View metadata, citation and similar papers at core.ac.uk brought to you by CORE provided by CUAL Repository (Connacht Ulster Alliance Libraries) The Effect of Video on Demand Services on the Cinema Industry John Savage July 2014 This dissertation is submitted in partial fulfilment of the requirements for Degree of MSc in Marketing Practice, Letterkenny Institute of Technology. Presented to Kathleen Mc Gettigan Department of Business School of Business Letterkenny Institute of Technology Disclaimer 1 I hereby certify that this material, which I now submit in partial fulfilment of the requirements of the Degree of Masters of Science in Marketing practice, is entirely my own work and has not been obtained from the work of any other, except any work that has been cited and acknowledged within the text. Signed: ii Disclaimer 2 I agree that this thesis may be used by Letterkenny Institute of Technology for teaching purposes on future Masters Programmes. Signed: iii Disclaimer 3 I hereby declare that this dissertation has a work count of 10,146 words. Signed: iv Abstract Background The cinema industry may be showing signs of growth since having to contend with increased competition over the last number of decades from alternate offerings such as radio, TV, computer games & Pay TV (Silver and Mc Donnell 2007). The apparent global box office decline in the last decade had been attributed to a number of factors including cyclical poor movie offerings, total costs associated with going to the cinema from admission price and snacks to parking, failure of new screen technologies to boost box office revenue and the emergence of alternative viewing methods (Silver and Mc Donnell 2007). More recent studies conducted by PricewaterhouseCoopers (2014) suggest that, by 2017, electronic home video (streaming and downloading films) will overtake the traditional cinema as the biggest contributor to total film revenue in the US reaching a total of $17bn the following year. This represents double the $8.5bn the sector currently generates (PwC Global Entertainment and Media Outlook 2014-2018). Further to this PwC predict a 16% increase in cinema box office sales over the next five years (2014). According to McKenzie of PwC “People still want to go to the movies, especially the big tent pole films” (2014). The emergence of new Internet Communications Technologies (ICT) such as Video on Demand (VOD) services and an evolving broadband infrastructure have allowed consumers to view what they want, when they want on devices of their choosing (Tryon 2013). This infrastructure has allowed online streaming services to flourish. Further to this release windows have shortened: that being the time period from cinema release to becoming available to download. This has resulted in the loss of the competitive advantage that traditional cinemas have enjoyed in the past. Online streaming services such as Netflix, Amazon Instant Video and Hulu have seized upon the changing dynamic within the industry and have made the move from “mere middlemen to creators of original content” (Tryon 2013). Netflix in particular has paved the way and has successfully produced and distributed original content, with hits such as House of Cards and Orange is the New Black. This, according to PwC, has resulted in an increased revenue of 24% in the first quarter of 2014 (2014). v Aim The focus of this study will be an investigation of the effect of Video on Demand services on the traditional cinema industry. Primary research questions examine the following; Does the growing availability and choice of audio-visual content online mark the beginning of the end for the traditional cinema industry? Specifically the study investigated the following factors within the cinema industry; The macroeconomic/microeconomic factors that impact demand in the cinema industry. The awareness within the cinema industry of this online phenomenon. The strategic orientation of cinema owners to combat the threat posed by these substitute services. At the consumer level the study explored; Changes in consumer behaviour and preferences towards the consumption of audio- visual content. Changes in target markets and consumer segments. Methodology A mixed method approach was employed to gather primary data with priority given to qualitative analysis. Qualitative research was selected in order to gain an understanding of the underlying motivations and develop an understanding of the research problem (Malhotra 1999). A phased approach was employed with qualitative data (in depth interviews) and analysis carried out prior to the collection of quantitative data (consumer survey). This data was then assessed and triangulated against the findings of an in depth interview with an industry expert (Creswell, 2003). vi Findings Secondary research found that there is a shift in the power dynamic towards the customer in terms of the consumption of audio-visual entertainment content. Consumers can decide “what to watch, when to watch and how” leading towards a democratisation of media. (Tryon 2013). VOD services have removed the shackles of scheduling and given the consumer more control and choice of entertainment options. It was found that whilst there is an awareness of VOD services within the cinema community, cinema managers expressed low levels of concern regarding VOD having a major impact on their businesses. Cinema managers expressed concern regarding the levels of DVD and online piracy as being more of a threat to revenue than genuine subscription based VOD services. Further to this cinemas are engaging more with alternative events such as live concerts, theatre and charity nights to attract wider audiences. Consumer research found that whilst cinema was regarded as being poor value for money it was and will remain a desired entertainment option within a number of segments. Summary attendance and forecast figures also uncovered sustainable appetite for cinema in developed countries and double digit growth rates of cinema attendance in emerging countries. vii Acknowledgements I would like to expressly thank my supervisor Kathleen McGettigan for her help and steadfast guidance throughout the year. A word of thanks also to Chris “Big Data” Mc Laughlin for his readiness to assist and provide encouragement and advice. I would finally like to thank all those that gave of their time to participate in the interviews and surveys. viii Table of Contents Abstract......................................................................................................................................v Acknowledgements ............................................................................................................... viii Table of Contents..................................................................................................................... ix Chapter One: Introduction 1.1 Introduction.................................................................................................... .1 1.2 Research Objectives....................................................................................... 2 1.3 Context…………............................................................................................ 3 1.4 Value of the Study........................................................................................... 4 Chapter Two: Literature Review 2.1 Introduction....................................................................................................... 6 2.2 Video on Demand…………………………......................................................7 2.3 Online Piracy Issues…………...........................................................................8 2.4 Government Agencies and Support...................................................................13 2.5 Cultural Shift and New Distribution Technology……………..........................16 2.6 Conclusion..........................................................................................................19 Chapter Three: Methodology 3.1 Research Philosophy..........................................................................................22 3.2 Research Design..………...................................................................................23 3.2.1 Phase One – In depth Interviews.....................................................................23 3.2.2 Phase Two – Consumer Survey......................................................................25 3.2.3 Phase Three – Industry Expert Interview.......................................................26 3.3 Measurement of Findings……………………………………………………..28 3.4 Presentation of Findings…………………………………………………….. 29 ix Chapter Four: Findings & Analysis 4.1 In depth Interviews – Cinema Managers......................................................... 28 4.2 Consumer Survey..............................................................................................28 4.3 Industry Expert Interview..................................................................................29 4.4 Conclusion………….........................................................................................30 Chapter 5: Conclusions & Recommendations 5.1 Conclusions......................................................................................................45 5.2 Recommendations............................................................................................47 5.3 Limitations of the Study...................................................................................49 References....................