SIC 7822 Motion Picture and Videotape Distribution

 
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SIC 7822

This classification covers establishments primarily engaged in the distribution (rental or sale) of theatrical and nontheatrical motion picture films or in the distribution of videotapes and disks, except to the general public. Establishments engaged in both distribution and production are classified in SIC 7812: Motion Picture and Videotape Production. Establishments primarily engaged in renting videotapes and disks to the general public are classified in SIC 7841: Videotape Rental. Those businesses engaged in the sale of videotapes and disks to individuals for personal or household use are classified in SIC 5735: Record and Prerecorded Tape Stores.

NAICS CODE(S)

421990

Other Miscellaneous Durable Goods Wholesalers

512120

Motion Picture and Video Distribution

INDUSTRY SNAPSHOT

The U.S. motion picture distribution industry was stratified into two distinct categories: majors and independents. Major studios Disney, Paramount, Universal, Fox, Sony, and Warner control the lion's share of movie distribution revenues and show films in large multiplexes and community theaters alike, whereas independent distributors rely more heavily on smaller art houses and rarely achieve the box-office blockbusters enjoyed by the majors. In the early years of the twenty-first century, majors invested heavily in purchasing many of the leading independent distributors, such as Miramax, New Line Cinema, and Dream Works, in a massive trend toward vertical integration. The remaining independents benefited from the unexpectedly robust box-office success of critically acclaimed high-profile independent films. Combined, the 1,170 distribution establishments earned $2.4 billion and employed more than 11,500 people in 2006.

According to the Motion Picture Association of America (MPAA), in 2006 domestic box office returns were $9.49 billion, a fifth consecutive year of grosses over $9 billion. Admissions continued to increase, as part of a trend in which admissions grew an average of 2 percent each year over the course of 10 years. Ticket prices steadily increased during the 2000s, rising from an average of $5.66 in 2001 to $6.55 in 2006.

During the 2000s, more than 93 percent of domestic box office revenues were attributed to the 10 leading distributors. A total of 607 films were released in 2006, up from 467 in 2002. Of these, 599 were new releases and eight were reissued films. Major studios produced 203 of these, 13 more than in 2005, whereas independents released 396 films, an increase from the 345 in 2005. Although these numbers seem to favor independent distributors, those films generally maintained very limited reach. In recent years, nearly 90 percent of all ticket sales were accumulated by the handful of leading major distributors.

World markets for films and television programs have long been critically important to U.S. producers and distributors. Over the past 30 years, foreign markets have generally accounted for about one-half of major U.S. producers' total sales in these industries. The success of U.S. films and television productions in world markets is indicated both by industry trade balances and by comparisons with other film and television exporting nations. The United States has historically exported more than three times the total television programming exports of the next three leading exporting nations combined. For years, U.S. studios were limited significantly by a variety of barriers to trade in foreign markets. In the mid- and late 1990s, they welcomed the relaxation of such restrictions as a result of free trade agreements enforced by the World Trade Organization. By the early 2000s, the increasing adoption of the English language gave U.S. filmmakers an edge over foreign competitors. Worldwide revenues topped $25.8 billion in 2006, a record high. Growth in the pay television and home video markets were other factors benefiting the industry abroad.

By mid-decade, the major studios were grappling with the financial and technical issues of digital theatrical distribution. In 2005 the studios agreed on major technical specifications, giving potential manufacturers information needed to design new digital projection equipment. The studios considered financing the switch to digital cinema at a cost of around $3 billion. There are many benefits to the new technology in addition to improved sound and picture quality. Foregoing celluloid prints and long-distance shipping will ultimately save billions of dollars and allow for fast delivery to a greater number of locations.

ORGANIZATION AND STRUCTURE

The organization and structure of the motion picture industry was concentrated in the major Hollywood studios who have taken control over the three major divisions of production, distribution, and exhibition. The organization of the industry into companies that have become fully integrated producers, distributors, and exhibitors represents a structure that existed in the 1920s and 1930s but was disbanded under antitrust regulation before being rekindled during the Reagan administration. This structure hurt independents, as those film distributors without established alliances or reputations are known in the industry, because many of the nation's prime theater venues have relationships with the major distributors who book the larger theaters months in advance.

Typically, a motion picture studio distributes or licenses the rights to its films to an independent distributor, who in turn sells these rights to theaters or exhibitors across the country and abroad. The distributor licenses films to exhibitors by either bidding or negotiation. To obtain the maximum revenue from motion pictures, they are released in a series of runs to theaters across the country. "First run" indicates a picture's initial widespread release to "high gross" theaters across the country. Subsequently, the films are released to lower gross theaters across the country until the earning capacity of the film is finally depleted in the exhibitor market. The film is then marketed abroad by foreign distributors, then released in video format and offered on cable television before being syndicated to a television broadcast network.

When an independent distributor pays for the rights to market a specific film from a Hollywood studio, that company then forms a contract with the exhibitor market to show the end product. These contracts take many forms but normally include several key features. The distributors create "zones," or geographic boundaries for their pictures. Normally, within each zone a distributor would only release a particular motion picture to one theater for exhibition. This practice ensures that the distributor will obtain the largest audience for a film, and it prevents other theaters in close proximity from competing for the same customers who might wish to see that particular movie. There usually is a clearance clause in the contract that relates to the amount of time that must elapse between the end of the first run of a motion picture and the beginning of its subsequent runs. Longer clearances provide more first-run revenues for a picture. Finally, many of the distributors of "A" rated films also practice block booking. Block booking is the practice of offering for license one feature, or a group of features, on a condition that the exhibitor also licenses another feature, or group of features, released by the distributor during a given period. Block booking ensures outlets for a motion picture regardless of its quality or box-office potential. The practices of block booking and blind bidding, which requires an exhibitor to bid for a film before reviewing it, by distributors are regulated in approximately half of the states in the United States. These statutes, although primarily concerned with curbing the practice of blind bidding, also regulate the whole bidding process.

BACKGROUND AND DEVELOPMENT

Since the formation...

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