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March 10, 2009


Home video management

Home video is a multi-billion dollar business and arguably the most critical component of a film's revenue stream. Even the biggest blockbusters are often not profitable until this phase of the film's life cycle, meaning that the difference between a red or black bottom line often boils down to what happens with home video distribution and marketing.

Much home video business comes from video stores like Blockbuster and Hollywood Video that pay top-dollar for copies of releases, but a substantial part also comes directly from consumers in retail channels like Wal-Mart and Costco (also called sell-through, or sometimes, DTC, direct-to-consumer). The value of a movie property in home video can generally be precisely predicted based on its prior box office performance. For most titles, there are established routines and marketing plans accompanying releases (video stores first, then release to retail stores, sometimes with a marketing campaign and in-store promotions to support it). The biggest departments in this group tend to be in finance and in operations/distribution. One feature unique to home video is that relatively little money is allocated to promoting properties that are unproven. Proven films often tend to promote themselves. Because of this, marketing tends to be less important than at film studios.

Once exception to this rule is Disney, which has a more robust creative and marketing group in its home video division, due to the vast number of animated properties it owns and some unique features in its business strategy. First, Disney has a seven-year release cycle for animated classics such as Snow White and Dumbo. To this end, large promotional campaigns in print, TV, and in-store must supplement each release to cath the attention of the latest crop of kids. In the interim years, Disney boosts sales by releasing several DTV (direct-to-video) movies such as Simba's Pride or Aristocats 2, all of which also need supplementary promotion, usually in the form of inexpensive in-store, Sunday circular or McDonald's marketing. Much of the creative production of these DTV's happens in-house. (This actually serves as an in-road into the creative process for some aspiring filmmakers.)

Home video finance groups often create Excel models that predict sales to stores and pinpoint the most effective distribution outlets. With the shift from VHS to DVDs, there are also substantial efforts in home video divisions everywhere to assess the cost and gain of this change.

Operations and distribution managers deal specifically with retail chains, working out high-volume deals that encourage stores to carry more of a studio's films, to place them prominently within a store, and to make sure that those stocks don't run out (in retail, called a 'stock-out'). Marketing managers create physical in-store promotions and orchestrate marketing strategies that would drive consumers to buy the video (e.g., a promotion with a fast food restaurant, coupons in newspapers, direct mail, infomercials, etc.)

While often viewed as unsexy because it is far removed from the creative process, home video has spawned many stars in the ranks of media companies because of its solid revenue stream and ability to generate surefire profits for the bottom line of major media companies. The prognosis for the industry is optimistic, with industry shifts to the DVDs and Laserdisks, which will invariably encourage people to amass new movie collections. Video-on-demand (VOD) is sometimes cited as a threat to the home video industry, but with studios slow to move and regulatory hurdles involving bandwidth still unresolved, the home video business will likely be around for a while. That said, the international market for VOD is virtually nil, which still leaves a nice, fat revenue stream for home video no matter what.

Consumer products licensing

While not all companies have the appropriate media properties to capitalize on a consumer products division, many make it a substantial part of their business strategy. All the Mickey beach towels, Daffy toothbrush holders and Blue's Clue's bedsheets that make their ways to Wal-Mart and Target are there thanks to the enterprising ambition and the shrewd negotiating talents of some of media's smartest business executives. "This is the mother lode of the entire business," says one Warner Brothers executive in charge of the company's Harry Potter licensing program.

Consumer products divisions are often divided into two groups. The first is the licensing business, which brings loads of cash straight to the company's coffers, with little to no overhead. Manufacturers of just about anything in the world, from cell phones to children's clothes to crayons, pay money (in deals that often last many years) to have the exclusive rights to use images of Porky Pig or Donald Duck on their products. Though a generally lucrative division, many media companies enter the consumer products business only to realize that it is very difficult to execute well -- licensees are often discriminating and there is always, for the licensor, the risk of brand dilution. Even Disney, widely regarded as the big kahuna of consumer products licensing, faltered in the late 1990s with the overextension of its licensing business.

Retail stores development

Another aspect of the licensing business is the retail operation -- the stores that carry branded products and are operated by the company. Examples are The Disney Stores, The Warner Brothers Studio Stores and more recently, the Nickelodeon Stores. While not as successful or profitable as the licensing business due to high overhead costs (and a weak retail environment overall), they are generally solid contributors to corporate brand equity and are training grounds for senior executives by providing critical exposure to customers, consumer marketing and research, finance, the nitty-gritty of operations and real estate. In addition to the tradition store part of retail, this division also is entrusted with direct mail, online stores and any sales of proprietary merchandise.

Consumer products licensing can be a tough business. The plus side is that with a lucrative property can be cash cow., putting the managers of the licensing businesses in the unique position of being able to call the shots with other senior executives and often with vendors, an enviable position in an entertainment company. The retail side offers exposure to running a business. That said, with even Disney shutting down some of its stores, the retail part of the business will unlikely be a driver for growth, making it a nice place to learn, but not to stay.

Theme parks management

While not all the major entertainment companies have theme parks to promote their filmed properties, many of the major ones do, and within these divisions lie some intriguing business opportunities. In the beginning, it was just pretty much Disneyland and Disney World and some regional players in between, but in the last 15 years, there has been a big push within other major entertainment companies, primarily Universal Studios and Paramount (through the acquisition of Great America) to round out their leisure portfolios.

Like the consumer products division, theme parks, attractions and resorts are an enormously important part of an entertainment empire's business as they are both tremendous capital investments and a reliable source of revenue streams. Driving consumers to the park and keeping them coming back for more is key to making a park profitable. Entrance fees into parks are often hefty, averaging about $30 per day per customer (and additional money is spent on food and gifts). Companies like average stays to last at least several hours. In the case of the domestic Disney theme parks, that average is several days.

For that reason, marketing plays a very important role. Companies like Disney and Universal believe creating an unforgettable experience captures lifelong customers who may be loyal to other products the company creates. The best ways to drive people there are with discounts, promotions, special offers and tailored marketing campaigns to high-spending subgroups such as business conventions, trade shows, weddings, etc. All this translates into robust marketing opportunities at theme parks.

Another interesting trend in the theme park world is the growing trend toward licensing. In this case, the daily operation of the theme park, the real estate costs and buildout are financed by another company, but the name and marketing are the responsibility of the licensing company. This allows a company to capture substantial revenues without incurring capital expenditures. Disney does this with a theme park in Japan and has been exploring this option in other venues as well.

Theme park management is an exciting business with a promising future due to growth (new parks being built by Universal and Disney) and a small landscape of competitors (e.g. Club Med, cruise ships). That said, there are numerous opportunities in marketing, finance and operations, all of which are exciting because of their practical, hands-on roles and their contribution to overall corporate revenue. (One key factor to keep in mind is the geographic location of theme parks-they are often located on the periphery of large metropolises such as Anaheim, CA and Orlando, FL, or in Europe, outside of Barcelona and Paris.)

Film distribution and theater management

Distribution involves the dissemination of films both within the United States and to other international markets. Within the US, films are distributed to theater chains, which purchase copies of a film to show. Movie theaters generally make little to no money on the actual airing of the film, especially during the first few weekends of a film's release. While they do make some revenues if the film plays for many weeks, in general, their revenues come primarily from food, beverages, arcades and other concessions. Major theater chains are often located outside of Los Angeles and New York. Regal Theaters, the country's largest chain in fact, is headquartered in Tennessee.

The global cinema field is somewhat different from domestic distribution, since the international market is a more fragmented business. International distribution typically involves partnerships with foreign import-export firms, who then make deals in their respective markets to translate and distribute films at to local theaters. Global distribution often tends to be tricky, as international film markets are loaded with unique and quirky rules (e.g., no onscreen kissing or physical activity in certain markets) and regulations (often monopolies dominated by individuals who make up their own rules) that may require some additional editing of the film for a particular market.

Television distribution works in a similar manner, but instead of theater chains, entertainment companies deal with other television networks in foreign markets.


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