This paper analyzes the competitive strategy used by the movie exhibition industry, identifying internal strengths and weaknesses, and analyzing the external environment. It provides recommendations to enhance the business operations of the industry.
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Running head: HI6006 Case Analysis and Application of Strategy Models Student’s Name: Student’s ID: Subject:
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COMPETITIVE STRATEGY1 Executive Summary The paper helps in analyzing the competitive strategy used by the movie exhibition industry. It helped in identifying the internal strengths and weaknesses of the industry that positively and negatively affects the growth of the industry. It also provided an analysisoftheexternalenvironmentthataffectsthebusinessoperationsofthe company in the US. Based on the analysis of the external environment, it identified the environmental opportunities and threats of the industry. It has been observed that the industry makes appropriate use of corporate-level and business-level strategy that helps the industry to develop suitable structure and implement control systems. Moreover, it can be seen that the implementation of the control systems helps the industry to control other variables. The paper also provided recommendations to enhance the business operations of the industry.
COMPETITIVE STRATEGY2 Table of Contents Analysis of Movie Exhibition Industry's history, development, and growth.......................3 Identification of the company's internal strengths and weaknesses.................................3 Analysis of the external environment.................................................................................3 Evaluation of the SWOT analysis......................................................................................5 Analysis of corporate-level strategy...................................................................................5 Analysis of business-level strategy....................................................................................6 Analysis of structure and control systems.........................................................................6 Recommendations.............................................................................................................6 References.........................................................................................................................8
COMPETITIVE STRATEGY3 Analysis of Movie Exhibition Industry's history, development, and growth Since 1996, Ticket sales for movie exhibitions are at their lowest point. The exhibition is determined to be the retail branch of the film industry. It includes the production and the distribution of motion pictures as well as site devoted to screening the movie exhibition for paying consumers. In the past decades, the film exhibitors have faced various critical situations that put an impact on the commercial entertainment industry. Depending upon the costly investments in new technologies, government regulatory actions, strong competition, and shifting market conditions, the industry has put efforts to attain control over the field (Kumb, Kunz and Siegert, 2017). Ticket sales and concession sales are determined to be the two biggest revenue for Movie Theater that enhances the growth of the movie exhibition industry. The industry follows the strategy of using technological equipment’s to enhance their ticket sales. Based on this strategy, they negotiate the percentage with the box office by initiating a contract with the exhibitions and studios. Identification of the company's internal strengths and weaknesses The Movie Exhibition Industry possess following internal strengths and weaknesses are as follows: Internal strengths The significant strength of the industry is that entertainment is it makes wise use of advertisements and concession pricing. It is determined to be a cheaper option as comparedtocompetitors(Prieto-Rodriguez,Gutierrez-NavratilandAteca-Amestoy, 2015). The movie exhibition makes efficient use of digital screen technology to cater to the screening schedules for the local audiences. Approximately 50% of the total screen is considered to be 3D-enabled. Internal weaknesses The changing preferences of the customers are determined to be the major weakness of the industry. The premium upgradation of tickets and dependence on revenue concessions are effective but not consistent (Orhun, Venkataraman and Chintagunta, 2015). The overall health of the industry is affected due to more efficient alternatives. Analysis of the external environment The industry possesses some of the environmental opportunities, and threats are as follows: Opportunities New advancement in technology and increasing number of films helps the movie exhibition industry to facilitate exciting experience based on Movie exhibition (Bernardo, BorrellandPerdiguero,2016).Thenewventureenablesindependentproduction studios to deliver their new movies to the exhibition companies.
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COMPETITIVE STRATEGY4 Threats The increasing number of competition through alternative products is a major threat facing the movie exhibition industry. The increasing demand for streaming services or video subscriptions declines the market share of the industry. It also deals with the threat of piracy as it encrypts all the files. On the other, macro environmental factors that affect the movie exhibition industry are as follows: Demographic factors Around 68% of US population prefers to watch movies at least once in a year. Out of this, 49% of moviegoers are males, whereas 51% are females. In terms of age, the largest proportion of moviegoers, around 22% comprise of 25-40 year old. All these factors affect the growth of the industry (Legouxet al.,2016). Political factors The biggest political factor that affects the industry in the US is the availability of online piracy for digital media. The industry also gets affected by the shared entertainment media that is based on sharing and downloading the movies. Economic factors The movie exhibition industry is affected by the current US economic recession, but as thecustomerspreferaffordableformsoffamilyentertainment,watchingmovies becomes a smart, economical choice (Fox, 2015). The sale movie tickets in the US helps the industry to view their highest return on concession sales. Socio-cultural factors There has been an increased demand for the movie exhibition industry due to the multiple food offerings. As a result, the industry is affected by the threat of food labeling that increases customer awareness. Technological factors The technological factors that affect the movie exhibition industry in the US are the transformation from traditional film-based cinemas to digital cinemas. As a result, the industry starts making use of 3-D digital technology and global ticket sales for creating 3-D movies (Chang and Chiu, 2016). Ecological factors The analysis of Porter's five forces model for movie exhibition industry are as follows: Competitive rivalry Theintensityofcompetitionamongtherivalsinthemovieexhibitionindustryis moderate to high. The existing rivals within the international market are struggling to gain customer loyalty and more admissions.
COMPETITIVE STRATEGY5 Supplier power The bargaining power of supplier within the industry possesses the ability to reduce the profitability of the exhibition by reducing quality and increasing the cost. This helps film distributors like movie studios moderate to high bargaining power. Buyer power When it comes to larger chain movie exhibition brands, the bargaining power of buyers is high due to the low switching cost (Huang, Markovitch and Ying, 2017). The buyer power is affected due to some factors such as seating, sound quality, video quality, and concessions. Threat of substitution The threat of substitute products is moderate to high. The biggest threat is the use of home theater that has reduced the prices enabling the customers to establish their version of home cinema. The threat of new entry The threat of new entrants in the movie exhibition industry is low. Various factors such as the need to use high definition projectors and digital film, building a brand new movie theater and following the rules and regulations (Ji and Waterman, 2015). Evaluation of the SWOT analysis Based on SWOT analysis, it can be seen that the movie exhibition industry makes excellent use of new digital technology with the help of 3-D optional features. The industry builds more and large megaplex and multiplex (Takahashi, 2015). On the other hand,basedonitsweaknesses,ithasbeenfoundthatthepreferencesofthe consumers based on their film choices puts tremendous pressure on the industry. On the other hand, the industry gets various opportunities to create new innovative movies with the help of new advancement in technology. This opportunity helps the industry to generate higher revenues within the market (Natividad and Sorenson, 2015). Furthermore, the industry also faces threats from its competitors, such as alternative products as well as increasing demand for streaming services or video subscriptions that will negatively impact the business operations of the industry. Analysis of corporate-level strategy The mission of the industry is to exhibit, produce, distribute, and educate people regarding movies by promoting the art of the movie image. The industry aims to achieve this mission through these goals: ï‚·Educating the society about movie ï‚·Provide high-standard theater experience ï‚·Encourage passion for a movie for every audience The corporate-level strategy of the industry is based on the growth of the exhibition companies.Themovieexhibitioncompaniespossessanabilitytodiversifytheir operations to gain profitability. However, the industry implements further diversification strategies that help in improving the entire cash flow and reduce long-term debt (Yiet al.,2018). As a result, it implements this strategy domestically by consolidating and
COMPETITIVE STRATEGY6 underperformingtheaterlocationswheretheypossessahugerangeofmovies. Implementingthisstrategyhelptheindustrytoexpanditsglobalpresenceand maximize the demand for digital movie projection. Analysis of business-level strategy Based on a business-level perspective, the movie exhibition industry makes use of cost- leadership strategy. While looking at the price range of the geographic regions, the movie theaters possess an average ticket price of $7 to $10. As a result, to overcome with the threat of increased price of the tickets, the industry must make efficient use of flexible pricing model that would enable tickets to be priced as per the demand of the consumers (Shih and Liu, 2016). Implementation of this model is being executed with the help of the studios that leads to a higher price per admission for blockbuster movies. Theindustrymakesuseofcost-leadershipstrategytodifferentiateitselffromits competitors within the market such as concert footage, plays or ballets or televised professional sporting events. Analysis of structure and control systems The corporate level strategy helps the industry to establish an appropriate structure for the companies to implement relevant strategies. From manufacturers to customers, the industryfunctionsexactlylikeindustriessuchasfoodproducts,clothing,and automobiles. The machine used to present the movies works under regular economic laws and rules. The exhibition and distribution movie industry is highly concentrated. The box office revenues increased by $500 million in the year 2016 (Huang, Markovitch and Ying, 2017). As a result, the industry is making use of vertical structure to gain benefits and significant market power. On the other hand, the industry follows the control systems, where 50% of the cinema screens generates 70% of the total box office revenue. The industry has control over the film copyright, where the distributors always try to control the important variables that put an impact on box-office revenues (Khajeheian, 2018). As a result, the exhibitors controls a huge proportion of the effective screens. Recommendations To expand the business globally, it is highly recommended that the industry must diversify their business operations to various locations. The industry must make efficient use of strategic acquisitions to gain a competitive advantage within the international market. The industry must finance the strategy with current assets in the form of cash equivalents and cash flows. It is also recommended that to overcome the threats; the industry must seek assistance from distribution and exhibition sectors to establish a dispute setting mechanism and industry code of conduct. Moreover, the ability of the distributors based on session needs and the excessive session must be enhanced by the market power of the industry. To increase the revenues, the film distributors focus upon the terms and conditions imposed by the exhibitors. To enhance its productivity and profitability within the international market,
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COMPETITIVE STRATEGY7 the industry must focus upon different admission prices, competing for films, release strategies,andtitles.Furthermore,tocreateacompetitiveadvantage,themovie exhibition industry must offer amazing options to its huge-consumer base through different utilization of space. This would help in attracting more number of customers to watch movies.
COMPETITIVE STRATEGY8 References Bernardo, V., Borrell, J.R. and Perdiguero, J., 2016. Fast charging stations: Simulating entry and location in a game of strategic interaction.Energy Economics,60, pp.293- 305. Chang, W.L. and Chiu, C.L., 2016. Coopetition under alliance? Applying awareness- motivation-capability competitive dynamics perspective.Journal of Business Economics and Management,17(5), pp.701-716. Fox, M., 2015. The economics of drive-in theatres: from mainstream entertainment to nostalgiaonthemargins.Economics,Management,andFinancialMarkets,10(3), pp.43-56. Huang,D.,Markovitch,D.G.andYing,Y.,2017.Sociallearningandnetwork externalities in decision making.European Journal of Marketing,51(1), pp.157-176. Ji, S. and Waterman, D., 2015. Vertical ownership, technology, and programming content.Handbook on the Economics of the Media, Cheltenham, Edward Elgar, pp.36- 52. Khajeheian, D., 2018. Market analysis, strategy diagnosis and opportunity recognition in toyindustry.InternationalJournalofEntrepreneurshipandSmallBusiness,33(2), pp.220-240. Kumb, F., Kunz, R. and Siegert, G., 2017. Research on the motion picture industry: Stateoftheartandnewdirectionsoffthebeatentrackawayfromtheatrical release.Journal of Economic Surveys,31(2), pp.577-601. Legoux, R., Larocque, D., Laporte, S., Belmati, S. and Boquet, T., 2016. The effect of critical reviews on exhibitors' decisions: Do reviews affect the survival of a movie on screen?.International Journal of Research in Marketing,33(2), pp.357-374. Natividad, G. and Sorenson, O., 2015. Competitive threats, constraint, and contagion in the multiunit firm.Organization Science,26(6), pp.1721-1733. Orhun, A.Y., Venkataraman, S. and Chintagunta, P.K., 2015. Impact of competition on product decisions: Movie choices of exhibitors.Marketing Science,35(1), pp.73-92. Prieto-Rodriguez,J.,Gutierrez-Navratil,F.andAteca-Amestoy,V.,2015.Theatre allocationas adistributor’s strategic variableover movieruns.Journalof Cultural Economics,39(1), pp.65-83. Shih, T.Y. and Liu, Z.A., 2016. Wrong gallery: A new paradigm for art space.Journal of Cases on Information Technology (JCIT), Takahashi, Y., 2015. Estimating a war of attrition: The case of the us movie theater industry.American Economic Review,105(7), pp.2204-41. Yi, X., Fu, X., Jin, W. and Okumus, F., 2018. Constructing a model of exhibition attachment: Motivation, attachment, and loyalty.Tourism Management,65, pp.224-236.