THE OLIGOPOLY IN THE MOVIE INDUSTRY
1. The top six Hollywood studios control well over 85 percent of the U.S. Film industry. All the real
independents together have an inconsiderable share of the market, and most of them have to work
with or through a major studio to get national distribution.
2. Of course, oligopoly in the movie industry is nothing new. Up until the 1950s, most of the current
motion picture companies were parts of the eight-company ‘‘studio system’’ oligopoly, though
relative power and some of the names have changed. In fact, you can argue that in some sense the
current oligopoly is less powerful. The 1948 Supreme Court ‘‘Paramount Decision’’ ruled against
film industry vertical integration and forced studios to divest themselves of their theaters.
3. The terms have changed somewhat (owning theaters is not all that tempting a risk for most
studios), but the oligopoly is pervasive. But instead of being self-sufficient companies, all of the
major studios are now divisions of gigantic international media/industrial empires. Some of them,
like Universal Studios, have been bought and sold several times (it’s now owned by General
Electric/NBC). DreamWorks’s independence, guaranteed by the presence of Steven Spielberg,
ended in a sale to Paramount (part of CBS and earlier part of Viacom).
4. MGM/UA, the remnants of two venerable studios that were taken over by venture capitalists in
the first decade of the XXI century, was finally sold to Sony and a consortium of other companies,
mostly for its fabulous film library. Independents like Miramax and New Line were bought out by
the conglomerates years ago. Should one of the independent studios have any real success, it will
more than likely be swallowed up as well.
5. In Table 8.4, the major players in the movie industry are listed by their 2005 ranking, as reported
by industry watcher BoxOfficeMojo. In 2005, total U.S. box office sales amounted to $8.8 billion.
The relative rank of the top companies varies from year to year, often depending on one or two
blockbusters.
6. Basically, all the major studios offer a new theatrical release every two to three weeks. The films
that they deem major get the royal treatment in terms of marketing and distribution. The others get
the leavings. Disney and Time Warner issue more films because of their active ‘‘independent’’
subsidiaries, which specialize in smaller, lower-budget, sometimes foreign films.
7. A basic problem for studios is how to get their new movies displayed in the right number of
theaters across North America to earn maximum profit and prestige. Theater chains are companies
which are independent from the movie studios. In the last three decades, there has been an
explosion of screens in the motion picture industry. By 2000, the chains learned that they’d built too
many screens. While the number of screens had increased by 50 percent over the period from 1990
to 2000, viewership had gone up only by some 20 percent, a few percent each year.
8. One industry analyst calculated that, on the whole, the movie theaters work at 12 percent of
capacity or less. In other words, over 80 percent of seats, on average, are empty. That’s no surprise
when we learn that 80 percent of attendance comes in the three weekend days, meaning that four
days a week most theaters are nearly empty, hardly earning enough to pay the electricity to operate
the popcorn machine and pay the (minimum) wages of the ticket-takers. Like restaurants, movie
theaters make their big money on Fridays, Saturdays, and Sundays.
9. The movies themselves, as it turns out, are ‘‘loss leaders’’ for the theater owners. The theaters
have to make their income from selling snacks and soft drinks rather than box office take. That’s
why the prices are so high— and the portions so huge—at the snack bar. Popcorn reportedly is 90
percent profit, and soda is marked up by 300 percent or more. It’s also why attracting teens has
become important to the chains; adults don’t spend as much on the snacks and soft drinks.
10. Beyond that, theater operators are interested in films that are relatively short (more turnovers
and more advertisements) and that attract popcorn eaters and Coke drinkers. Pre-movie advertising
is booming, with $400 million spent in 2005 and growth of 15 percent per year estimated. It’s a new
revenue source for the big chains, which have a truly captive audience, something television
advertisers can’t offer any more.
11. The movie industry is a paradox. The weakest players in the game are the movie chains, an
industry dependent on popcorn sales. Yet, that desire to sell more popcorn has a decisive effect
throughout the industry. A certain type of movie keeps the theater chains happy, and the need to
attract the right kind of audience drives their actions, and eventually the actions of the studios.
12. In a way, the big studios, as seemingly powerful as they are, have their hands tied by the need to
keep the theater chains filled. The result is a distinct lack of interest in films that appeal to people
over 20. As one multiplex owner told a studio executive, ‘‘The less dialogue the better. The teens
that come to our theaters want car chases, bombs, a few beautiful bodies, and special effects.’’
The discipline of the market, in this case, has constrained the behavior of the oligopoly.
Please note:
movie theater (American English) - a building, room, or outside area used for showing movies
theater (American English)
theatre (British English)
the same way: center (Am. E.) vs centre (Brit. E.)