Motion Picture Production and Distribution

SIC 7812, 7822

NAICS 512110, 512120

In what is commonly known as the movie industry, global firms record, publish, and disseminate motion pictures primarily to theaters and broadcasters. In addition, a strong secondary market exists in which films, after movie showings (or bypassing theaters in some cases) are transferred to videotape or DVDs and sold or rented directly to consumers. The movie industry also produces movies exclusively for television viewing. See also Video Tape Rental and Retail.

INDUSTRY SNAPSHOT

In the movie industry, globalization is the name of the game. In mid-2004, for example, The New York Times revealed that international ticket sales represented about 60 percent of worldwide box office receipts, up from 40 percent in 2002. In 2003, member companies of the Motion Picture Association of America (MPAA) reported total global revenues of US$41.2 billion, with 40 percent coming from international sales. As the industry became more international, casting actors with international appeal became more important to success at the box office.

In the early 2000s, economic conditions swung in favor of the motion picture industries of many industrialized countries such as the United States, France, Germany, the United Kingdom, and Japan. In most cases, particularly as much of the world found itself in a recession in 2001 and in a mood for cheaper, close-to-home entertainment after the September 11 acts of terrorism, box-office receipts and attendance rose during this period to new highs in some cases, and several countries released record breaking blockbusters.

Following record box office totals in the early 2000s, the U.S. motion picture industry continued to fare well heading into the mid-2000s. In 2003, box office receipts totaled US$9.5 billion, down less than 1 percent from 2002 and the second-highest level in industry history. Theater admissions were down 4 percent in 2003, to about 1.6 billion. Nevertheless, this was still impressive considering the competition movie theaters faced from the likes of video games, television, VCRs, DVD players, the Internet, cable television, and satellite TV.

By the mid-2000s, DVDs represented a growing revenue pool for moviemakers. Citing data from Adams Media Research, The Economist indicated that DVD rentals and sales made up some 40 percent of movie studio revenues by 2003, up from 1 percent in 1997. In the United States alone, consumers spent US$22.5 billion on videocassettes and DVDs combined in 2003. Some analysts argued that relying on DVD sales made the industry more vulnerable to the growing problem of piracy, which had wreaked havoc on the music industry. In mid-2004, the MPAA reported that the motion picture industry lost US$3.5 billion because of piracy.

BACKGROUND AND DEVELOPMENT

The U.S. film industry began in 1889 when Thomas Edison invented the kinetoscope, a primitive version of the movie projector. In 1896, Edison showed the world's first movie in New York with his Vitascope projection device. Technological advances in the 1920s synchronized a movie's sound with its picture, enhancing the cinema experience and opening the door to many new possibilities. Hollywood, California, soon became the world's capital of movie production and the home of the blockbuster, the kind of film in which large amounts of money are invested in production and marketing in the hope of reaping huge profits. In 1915, D.W. Griffith produced Birth of a Nation with US$110,000. That 158-minute U.S. Civil War epic reaped over US$50 million at the box office. Griffith also helped put Hollywood on the map by spending the winter of 1910 in Los Angeles with his cast and crew.

While France and Italy all but owned the world's movie market before World War I, after the war Hollywood emerged as the industry powerhouse, a position it held for the rest of the century. Hollywood was full of business-smart immigrants who were bent on making a mark in their new homeland. Adolph Zukor merged his own production company into his new acquisition of Paramount Pictures in early 1910. Carl Laemmle started Universal Film, and William Fox created Twentieth Century-Fox in 1912. Marcus Loew purchased Metro Pictures, which was owned by Louis Mayer, and merged the two companies with Goldwin Pictures to create Metro-Goldwyn-Mayer. The four Warner Brothers started filmmaking in 1912. These companies dominated films by 1919, much to the consternation of Charles Chaplin, Mary Pickford, Douglas Fairbanks, and David Griffith, who founded the sixth major studio, United Artists. All these firms competed fiercely against each other during the 1930s. The 1940s were even better times for the industry, with military propaganda and home-front melodramas to produce before and during World War II, and the upbeat postwar U.S. mood to portray after the war. However, the creation of television in the 1950s shook Hollywood for about 15 years, until movie makers assumed a meaningful role in producing television shows. Soon, the blockbuster production movie created a new era of US$10 million movie advertising budgets that helped to draw world audiences.

In the mid- to late 1990s, the movie industries of countries around the world began to privatize and become more market dependent—instead of government dependent—allowing them to compete more effectively with the U.S. industry. The growth of international demand for movies was supported by the worldwide expansion of large multi-screen theaters (multiplexes) that allow theaters to screen many movies at once.

From 1997 to 2002, U.S. movies such as Pearl Harbor and many other films earned more abroad than at home, partially because of weakened cinema industries around the world and partially because of better release schedules in other countries than in the United States. For example, in 2002 when studios released the three action-adventure movies Collateral Damage, Hart's War,, and John Q around the same time in the United States, these movies were forced to compete head to head for the U.S. audience. However, international distributors have more control of their release dates and can phase them to leave several weeks between each launch, allowing audiences in those countries to develop an appetite for a certain genre again.

CURRENT CONDITIONS

Although many entertainment sources vied for consumer attention by the mid-2000s, home theaters in general and DVDs in particular provided apt competition for traditional movie theatres. As DVD player prices fell below the US$30 mark for some units and the number of available titles continued to explode, the number of DVD-equipped households continued to rise. By the end of 2004, more than 70 million U.S. households and 171 households internationally had a DVD. In China, about 42 million households had DVDs. Citing data from Adams Media Research, The Economist revealed that DVD rentals and sales made up some 40 percent of movie studio revenues by 2003, up from 1 percent in 1997. In the United States alone, consumers spent US$22.5 billion on videocassettes and DVDs combined in 2003. In its 2004 annual report, Time Warner reported that the largest driver behind its growth in the filmed entertainment segment was the sale of DVDs from its library of film titles.

Just as DVDs represented lucrative profits for moviemakers, some industry analysts warned that reliance on DVDs made the industry more vulnerable to the growing problem of piracy, which had decimated profits in the music industry. By the mid-2000s, the proliferation of DVD recorders made it easier and faster than ever to pirate copies of movies. This problem was especially prevalent in Asia, where illegal copies of popular movies—made with video recorders in theaters or from advance preview releases—were available on street corners and high-class hotels alike for less than US$1. The rising number of broadband Internet connections also made illegal movie downloads easier for computer users.

According to MPAA figures, by 2004 piracy cost the motion picture some US$3.5 billion worldwide. In the March 29, 2004 issue of Amusement Business, Warner Brothers Pictures International Distribution President Veronika Kwan-Rubinek explained that in 2003, losses from piracy totaled US$275 million in Russia, followed by US$120 million in the United Kingdom, and US$100 million in Germany. Although there were no easy answers to the growing problem of piracy, the industry was responding with educational outreach to promote the criminal aspect of piracy, as well as digital rights management technology.

The movie industry's globalization continued into the mid-2000s. By mid-2004, international ticket sales represented about 60 percent of worldwide box office receipts, up from 40 percent in 2002. In 2003, the MPAA's member companies reported total global revenues of US$41.2 billion, with US$16.6 billion coming from international sales.

As some blockbuster films, including those in the Lord of the Rings and Harry Potter series, doubled their U.S. box office returns with strong international showings, actors with international appeal became more important. In the July 5, 2004 issue of The New York Times, Stephen Moore, president of international film and home entertainment at Twentieth Century Fox, said that "Hiring international talent is a movie-making law." In this environment, international actors who formerly played supporting or villainous roles in American films suddenly were elevated to star status. One example...

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