2. Starter Task
Make a list of as many film studios as you can
What is the job of film studios?
How do film studios make their money?

3. Learning Objectives
Complete short history of Hollywood
Identify key terms:
Vertical Integration
Horizontal Integration
Synergy
Case Study Two:
Film studios

4. ‘Golden Age’
Hollywood was established as the film making centre
of the world during the early past of the 20th century
However, Hollywood was not always the centre
of filmmaking excellence
During the first 20 years of the 20th Century
most of the cinemas pioneers operated in
Europe, specifically Germany
In an effort to escape war and
persecution, many filmmakers and
future studio bosses fled to the USA
as political refugees
Hungarian born
ADOLF ZUKOR –
founder of
‘Paramount Pictures’

5. ‘Golden Age’
During the Golden Age Hollywood was dominated and controlled by
the so-called ‘BIG FIVE’
MGM
… and THREE
‘minors’
Paramount
RKO
FOX (later
20th Century
FOX)
Warner Bros.

6. Studio System
As these EIGHT studios controlled almost all output from
Hollywood they were able to establish the Business model
and rules for the industry they controlled
Key aspects of the ‘Golden Age’ studio system were:
•
•
•
•
•
Studios were ‘Vertically Integrated’
Factory like process – they produced
standardised products (reliance on stars and
genre)
Each aspect of production controlled by the
studio
Little scope for self expression and artistic flair
Trouble makers were punished and ‘black listed’

7. Vertical Integration
What is ‘Vertical Integration’?
The process in which several steps in
the production and/or distribution of
a product or service are controlled by
a single company or entity
The studio will plan, film and
complete post production in studios
they own with equipment, personal
and departments they also own.
Every aspect of the films production
will be carried out by the studio
Film Production

8. Vertical Integration
What is ‘Vertical Integration’?
The process in which several steps in
the production and/or distribution of
a product or service are controlled by
a single company or entity
The same studio will create the
‘reel’s’ that are sent to cinemas.
They will produce marketing
materials (posters etc) and transport
the film to theatres
Film Production
Distribution

9. Vertical Integration
What is ‘Vertical Integration’?
The process in which several steps in
the production and/or distribution of
a product or service are controlled by
a single company or entity
The film will be played (exhibited) in
cinema chains owned by the studio.
The cinemas will only play films
made by the same studio. They are
also responsible for all premiers /
public screening etc
Vertical Integration gives complete
control and ownership to the Studio
that produced the film
Film Production
Distribution
Exhibition

10. Vertical Integration
What are the Pro’s and Con’s of ‘Vertical Integration?

11. Decline of the Golden Age
Until 1945 Hollywood enjoyed great success
under the ‘Vertically Integrated’ Studio model
They maintained total control over their
products and collected 100% of the profits
However after WWII Hollywood saw a fall in
profits, less people attending cinemas and
the established studio systems existence
came under threat
Several factors contributed to the sudden
demise of ‘Old’ Hollywood
Can you think of any?

12. Decline of the Golden Age
Post WWII there was a ‘Baby Boom’ – a sudden and
dramatic increase in the number of children being
born
The increase in the number of families led to a shift
in entertainment, with many families opting for
‘home entertainment’
The population also led to the urbanisation of
America
The Paramount Decree
Read the ‘Paramount Decree’ Article

13. Decline of the Golden Age
After WWII America’s Economy exploded and the
invention and sale of consumer electronics increased
dramatically
The most popular of these inventions was the Home
TV Set
1947 – 14,000 Households owned TV sets
1950 – over 4,000,000 (million) TV Sets
owned
Post war Americas were attracted to new Media
Technologies and newer forms of entertainment the most popular being Rock ‘N’ Roll

14. Rise of the small screen
TV Set
ownership
4500000
4000000
4000000
3500000
1947 - 1950
3000000
2500000
YEAR
TV SETS OWNED
2000000
1500000
1000000
1000000
500000
0
14000
1947
172000
1948
1949
1950

15. 1950’s Hollywood
As a result of the cultural shift following WWII,
Hollywood found itself facing a series of major
challenged to their dominance of the entertainment
industry:
•
•
•
•
Large back catalogue of films
Falling cinema attendances
Reduced control over their stars
Reduced control over the exhibition of films
(Paramount Decree)
• Competition for audiences
• Time and money spent on alternatives to
cinema
• Falling profits
The studios
came to a
sudden
realisation – If
you can’t beat
them, join them!

16. 1950’s Hollywood
It became clear to the studios that their current ‘Vertically Integrated’
business model was out dated and needed updating
They realised that they must branch out in to emerging
markets such as TV
Paramount Studios branched
out in to TV production and
found huge success with the
Star Trek series

17. Hollywood’s Strategy
Studios also began the following:
• Mergers with, or take over of TV companies
• TV Movies
• Use TV show as a showcase for back catalogue (rerun old movies generating new profit)
• By 1958, 3700 pre-war films had been sold or
leased to TV for over $220,000,000
• New approach to cinema – New Technologies
offered ‘New Cinematic Experiences’
e.g. Cinemascope, 3D, Technicolor

18. Horizontal Integration
What is ‘Horizontal Integration’?
Horizontal Integration is the consolidation of
holdings across multiple industries.
Through the ownership of many different media
outlets, conglomerates are able to sell the same
product many times.
For example,
is a film
franchise that is also sold via
the following formats:

19. Synergy
The ultimate goal of Horizontal Integration is too create ‘SYNERGY’
SYNERGY is the interaction of multiple elements to
produce an effect greater than the sums of their
individual parts
Studios can take ONE property, such as
‘Spiderman’, and create several revenue streams:

20. Horizontal Integration
What are the Pro’s and Con’s of ‘Horizontal Integration’?

21. Case Study - Disney

22. Disney Financials 2012
According to the Forbes Fortune 500, Disney are the
66th largest corporation in the world
Revenue: $42.3 Billion
Net income: $6.1 Billion
TV Networks (ABC & Disney) reach on average: 23%
of US Households
Disney Channel: reaches 40 million US Homes
EPSN: 80 million US Homes

23. Disney Financials 2012
Where does the money come from?
Media networks:
20.36
Parks & Resorts:
14.09
Studio Ent:
5.98
Consumer products:
3.56
Interactive:
1.06
What does this table indicate
about the modern film industry?

24. Case Study - Disney

25. TV:
(30%)

26. Case Study - Disney
By ‘diversifying’ their business film studios like
Disney no longer rely just on cinema for profits
Disney are able to sell their products via multiple
outlets and create several cash flows for the same
products

27. Case Study - Disney
Horizontal Integration also allows for:
Ability to share resources and products across many
different formats:
• Films
•TV Shows
• Video Games
• Comics / Novels
• Toys & Merchandise
This is known as SYNGERGY
SYNGERGY: The added value created when joining two separate
firms allows a greater return than from the sum of the individual
parts

28. Case Study - Disney
To demonstrate the benefits of Horizontal
Integration, look at Disney’s fiscal performance in
2013
John Carter: Loss of over $200 million
Theme Parks: profit increase on previous year 9%
$3.4 Billion
Film Studio: $313 (Avengers re-coupe losses of John Carter
Other media networks: $4.7 Billion
Read the handout and highlight the key points,
includig financial information and how Synergy
contributed to Disney’s outstanding performance

29. Case Study – Part 1
All of the major studios in Hollywood are
subsidiaries of larger, global conglomerates
Using one of the following companies,
you must complete a detailed case study
of the businesses ‘Horizontally integrated’
structure and list all of the different
companies and media outlets they own
You must include a detailed
breakdown of all the companies and
subsidiaries they own

30. Case Study – Part II
Identify ONE franchise owned by your chosen
studio
Compile a list of the financial information
for this franchise (budgets and box office
figures)
Research how the horizontally integrated
business creates ‘SYNERGY’ from the
franchise
(you must include specific examples of
the different forms the franchise takes –
merchanise, TV shows, themes parks etc)
You must include sales figures for the
spin-off products

31. Studio: LucasFilm ltd.
Director: G. Lucas, I. Kershner, R. Marquand
Number of films: 7
Total Box office revenue: $4,485,672,683
Star Wars: $797,900,000
Empire Strikes Back: $534,171,960
Return of the Jedi: $572,700,000
Phantom Menace: $1,007,044,677
Attack of the Clones: $656,695,615
Revenge of the Sith: $848, 988,877
‘Clone Wars’: $68,161,554
Kenner (78-85) Hasbro (1995-2011)
Total sale: $12.1 Billion
Books: $1,820,000,000
Video Games: $2,900,000,000
Other: $1,34 Billion
Total Revenue: $27 Billion

32. As you can see here, the Star Wars movies
are only a small percentage of the total
value of the brand.
Lucas Film has been
able to create
SYNERGY through its
various companies.
Such as:

33. This table breaks
down all of the
different revenue
streams Lucasfilm
have created.
The modern film
industry relies on
more than just
cinemas to
generate profit.
Horizontally
integrating allows
for the sale of one
franchise across
many different
platforms.

34. You have 30 mins to write an essay style
answering to the following question:
How important are
film franchises to film
studios?
You must include:
A detailed case study of a film franchise
A definition and explanation of Horiontal
Integration