A Research Into the Declining Profitability of Movie Theaters

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A Research Into the Declining Profitability of Movie Theaters View metadata, citation and similar papers at core.ac.uk brought to you by CORE provided by DSpace at Waseda University <MBA Degree Thesis> AY 2015 THE NORTH AMERICAN AND JAPANESE CINEMA INDUSTRIES A Research Into The Declining Profitability of Movie Theaters 35132321-1 VINCENT TEONG FINANCE ZEMINAR C.E. PROF.HIBARA, NOBUHIKO D.E. PROF.NISHIYAMA, SHIGERU D.E. PROF.MANO, YOSHIKI Summary The purpose of this thesis was to analyze the struggling cinema industries of both the United States and Japan. With such a large industry as movie production, one would expect box offices to be increasing each year, especially with the constant records being broken by the summer blockbusters every year. However, the truth is that the general market is on a decline. The questions to be tackled in this thesis are: 1) “Does the influxes in box office correlated with a country`s GDP and income of its population?”, 2) “Is the movie box office on a decline, and if so, to what extent?”, and 3) “What strategies are being employed already by cinema companies to counter declines?” In the end, I will offer a strategy for the Japanese market to help battle against diminishing sales. My general hypothesis that I will attempt to tackle is “Movie theater profitability and attendance is directly correlated with the prosperity of a country.” The logic behind this hypothesis is that when people are making more money, logic dictates that they will spend more on leisurely activities, which includes movies. Furthermore, since movies represent one of the cheapest forms of leisure activities, it will be the foremost easily accessible activity across income brackets. The report is broken into three different main chapters. The first chapter gives a thorough background into the development of cinema within the United States and Japan. Learning the background is important as it helps to identify when cinema attendance met its peak, and then help determine where and how the decline began. After understanding the basic backgrounds of both markets, chapter two then delves into an analysis of the American and Japanese cinema markets. Chapter three then presents a strategy for the Japanese industry specifically, as the Japanese cinema industry is very different from the rest of the world`s. The findings of this research was that in the US, attendance rate and income of movie theaters were almost perfectly tied with the nation`s GDP and prosperity. In other words, as the nation goes through economic growth, more people will go to see movies. However, in Japan, the correlation is negative, which means that no matter whether or not the economy prospers or suffers, the movie industry will remain nearly unaffected. Furthermore, the decrease in cinema attendance tends to be the same across both cultures: ticket prices are too high, and people want to watch movies in the comfort of their own homes. Keywords: United States, Japan, Movies, Box Office, Market Trends THE NORTH AMERICAN AND JAPANESE FILM INDUSTRIES A Research Into The Declining Profitability of Movie Theaters 35132321-1 VINCENT TEONG FINANCE ZEMI C.E. PROF.HIBARA, NOBUHIKO D.E. PROF.NISHIYAMA, SHIGERU D.E. PROF.MANO, YOSHIKI Table of Contents CHAPTER 1. PURPOSE OF STUDY ........................................................................... 1 SECTION 1. SET BACKS ENCOUNTERED DURING THE RESEARCH ................................. 1 CHAPTER 2. BACKGROUND OF THE FILM INDUSTRY ........................................ 3 SECTION 1. THE AMERICAN FILM INDUSTRY ................................................................. 3 2.1.1. Hollywood ....................................................................................................... 4 2.1.2. Movie Theaters............................................................................................... 5 2.1.3. Film Exchanges and Evolution to the Current Film Market ..................... 6 SECTION 2. THE MODERN AMERICAN FILM INDUSTRY .................................................. 7 SECTION 3. A NEW EMERGING BUSINESS STRATEGY: PRIMA CINEMA ........................ 8 SECTION 4. PRE-RELEASE LEAKS/PIRATING ON THE MARKET......................................11 SECTION 5. THE JAPANESE FILM INDUSTRY ................................................................ 13 2.5.1. Movie Theaters............................................................................................. 15 SECTION 6. MODERN JAPANESE FILM INDUSTRY......................................................... 19 CHAPTER 3. ANALYSIS OF THE MOVIE THEATER INDUSTRY ..........................21 SECTION 1. AMERICAN MOVIE THEATER INDUSTRY ANALYSIS.................................... 21 3.1.1. Demographic................................................................................................. 23 3.1.2. A Shifting Marketing ................................................................................... 23 3.1.3. Reasons for a Decreasing Market ............................................................... 24 SECTION 2. JAPANESE MOVIE THEATER INDUSTRY ANALYSIS..................................... 24 3.2.1. Demographic................................................................................................. 27 3.2.2. A Non-Shifting Market ................................................................................ 28 3.2.3. Reason for a Decreasing Market................................................................. 28 SECTION 3. CORRELATION WITH GDP AND POPULATION INCOME .............................. 29 3.3.1. US Market .................................................................................................... 29 3.3.2. Japanese Market.......................................................................................... 31 SECTION 4. IS THE THEATER INDUSTRY ON A DECLINE? ............................................. 34 CHAPTER 4. STRATEGIC PROPOSAL FOR THE JAPANESE MARKET ...............38 CHAPTER 5. CONCLUSION ......................................................................................40 REFERENCES ................................................................................................................42 APPENDIX......................................................................................................................43 TABLE 1: PRE-RELEASE PIRACY EFFECT ON MOVIES ...................................................... 43 TABLE 2: DECLINE OF MOVIES W/O PRE-RELEASE PIRACY.............................................. 44 TABLE 3: DECLINE OF MOVIES W/ PRE-RELEASE PIRACY ................................................ 44 TABLE 4: COMPLETE LIST OF AMERICAN MOVIE THEATER COMPANIES.......................... 46 TABLE 5: COMPLETE LIST OF JAPANESE MOVIE THEATER COMPANIES .......................... 53 TABLE 6: GENERAL DATA ON US BOX OFFICE (1960 – 1940) .......................................... 54 TABLE 7: GENERAL DATA ON JAPANESE BOX OFFICE (1960-2014).................................. 57 i CHAPTER 1. PURPOSE OF STUDY The purpose of this thesis was to analyze the struggling cinema industries of both the United States and Japan. With such a large industry as movie production, one would expect box offices to be increasing each year, especially with the constant records being broken by the summer blockbusters every year. However, the truth is that the general market is on a decline. The questions to be tackled in this thesis are: 1) “Does the influxes in box office correlated with a country`s GDP and income of its population?”, 2) “Is the movie box office on a decline, and if so, to what extent?”, and 3) “What strategies are being employed already by cinema companies to counter declines?” In the end, I will offer a strategy for the Japanese market to help battle against diminishing sales. My general hypothesis that I will attempt to tackle is “Movie theater profitability and attendance is directly correlated with the prosperity of a country.” The logic behind this hypothesis is that when people are making more money, logic dictates that they will spend more on leisurely activities, which includes movies. Furthermore, since movies represent one of the cheapest forms of leisure activities, it will be the foremost easily accessible activity across income brackets. The topic of cinema attendance decline is especially important in a time of demographic deflation, especially in Japan. Even though theaters continue to struggle to attract growing attendance, little research has been done in order to solve this problem. Furthermore, the general outlook in Japan by movie companies is to ignore the decreasing attendance rates, and to solve it by putting out movies in a greater frequency, without real attention to content to popularity. This leads to the degradation and saturation of Japanese cinema, of which the effects can be seen in the dwindling global appreciation of Japanese film. Section 1. SET BACKS ENCOUNTERED DURING THE RESEARCH During my research and analysis, there were a number of setbacks and unaccounted for variables that hindered my research. One was the limit in the amount of information and data available regarding box office sales. For the US, box office sales began track keeping from the 1980s. 1 This limited the amount of data that was available for me. Furthermore, when I wanted to check the inflation rate for the United States, the data for 2014 had yet to be filed through the US Census. The Japanese market had much greater limitations. Japan remains a very non-translucent society, and not a lot of information is made available. This
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