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» Report 2008
Part Four - INTEGRATED AND CONCENTRATED
THE FORCE OF A CLASS
Chapter 7 - The Market Quote
Where Business is Concentrated
The verification of the movement tendencies shown by the particular CINETEL sample can also be found in the database of the Italian Chamber of Commerce which includes all of the companies of three diverse areas, verifying the quota on the supply market – rather than the demand market – determined on the basis of the registered turnover.




Elaborated from CERVED data 1st January 2007..

As can be ascertained the situation of the three areas of the sector is in a course of evolution, even if in a manner which is not univocal: the incidence of the principle companies demonstrates a somewhat perceptible fall in production, whilst in business (screening) an inverse process is occurring.
What primarily attracts attention is the divide between the various classes:
  • in production the twenty companies between the 11th and the 30th position carry out activity which covers 16.1% of the market and the other twenty (from 31st to 50th position) 7.5%
  • in distribution the twenty companies which are near to the ‘top ten’ accumulate a quota which is equal to 15.5% and the other twenty following (from number 31 to 50) correspond to 4.9%
  • in business and finance the twenty companies included between the 11th and 30th place amount to a presence equal to 15.6% and then the other twenty which follow together occupy a market space corresponding to 8.9% of the turnover of the entire sector.
In as much as it is possible to see the rejects of the three classes they expose analogies which are truly marked. This entails, therefore, that in the three areas the two minor classes of company (grouped 11/30 and 31/50) maintain a market importance almost similar and respond in the same fashion to the prevalence of sector leaders, also independently of the scale and the form of such leaderships, exercised by the respective groups of the first ten operators of production, distribution and business (whose relative quotas appear, indeed, rather diversified).
This asset is the result of a gradual settlement, the dynamics of which are revealed by the quantification of the displacements, in time, of the market quotas (table 5).




Elaborated from CERVED data 1st January 2007.

It can be observed that the movement of the quota has produced – with differentiated effects – changes also in the last section, in which are included the hundreds of companies which by business volume are located past the 50th position. This is the area which could be defined, in terms of scale, ‘minor indies’. Within the distribution remains their meagre market portion equal to 3.9%, whilst in the business and finance sector there still is 30% of market space and in production activity which is valued at 39.3% of total turnover.
In the three sectors they seem, in substance, to co-exist common elements of evolution as well as factors of different capability which propose certain orders of consideration.

PRODUCTION

What must be considered, above all, is the highly elevated number of companies included in the sector of production – in which are included around 65% of those involved in activities of pre and post-production – implying a weight relative to the classes of the first ten (which also includes Technicolor, Kodak and Deluxe) somewhat less than that registered for companies of distribution and business.
The actual nature of cinema production understood in the strict sense considers, for its part, the limited presence of the so-called national ‘mini majors’, of the selected circle of ‘indies’ and also of a selection of ‘minor indies’ consisting of at least 300 small scale companies, from the fluctuating activity and property structures which cannot be described as stable and on which the liquidations or cancellations registered depend , also at the expense of companies rendered beneficiaries of past seasonal successes.
The relatively reduced consistency of turnover quota accumulated by the first ten operators reflects, as a consequence, the limited representation of film makers who from the sales of their films gain revenue of the order of at least 40-50 million euro. If then one of the major groups – such as is the case with the Cecchi Gori Group, the most important national and European cinema company of the 1980s and 1990s – stops activity as a result of grave management difficulties, that same quota undergoes a rapid reduction as can be seen in table 5.
Trends in turnover of the other classes of production also show that such contraction – equal to 11.2% - trails from the first to the other groups, being partly absorbed by the medium and small sized companies and a further portion by successive compartments; primarily those subjects which compose the divergence 31-50 revealing a progress of 1.3%. Fundamentally, therefore, the average category of film studios, which constitute the heart of the sector, show, in spite of appearances, a positive trend in support, moreover, of the particular process of evolution of which such film studios are the protagonists.

DISTRIBUTION

The consequent enlargement of the amount of turnover accumulated by all of the production companies which are located after the 50th position is not, in itself, an indicator of the expansion of the market, to be interpreted unequivocally. This is because the values evidenced by the distribution sector reveal that the group leaders that operate in this area – the foreign ‘majors’ and other principle national distributors – all maintain their own market space, as a consequence limiting the access channels to the market for all the small film studios, thereby, if they want to enter the circuit, then their productions must confront the negotiating power and commercial influence of entities which are decidedly superior. A situation “supported” by the contextual and increasing concentration which is registered in business and finance and which, consequently, puts the larger distribution companies into a condition of being able to “impose” their own titles with far greater force.
  • The underlying consideration is that in the process of settlements and development of Italian cinema of recent years the ‘major’ companies have certainly not lost their presence on the national market (aside from a slight erosion according to the specific cinema studies of CINETEL). Despite continuing to concentrate their activity on the distribution of films and DVDs – a strategy only recently mitigated by certain circumscribed incursions in internal production carried out by Warner Bros. Italia, Walt Disney, Fox and now Prima-Quinta – they have consolidated their influence. In accordance with their respective advantageous positions the major companies have, moreover, maintained such commercial agreements with traders that have caused a great deal of controversy, for the last ten years, among staff members who, in the meantime, have themselves become protagonists within distribution channels such as multi-screen cinemas and multiplexes.
  • The possibility of organizing strategies for the release of every new title at the transnational level (or even better – the intercontinental level) offers, moreover, the opportunity to put into play important economies of scale which go from the number of copies to be printed to the centralized conception of communication and publicity plans, up until the preparation of materials destined for initiatives (repeatable) and advertising campaigns (reproducible in more contexts). With the passage of time such economies of scale have also conspicuously heightened the threshold of investments in promotion, to the point where the marketing budget per title by now covers 30% of the production costs, against 10% a few years ago. It is difficult that today a title can aspire to become a true blockbuster putting itself onto the market with a publicity campaign whose costs are measured in more than tens of millions of euro.
  • Within this context the activism of Italian ‘indies’ assumes, nevertheless, particular significance. With the extension of channels of market exploitation for films the majority of national companies  of medium size have, in fact, endowed themselves – as illustrated in the previous chapter -  with their own distribution businesses, controlled directly or colligated with consistent participation. The results are beginning to emerge: both for the cinema circuits, as documented by the data of CINETEL concerning the gross takings with an income of 33.1 million euro in comparison to the year prior (above all with the release of 12 less titles) and an improvement in market quota of 2.62%; as well as for the other “platforms”, according to how much can be revealed from the turnover data of CERVED which accredits, to the companies of the block 31-50, a robust increase in quota equal to 4.9%.

BUSINESS
From the moment in which the transmission of films on television channels started reaching its highest point of intensity, before the use of satellite and the consumption of films on video, it revealed exponential rates of progress. In 1988 Kinepolis opened, in Brussels, the first multi-screen cinema in the world, with six cinema screens. At that point the conversion of structures of projection from the traditional single screen systems began in centres provided with more screens. Indeed, in as little as 20 years these new multi-screen structures covered 50% of the whole business network in Europe,  north America and Australia. A result of this is the progressive concentration of business and the contextual decrease in single-screen cinemas, principally in city centres
  In Italy, in 2001, such multifunctional complexes amounted to 36 and multi-screen cinemas to a little more than 20 with a total of almost 600 screens; today the complexes have increased tenfold and cinema screens fivefold, whereas their incidence in terms of total attendances has passed – in cinemas which are defined as ‘active’, that is, open at least 120 days of the year – from 17.9% to 88.5% and the percentage of takings from 22.6% to 89.3%, as is illustrated in table 6.




Source of elaboration: ANEM (Associazione nazionale esercenti multimediali) from data of CINETEL – The studies involve the report “Il cinema italiana in numeri” – calendar year 2006, 2007, and 2008 – edited by the Ufficio studi/CED of ANICA.

Primarily opened by the major international cinema industry chains and by major national circuits which are capable of maintaining the enormous investments necessary for their construction, the multi-screen centres have, at the same time,  reinforced the market quota, something which, today, sees foreign operators prevailing on those which are Italian in the area of the first ten groups with a percentage of revenue at 64% against 36%, whilst when all activity is taken into consideration – including single-screen cinemas – Italian subjects obtain 54% of the general proceeds against 46%.
 With the exception of those of the first class in terms of scale, with turnovers at over 13 million euro and which have, in the last five years, increased their incidence of total business volume by 4.1%, the twenty circuits of the second range with revenue of between 5 and 13 million euro (all Italian owned, apart from Vis-Pathe’) have also grown, increasing their takings by 2.5% in the last five years.
With its 1,815 active companies the sector clearly remains uneven. However, this involves only a partial fragmentation. Due to the growing concentration – with 50 cinema chains covering 70% of the total value of the cinema sector, estimated at 545 million euro – and the constant erosion of traditional single-screen cinemas, a formal, structural separation is being registered, between the nucleus of complexes described as truly entrepreneurial, capitalized and of industrial management, and the staff of companies which can almost be described as family run businesses (1,765 companies registered with the Italian Chamber of Commerce plus a various one hundred non limited firms which represent art house cinemas and parochial cinemas dividing a market slice of 30%).
The dynamics of expansions have also accentuated the competitive climate of the major networks, eight of which own over 50% of the structures with more than one screen. Each one of these, on the basis of interpretations of the terms ‘multi-screen’, ‘multicinema’, and ‘multiplex’ which are subtly dissimilar and with which the structures, in terms of available screens (it is only in Italy that there are no ‘megaplex’ and ‘gigaplex’ structures, with over 20 and 30 screens respectively) claim their leadership. The financial statement reports are authoritative: absolute, territorial, specific – for the number of available posts, spectator attendance, annual takings, square metres of occupied surface...- these are not really important,  so long as there is the leadership.
However, the effects, which are substantially more relevant of the ongoing process have repercussions for the whole cinema industry. This is because the vertical integration of numerous companies which are also active in production and distribution, introduces into the business activity and into the relations between those involved in film rental and those who manage cinema halls a new sense of compatibility (for example a new respect for the inter-group interests). Initially started in order to confront the strong competition of the television sector and to recuperate further profit margins from the commissions (including between 30% and 40%) corresponding to the distributors of the region, such a policy was essentially pursued by the American ‘majors’ which had already experimented with it, from the end of the 1930s,  on the example of the French Gaumont in both Europe and in the United States. Also certain Italian producers had already, in the 1960s and 1970s, adhered to this strategy, however, in a circumscribed form and essentially in terms of marketing, in order to test the pulse of the market and the tastes of the public. With the arrival of multi-screen cinemas, the enthusiasm of the ‘majors’ towards integration became, in all of Europe, more cogent – putting in difficulty the independent distributors of various countries – and today customer choice finds (apart from Rai) the principle national producers as allies.
The range of centres and multi-screen chains as consumer markets, on the other hand, demonstrates itself to be congenial to a film scheduling policy which is oriented towards film titles and, in particular, towards the blockbusters of the United States, thereby reinforcing the already notable powers of attraction on the cinema going public. From the moment that those involved in cinema management had the necessity of guaranteeing a constant influx of viewers and takings – above all in those structures with capacities and management costs decidedly elevated as is the case with multiplexes – the principle distributors, such as the international ‘majors’, have consolidated their negotiating powers. Primarily, thanks to the variable factors which can condition the release of a film at the box office: release periods, number of cinemas in which it is screened and running time, meaning the number of days in which the film remains scheduled.
Aside from the official bargaining, such planning foresees margins of manoeuvrability which are agreed upon, usually, through understood informalities between distributors and cinema managers; agreements which enter the area of a subject which is fluid and often controversial such as that of the uses and customs of the private pacts between operators and commercial practices – with their own unwritten rules and so-called ‘silent clauses’ – which distinguish determinate markets, in particular in the direct relations described as ‘business to business’.
In their, by now, age-old history the major American corporations have often been at the centre of attention due to their potential capacity for pressurizing and are called in lawsuits by antitrust authorities of the United States as well as by those defending free competition from other countries or even by the same European Union, which, at present, remains the most involved in “observing” the audiovisual market. In Italy the referred to law is number 287 of 1990 ‘Norme di tutela della concorrenza e del mercato – Sulle intese, sull’abuso di posizione dominante e sulle operazioni di concertazione’ (Norms regarding competition tutelage and market tutelage – on the agreements, the abuse of dominant positions and on consultation operations) which was initiated by AGCM – Autorita’ garante della concorrenza e del mercato . Belonging to this set of controversies are the “cartels” for agreeing rental tariffs and ticket prices as well as the informal practice of ‘blockbooking’, which consists in furnishing films to cinema managers with only the requirement of scheduling, in the same cinema complexes, films of lesser attraction which would otherwise have scant circulation or even not any form of circulation at all. The system also involves other alternative forms: ‘blind buying’ or rather the rental of selections of films without titles; ‘first runs’ which is the release of films exclusively to the cinemas of a specific zone; ‘designated play dates’ which is the choice of specific time periods for the screening of films; ‘reciprocity of dealing’ which is, in other words, the concession of a film only to privileged partners and to the exclusion of their competitors, for the bargaining of pricing policies and for the vertical agreements which have, as an object, the exclusive use of films of major success.
A rather diffuse conviction in the five major European markets – the so-called ‘Big five’, according to the nomenclature in use by research centres – is that among the corollaries of the phenomenon certain repercussions can be individuated which affect the sector of production. Given that national Italian titles, which cannot, in general, boast of the same apodictic attractiveness of productions designated ‘made in the USA’, they meet major difficulties in having success in a market which is informally compartmentalized and find it difficult to obtain adequate space in a window display where visibility and major running time are pre-emptively dedicated to “home products”. Only before an immediate response of consensus on the part of the general public do they manage to obtain the creation of more copies and long film scheduling, thereby escaping from the statistical laws which assign to “domestic” productions inferior averages of reproductions, days of running time and areas of circulation.  Often not even covering the national territory is insured and sometimes not even the principle city centres (which in Italy amount to 12: Rome, Milan, Turin, Genoa, Padua, Bologna, Florence, Naples, Bari, Catania, Cagliari, Ancona).
The proliferation of multi-screen cinemas seemed, at one time, to herald a major access opening and increase in circulation for all production, however, the auditing of the latest period would seem to consolidate the advantageous positions and from the data it emerges that the division of attendances and takings of national titles by type of projection structure are far removed from the titles of the American ‘majors’ and integrated groups. There are almost eight percentage points more credited to the first at the level of single-screen cinemas, multi-screen cinemas and multicinema per number of spectators, whilst the takings for multiplexes result almost ten percentage points less.
In Italy the amount of attendances for national films in structures with between 1 and 7 screens result, for 2008, equal to 55.4% and, as a consequence, the percentage of pertinence for the multiplexes is 44.6% in comparison to a situation which has practically been inverted for important films with a respective 44.8% and 55.2%, whilst the amount of takings for Italian films in the first three types of cinema system is equal to 53.5%  alongside the complementary 46.5% for multiplexes, against 43.1% and 56.9% respectively assigned to the number of foreign films.
Such figures, nevertheless, do not state that the time curve relative to recent years registers a positive trend for Italian films, which are in evident increase as far as the progressive polarization of spectators and, above all, of revenue in terms of multicinemas and still more in terms of multiplexes is concerned. On the other hand, a more profound extrapolation of the data, through the relation of attendances and takings, results in the consideration that the diffuse conviction that the number of attendances at first releases and Italian titles generally result in less takings for their producers and distributors in comparison to American and other foreign films, is an opinion which has been superseded and is, indeed, no longer true. The average prices given to entrance tickets to cinemas which show Italian films – depending on the release season and the days (working or holiday) of film scheduling – is practically a reflection of the average costs of the tickets to cinemas dedicated to productions outside of Italy’s borders.

 

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