Motion Picture and Video Tape Production

SIC 7812

Companies in this industry

Industry report:

This category covers establishments primarily engaged in the production of theatrical and nontheatrical motion pictures and videotapes for exhibition or sale, including educational, industrial, and religious films. Included in the industry are establishments engaged in both production and distribution. Producers of live radio and television programs are classified in SIC 7922: Theatrical Producers (Except Motion Pictures) and Miscellaneous Theatrical Services. Establishments primarily engaged in motion picture and videotape reproduction are classified in SIC 7819: Services Allied to Motion Picture Production and those engaged in distribution are classified in SIC 7822: Motion Picture and Videotape Distribution.

Industry Snapshot

The U.S. motion picture and video production industry serves as a major supplier of entertainment and information to the world by producing videos, television programs, and movies that can be seen in more than 100 countries. Industry leaders in 2011 were the same companies that had been at the top for years: Universal, Sony/Columbia, 20th Century Fox, Warner Bros., and Paramount. Totaling $10.2 billion in 2011, domestic ticket sales remained high, while worldwide sales hit a record total of $32.6 billion that year. Total admissions dropped slightly in 2011 to 1.28 billion from a decade high of 1.57 billion in 2002. Admission prices averaged $7.98, up 37 percent since 2002 when a ticket cost $5.81.

The U.S. film industry implemented large-scale technical changes in the first decade of the 2000s. With funding from major studios, theaters started to upgrade to digital projection systems while simultaneously seeking to control piracy. These issues also impacted distribution schedules, with more films being released on the same date worldwide and with video releases being offered far more quickly. The use of digital screens in theaters increased 33 percent in 2008&25 times the increase reported in 2003. In 2011 the number of digital movie screens in the United States nearly doubled, and 6,100 of those screens were digital non-3D, bringing the percentage of movie screens that were digital to 65 percent.

Organization and Structure

Motion picture and videotape production is one element of a larger three-part industrial structure. After a movie or a video is produced, it is usually transferred to a distributor, who in turn arranges to make the product accessible to the consumer through movie theaters, video rental or sales outlets, and television broadcasts. In the case of movies, the distribution company and the theater usually split the box office receipts. The financial and management structures of a production company often depend on the company's relationship to the distribution arm of the industry, which in turn is influenced by a company's size.

Production companies can be classified according to three major categories: the "majors," the "mini-majors," and the "independents." The majors include large conglomerates, such as Warner Bros., Walt Disney, Sony/Columbia, Universal, and Fox Entertainment. A single corporate structure often controls production as well as distribution of films, along with an array of related operations through which the corporation can market movie soundtracks, toys, and other promotional tie-ins. Warner Bros., whose merger with Time, Inc., in 1989 dramatically strengthened its distribution system, presented one of the most striking examples of coordinated production and distribution. Some major film corporations also invested in movie theaters, despite the history of antitrust actions against theater chains owned by studios. Slightly smaller companies, the "mini-majors," may have weaker distribution powers and may specialize in a specific segment of the film market, such as art films or action films. Small, independent filmmakers may have no distribution capability at all and must depend entirely on outside distribution companies.

Because success in the film production industry depends largely on a wide distribution network and access to the substantial capital required for film production, major film companies have obvious advantages over small companies. In addition to distribution capabilities, many of the major studios have operated long enough to build up sizable film libraries, which provide revenue through video sales or through sale or rental to television stations. These well-established companies are likely to wield substantial financial leverage and control physical production facilities. Small production companies and independent filmmakers often rent the production facilities of the large companies.

During the studio era, which lasted from 1920 to 1950, major studios considered their stable of stars, directors, and other talent under long-term contract as assets. Movie companies in the 1990s and early years of the first decade of the 2000s, however, were more likely to sign contracts with artists for a single project. Such one-time contracts have given talent agents considerable power over the production process. Often agents will assemble a "package," including a script, a director, and a star, and sell the whole project to a studio. By performing much of the preproduction work on a project themselves, agents give clients greater control over the kinds of projects they undertake. This sort of arrangement limits the movie company's artistic involvement to that of an investor who simply provides the money, facilities, and equipment required to complete the project.

The explosion of new television technologies that began in the late 1970s had a significant impact on the financial structure of film production and helped to encourage independent production. Developments such as cable TV, videocassettes, and pay-TV services like Home Box Office (HBO) stimulated demand for new films and created new options for film financing. These ancillary markets allowed movie companies to sell distribution rights before production even began on a movie. HBO, for example, helped to finance new movies in order to ensure the steady supply of films necessary to fill its programming schedule. Video rentals have proven to be an even greater source of revenue for motion picture companies. According to the American Film Marketing Association, slightly more than 43 percent of motion picture sales were derived from television, while video contributed nearly 26 percent and theatrical releases a little more than 31 percent. By the time a feature film has been fully exploited, it has been released in a theater, on home video and pay-per-view channels, on cable television, and on the major television networks, most likely in that order.

Ancillary markets have been a boon to production companies of all sizes, but independent producers have had special cause to celebrate their rise. Lacking the financial leverage of the majors, small movie companies often had to struggle to gather the capital required to make a film. The ability to sell ancillary rights to pay cable and video companies expanded the financial resources available to independents, resulting in healthy growth for independent film production since the mid-1980s. During the mid-1990s, a growing network of satellite broadcasting systems; the arrival of exciting, high-quality, low-cost DVD players; and the latent potential of the emerging Internet created an ever-widening range of distribution channels, all hungry for new content.

By the middle of the first decade of the 2000s, technological developments challenged solidly established distribution routines, affecting both corporate structures and film release schedules. The major studios debated how to implement digital cinema, replacing print distribution and projection. The big conglomerates quietly planned to finance the vast project of replacing projection equipment for 36,652 screens. The innovation of digital distribution, which eliminated the need for costly print-making facilities, was considered to be a challenge to established companies that were invested in print making.

In addition to producing a steady supply of feature films, many movie studios also provide programming for television. Tele-film productions range from made-for-TV movies to half-hour situation comedies. Major movie studios accounted for approximately one-half of all prime-time programming for the networks during the early 1980s, with gaps filled by independent tele-film producers, such as Mary Tyler Moore's MTM Enterprises, which was subsequently purchased by 20th Century Fox in 1998. Prior to 1991, the Federal Communications Commission (FCC) restricted the amount of programming that networks could produce for themselves and prevented networks from owning a share in the syndication rights of the shows they aired. These restrictions were designed to prevent the networks from gaining a monopoly over television programming and to maintain a competitive environment for the program production industry. On June 15, 1991, the FCC altered some of these restrictions, permitting networks to hold the syndication rights for 40 percent of the programming that they run during prime time.

Background and Development

The U.S. film industry was born in Thomas Edison's laboratories in West Orange, New Jersey, when William Kennedy Laurie Dickson successfully devised a motion picture camera and the kinetoscope, a device that allowed a single viewer to watch a short film through a peephole. Dickson's invention was briefly profitable as consumers paid a nickel to enjoy the novelty of moving pictures, but widespread commercial success of motion pictures did not materialize until projectors made it possible to show a movie to more than one viewer at a time. The Vitascope, invented by C. Francis Jenkins and Thomas Armat, became the first movie projector to be exhibited publicly in the United States, debuting on April 23, 1896. The Cinematographe of Louis and Auguste Lumiere ran a close second, debuting in New York City on June 29, 1896, several months after its unveiling in France. Former Edison employee Dickson introduced his own Biograph projector on October 12, 1896.

Early manufacturers of cinematic equipment were also the first motion picture producers who made the films to be shown on their own hardware. Before the advent of movie houses, production companies had to provide projectors, projectionists, and films to exhibitors. Movie company employees or franchise owners who purchased equipment from movie companies would take the equipment and movies on the road, showing the films in vaudeville houses, empty storefronts, and a wide variety of other makeshift venues. Films for the Vitascope projector were produced by the Edison Manufacturing Company in a crude, black-painted shack known as the "Black Maria," whereas Biograph filmed its motion pictures on a movable outdoor stage with a camera that could be moved back and forth on wheels. The Biograph filmmakers and the Lumiere brothers gained a competitive edge by producing travel and documentary films on location in addition to studio productions. In all of these cases, the cameraman served as the chief creative intelligence behind each short film and was responsible for the subject matter, photography, printing, and editing.

This system was well adapted to a relatively low volume of production. A number of developments in the first decade of the twentieth century, however, worked dramatically to expand the market for new motion pictures and encourage the application of mass-production techniques to movie making. As more movie companies began selling movies outright to independent exhibitors, the number of exhibitors increased and the need for an improved distribution system became clear. In order to be cost-effective, film exhibitors had to have access to a greater number of films than they could afford to buy. Harry and Herbert Miles solved this problem in 1903 by organizing a "motion picture exchange" that bought a large stock of films and rented them to exhibitors. Other such exchanges followed, and the increased film supply fostered a proliferation of "nickelodeons," which were makeshift theaters named for the nickel cost of admission, equipped with seats, a projector, and a piano. Many nickelodeons originally were opened in working-class neighborhoods, but around 1905, exhibitors worked hard to widen the movie-watching market to include the middle class. Demand soon escalated, and movie companies adapted by developing better mass production and techniques.

Mass production entailed a transition from the camera man system of creative control to the director system and initiated an industry-wide shift away from documentary films to narrative films. Under the director system, production labor was divided between a director, who coordinated and managed all aspects of production from scenario development to editing, and the camera man, who handled the nuts and bolts of the photography and film developing. Narrative fiction became the budding industry's genre of choice because it offered producers greater control and efficiency than was possible for documentary films, which depended on the uncertain supply of newsworthy events. In 1903 Edwin S. Porter filmed The Great Train Robbery for Edison 1903, which broke new narrative ground in its length of around 15 minutes and its depiction of a multi-scene story, complete with close-ups and an unprecedented use of editing to build suspense.

Thomas Edison initiated the movie industry's long tradition of corporate struggle for monopolistic control. Patent infringement suits were Edison's first weapon against his competitors. With aggressive litigation, Edison sought to preserve exclusive rights to all motion picture devices, and he managed to intimidate some companies that exited the U.S. market for a while. However, Biograph held its ground and won an appeal of an important test case that Edison had won in a lower court. Before the legal battle could reach its conclusion, however, Edison changed tactics and began making pacts with his competitors. The result was the Motion Picture Patents Company (MPPC), an organization formed in 1908 for the purpose of preserving the patent rights of all of its members, which included Biograph and other major producers. Through a system of licenses and fees for the use of motion picture equipment, the MPPC managed to exclude newcomers to the industry while sewing up the market for the technologies and films owned by its members. Ultimately, the MPPC, known informally as "the Trust," bought out almost all of the distributors to which it had granted licenses and formed its own distribution organization called the General Film Company.

The power of the Trust was eventually challenged by independent companies. Some independents confronted the Trust head-on by offering theaters a full program of short subjects that rivaled those marketed by the MPPC. Carl Laemmle's Independent Motion Picture Company, for example, bypassed the Trust's distribution system by banding together with other independent filmmakers to create Eastman Kodak.

Other filmmakers, including Adolph Zukor, avoided direct competition in the market for one-reel short subjects by pioneering the multiple-reel feature film and creating the distribution and exhibition system necessary to market the new form. Producers of feature films aggressively promoted products and, starting with small time vaudeville houses, gradually built up a network of exhibition venues that could generate the revenues required to pay for the high production costs of long features. The expansion of the feature film market led to the construction of palatial theaters dedicated solely to the exhibition of motion pictures. This sort of movie theater served the needs of the feature film producer much more effectively than the nickelodeons, which could accommodate only small audiences. Feature films also encouraged the development of the star system. By promoting individual actors and actresses, movie companies could guarantee a market for risky high-cost features. Performers like Charlie Chaplin, Mary Pickford, and Douglas Fairbanks quickly became hot commodities and commanded enormous salaries.

Competition and an antitrust suit, United States v Motion Picture Patents Co., ultimately broke the hold of the MPPC over the industry. Other companies, however, were already integrating production, distribution, and exhibition operations on an unprecedented scale. This process of cohesion soon left the industry in the hands of a few massive studios known as "integrated majors" and ushered in the "studio era" of movie history. In 1916 Adolph Zukor executed a takeover of Paramount, a national distribution company that was created in 1914 to fill the distribution needs of feature film producers. Paramount then became a subsidiary of the corporation formed by the merger of Zukor's own Famous Players company with the Jesse L. Lasky Feature Play Company. By the time the restructuring was completed in December 1917, the Famous Players-Lasky Corporation had set a new standard of scale for the motion picture industry. In 1919 Zukor set about acquiring theaters, and in 1926 he inaugurated the Publix Theater Corporation. By controlling the production, distribution, and exhibition of its films, Zukor's organization became the first fully integrated movie company. Marcus Loew achieved a similar integration starting from the exhibition end of the industry, adding producer-distributor Metro to his theater chain in 1920. His company went on to acquire Goldwyn Pictures Corporation and Louis B. Mayer's production company, creating the studio that would eventually be known as Loew's Metro-Goldwyn-Mayer. By 1925 four companies held most of the power in the industry: Zukor's Paramount, Loew's, First National, and 20th Century Fox.

In the early 1920s, the major movie companies set about consolidating their gains and securing the place of movies in U.S. culture. Financial institutions began to consider the flourishing movie industry to be a legitimate investment. Although bank loans for movies were unheard of before the 1920s, in 1926, $1.5 billion of the industry's capital came from outside investment. To combat attempts by outside groups to censor movies, industry leaders created the Motion Picture Producers and Distributors of America (MPPDA) and hired prominent Republican Will Hays to head the organization and enhance the industry's respectability.

Just as the industry became more stable, the advent of sound technology upset the balance and resulted in two new major competitors: Warner Brothers and RKO Corp. Warner Brothers paved the way for the "talkies" when The Jazz Singer, using Western Electric's Vitaphone system, set off a national craze for movies with sound in 1927. Riding the flood of profits from the breakthrough, Warner was able to finance a massive expansion effort that put it in the ranks of the industry giants. Meanwhile, RCA had been working on a sound system to rival Vitaphone, which it called Photophone. In October 1928, RCA created the Radio-Keith-Orpheum (RKO) Corporation, a fully integrated major studio from its very beginnings, in order to make use of the new technology. A slightly altered hierarchy of industry leaders emerged from the talkie revolution, with Warner Brothers, MGM, 20th Century Fox, Paramount, and RKO dominating the field as integrated majors. Columbia and Carl Laemmle's Universal (a later version of his Independent Motion Picture Company) controlled powerful production and distribution arms but lacked theater chains and were relegated to the status of "major minors."

Most majors and major minors employed similar systems of production in the late 1920s and early 1930s. The owners and corporate officers of a company were typically based in New York City, while most production took place in sprawling studio complexes in Hollywood, California. Hollywood's colony of movie studios had been growing since the early 1910s as more and more producers took advantage of the area's sunny weather and diverse scenery for movie making. In a studio's West Coast operation, a central producer served as an intermediary between the financial concerns of the New York office and the creative concerns of Hollywood, overseeing such aspects of the process as script development, casting, and the production schedule to ensure that the studio produced marketable films as quickly and economically as possible. At MGM's Culver City studio, for example, central producer Irving Thalberg oversaw the production of one-third of the studio's projects himself, including the big budget features that used the studio's most popular stars, whereas the rest were handled by supervisors nicknamed "Thalberg men" who answered directly to Thalberg. Thalberg shared the upper ranks of the Culver City management with studio boss Louis B. Mayer, who handled the studio's talent (the stars and directors), and E.J. Mannix, who handled the physical production facilities.

Censorship continued to be an issue during this period as reform groups pressured the industry to adopt stricter standards of decency in movies. Will Hays and the MPPDA responded in 1930 by replacing the trade organization's relatively informal list of "Don'ts and Be Carefuls" with a more comprehensive document entitled The Motion Picture Production Code. Although the new guidelines provided a more rigorous standard of decency for film producers, it made no provision for its own enforcement. Producers began to ignore the code when the economic pressures of the Great Depression made them resort to more controversial material to attract viewers, and the Legion of Decency waged a bitter protest in response. In 1934 the MPPDA created the Production Code Administration, a censorship board empowered to prevent offending films from reaching audiences in theaters affiliated with the MPPDA. This form of industry self-censorship proved to be acceptable to champions of moral decency and remained intact for decades.

The Depression dealt a heavy blow to the movie industry, but with the help of President Roosevelt's National Industrial Recovery Act (NIRA), the industry was able to regain its footing quickly and maintain a healthfulness unusual for the era. Between 1930 and 1931, the overall profits of the eight leading movie companies fell from $55 million to $6.5 million. The NIRA, enacted in June 1933, loosened restrictions on monopolistic business practices in hopes that the increased freedom would help large corporations lead an economic recovery. When NIRA was ruled unconstitutional in 1935, it had already helped the major studios strengthen their hold on the movie industry and get back on their feet. The latter half of the decade marked the beginning of a new period of creative fertility and financial prosperity for the film industry.

The 1930s also marked the transformation of the central-producer system of production management. Although the central producers of the 1920s had helped the majors develop production methods, it eventually became clear that these methods had become so ingrained in the studio system that they no longer required the guidance of central producers like Thalberg. The middleman between the administrative and creative branches of the typical corporate structure disappeared, widening the split between the New York corporate headquarters and the production process while allowing individual artists greater control over film production. The central management teams at the Hollywood studios came to assume a more purely administrative character, backing away from the sort of hands-on approach they had taken in the past. The unit production system that came to replace the central-producer system dispersed production authority over a number of "unit producers." These unit producers were essentially "Thalberg men" without a Thalberg--supervisors who oversaw a relatively small number of projects without having to report constantly to a central supervisor.

In 1938 the U.S. Justice Department began the campaign of anti-trust litigation that would eventually result in the demise of the studio system. By controlling the production, distribution, and exhibition of movies, the integrated majors had been able to use strategies like block booking, the practice of forcing theaters to book movies in blocks, which included a few quality films with several B-grade productions. As a result of the 1938 court battle, the integrated majors consented to curtail block booking and other tactics that took advantage of the integrated structure.

Before the final demise of the integrated studio system, however, the majors enjoyed a boom brought about by World War II. The wartime economy gave Americans the money they needed to go to the movies, and the movies satisfied their hunger for morale-boosting entertainment. The prohibition of block booking forced studios to de-emphasize B-movie production, which led to an increase in the quality of films that ultimately benefited the majors. Following recommendations issued by the Office of War Information, Hollywood fed the United States a steady diet of war movies and other patriotic fare. This boom lingered for several years after the war ended.

In the late 1940s, however, the Justice Department resumed its anti-trust campaign against the majors, and with the advent of television, the end of the studio system drew near. The consent decrees forced out of the integrated majors by the 1938 court battle expired toward the end of the war. In May 1948, however, the Supreme Court upheld a decision against Paramount that restricted block booking, admission price fixing, and other practices classified by the decision as illegal restraint of trade. The battle continued as the Justice Department pursued its ultimate goal of forcing the integrated majors to give up theater chains. In order to avoid further legal conflict, Paramount and RKO signed consent decrees requiring them to divest all theater holdings, and Loew's MGM, 20th Century Fox, and Warner Bros. soon followed suit. The five integrated majors became producers and distributors but lost exhibition powers. Independent producers soon took advantage of the increased access to theaters created by this divestment. The number of independents doubled between 1946 and 1956. Divestment also weakened the power of the Production Code Administration. Without the theater chains, the five majors who dominated the MPPDA could no longer threaten to deprive offending movies from exhibition.

The year 1948 also marked the beginning of the television era. Americans owned 172,000 television sets that year, compared with 14,000 the previous year. The combination of the post-war trend of suburbanization and the rise of television ate into movie companies' profits. Between 1946 and 1956, the combined profits of the top 10 movie companies fell 74 percent. As companies tightened their belts, they ended the practice of maintaining a stock of actors and directors under long-term contracts. As a result, talent agencies assumed a more important role in the industry, frequently operating as "packagers" who sold the studios a preassembled combination of star, director, and story scenario or script. In order to provide consumers with entertainment they could not get on a small black and white television screen, moviemakers produced more color films and blockbuster epics and experimented with gimmicks like 3-D and the wrap-around screen of Cinerama.

At the same time, some movie companies tried to exploit the television market. While a number of independent companies like DesiLu Productions were created specifically for the purpose of producing television programming, established movie companies also began to explore the possibilities of "telefilm" production. Columbia led the way in 1949 by converting its Screen Gems subsidiary into a telefilm outfit. The Walt Disney Co. combined program production with advertising when it created the Disneyland television series, complete with plugs for its current movies. By 1963 almost 70 percent of prime-time television programming was produced in Hollywood. Some of the leading Hollywood telefilm outfits were run by old major movie studios, while others like MCA (originally a talent agency) became major production operations only after the advent of television.

Movie companies also took advantage of the new market created by television by selling old films to television stations. In December 1955, a programming syndicate bought RKO's library for $15 million, and Warner's library went for $21 million the following February. Before long, all of the major studios were capitalizing on this type of asset, and they soon realized the true value of old films to television networks hungry for programming. By the 1960s, an amicable relationship had developed between Hollywood and the networks, with Hollywood-based companies providing both new programming and old products.

Federal action further solidified the role of the major studios and other non-network producers of network programming. Fearing that the networks could gain monopolistic power over television communication, the Department of Justice filed an antitrust suit in 1972. As a result, the networks signed consent decrees limiting the amount of program hours a network could produce for itself and stipulated that networks could gain no financial benefit from the syndication of programming. The Federal Communications Commission (FCC) altered this rule 19 years later to allow networks to own up to 40 percent of the syndication rights of their prime-time programming.

Having experienced the benefits of diversification into television, the majors diversified into other entertainment markets, such as music recording, by acquiring or creating new companies. Some production companies became a part of diversified corporate structures through a different route as they were acquired themselves. In 1966, for example, Gulf + Western took over Paramount. Hotel developer Kirk Kerkorian acquired MGM in 1969, the same year that Kinney National Services took over Warner Brothers. By the end of the 1960s, the heavily diversified media conglomerate had become the standard corporate structure in the movie and telefilm production business.

In 1969 the trend toward expansion was interrupted by an industry-wide crisis. The heavy emphasis on high-grossing films placed many movie companies in risky financial positions, and the advent of three new major production companies (ABC, CBS, and National General) created a glut of big-budget pictures. At the same time, the market for feature films on television also became saturated. Television audiences could watch a feature film on network television every night of the week, and the networks had accumulated a stock of films that would last for several years. Hollywood came to rely on the ancillary television market as a way to stabilize risky productions, and this crutch was suddenly no longer secure. As movie studios tried to cope with the losses created by over-production, they trimmed corporate structures and began to emphasize low-budget films. Although the success of The Godfather in 1972 quickly revived the credibility of the blockbuster strategy, movie companies had learned to be cautious. They realized that the market could support only a few big hits a year, and they began to capitalize on the reliable profitability of sequels to popular films like Rocky and Jaws.

The next revolution in television and film production took place in the 1980s, as new television technologies became commonplace. Videocassette recorders allowed consumers to do their own television programming, and cable television and satellite broadcasting popularized programming innovations like pay TV and 24-hour music video stations. Although some analysts feared that these new technologies would threaten the motion picture industry, they actually had the opposite effect of providing new ancillary markets for feature films. Home Box Office (HBO) led the way for pay television by using satellite broadcasting at a time when few cable companies had the equipment to receive such broadcasts. The gamble paid off as more and more cable companies bought receiving dishes. After HBO successfully fought FCC regulations designed to protect free television, other premium channels like The Movie Channel and the Disney Channel debuted. Not only did these channels need films to fill programming schedules, but they also occasionally financed the production of new movies in order to supplement their supply.

Home video similarly affected the financing of movies. Producers could sell video rights even before production on a film started and apply the proceeds toward the cost of the film, an arrangement particularly useful for small independent producers. Videocassettes provided yet another arena in which filmmakers could exploit products. At the same time, however, videocassette rental and home taping of movies from television decreased the power of studios to garner profits from every exhibition of a film. Once a rental store or home viewer had its own copy of a movie on tape, that tape could be shown repeatedly, and the production studio would gain nothing. MCA and Disney had tried to nip these practices in the bud in 1976 by accusing Sony, the manufacturer of the Betamax Videocassette Recorder, of copyright infringement. By 1981 the Betamax case had reached the Supreme Court, which ruled that neither taping a broadcast for home use nor purchasing a cassette for the purpose of rental constituted copyright infringement. Although the Betamax machine itself eventually became extinct due to the popularity of the VHS cassette format, cassette rental and home taping became everyday practices.

In addition to these innovative ways of exploiting the feature film, new technology brought a new form of film and video art--the music video. Music videos originated in the United States as a programming strategy for the Warner Cable Corporation (WCC), a division of the giant media corporation Warner Communications Inc. By April 1979, WCC had two satellite-broadcast channels available for cable systems: Nickelodeon and Star, a pay channel that later became The Movie Channel. When John A. Lack became executive vice-president of WCC, the operation was losing money, and he attempted to turn WCC around by expanding the preschool audience of Nickelodeon to include teenagers. The centerpiece of Lack's new format was a show called Pop Clips. Produced by Mike Nesmith, formerly of the rock group the Monkees, and his Pacific Arts Corporation, Pop Clips, consisted of a half-hour of short video clips accompanying pop songs. The idea caught on, and Lack went on to create Music Television (MTV), a 24-hour cable channel composed entirely of such clips or "videos." The new channel debuted on August 1, 1981.

Initially, a scarcity of programming material posed a problem for the network. The videos were provided at no charge by recording companies and were originally produced as promotional material for distribution to European television networks. MTV's original library of videos numbered no more than 125. Only when the value of MTV as a promotional medium started to assert itself did the recording industry invest in large-scale video production. Companies continued to provide videos free of charge until competing video music programs like NBC-TV's Friday Night Videos entered the market, creating a potential demand for exclusive rights to exhibit videos. NBC broke the ice by offering to pay for the right to premiere a video and have exclusive access to it for two days. By the time this "pay for play" policy became common practice, however, it became obvious that MTV had the competitive advantage in bidding for exclusivity. Recording companies valued the access offered by a 24-hour station to acts that might not make it onto a two- or three-hour video show, and MTV threatened to withhold this access from labels that favored other video programs with exclusive deals. Using tactics like these, MTV fiercely defended its status as the nation's primary source of video music entertainment. Rival 24-hour music video channels, such as the Discovery Music Network and Ted Turner's short-lived Cable Music Channel, challenged MTV's reign and failed.

With undertakings like MTV, Warner and other leaders of the motion picture and video production industry continued to diversify, expand, and set new standards of scale for media conglomerates. For many corporations, this sort of expansion could not continue indefinitely. Gulf + Western jettisoned many of its non-communication holdings in order to concentrate its corporate structure on the entertainment industry, and in 1989 renamed itself Paramount Communications Inc. to reflect this new focus. Similarly, when the popularity of Atari collapsed in 1982, Warner sold its video game operation along with many of its other ventures, including MTV. Warner went on to merge with Time, Inc., in 1989, and Time Warner became a media conglomerate of unparalleled size.

In the shadows of these giants, small film and video producers continued to make their voices heard. The new options for film financing offered by home video and other ancillary markets fueled a boom in independent production during the mid-1980s. Mini-majors and independents increased production by 100 movies per year between 1984 and 1987. In the late 1980s and early 1990s, this boom resulted in a glut that damaged some independents.

In the early 1990s the motion picture industry suffered from the effects of a recession. While movies brought in a record $5 billion at U.S. theaters in 1989, box office receipts declined in the following two years, totaling approximately $4.8 billion in 1991. Box office receipts rose to about $4.9 billion in 1992, but increased ticket prices accounted for much of this rise. Admissions declined from 1.1 billion in 1990 to about 977 million in 1992, sinking below the lowest levels of the 1980s. Decreasing attendance seemed to translate into a decreased volume of production. In the first half of 1992, production started on 173 films, down from 224 films that were started in the first six months of 1991. Independent production companies accounted for 150 of the 1991 film starts and 122 of the 1992 starts.

In the 1990s, despite hefty profits, some segments of the industry felt the effects of the recession. Fewer people went to the movies in 1992 than during any single year in the 1980s, for example. Following the recession, box-office revenues climbed again, but competition from cable television and video sales continued to erode the theatrical audience.

Increasing video sales softened the blow of falling box office figures. In 1992 an estimated $12.2 billion in revenues was earned from home video sales at retail outlets, up from $11.5 billion in 1991 and $10.8 billion in 1990. The demand for videotapes was stimulated by a steady increase in the number of households with videocassette recorders (VCRs). According to the Electronic Industries Association, 77 percent of U.S. homes had a VCR at the beginning of 1992, up from 72 percent in 1991. Just six years earlier, less than 20 percent of U.S. homes were equipped with VCRs.

The demand for movies, television shows, and other forms of filmed entertainment grew in the 1990s and early years of the first decade of the 2000s as cable and home video made it easier to deliver a wide variety of programming to consumers in their homes. Pay-per-view (PPV) systems also offered growth, as U.S. consumers paid a total of $350 million for PPV programming in 1992, accounting for 3 percent of total spending on videocassettes.

By 1995 box office sales were back up over $5 billion, but profits continued to erode in spite of increasing sales to the video and TV markets. Much of the decline could be attributed to the rapidly inflating costs of production and the industry's increasing reliance on "blockbuster" films as a primary source of revenue. After the release in the early 1990s of such films as Jurassic Park and Terminator 2, Hollywood movies became special-effects extravaganzas, with each new film upping the ante in an attempt to dazzle an ever-more jaded audience. Each year a new record was set for production costs, with 1995's Waterworld expenses totaling $150 million. Although some of these films, such as 1996's Independence Day, were hugely profitable, they seldom brought in enough to cover less successful films. Not surprisingly, profit margins shrank, pressuring film producers to focus increasingly on producing sure-fire hits. So-called "big-event" films became the mainstay of Hollywood. In addition to pumping out a seemingly endless stream of sequels, the industry turned to old television shows and comic books in search for product with a built-in audience. Major films of the 1990s, including The Flintstones, The Addams Family, The Beverly Hillbillies, The Brady Bunch, Mission Impossible, The Saint, and The Prisoner, were all based on television programs from the 1960s and 1970s. Comic book heroes, such as The Phantom and Judge Dredd, were also turned into film stars, although with less success.

Hollywood inflation was also fueled by the studios' need to grab attention in a crowded marketplace. Marketing costs rose dramatically through the early to mid-1990s, jumping 20 percent between 1995 and 1996 alone. Talent fees also rose rapidly at this time, with actors like Tom Cruise, Tom Hanks, Jim Carrey, and Arnold Schwartzenegger routinely getting anywhere from $10 to $20 million per picture. With costs leaping out of control, even major studios found it increasingly difficult to come up with the funds necessary to produce a "big-event" film. One solution was collaboration. In 1996, for example, Tri-Star teamed with Disney to produce Starship Troopers, a big-budget science fiction film directed by Robocop's Paul Verhoeven. Even without any major stars, this film still cost more than $100 million.

The trend in the motion picture industry at the end of the 1990s was the belief that the bigger the budget, the more successful the film. As the production costs for an increasing number of motion pictures reached or exceeded $100 million, the studios were in the perilous position of trying to recoup costs at a box office that increasingly was being threatened by cable television, and video sales, as well as the Internet and other new communication technologies. For every mega multi-million dollar hit like 1997's Titanic and 1999's The Phantom Menace, there were scores of underachievers that further depleted the coffers of the major studios.

In 1998, in an attempt to increase revenue sources, the motion picture companies increased the amount of money cable companies had to pay them for the rights to air pay-per-few (PPV) movies. Motion picture companies were asking for a 5 percent increase in revenues that would increase their cut of the PPV fee by one-half. Cable operators fought this increase at the end of the 1990s. The revenue-sharing agreement between the studios and video rental chains also was revised and was a bit more amenable to both participants. Previously, the studios charged a costly fee, sometimes $50 per copy of a rental videocassette to the video stores, because the stores kept the income generated from each rental of the tape. As a result, stores would often purchase only a few copies of a popular title because of the prohibitive cost involved. The studio began to change that practice in the late 1990s as they set up revenue-sharing agreements with the video chains in which the studios would cut the cost of the rental cassette and share in the profits from the rentals of the tape.

In late 1999 a new player appeared in the motion picture distribution arena, Amazon.com, the Internet book and music superstore. Amazon.com became involved in the distribution of independent films that may not have had a chance to be released any other way. Amazon was touted the independent distribution outlet as a new avenue for acclaimed and underground filmmakers.

By the early years of the first decade of the 2000s, DVD technology was making big waves throughout the entertainment industry. As consumer sales of DVD players exploded, strong growth took place in the home video market. Consequently, the leading entertainment companies released remastered versions of older titles as well as new blockbuster films from their libraries. According to the MPAA, the number of titles available on DVD increased from 8,500 in 2000 to 20,000 in 2002.

The Consumer Electronics Association (CEA) revealed that manufacturer sales of DVD players reached 17.6 million units in 2002. This represented an increase of 39 percent over 2001 and pushed DVD penetration among U.S. households to 35 percent. Citing figures from Adams Media Research, the MPAA reported that industry sales of home entertainment on videotape declined from nearly 670 million units in 2000 to 483 million units in 2002. Meanwhile, DVD sales increased almost 103 percent from 2000 to 2001, growing from 188 million units to 382 million units. Sales climbed another 84 percent in 2002, reaching 702 million units.

The home video market played an increasingly important role for the industry. The popularity of affordable digital videodiscs (DVDs) exploded, with combined sales and rental figures growing to more than twice the revenues from U.S. box offices. DVD retail sales alone increased 33 percent in 2004, growing to $15.5 billion. By 2006, 84 percent of households had DVD playing capabilities, and 99.7 percent had VCRs. By 2009 the VHS format was successfully phased out as DVD and digital became the norm in U.S. households. With the inexpensive technology, however, came significant levels of piracy, an issue identified by those in the industry as the biggest concern, due to the millions of dollars of lost revenue.

The domestic box office market in the middle of the first decade of the 2000s was mature but healthy. According to research from the Motion Picture Association of America (MPAA), box office sales continued to increase in the early twenty-first century despite the rising popularity of home entertainment options like DVD, weak economic conditions, and rising U.S. unemployment levels. Domestic sales grew during this period from $7.7 billion in 2000 to $9.5 billion in 2006. In 2004 family films generated more income than R-rated movies, ending a decades-long trend. The popularity of films like Shrek 2, Harry Potter and the Prisoner of Azkaban, and The Incredibles led the way. In 2005 and 2006, PG-13 rated movies occupied nearly all of the top 20 spots.

The number of films produced by the industry fluctuated in the early years of the first decade of the 2000s, falling from 683 in 2000 to 543 in 2002 before rising to 599 in 2006. Production and marketing costs for major studio releases were reported to have dropped in 2004 to $98 million per film, the first decline since 2001, but were back up to $100.3 million in 2006.

Despite the 1.45 billion admissions sold in 2006, the industry faced new demands from consumers who favored home video products, including portable players and lavish home theaters. By 2004 more than 127 million DVD players had been sold since the format was launched, and 84 percent of U.S. households owned a DVD player by the end of 2006. The pressure was to supply more titles at lower prices, with Warner Home Video and MGM Home Entertainment offering catalog titles for as little as $10, and to hasten release-to-video dates. The dominant studios had typically delayed videos to ensure maximum box office earnings, but this trend was reversed by the middle of the first decade of the 2000s.

The leading movie studios continued to work to make digital cinema a reality. In 2005 they agreed on technical standards for digital movie projection and began discussion of how to finance new projection equipment and installation. In addition to providing better quality images and sound, the new format would save moviemakers approximately $750 million per year in distribution costs. The cost of a single print was about $1,000. The expense of upgrading more than 36,000 screens across the country was estimated at almost $3 billion. Digital production was also a fledgling endeavor. Disney and Warner were early leaders in digital film production, with Disney benefiting from the ease of projecting animated films. Some 30 digital releases were expected in 2004, although Disney was returning to its hand-drawn roots as well, with the 2009 release of The Frog Princess.

Challenges to the leading studios came with radical technological changes in the industry. Because these large companies were invested heavily in traditional methods, including scheduling, printmaking, and theatrical audiences, they were typically slow to accept ideas promoted by new, small companies. In 2004 Investment Dealers' Digest reported that ideas were being advanced by 2929 Entertainment, a company formed by Todd Wagner and Mark Cuban, and Lions Gate Entertainment. 2929 Entertainment was noted for its relationship to other companies that allowed complete digital production and distribution of films. The company also promoted the simultaneous release of films on television, on DVD, and in theaters. The practice dramatically reduced advertising costs and was hoping to reduce film piracy. By the early 2010s, consumers had the option of unlimited viewings of a film within a given time period or of purchasing the downloaded film. Companies often had specialized libraries of independent films available.

The huge financial success of video games encouraged filmmakers to create more film-based games, products that had disappointed in past years. In 2005 The New York Times reported that Disney would be spending $50 million to develop a business that would create games based on action features such as Armageddon, Gone In Sixty Seconds, and Kill Bill films. The development was inspired by first-day game sales that bested theatrical debuts.

The MPAA named the piracy of motion pictures as its biggest concern. While moviemakers did not expect to face the same troubles with file sharing as the music industry, they sought to control the distribution of films via DVDs, on-demand services, and Internet downloads. In 2006, 30 to 40 percent of pirated DVDs were traced to Canadian theaters, particularly in Montreal, causing studios like Fox to consider delaying Canadian releases in 2007. In one instance, a pirated DVD of "Ray" was available for sale on the very day of its theatrical release, and according to The New York Times, "42 million illicit copies were sold within five months."

At the end of the first decade of the 2000s, the movie industry had its hands full trying to sort out how the movies could fully and successfully transition into the digital age. While DVD piracy continued to be a high concern, the industry was also trying to deal with an incredible influx of online content. Piracy, which once meant copying one DVD to another, began to encompass the entirety of the Internet as online viewing and video downloads were increasing popular. For example, with little control of the innumerable illegally uploaded movie clips available online, the studios hoped to increase the amount of legitimate video clips available. According to a May 2008 report by Variety, of the 4.3 billion YouTube videos viewed by 84 million Internet users in March 2008, 38 percent contained pirated clips. However, to greatly increase the number of legitimate clips online, argued the studios, would require that the actors' unions drop their demands for residual payment for such clips--a request the guilds were not prepared to honor.

Another impact of an ever-shrinking world created by the Internet was a big-name star's ability to "sell" a movie based on name recognition alone. Online reviews and ratings, as well as social networking sites like Facebook, allowed potential moviegoers to research a film prior to buying a ticket. Increasingly, moviegoers were using the Internet to filter their movie choices. "Internet chatter also has challenged the 'critic-proof' notions behind star vehicles," noted Matthew Ross in Variety, "especially when a film with a major star receives poor reviews in the U.S. months before it hits overseas theaters"--an increasingly important segment of industry profits.

In addition, although the studios continued to find ways to bring new movies to the big screen, the recession at the end of the first decade of the 2000s created a credit crunch, and moviemakers had to be prepared to convince lenders that a project would be profitable. One way that the studios worked to assure lenders was to make more movies based on already-popular television series, comic books, and books. For example, the Harry Potter series of movies was on its sixth installation in 2009 with the release of Harry Potter and the Half Blood Prince. Similarly, Twilight was taken to the big screen only after the book received overwhelming attention.

The first half of 2009 did not produce strong results, and Hollywood executives were scrambling to return to profitability. Although ticket sales rose as much as 6.5 percent from January to July, studio profits were down. Although the situation could be partially blamed on the recession and a slew of ill-received theatrical releases, DVD sales, once the long-flowing lifeblood of movie revenues, were expected to fall by the end of 2009. As investors backed off, some studios moved to shake up leadership to improve the bottom line.

In 2009 the industry's six largest studios were at war with RealNetworks, maker of RealPlayer, which had introduced RealDVD, a technology service that allowed users to copy copyright-protected videos. While the industry leaders argued that RealDVD was engaging in an act of piracy and filed suit, RealPlayer argued that it was simply providing consumers a way to fulfill their "fair use rights" to a back-up of their purchases, a right provided to CD owners for over a decade. On August 11, 2009, a U.S. District Court for the Northern District of California handed down an injunction that prohibited the release of RealDVD.

Big name studios continued to pour out significant upfront money to bring feature films to theatres. Often, the movies themselves were not a significant source of net income which tended to come later, with follow-up ventures such as merchandise, DVD sales, and gaming system games. According to a report by Money, in July 2009, a $9 theater ticket to a feature film was divided between the studio and the movie theatre, with the studio taking about $4.95 and the theater taking about $4.05. The studio distributed its share among advertising and marketing ($1.90), production ($1.54), distribution ($0.90), and actors ($0.61). The theater used its share to pay such expenses as equipment, facilities, and staff.

During the second half of the first decade of the 2000s, the landscape of movie theaters continued to shift from single-screen theaters and miniplexes (2 to 7 screens) to multi-plex (8 to 15 screens), and megaplexes (16 or more screens). According to the MPAA, there were 1,747 single screen and 2,215 miniplexes in the United States in 2008, down 0.10 percent and 3.5 percent for the year, respectively. On the other hand, multiplexes (1,679) and megaplexes (628) increased 3.8 percent and 1.9 percent, respectively. Multiplexes overall accounted for 46 percent of screens; megaplexes, 28 percent; miniplexes, 22 percent; and single screen, 4 percent.

Current Conditions

The future of the industry looked bright, although not without challenges, at the beginning of the 2010s. According to IBISWorld, new technologies, such as Blu-Ray, online streaming video, and 3-D would, continue to impact the film production industry. According to the IBISWorld report in 2012, "These innovations will create new revenue streams for industry players; however, firms will be forced to adapt in order to maximize the potential and keep up with consumer preferences." IBISWorld also noted that employment in the industry was well organized and often unionized, which drove up personnel costs and had the potential to disrupt production schedules through strikes and negotiations. The average annual wage of an employee in the film production industry was about $67,000 in 2011, significantly higher than the national employment average of $55,000, according to the U.S. Bureau of Labor Statistics.

Piracy remained the biggest challenge for the industry in the early 2010s. Some sought resolution through legislation. For example, the Motion Picture Association of America (MPAA), Record Industry Association of America (RIAA), and Entertainment Software Association (ESA) supported passage of the Stop Online Piracy Act (SOPA) and the Protect Intellectual Property Act (PIPA). Others, such as giant Web sites like Wikipedia and Google, were against the proposed legislation. According to the January 18, 2012, edition of the Chicago Sun-Times, One opponent noted that the laws would inhibit the freedom of Internet users and that they were "terrible, misguided legislation that serves the interests of one commercial industry." The heated debate regarding the fine line between misuse and freedom of use of content on the Internet continued unabated in 2012.

According to the U.S. Census Bureau, 146,539 employees worked at 12,384 establishments that were operating in the motion picture and video production industry in 2010. The motion picture and video distribution and production industries combined garnered $62.5 billion in revenues that year.

Industry Leaders

Based on revenues, some of the largest producers-distributors in the early 2010s were Time Warner ($28.9 billion) and Disney ($40.8 billion). Other leaders included 20th Century Fox (a subsidiary of News Corp.), Universal (a subsidiary of NBC Universal, which is itself a subsidiary of Vivendi and GE), Sony (a subsidiary of Sony USA, which is itself a subsidiary of Sony), and Paramount (a subsidiary of Viacom). Competition was fierce, and a single company rarely held the top position for long. Warner and Paramount had ranked as major studios since the studio era. Warner first achieved major status with the success of its sound technology. Paramount was a division of the first studio to become fully integrated. Universal, a descendent of Carl Laemmle's Independent Motion Picture Company, and a rival to Edison's "Trust," was classified during this period as a "major minor" studio in spite of major production and distribution capabilities, primarily because it lacked an exhibition arm.

Unlike these three studios, Disney operated as an independent studio specializing in animation during the studio era. Only when it began producing live action movies in 1953 did it attain major status. Throughout the 1950s and 1960s, Disney blazed the trail for diversification into a variety of entertainment markets. With its Disneyland network series, it became one of the first movie studios to explore the promotional possibilities of television. The company's theme park in California provided 60 percent of its profits in 1969. Universal followed suit with its Universal Studios theme parks, and in 1992 Paramount also bought into five theme parks. Disney's other early diversification efforts included publishing, recording, and merchandising. Throughout its development as an entertainment corporation, Disney has specialized in the family market. Not until the 1984 release of Splash under its then-new Touchstone division did Disney try to break into the adult market. Since that time, the company has increasingly entered the adult market, but its target audience remains the family, through divisions like Pixar.

The entrance of the Sony Corporation into the film market in 1989 with its acquisition of Columbia Pictures and Tri-Star brought another major player into the business. Sony's vast resources and eagerness to integrate its hardware and software divisions with its new entertainment arm helped spur the explosion of production costs that occurred in the 1990s. Other Japanese electronics giants like Matsushita Electric (Panasonic) and JVC followed Sony's lead, briefly leading to fears that Hollywood would fall under foreign control. However, Matsushita's 1992 purchase of Universal Pictures soon proved unsound and the company sold 80 percent of its shares to Seagram's Co.

In the late 1990s, DreamWorks SKG was founded by Steven Spielberg, Jeffrey Katzenberg, and David Geffen. The company is responsible for blockbuster films Saving Private Ryan and the Shrek trilogy. In 2003 the company matched Fox's 12 percent market share, but in 2006 the founders sold DreamWorks to rival Paramount Pictures, which was itself a subsidiary of media giant Viacom.

In 2011 the top studios in terms of market share were Universal, at 16.8 percent and gross sales of $405 million; Sony/Columbia with 15 percent and $362.6 million; 20th Century Fox with 12.2 percent and $296.1 million; Warner Bros. with 12.1 percent and $293.4 million; and Paramount with 9.2 percent and $222.7 million. Rounding out the top 10 were Lionsgate, Buena Vista, Relativity, Weinstein, and Open Road Films.

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