Easy Cinema free essay sample

The cinema industry is primarily engaged in operating movie theatres and/or exhibiting videos at film festivals. The major products and services in this industry in the UK are single screen theatres, multiplex theatres (8 to 15 screens) and megaplex theatres (more than 16 screens). Cinemas in the UK typically operated at 20% capacity. Admissions in 2001 were at the highest level in decades – 156 million admissions generated ? 974 million in ticket sales – and were expected to continue to rise at an annual rate of 4% between 2003 and 2010. Key Success Fators The key success factors are ability to quickly adopt new technology. Indeed, customers expect latest digital visual and audio equipment, which increase entertainement. In addition, it can attract increased revenue. Cinema operators must have access to multiskilled and flexible worforce such as young casual workers who agree to work daily, weekly and annual demand peaks. Another key success factor is to be part of a group buying, prmotion and marketing scheme in order to obtain cost advantages and access to big-budget releases. Then, cinema operators have to guarantee supply of key inputs, that is, on-going supply of quality movies in line with local audience tastes and demand. Finally, they have to be close to key markets and offer easy access. For instance, shopping and town centres are the preffered locations for cinema operators since they are known as leisure destinations. PEST Analysis Macro Forces Political/Legal Blair’s centre-left Labour administration comfortably returned to power in June 2001. The business community has praised Blair’s administration for its macroeconomic policy framework including the transfer of interest rate policy to the Bank of England in 1997. However, some people have criticised its labour market policies including the adoption of European legislation governing working hours and the adoption of national Minimum Wage legislation in 1999. In addition, the imminent increase in National Insurance contributions early in 2003 caused concerns. The UK has been member of EU since 1973. The Blair’s administration tried to play a more pro-active role in the European decision-making. The UK also enjoys strong security ties with the US. In a nutshell, EU, NATO and G7 allow it to maintain a strong presence on the international stage. The United States continued to be the UK’s largest single trading partner in 2001, with exports to the US accounting for over 15% of total UK exports. The other 14 EU member states accounted for 58% of total UK exports. Implications for the cinema industry: Staff costs accounted for 21% of the expenses of cinema operators. This is the second highest source of expenses behind film rental. Legislation governing working hours and national Minimum Wage can significantly increase staff costs in the future since minimum wages usually increase with time. Economy The UK’s economic performance has been strong since the recession of the 1900’s. Its real GDP growth has been of 2. 9% per annum over the 1993/2001 period. In the UK in 2002, nominal GDP in dollar terms grew by 8% to reach US$1,548 billion. The economic expansion of UK has led to significant improvements in labour market performance; indeed, unemployment has been the lower ever seen in three decades. In fact, unemployment in the UK increased by 0. % in 2002 to reach 4. 2%, although this is down from 5. 7% in 1997. In addition, inflation was low due to low world inflation and effective monetary policies. However, economic growth was imbalanced between the South East (Capital: London) and the North East of the country due to the strength of sterling against Euro, which has led to the stagnation of manufa cturing exports, and to long term structural problems in parts of the country. Finally, despite its superior economic growth performance of the UK’s productivity gap remains compared to other advanced industrial nations. Implications for the cinema industry: Economic conditions, particularly trends in the real growth in household disposable income, which is affected by changes in the growth of employment and from tax and interest rate movements, as well as high gas prices. Social The UK is located in Western Europe. It is separated from France by the English Channel. The official language is English; however the official languages in Welsh are English and Welsh. In 2003, UK counted English (81%), Scottish (10%), Irish (2%) and a number of immigrant ethnic minority groups which tended to be concentrated in the main urban areas. Regarding religions, people were mostly Anglican, Roman Catholic, and Muslim. There is a strong correlation between the cinema market and the number of teenagers/ children and proximity to important urban areas. Children of baby boomers were in the most heavily targeted segment in 2003 that is people from 15 to 24 years old. In the UK, cinema is perceived as a leisure activity; however, British people feel time-pressured and allocate less time to entertainments than ever since 2000. Implications for the cinema industry: Major cinema operators own multiplex in the South East where economic conditions are better than in the North (economy) and where most people, including ethnic minorities that accounted for a large percentage of the UK population, live. Technology The UK is strong in the high-tech sector. Computer and Internet use has boomed in the UK since 2000. Britain excels in sophisticated niche markets such as computer components and gadgetry. British people are more confident in using new technologies such as Internet and computers due to online security, technological advancements, and huge investment in RD. Implications for the cinema industry: Cinema operators had to quickly adopt new technology. Indeed, customers expect latest digital visual and audio equipment, which increase entertainment. In addition, it can attract increased revenue. This is one of the industry success factors. Micro Forces Supply (Here we consider distributors as being the most imortant suppliers) The competition is intense in distributing films to cinema operators. There were two types of distribution companies in the UK: studio-owned and independent. The top-five distributors are 20th Century Fox, UIP, Buena Vista, Warner and Columbia Tristar. Each of these distributors was owned by one or more of the Hollywood studios. Market share of distributors fluctuated from one year to another, reflecting the success of individual films. Their role was to distribute films sent by their parent companies; as a result, they had access to an assured supply of films. Independent distributors, however, did not have access to an assured supply of films since they had to bid for distribution rights and finance part of the production. Power of supplier is extremely high since there are no much substitute inputs and they are the only ones able to provide quality inputs (films), which are one of the most important success factors in the cinema industry. Competition The competition was intense among cinema operators. Indeed, some of them had had to exit market due to competition, pressure on profitability and poor capacity utilization. In order to retain their market share, cinema operators tend to differentiate their service offering to each other. For instance, we notice an increase in multiplex, non-film programming, new technology use, direct marketers and internet use to interact with customers. In addition, some of them offer high quality service in order to attract a new segment, that is, premium segment. Major industry players in the UK are Cinevan, UCI, UGC Warner Bros/Village, Roadshow, Cine-UK National Amusements and Showcase. Cinevan (Odeon/ABC), a private equity firm, was the leading cinema operator in the UK in 2003 in terms of market share and number of screens. It had a strong proposition as the film-lover’s brand, tried to bring new niches and was considering non-film programming. UCI, which is an international specialist in multiplex operator, focused on technology, the use of the Internet to target children, and superior service to target premium segment. UGC Cinemas, owned by Vivendi and a private French multiplex operator, heavily invested in customer retention by offering unlimited pass at discount prices. Roadshow is a joint venture that owns a website and focused on Bollywood films. National Amusements, which is a subsidiary of a US company, operates under the Showcase brand and owns cinema that have more screens than the average multiplex in the UK. Cinema exhibitors faced high costs due to films rental -nut method, sliding scale method, datum scale method and flat percentage – difficulty of obtaining a site, labor, facility lease expenses, utilities, and maintenance. Demand UK usually operated at 20% capacity. Cinema admissions increased from 138. 9 million in 1997 to 155. 9 million in 2001 and are expected to continue to rise at an annual rate of 4% between 2003 and 2010. This growth was due to the emergence of multiplex which turned cinemas into a more spontaneous leisure activity. In fact, people were not looking for a homogenous product but for a package of services, which can be highly differentiated (new release movie, quality and sound presentation, comfort, location and ease of access). Basic motivations are the movie going experience itself as well as demand for a particular movie. Cinemagoers are price sensitive; however, there are also non price factors in demand such as taste and preferences, time of the year and session time. The release of blockbuster movies can also increase admissions and industry revenue. 15-24 year olds, who were the most prolific cinemagoers, represented about 15. 3% of the British population in 2003 and is expected to decline to 14. 2% by 2015 (children of baby boomers will get older). The number of children from 4 to 14 years old is expected to decrease as well (this is the second more important cinemagoers). Therefore, the audience profile will shift due to demographic changes. Cinema operators have to make sure that they are able to satisfy the demands of this older age group. In this industry, demand is affected by economic conditions, especially trends in the real growth in household disposable income, which depends on employment, tax and interest rate level. Buyer power is medium compared to the one of suppliers but it is pretty high since admissions account for a large percenatge of profit, switching costs, availability of substitutes and price sensitivity. Porter’s Five Forces Barriers to Entry Barriers to entry in this industry are moderately high and steady. The most important barrier is having access to the latest release movies in a timely manner. Indeed, cinema exhibitors must access to suitable movie products from the most famous distributors which have agreement with the most important Hollywood studios. In addition, major distributors are able to allow operators to screen a movie for a certain number of sessions per day for a specific number of weeks for a determined price (Film Distributors Association). Then, film rental paid to distributors can reach up to 55% of box office for new releases (nut method, sliding scale method, datum scale method, flat percentage). Finally, there are significant costs associated with establishing movie theatres including building a new cinema, labour, facility lease expenses, utilities and maintenance costs. The level of regulation is medium; however, under the Standards Conditions (established by FDA) exhibitors could only charge the admission price for a film that had been agreed upon with the distributor. Furthermore, cinema operators have to handle food distributions, disability access and public occupational health and safety regulations (one employee per screen to handle emergency situations). Other important barriers are FDA policies, brand/value identity and capital requirements. Degree of Rivalry Concentration in the industry is medium. In 2001, the top three cinema operators were estimated to control about 55% of total industry market share in the UK. The concentration level has increased since 2000 when Cinevan purchased Odeon Cinemas and merged it with ABC Cinemas. The level of industry concentration was expected to increase in the future since most industry participants expected consolidation in the market insead of expansion. Other major things to take into consideration are product differences and brand identity. Threat of Substitutes In 2003, movie theater substitutes mainly came from personal computers, DVD players, the internet and home theater systems. The industry revenue is affected by the rapid penetration of the in-home entertainment equipment into households which implies that consumers are inclining to these substitutes. Indeed, cinema is an entertainmentr activity not a necessity. Complementors It seems that cinemagoers are ready to pay a premium for a superior experience. For instance, cinema exhibitors that offer things such as tables and food for drinks, emphazied comfort and service are successful. These complementors provide customer with a high value. * Other forces (including supplier power and buy power), their impacts as well as forces previously introduced have already been discussed at some point in the analysis. Industry Life Cycle The life cycle stage is mature; indeed, competiton arose from in-house entertainment substitutes and financial returns as well as rationalization are poor. The growth in admissions occurred during the releases of numerous blockbuster movies. The industry’s revenue growth resulted from significant increase in ticket prices rather than increased demand. The cinema operators faced significant competition from the internet delivery of movies and other available video-on-demand services. The fact that the cinema instry is mature implies that entry barriers are high, that the demand is flat and that it will probably decrease in the near future (decline phase) unless a move occurs in either the external environment or the industry itself. Problem Statement The easyGroup was planning to extend its model to proceed with easyCinema. Alternatives 1)Go in the cinema industry by building a new cinema )Go in the cinema industry by acquiring an existing chain 3)Do not go in the cinema industry Recommendations In a nutshell, the alternatives 1) and 2) do not satisfy the criteria for idea selection. Indeed, in both cases it is not possible to grow the market through lower prices and to yield manage prices due to distributors power. Indeed, easyCinema will probably not have access to blockbuster movies since distributors will not agree upon the adm ission prices. In addition, direct sell to customers through the internet would not be profitable since going to cinema is a spontaneous activity. Then, frills are almost required in movie theaters by customers; in fact, easyCinema would face customer resistance. Again, barriers to entry the cinema industry are moderately high. For instance, the cost of buying or building a new cinema is extremely high. Finally, the alternative 1) requires that easyGroup obtains a site that fulfills the space and planning-permission requirements of a multiplex. In other words going in the cinema industry will require that easyGroup modify its â€Å"easy† business model to fit the cinema industry requirements. Despite the fact that the alternatives 1) and 2) have some advantages such as developing brand awareness and expending scope of products/services offered by easyGroup, I would recommend the alternative 3), not go in the cinema industry, based on my analysis of the UK conditions and the industry. Instead, easyGroup should invest in an industry that better fits its criteria. Sources: Datamonitor reports (Business Source Complete) and the case itself NB: The models that I used are explicitly developed in the paper so I did not include an extra appendix to avoid repetition and make you save some time.