The Entertainment Industry in America
The Entertainment Industry in America
Background
The entertainment industry demonstrates a multi channel structure, with companies owning several forms of companies in each link of the value chain. The industry is converging toward a single model, which combines production of content with multichannel distribution. All companies try to sell content in many ways, e.g. movie, TV show, book theme park, etc. All but two of major players in the industry conform to this model. Non-conforming companies have regulatory barriers (foreign owned) or do so out of choice. Some companies (Disney) buy distribution channels, i.e. networks (ABC); others build their own (News Corp., Time Warner) or do both Viacom (WB, CBS). The newest trend is to combine production and distribution with added distribution possibilities of internet (AOL Time Warner, Vivendi Seagram)
CONTENT DISTRIBUTION
Resources Creation Delivery Retail
Actors/Writers Television Production/Movie Production Broadcast Television Networks/Cable television Networks Movie distribution Local Affiliates/Local cable companies/Local theaters
In this industry we find vertical integration through direct ownership, as well as commercial transactions via long-term contracts and one-time “spot market” transactions. Ironically, even the resources can be “owned” – as in the case of the old “studio system” which tied actors to studies for a number years. In today’s industry, these arrangements are still in place, with actors signing on for “x number of picture” contracts with various studios. Production companies can either be independent or owned by integrated companies. In either case, production from one company may be sold to a competing network or distributor. Finally, local television affiliates and local movie theaters are sometimes bound by contract, sometimes entirely independent, or sometimes owned by networks. This last situation is usually the case with large metropolitan areas, where the networks want to have a closer link to the customer. Agents and other facilitators play a commercial conduit role of helping to bring together various people and companies along the value chain.
The reasons for vertical integration include lowering risk (regardless of where profits are) and locking in distribution for high-risk production. But production companies supply all networks and networks access all suppliers, so motive for consolidation is as much to gain bargaining leverage as to lock in distribution. All companies are...