What is a Film Distribution Company?
The motion picture industry is very much dominated by large and very diversified conglomerates, such as The Walt Disney Co., News Corp., Sony Corp., Time Warner Inc., and Viacom Inc. which finance the development of new products, in this case motion pictures, own vast libraries of older products, and often own distribution channels for bringing these new products to the public. Sometimes the distributor will finance the movie from beginning to end and other times, they provide a portion of the finances and subsequently receive a cut of the profits.
According to the Motion Picture Association of America (MPAA), films financed by major distributors cost $53 million in 1998, almost triple the price tag of 10 years ago. Some films such as Titanic may cost in the range of $100 million while others, such as The Blair Witch Project, may be produced for $15 million or less, especially when they generate box office sales of nearly $140 million as this one did.
Where do Distribution Companies get their finances?
According to Standard & Poor?s, 20% is derived from domestic theater rentals (the movie theater renting a copy of the film of a new movie), 20% coming from foreign theaters, 40% from home video, and television provides the remaining 20%. The distributor?s portion of the theater rentals usually comes to about 50% of the box office total.
They consolidate their costs by taking on the marketing functions for more films produced by other companies. However, they also may have a lower payoff if the movie should have extraordinary success.
Where is the power of the industry concentrated and what are its sources?
The power of the industry is very much dominated in the distribution companies, for the product, the film, can not be completely produced without the finances and influence of the distribution company. These vast entertainment conglomerates very much dominate the industry because they do have more clout with theater owners and TV networks, if they do not own their own subset within the very conglomerate. They can offer brand name recognition to the viewer, and have more connections to the creative talent and experience with effective management. Having copyrights to any popular characters or brand names may seriously affect the success and thus the power of the distribution company, as seen in MTV, CNN?s Larry King Live, and of course Walt Disney. Access to capital is also a very significant factor in a distributor?s potential power. By examining the operating cash flow and the severity of debt as well as the ease with which the company may repay its debt is often an indicator of possible power.