008-2014 forecasts) (figure from (Gunnarsson, 2010)) Note: Digital movies contain both rental and retail; while TV Vod comprises movies but also TV shows and sports. Therefore the actual size of the movie market is somewhat lower.
EU online landscape Poorly documented Large and growing number of companies (200?) offering a large and growing number of services (1000?) Ranging from broadcasters, to Telco and cable operators, to content aggregators, and HW manufacturers Major players include Apple, Microsoft, Google, (Netflix) Over a variety of platforms, delivery and business models
Looking for business models pay for films download-to-own (electronic sellthrough) pay per stream pay per download subscription models advertising-based model free models sharing model
An online European single market? 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)
Summing up opportunities and challenges Value network Opportunities Challenges Production Stronger audience ties Flexible and more costefficient production networks Digital source masters availability Back catalogue digitisation Increased (global) competition Distribution Exhibition Content customisation Cost savings and flexibility Online and viral marketing Flexibility and differentiated theatrical programming VoD potential Long tail Increased buzz for smaller titles in shorter release window context Blockbuster driven character of distribution increases Difficult to draw attention in a world of abundance ( Digital cinema roll out) Slow down home entertainment market Lack of strong pan European VoD players Online licensing problems Piracy
V. Conclusions: SWOT Digital opportunities and European S/W: a potentially good fit Could foster cross-border reach of European film industries BUT Signs of reinforced fragmentation Global dominant power players remain in control
V. Conclusion Policy and sector challenges Preserving a diverse offer: art-house d-cinema, viable VoD offer as alt. to piracy Fostering networking and exchange Developing market financing opportunities and ensure multiterritory licensing viability Connecting supply and demand: audience literacy, subtitles. What role for the European policy? A logical partner already taking initiatives A contested role (by MS, stakeholders) perceiving the coomon market as a threat A brake on their action radius
Thank you! Suggestions? Questions?