Cinema economy

The economy of the cinema is the branch of the economy of culture which is interested in the film industry .

The cinema economy mobilizes on the one hand the tools of econometrics for the empirical description of the field, and on the other hand those of the industrial economy to give an account of the organizational logics and relations between the different links of the sector. .

Portrait empirical

Unlike most other sectors, the cinema is distinguished by the wealth of data about it. The remuneration of each speaker as well as his career development being intimately related to the number of entries of the films where he was involved, there are almost exhaustive databases including the main actors as well as the number of entry and the financial balance sheet. for almost all films from Europe, North America and Japan H 1 .

These same data concerning the important Indian and Nigerian cinematographies are however less accessible. By the number of films produced – and for the first at least – by the number of spectators, these two cinematographies rank among the ten most important in the world.

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Essential characteristics of the sector

The film sector is essentially dominated by a radical uncertainty as to the success or failure of a film. Even at an advanced stage of production, commercial success remains virtually impossible to predict. However, it is also a sector dominated by extreme values: only a few films report almost all the profits of the sector. As a result, the circulation of information as well as the flexibility of contracts are characteristic features of the operation of the sector. In terms of price, it is necessary to distinguish the problem of the upstream costing (in particular the remuneration of the stars) whereas downstream, three prices summarize the relations between the various actors: the entry ticket, paid by the spectator, the rental price, paid by the cinema room (the operator) to project the film, and the distribution price, that is to say the amount paid by the producer to the distributor of his film 1 .

In addition, the economy of the film industry is integrated with that of the audiovisual sector which completes and extends the first. A substantial, or very often majority, share of film producers’ revenues come from television sales or on various digital media (DVDs, etc.).

Basic features

The film industry is one of the most visible of the cultural industries , and probably the first to be organized in industry, that is to say in separate economic sector driven by the profit motive. It is essentially a fixed cost industry . By the time the film arrives on the screens, all production and distribution costs have been incurred irretrievably, and the cost of a new copy or projection is negligible compared to the cost of producing the film. As a result, the returns to scale play an important role, and their mechanical effect is further increased by reputational phenomena and word of mouth that make the success or failure of an H 2 film .

In addition, films are composite products, requiring the collaboration of both artists 2 and a set of other stakeholders (technicians, logistics, promotion) do not necessarily share the artistic commitment of the first C 1 . In addition, these projects are usually combined only for a specific project, on the basis of contracts covering only this specific project. As a result, the history of each individual’s contributions constitutes a fundamental piece of information to evaluate his / her potential contribution to a given H3 project .

Finally, it is a sector dominated by extreme events. Most movies are not profitable, and only a handful of them generate all the profits of the H 4 sector . Above all, this sector is dominated by a radical uncertainty, the Nobody knows , “nobody knows 3  “, that is to say that until a film is projected, no one is able to predict the magnitude of its commercial success H 5 . This essential property determines almost all the organization of relations between actors in the sector.

Costs and prices

Main article: Filière cinématographique .
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Producing a film

Main article: Film production .
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Methods of financing cinema

To finance the development of a film, here are the different sources of funding:

The producer’s own funds, the CNC , local authorities (regions, departments, municipalities), European aid, SOFICA (Film and Audiovisual Financing Company), credit institutions, presale television channels Guaranteed minimums (MG) of French distributors and international sales.

The compensation of stars

Main article: Economics of artists’ work .
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Distribute and exhibit a film

Main article: Film distribution .
Main article: Film exploitation .

Once the film is finished, its commercialization rests on three essential actors: the producer owns and manages the rights 4 and entrusts, for remuneration, the promotion and the placement of his film (in theaters, with television channels) to a distributor  ; the latter thus maintains relations with the various operators , who in turn fix the price of public access to a film they propose H 6 . In what follows, it will be treated essentially of the case of the United States and the French case. These two countries differ considerably in the structure of their sector, as in the United States a small number of companies, the majorsboth production and distribution, with considerable bargaining power, while in France a large number of distribution companies, mostly small ones, negotiate with major chains of operators, who have a strong market power 5 . This difference is doubled by much more stringent legislation in France on the type of contracts that can be made between the various links in the chain.

If the price of the ticket can vary enormously from one cinema to another for the same film, it is generally fixed for a given film and in a given cinema for the entire projection period of the film H 7 . The offer for this film (number of seats in the room, number of rooms) being relatively fixed for a given cinema, one would expect on the contrary that the price varies in order to adapt to the scale of the demand. 6 . This fixity of the price is explained by the information dynamics specific to the situation of uncertainty ( nobody knows ). Indeed, during the first weeks of operation, the differences between an average film and a blockbusterare weak: it is the length of the duration of exploitation which characterizes the latter H 8. As a result, raising the price of a film that is expected to be successful can kill word-of-mouth and informational cascades that are at the heart of a movie’s lasting success. Conversely, reducing the price early is equivalent to sending a negative signal on the quality of the film, and thus further reducing the demand. In addition, the price stability allows the distributor to receive a clear signal on the number of entry, not manipulated by the tariff policy of the operators. Therefore, the operators adapt to local conditions (wealth of the public) by proposing a suitable price, and manages the success or the failure of the films by playing on the number of projections, the type of room (number of seats) and, with restrictions, on the programming time of a film H 9 .

The typical contract between a distributor and an operator includes a fixed part, which the operator must pay regardless of the success of the film, and a percentage of the revenue. For most movies, the fixed part of this pair rate is low or zero, but for the most requested movies, it can reach 100,000 USD H 10 . In France, the regulations impose a fixed portion of zero 7 and therefore a remuneration of the distributor strictly proportional to the revenue from ticket sales.

In the United States, the percentage of revenues paid to the distributor by the operator varies according to the number of weeks of projection of the film, following a decreasing pattern, for example 70% in the first two weeks, 60% in the following two weeks, and then 35% or 40% for all remaining weeks. This decline provides an incentive to the operator to keep a long movie, and indemnifies the operator of the increasing risk that the movie stops making entries M 11 . In addition, a clause of the contract stipulates that if a film exceeds a certain number of entries a given week, the operator is obliged to continue to project it the following week ( holdover clause ). In France, this percentage is constant, varying between 25% and 50%,, and the clauses relating to the duration of projection of a film are not a usual practice.

The type of agreement prevailing in the United States is appropriate for most films. However, blockbusters , which represent the bulk of profits, are distinguished by very long operating periods (23 weeks for Tootsie ). The contracts thus provide that if the weekly earnings of a film exceed a certain threshold (the house nut ), the distributor may request to collect 90% of the receipts made beyond this threshold rather than the 35% of all recipes H 12 .

All these vertical agreements may turn against the distributor if the competition between rooms is too strong, they are accompanied by partial territorial exclusivity or total for the rooms that accept a given film H 13 . In France, European legislation prohibits or limits such practices, while in the United States, the Supreme Court has ruled that these clauses are a customary practice in the sector, which puts them outside the realm of antitrust laws.

The last prize is the one paid by the producer, who is the final beneficiary of the film, to the distributor. Here again, uncertainty plays a role, as well as a form of moral hazard relating to the distributor ‘s promotion and placement of the film, as well as its monitoring of compliance by the exhibitors. The solution that has emerged seems to be that of a share of revenues, usually 30%, which partially aligns the incentives of the distributor to that of the producer, that is to say, to maximize the exposure and the audience of the film H 14 .

Historical perspective

Have the preceding vertical arrangements changed enormously over time? According to A. De Vany, they are virtually the same since the beginning of cinema in the United States H 15 .

The case of the United States

The debut majors 

At the beginning of the film industry, in the 1890s and 1900s, the films were essentially short films, 5 to 20 minutes long, assembled to create two-hour programs. The copies were then sold directly to the venue by producers, exhibitors have the opportunity to sell them when they wanted H 16 . The payments made to the producer were thus low, and unrelated to the success or failure of the film.

With the development, between 1907 and 1913, of the feature film, the current characteristics of the sector are set up. We go from daily program changes to projection times of two to three weeks, studios and stars begin to prevail. The move to feature film implied much larger financial commitments from producers. In order to cover these commitments, the producers began by selling exclusive rights of exploitation on a geographical basis, through a distributor who acquired the copies for an amount proportional to the population of the region served. For their part, the distributors realized that it was better to offer the farmers a recipe sharing rather thanH 17 . Since this type of arrangement could only work if the operator did not cheat on the amount of revenue generated, the distributors began to operate their own cinemas (a form of vertical integration ), to rent the films only once they had been sold. exhausted potential in their own cinemas.

The most important turning point came in 1913-1914 with the merger of the main regional distribution networks into the Paramount Pictures Corporation, exclusive distributor of three of the major production companies and able to negotiate wholesale with the producers of the entire seasons (a thirty or so films) H 18 . In exchange for exclusive distribution, Paramount received 35% of the revenues from the concession rights, as well as guaranteed minimums and repayable advances to producers. Downstream, the operators negotiated exclusive exploitation rights, in exchange for which they undertook to take and project all the films supplied, sometimes even before the films in question were made.

Such agreements only led to true vertical integration . Since the problems dealt with by these contractual clauses can be more easily solved internally, the various links in the chain began as early as 1916 to create vertically integrated companies through upstream and downstream mergers, in response to the considerable increase in production costs for feature films. more and more ambitious. The historic majors ( Metro-Goldwyn-Mayer , Paramount Pictures , RKO Pictures , 20th Century Fox and Warner Bros. , United Artists ) were born H19 .

The studio system 

Main article: studio system .

By studio system , we designate the organization of the production and distribution of films, entirely, in vertically integrated studios employing all stakeholders on long-term contracts. This organization dominated the American film industry from the 1920s to the 1950s.

The studio systemrelies on the establishment of long-term contracts between the studios and their employees. The generic form of these contracts is an option contract: the actor agrees to play only for the studio for a fixed period (usually seven years), the studio having the opportunity every six months or all years to terminate the contract, or extend it with an increase in salary. In addition to exclusivity, the studio reserves the choice of roles that the actor will play, may impose a name change, and more generally control its entire image and public appearances or advertising. The actor can not unilaterally terminate this agreement, nor renegotiate it or refuse a role. This agreement provided a secure income for theC 2 .

Although these provisions, which are common to all contracts, did not pose any problems for employees who performed technical tasks (lighting designers, decorators), they were a source of frequent conflict with actors and directors, who saw that most of their revenues were lost. by their star status, and were forced to agree to participate in more films than they would have liked C 3 .

The studios thus controlled the entire cinematographic chain. A typical film thus started with the purchase of an option on a play, a novel or a novel. The basic text was then sent to a screenwriter to make a scenario, then forwarded to a team that made a storyboard. On the basis of this, a rigid calendar set the shooting dates for each scene, in order to minimize the travel costs of the team and the actors. At each stage, a supervisor delegated by the studio ensured that the progression of the film corresponded to the calendar and that the rushes conformed to the quality standards required by studio C 4. Once the shoot was complete, the supervisor could impose the cuts he wanted in the final edit. Then, the studio chose the date of its release, as well as the cinemas where it would be projected.

The success of this system rests on one hand its efficiency in terms of employment of the various stakeholders. In a studio, both actors and technicians were employed almost permanently. On the other hand, option contracts made it possible to invest early in the careers of many players, and to compensate for failures by interception of revenues related to the emergence of a few stars. The domination of this model also put a brake on the inflation of the salaries of the stars, who had difficulty finding other commitments. The power of this combination of efficiency and monopsony situation on the stars is evidenced by the setbacks of the United Artists ,. In artistic terms, the films produced during this period were of a more homogeneous quality than after the destruction of the studio system , while the final control exerted by the studios restricted the creative freedom and the margin of innovation left to the artists.

The Paramount trial

Main article: United States v. Paramount Pictures .

A domain dominated by extreme values

Notes and references

Notes

  1. ↑ Each of these aspects is detailed in the paragraphs below, where are given the precise bibliographic references for each element.
  2. ↑ See article Labor Economics of Artists for more details on how the interests and behavior of artists may differ from that of agents whose work has no artistic dimension.
  3. ↑ It is precisely on the subject of cinema that was pronounced the phrase ” Nobody knows anything”, which Richar Caves drew the concept of nobody knows to designate the uncertainty weighing on all cultural products.
  4. ↑ In fact the copyright , the heritage of the copyright .
  5. ↑ Anne Perrot, Jean-Pierre Leclerc, ”  Cinema and competition  ”  [ archive ] , on http://www.culture.gouv.fr/  [ archive ] , Ministry of Culture, (accessed August 9, 2008 )
  6. ↑ See Supply and demand for the foundation of this intuition.
  7. ↑ Anne Perrot, Jean-Pierre Leclerc, ”  Cinema and competition  ”  [ archive ] , on http://www.culture.gouv.fr/  [ archive ] , Ministry of Culture, (accessed August 9, 2008 )  : “Distributors are paid a percentage of theatrical revenues – the rental rate – negotiated with the operator in a range of between 50% maximum and 25% minimum cash receipts, in accordance with Article 24 of the Film Industry Code and Regulatory Decision No. 15 of 7 October 1948 of the Director General of the CNC. Distributors and operators each recover an average of 40% of revenue. ” , P.  36
  8. ↑ Cinema and Competition Report , op. cit. .

References

  • Handbook of the Economics of Art and Culture
  1. ↑ Introduction, p. 618
  2. ↑ Introduction, p. 618.
  3. ↑ Introduction, p. 618.
  4. ↑ Introduction, p. 619
  5. ↑ Introduction, p. 619
  6. ↑ 2.4 Pricing movies , p. 625.
  7. ↑ 2.4 Pricing movies , p. 625.
  8. ↑ 2.4 Pricing movies , p. 626.
  9. ↑ 2.4 Pricing movies , p. 627.
  10. ↑ 2.5 The rental contract , p. 627.
  11. ↑ 2.5 The rental contract , p. 627.
  12. ↑ 2.6 Pricing hits , p. 628.
  13. ↑ 2.7 Clearances , p. 629.
  14. ↑ 2.8 The distribution fee , p. 629.
  15. ↑ 3. A brief history of motion pictures , p. 630.
  16. ↑ 3. A brief history of motion pictures , p. 630.
  17. ↑ 3.1 The feature motion picture , p. 631.
  18. ↑ 3.1 The feature motion picture , p. 631.
  19. ↑ 3.2 The emergence of vertical integration , p. 632.
  • Creative Industries
  1. ↑ Richard Caves called this property motley crew , “motley crew” and describes in detail the problems raised by this type of collaboration.
  2. ↑ Chap. 5 The Hollywood Studio Disintegrate , p. 88-89.
  3. ↑ Chap. 5 The Hollywood Studio Disintegrate , p. 89.
  4. ↑ Chap. 5 The Hollywood Studio Disintegrate , p. 90-91.
  5. ↑ Chap. 5 The Hollywood Studio Disintegrate , p. 92.
  • Benhamou, The Economy of Culture

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