Rivalry in Movie Theater Industry (Essay Sample)

Student’s Name Professor’s Name Subject DDMonthYYYY Competitive Rivalry in the Movie Theatre Industry Introduction Movie theatres have been the main source of entertainment for almost a century. In the recent past, the movie theatre has undergone numerous changes that were not only in technological improvement and movie diversification, but also in the venues (Hudson par, 7). The changes in the theatre industry have been majorly influenced by recent technological advancements and marketing (Chisholm et al. 132). The current changes range from stadium seats, impermanent arm rests and cup holders to online ticket sales, digital projection and surround sound format. At the same time, the level of competition in the industry is very high. This essay examines the extent of competitive rivalry in the theatre industry. Market analysis The movie theatre industry is currently facing overcapacity and heavy debt that resulted from overexpansion of the industry in late 1990s (Chisholm et al. 133). The high levels of competition in the industry resulted to enormous megaplexes expansion. The overall growth in the industry was driven by both the competitive positioning desire and economies-of-scale of new units (Hudson par, 20). Most of the new players in the movie theatre industry decided to build new megaplexes near existing theatres, which automatically affected the profitability of the old theatres. The diminishing cash flow from old theatres is a major problem facing the industry. This has resulted in several theatres shutting down, selling or down rating, which affected the value of the theatres. Furthermore, box office profits that used to be generated through ticket sales have been consumed by increased expenses resulting from overcapacity (Chisholm et al. 132). Moreover, movie studios get the larger portion of the revenues sourced from box offices; the availability of multiple showings has limited to the duration of showcasing of movies in theatres (Hudson par, 22). However, the recent scaling of most movie theatres has resulted to the competitiveness of the industry being stronger. Major players in the industry have consolidated their competitiveness through merger and acquisition enhancing their competitiveness. Risk overview The main business activities in this industry are (IBISWorld 2): Operating movie theatres Operating drive-in movie theatres Exhibition of motion pictures for airlines Exhibition of the film festival The main risks in this industry are sensitivity risk, growth risk and structural risk. Generally, the risk forecast of the movie theatre industry is expected to be low due to low revenue barrier and the barrier to entry being low (IBISWorld 2). Specifically, structural risk in this industry will originate mainly from the current high levels of competition. This will increase players’ expenses in terms of keeping the prices low and product differentiation to entice demand. On the other hand, growth risk is medium with an annual growth of 2.5 % from 2011 to 2013 (IBISWorld 3). In addition, sensitivity risk is currently low. This is mainly due to the declining external competition and expanding per capita disposable income. Barriers to entry The barriers to start operations in this industry are generally high with increased difficulty to enter into such industry. The main reason for this is because of high costs of entry as most of the equipments such as speakers, screens, and digital projectors are very high (IBISWorld 5). Moreover, the cost of establishing the theatre with identical features like those offered by the players in the industry is quite high. More so, it is very hard for new players in the industry to access rental licence for distribution of major movies and films. The limited capability of showcasing the best movies limits the chances of success of new players in the industry. Competitive Analysis The movie theatre industry exhibits both internal and external competition (IBISWorld 6). This presents very high levels of competition that are under constant increase. Internal competition is common in the industry as players compete with one another in terms of concessions offerings, theatre quality, ticket prices and movie offerings (IBISWorld 6). The demand of the theatres is mostly determined by the popularity of movies and films exhibited in their theatres. This is the major determinant of competitive advantage of the movie theatres. The recent lounge of 3D technology also offers several theatres competitive advantage over the others. External competition is mainly sourced from all available alternatives through which the consumers access movies. Some of them inclu...