Question

CASE 12: The Movie Exhibition Industry: 2015

Assess the five competitive forces at work in the industry environment. Identify the forces that threaten the profitability of prevailing movie circuits, and prescribe the level of competition that can be anticipated amongst industry rivals.

Answer 1

Threat of New Entrants -Open entry poses a challenge in the industry. The level for this competitive force is relatively low. New entrants are dispirited from entering the market with the decline in movie sales over the past years. Also, the movie industry keeps evolving due to technology and just like other industries there is rapid change. Having new entrants means the market share will be small in which profits will reduce. Thus, there are few new members breaking into this market due to the future of the movie circuit.

Threat of Substitute Products - The threat to substitution is when the consumer decides to use a different product. A substitution of a product is normally easy and cheap. This makes your goods and services to be weak which tends to impact the profits. The level of competition will be high since the product category is always different and gives the customers a second option when it comes to the usage of the products. This gives a higher chance of the substitution effect. Services such as Netflix, Hulu, and HBO NOW are new product substitutes that has taken over. Consumers rather watch movies from the comfort of their home more often than go to a theater.

Bargaining Power of Buyers (Customers)-This is when a buyer decides to bargain for the price given. There could sometimes be a price cut especially if you want to keep the buyers. Buyer power is huge when it comes to a higher number of consumers. A lot of buyers might want to have a fair price so that they can buy the movies or decides to watch the movies. There are many other things that affect this competitive force like advertising, customer service, being first in the industry, and product differences. The level for this competitive force is pretty low. While buyer power does effect ticket and concession sales, it is easy for a customer to simply switch movie theaters if they have an unsatisfactory experience. Consumers do not have much collective bargaining power. Therefore, their demands hardly ever cause a significant price change in tickets or concession.

Bargaining Power of Suppliers- It helps in the determination of the process through which your suppliers can increase your prices, the number of suppliers available, and the provision of the service and the products. This will indicate whether a supplier will shift or be reserved by your products and service prices. The suppliers’ bargaining power can create a force to influence the price in the industry. This is because they possess the means of production. The level for this competitive force is pretty high. Movie exhibitors are extremely dependent upon their suppliers. Suppliers can determine the distribution of films. For example, if a town has two movie theaters with one big and one small, the larger theater is more likely to obtain the film first which will make a significant impact in the sales of the smaller theater. This effects smaller theaters immensely more than larger theaters as the larger theaters have a much greater influence with production studios.

Rivalry Among Competing Companies in an industry- The rivalry among the existing competitors could play a major role. Rivals having better skills and knowledge about a market can decide to enter into the market and cause problem for competitors. When competition is high, the prices could potentially reduce which affects the profits of a given organization. The level for this competitive force is somewhat moderate. Many theaters have closed due to a decline in ticket sales, constantly increasing costs, and an overly saturated market of movie theaters. However, despite the decrease in theaters, the competition between the existing theaters has increased. This is due to the limited business. Every company wants the profits, but which company is setting themselves apart form the rest with the competitive advantage is the big issue.