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Film Industry Five Forces Analysis, Essay Example

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Words: 1236

Essay

The film industry is one of the most robust industries in the world, let alone the United States. The industry generated US$ 564 billion in revenue as of December 2014 (Parnell). Considering the figures provided, the film industry is at the center of the entertainment industry as a whole. In order to get a clear picture of the film industry, it is essential that we apply analysis to the industry. This will be completed with the help of Michael Porter “Five Competitive Forces” for industry analysis.

Threat of New Entrants

This is one of the currently growing forces within the industry. There has been a considerable increase in the number of entrants into the industry. This is largely owing to the increasing number of on-demand streaming sites. Most of the existing market players have faced increasing competition from on-demand streaming suppliers.

A salient example would be that of Time Warner Inc. The company has faced increasing competition from streaming film providers, it has opted to get into operations with such provider. About 5% of the revenue generated by Time Warner Inc. originates from licensing services as well as subscription services to these on-demand streaming websites (Hill and Jones). Time Warner Inc. foregoes the opportunity to advertise through its own TV and Film networks every time it receives revenue from on-demand media streaming sites such as Netflix.

Some of the on-demand streaming sites like Amazon and Netflix have ventured into their own film production. However, this is on a small scale. Regardless of the scale of production of films that these on-demand streaming sites have been able to realize, it provides the existing industry players competition.

One considerable barrier to entry prevails within the film industry, costs. The cost of producing films has increased over the years, creating the need for considerable capital and cash flows to sustain consecutive film projects. As such, most of the new entrants were deterred by the general high costs of operations as well as state-of-the-art equipment.

Threat of Substitutes

The threat of substitutes is a slowly growing but currently moderate. This is because as the film industry grows and expands, technological advancements and developments allow for the growth and development of alternative methods of content delivery (Parnell). Most of the film industry’s new entrants and competitors act as substitutes. Their economies of scope allows them to provide a diverse mix of delivery channels.

One of the growing trends in modern-day culture is the appreciation of live-art. As such theatre has become considerably popular, especially in Europe and the United States. A general increase in the number of people watching opera stems from efforts by new entrants and competitors to offer an alternative delivery channel for media content. With the dwindling in the number of world-class theatre performances, the prospect of watching high quality shows becomes more appealing to the market. This depicts a growing threat within the industry.

Diversity in the delivery channel creates considerable product differentiation. When customers find it difficult to compare products from players within the same industry, the market becomes clearly stratified. This is a positive aspect within the film industry.

Customers’ Bargaining Power

Customers have moderate power for bargaining on which product to use within the film industry. Consumers have the option of selecting to pay for or subscribe to services from any of the available film providers. This is limited by their ability to spend or disposable income. However, customers are only willing to pay for the highest quality material or content. As such, film producers and suppliers have to considerably invest in film projects to realize the highest possible quality in the finished product.

Customers can choose from a wide-range of products from the numerous film providers and suppliers. The preference of these customers is influenced by a number of elements. One of the most important element is the film genre. Customers can be broadly categorized to the film genres available (Fleisher and Bensoussan). Owing to the existence of a wide-variety of products to choose from, customers tend to rate films. As such, film producers and suppliers would tend to produce content that a desirable target market would respond to. This highlights one aspect on the bargaining power that customers wield.

Owing to the fact that a film’s success is directly related to the rating it receives from customers, producers and suppliers, advertising is of essence. The depth and scope of advertisement is essential for the success of any film within the industry. The level of advertising has a considerable influence on the rating a film would receive. By creating a rapport with the market, prior to release, producers and suppliers create anticipation within the market to ensure optimal sales and profits.

There has been an increase in the delivery methods of media content. While some customers would be willing to pay for movie tickets and watch the movie at a theatre, most customers prefer to buy the DVD copy of the movie while others prefer to either stream it online or download it. Most film companies would prefer to take advantage of all possible delivery channels. As such, film companies have to offer their finished product through all existing and developing delivery channels.

Suppliers’ Bargaining Power

This is a very low force within the industry. There are three main type of suppliers within the film industry; sports and celebrity agents, Intellectual property licensing creative and performing artists and fine arts schools. Most of the suppliers within the industry maintain some level of control as far as the supply for quality is concerned. However, the major industry players also have a considerable amount of control, far much more than suppliers.

Intensity of Existing Rivalry

This is the highest of the five forces. The film industry is a considerably large industry. This allows for the development of numerous players who can prosper without necessarily causing a change in market share. This allows for increased profitability for all players relative to the performance of their products within the market.

There are low exit barriers within the industry. This allows for smaller and weaker firms to exit the market, increasing profits for the remaining players. Weak players can easily liquidate fixed assets with minimal closure and redundancy costs.

The industry is currently growing at a fast rate. This is largely owing to the increase amounts of revenue that film companies and business realize per project. As a result of growing revenue across the board, the total size of the film industry also grows. This eliminated the need for competition from the existing players as the market share does not significantly influence the profitability one player compared to another.

Force Level
Intensity of Existing Rivalry High
Threat of New Entrants Moderate
Customers’ Bargaining Power Moderate
Threat of Substitutes Low
Suppliers’ Bargaining Power Low

In conclusion, according to the analysis provided above, I believe that the film industry is an attractive industry. This is because of the underlying potential for a new entry into the market with all the required resources and a rich and continuous flow of talent and ideas. A new entry into the market with such qualities could potentially thrive in this market.

Works Cited

Fleisher, Craig S and Bebbette E Bensoussan. Strategic and competitive analysis. Upper Saddle River: Prentice Hall, 2011. Print.

Hill, Charles W and Gareth R Jones. Strategic Management : Theory. Mason: South-Western, Cengage Learning, 2013. Print.

Parnell, John A. Strategic Management : Theory and Practice. Los Angeles: SAGE, 2014. Print.

Wheelan, Thomas L and David J Hunger. Strategic management and business policy : achieving sustainability. Upper Saddle River: Prentice Hall, 2010. Print.

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