Services Allied to Motion Picture Distribution

SIC 7829

Companies in this industry

Industry report:

This classification includes establishments primarily engaged in performing auxiliary services to motion picture distribution, such as film delivery service, film purchasing and booking agencies, and film libraries.

Industry Snapshot

Businesses in this industry are allied to the process of film distribution, instead of directly providing services to film distribution companies. In other words, these firms contract with companies in the film exhibition industry, including theater houses, rather than with the distributors. Industry firms tend to specialize in their particular market segments, which include film booking and purchasing agencies, film libraries, and film delivery services. Companies in this industry tend to be small, with many serving only regional areas. Fewer than 20 of the 509 establishments in this industry employed 50 or more people in 2010, and average employment was five workers. Total employment in the motion picture and video distribution industry was 8,426, earning an annual payroll of around $700 million. Combined, the motion picture and video distribution and production industries garnered $62.5 billion in revenues in 2010.

Services allied to motion picture distribution faced challenges on a number of fronts in the early twenty-first century. Shifting patterns in the theater market undercut film booking and purchasing agencies, with huge megaplexes replacing small multiplexes. Major motion picture distribution companies encroached on the traditional film-library market, and the burgeoning use of digital technologies forced film carriers to rethink their operating strategies to accommodate trends.

Organization and Structure

Film Booking and Purchasing.
Film booking and purchasing agencies were contracted by movie theaters to act on their behalf in the process of acquiring and negotiating the terms to rent feature films from motion picture distribution companies. The terms "purchasing" and "buying" did not mean the actual sale of films but referred to a form of rental. Traditionally, the term "booking" referred to agreeing which films to play, while "buying" referred to negotiating the payment for the film and its length of run. Both activities, however, were performed by the same agencies. Accordingly, booking and purchasing agencies were synonymous designations. Agencies also helped theaters select films by screening them first when possible. Booking agencies occasionally offered additional business services to theaters, such as market research, consulting, accounting, and bookkeeping. Booking agencies were hired by a majority of independently owned theaters, whereas larger chains of theaters tended to perform their own booking.

Booking agencies tended to be very small companies, many serving only a handful of theater clients operating a total of 20 to 30 cinema screens. While most booking agencies employed few workers, some were self-employed agents. Larger agencies occasionally operated branch offices and served theaters in different parts of the country but rarely employed more than a dozen workers.

Film booking agencies were playing a diminishing role in the U.S. film industry in the late twentieth century, particularly with the move toward megaplexes, which are movie houses with at least 16 screens that can offer multiple screenings of a film simultaneously. The number of movie screens grew dramatically during the 1990s, when more than 15,000 new screens opened. As a result, many large film exhibitors filed for bankruptcy between 1999 and 2001. By 2003 the industry had stabilized, with a handful of companies dominating growth in megaplexes. Regal Entertainment Group and AMC Entertainment Inc. were among the nation's largest movie theater companies. Leading theater operators typically negotiated with distributors directly. In 2011 Regal Entertainment was the largest operator in the United States with over 6,700 screens in 540 theaters across 40 states, followed by AMC Entertainment, which had 5,200 screens in 360 theaters (mostly megaplexes). Cinemark was the country's third-largest theater group, with 5,000 screens in 450 theaters in 40 states.

Film Libraries.
There were several types of entities that were all called film libraries. Film libraries that were independent companies involved in renting films tended to serve the nontheatrical market, namely educational institutions and other non-profit organizations. They differed from the film exchanges that distribution companies used by holding their collections for longer periods of time and having complete control over their distribution and rates. Since they served a non-profit market, film libraries charged a relatively low flat rental fee, instead of requiring a share of the profits, as did commercial distributors. Film libraries increasingly offered film on videotape in addition to reels. In addition to film library companies, there were also non-profit organizations that rented film free of charge to educational institutions.

The term "film library" was also used to designate the film collection held by a motion picture production company or distributor. These film libraries, however, were not independent enterprises, but represented the assets of the companies. Theaters showing older films contracted with the company whose library contained the desired film. For films dating back several decades, the owner was not necessarily the original producer, since film studios and distribution companies have at times acquired the rights to each other's older films. Film libraries did not necessarily correspond to the physical location of films, but referred to the ownership of the copyrights.

The issue of film copyrighting came into play when copies of film were to be sold rather than rented. A market for the sale of film, especially shorter film clips, existed among the producers of television programs, commercials, and videos, which incorporated the old clips into their new productions. When producers were unable to purchase film clips directly from the film libraries of the studios or distributors, they turned to a third type of film library. Stock-shot and archival footage film libraries owned and licensed film clips of interest to other producers.

Finally, film archives tended to be nonprofit organizations that preserved original prints of films for posterity. Some exhibited their films on a limited basis, while others did not exhibit them at all in order to preserve the films' quality. Thus, archives were not involved in the distribution process.

This segment experienced an ongoing, large-scale rearrangement of the ownership structure of the film-library market, as libraries are rapidly bought and sold, often as part of merger deals. Independent film libraries, meanwhile, were swept up in the rapid consolidation of the major film studios. The result was that the film-library market was characterized by a scramble to find buyers. At the end of the first decade of the 2000s, some of those buyers were finding new ways to market their purchases, such as uploading their libraries on the Internet for consumers to download.

Film Delivery.
In the days of film, film delivery services, also known as film carriers, were usually classified under the transportation services industry, particularly SIC 4213: Trucking Except Local, but belonged under both classifications because of their unique services. Film carriers were specialized transportation companies serving the needs of motion picture theaters by delivering and picking up rented theatrical films. Film was transported between the cinemas and the national network of film exchanges, or film depots, or directly between theaters, based on their booking schedules. Metal canisters of 16mm or 35mm film were delivered to the theaters, usually on a weekly basis. Unlike other delivery services, film carriers had keys to the theaters they supplied so they could drop off and pick up film when the theater was closed. Most delivery was done by truck or van because of the heavy weight of the film canisters, which made them impractical for air freight, except in rush circumstances. Film carriers served only theaters, since other organizations that screened films tended to use the more easily transportable videotape format, or had only occasional film needs, which could be handled by any nonspecialized delivery service.
There were fewer than 40 major film delivery companies throughout the country that served nearly the entire theater market in the late twentieth century. Most served up to a couple hundred theaters, some covering a region comprising several states. There were also a commensurate number of small film carriers that exclusively served single theater chains of around 15 to 20 theaters. Traditional-format films generally weighed about 62 pounds and were often accompanied by large cardboard stand-up displays and other promotional items theaters place in lobbies.

Background and Development

Film Booking and Purchasing.
The greatest developments in film booking and purchasing occurred in the booking process itself and in the terms negotiated. Issues of negotiation in film rentals included the percentage of the gross income paid back to the distributor during consecutive weeks of a film's play, which excluded the percentage that was turned over to the distributor to cover the theater's expenses. Other issues included the amount of the nonrefundable guarantee paid by the theater up front to secure the film, the amount of the refundable advance, and the guaranteed extended playing time for the film.

In the past, block booking was a common practice in which the larger studios rented out a block of good and mediocre films at an all-or-nothing deal to theaters. A proportion of the films were rented at a flat rate while others would be paid for in a percentage of the profits. The practice was banned between 1921 and 1932, but continued again until the Supreme Court outlawed it in 1948.

An old practice of blind bidding resurfaced in the 1970s. Distributors convinced theaters to buy films before production was completed, so theater owners could not view the film before deciding if they wanted to purchase it. Studios had turned to blind bidding to cover their growing expenses, but states began to outlaw it. The practice was discouraged by the late 1980s when nearly half of the states forbade blind bidding.

To avoid competitive bidding among theaters in the same region, theaters devised a practice called "product splitting" by which they agreed among themselves how they would divide the upcoming films. This practice became illegal following an antitrust lawsuit in 1977.

The segment of film libraries renting for nontheatrical exhibition was seriously hurt by the conversion of film to videotape and the subsequent growth of video rental outlets. Although it was technically illegal, teachers saved money by renting videos from a consumer video shop instead of renting the film through a film library.

Innovative new companies sprang up that took advantage of the rapid development of computer networking technology in the mid-1990s to offer low-cost booking and promotional services via the Internet. Companies like Maine-based Cinema Links used computer technology and computer networks to link hundreds of exhibitors and distributors nationwide, promising to significantly lower the costs associated with booking and promoting films and thereby increase profit margins. Plot summaries, screeners' advisory notes, release schedules, distributor terms, and other critical booking information were available daily via modem, telephone, or fax. Box office reports were uploaded daily, computerized, and forwarded to the distributors.

Film Libraries.
The number of stock-shot and archival-footage libraries increased significantly in the early 1990s. There was a continued drive to archive and restore classic films, interviews, and footage for use in documentary materials and revived screenings. This segment also felt the impact of the Internet as an enormous stock footage library called Footage.net cropped up online. The site was linked to dozens of film libraries around the world and acted essentially as an online intermediary between the physical libraries and consumers. There also was a growing foreign market for stock footage. The growth of the field was attracting innovative newcomers to the stock footage film library business. Many such film libraries also started producing their own stock footage to complement their collections by shooting city scenes and natural vistas. Meanwhile, the Film Department at the University of California at Los Angeles allied with Robert Redford's Sundance Institute to initiate a project devoted to archiving, preserving, and presenting independent films to be incorporated into the Sundance collection. Films would be available to film makers and educational programs.

Film Delivery.
Film carriers quickly became a specialized service within the transportation industry with the emergence of the motion picture theaters in the 1920s. By 1933 the trade association Film Carriers Conference, later renamed National Magazine and Film Carriers Inc., was formed. Film carriers gradually began to diversify into magazine transportation, beginning with services to Time magazine in the 1940s, as the film carriers' routes and delivery schedules fit well with the needs of magazine wholesalers. Film carriers diversified to deliver other theater supplies, including the popcorn and candy sold at theater concession stands.

In the middle of the first decade of the 2000s the leading motion picture studios were making key decisions about technical standards and financing that was to result in the conversion of almost 80,000 movie screens in the United States to digital cinema. In 2008 the total was around 5,400. The new technology impacted all industries associated with motion pictures, including services associated with distribution. The new technology posed a particular concern regarding the control of delivery networks. Digital films were transmitted electronically or by satellite for an enormous cost savings. Film libraries reaped rewards from the conversion of their collections to digital format and reported significant financial returns. For example, in 2006 Paramount parent Viacom purchased DreamWorks and subsequently sold its 59-film library to an investment group for $900 million. Online film libraries, such as Movielink and CinemaNow, were also experiencing rapid growth, as were streaming services like Hulu.com. and a plethora of similar sites.

At the end of the first decade of the 2000s, digital technology was turning the Internet into a film-viewing medium, creating an inexpensive outlet for filmmakers without significant financial backing. With decreased production costs and inexpensive computer software, these filmmakers just needed space on an Internet server to give their films public exposure. Online entrepreneurs also put out the word that they are in the market for film libraries. While Internet film distribution faced legal hurdles in the form of licensing formalities for transmitting films over the Internet, this development was thought to prove attractive to independent film libraries, which had the greatest difficulty finding consistently stable distribution networks.

The electronic distribution of film on the Internet rendered delivery companies unnecessary. The leading film delivery company had been ABX Air, formerly known as Airborne Express, which held exclusive deals with Universal Studios, Disney/Buena Vista, and a host of other major and minor film distributors through its partnership with Technicolor Entertainment Services.

Small booking agencies also felt the pinch of new technology and rapid consolidation resulting from Hollywood's growing concern for the bottom line. An intensified focus on first releases or "event" films in major markets squeezed out many small exhibitors, putting pressure on the companies who served them. By the middle of the first decade of the 2000s, megaplexes accounted for almost one-third of movie screens. In the 50 largest U.S. markets, megaplexes represented 50 percent of screens and 75 percent of gross sales. These facilities suited the interests of the major studios, which sought big-box office revenues on opening weekends.

At the end of the first decade of the 2000s, the single-screen and small, maniple theaters (two to seven screens) continued to fade from the American scene. In 2008 there were 1,747 single screens and 2,215 miniplexes in the United States, representing a decline from 2007 of 0.1 percent and 3.5 percent. However, multiplex (8 to 15 screens) and megaplexes (16 or more screens) increased to 1,679 theaters and 628 theaters, respectively, representing an annual growth of 3.8 percent and 1.9 percent, respectively. As of 2008 single screens accounted for 4 percent of all U.S. screens, miniplexes for 22 percent, megaplexes for 28 percent, and multiplexes for 46 percent.

Current Conditions

According to the Motion Picture Association of America, in 2011 there were more than 39,600 screens in the United States, 80 percent of which were located in theaters that had eight or more screens. Another other major trend in the industry in the early 2010s was the move to digital film.

In 2002 Digital Cinema Initiatives (DCI) had been formed as a joint effort of major studios Disney, Fox, MGM, Paramount, Sony Pictures Entertainment, Universal, and Warner Bros. Studios to develop a system specification for digital cinema, which was first tested in 2004 in conjunction with the American Society of Cinematographers. The full set of standards was published in 2011. By early 2012, more than half of U.S. movie theaters were digital, and the remainder were expected to be converted by the end of 2013. Several "middleman" companies were helping theaters convert to digital, which cost approximately $75,000 per auditorium. One of the companies that was helping theaters make the transition from film to digital was Cinedigm Digital Cinema Corp. of Woodland Hills, California. Although the firm found itself deep in debt in the middle of the first decade of the 2000s, and was still struggling to get its head above water in the early 2010s, CEO Adam Mizel predicted in February 2012 that "The company, in the not too distant future, will be profitable even with all the accounting headwind," due in part to funds that were trickling down from the movie studios reimbursing the theaters for the cost of conversion.

Although the conversion to digital was expected to save theaters about $1 billion, it also made some companies that had traditionally participated in the industry, such as film delivery firms, obsolete. However, it created opportunities for companies that offered different types of support services.

According to a 2011 IBISWorld report, the outlook for the movie and video distribution industry was optimistic in the early 2010s. The report stated that "Despite growing competition from media studios with in-house distribution arms, the industry will fare well in the coming years." It also noted that the increased availability of content, such as on cell phones, tablets, and other handheld devices, would benefit the industry.

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