External Environment Analysis
The motion picture industry value chain consists of three stages: studio production, distribution, and---the primary focus here---exhibition. When analyzing the external environment of the movie exhibition industry, we will look at the competitiveness of existing firms, threat of new entrants, strength of suppliers, strength of buyers, and threat of substitute products or services.
Four companies dominate the industry: Regal, AMC, Cinemark, and Carmike. There is a great deal of competition between these four companies, but it all comes down to how far the theater is from home, convenience of parking, and proximity to restaurants. These factors ...view middle of the document...
The strength of buyers is very low in this industry. As stated before, there are very few if any substitutes for the movies used by theaters. However, because the four major companies dominate 43 percent of screens in the country, this market share provides them with negotiating power for access to films, prices for films and concessions, and greater access to revenues from national advertisers.
The threat of substitute products and services is very high in this industry. While there may not be other theaters to attend, the creation of Netflix, Hulu, Amazon Video, etc. have brought about a huge change in how we view videos. There are many on demand video services to choose from and many people are spending money on creating their own home entertainment centers in order to view their own movies instead of paying high prices to go to a theater. Males under 25 years-old, a core movie audience, saw fewer films this past summer but watched more DVDs, played more video games, and surfed the Web more often than previously, according to a study released by Online Testing eXchange (The Epoch Times 2005).
Attractiveness of Industry
Based on the analysis of the external environment of the movie exhibition industry, I do not believe that it is an attractive industry. The competition is high, the suppliers have more power than the buyers do, there is a high level of substitute products, but not a high threat of new entrants. The industry is costly to enter and there are already major companies that dominate majority of the industry. I would not consider this an attractive market to enter.
Threat to Profitability
When it comes to profitability, I would say that the threat of substitute products and the suppliers are the biggest threats to the movie exhibition industry. Now that there are other alternatives to going to the movies and the decline of the economy, more and more people are staying at home to either rent a movie or watch it from an on demand viewing service. These video on demand or subscription services can afford to bargain with the suppliers and pay the high prices because majority of the companies that own these services make most of their money elsewhere. Theaters make most of their revenue from ticket sales and concessions. Ticket sales stand to cover operating costs and theaters mostly rely on the sale of concessions to make their profit. In turn, they rely on the suppliers to give them the content that is drawing customers in to buy these concessions. If there are not any good movies in the theaters, who is coming to buy the concessions?
The demographic segment of the movie exhibition industry consists mostly of young adults to the middle-aged. The middle-aged group has seen a decline in movie attendance in recent years. According to Lieberman (2013),
People between ages 25 and 54 accounted for 52% of the sales, down from 56% in 2011, and 57% in 2010. By contrast,...