2. Vertical Integration in the film industry
Vertical integration is the process by which a media institution - a media conglomerate - owns several
companies at different stages of production or the supply chain. Warner Bros. is owned by Time Warner,
which is a huge multi-national media conglomerate.
Vertical Integration includes: e.g. The Conjuring 2
Production: Conjuring 2 was created by Warner Bros
Distribution: It was then distributed by Warner Bros
Marketing: Warner Brother’s horror hit The Conjuring 2 bucked the summer trend of sequel disappointments
to take top spot with over $40 million, above most predictions and only a 4% drop from the original. The
success can be attributed to the popularity of the first movie, which was well received by fans and critics
alike, the quality of this instalment, and the fact the movie services a targeted niche audience – it was the
first wide-release horror in a good while so there was a good amount of pent-up demand to satisfy,
Exhibition: Conjuring 2
Studios will create reel’s that are sent to cinema’s. They will produce marketing materials (posters etc.)
and transport
Since the earliest days of the cinema the development of vertical integration—ownership of the means of
production, distribution and exhibition by the same company—has been contentious. In December
1906 Pathé Frères, by then perhaps the most powerful producer in the world, opened one of the first
purpose-built cinemas in Paris. By 1909 Pathé had a chain of 200 cinemas in France and Belgium. Pathé had
also been a pioneer of the practice of renting film prints to exhibitors rather than selling them outright.
This gave the distributor the valuable advantage of controlling which cinemas showed which films and for
how long. It also led to the creation of a pecking order among exhibitors: those with the greatest market
power could have releases first. The ‘first-run’ concept allowed a higher rental to be charged for new films.
In 1909 the Danish distributor Fotorama introduced 'stable customer service', probably the first
instance of block-booking of films in cinema practice, which spread rapidly. Exhibitors had to sign up for a
package of films of varying appeal in order to secure the most desirable titles
3. Horizontal Integration in the film
industry
Horizontal integration is the process of a company increasing production of goods or
services at the same part of the supply chain. A company may do this via internal expansion,
acquisition or merger.
Production expands into other areas in the industry. This means that the company can
develop.
After reaching a certain level of success, Walt Disney has been considering ways to expand
and increase profits. Disney started out as an animation studio targeting children and
families, which also represent their currently core target audience. However, in the process
of diversifying and developing their company, Disney did a horizontal integration into live
action films (For example, Pirates of the Caribbean series). In this manner the company
managed to reach new audiences and control a bigger share of the film industry.
Horizontal integration can prove to be a successful strategy when
Your company competes in a growing industry
Your competitors are lacking capabilities, skills or resources that you can provide
The cooperation can lead to a monopoly that would be allowed by the government
The economies of scale would have a significant effect.
What works for a company doesn’t mean that is also going to work for you. There is no
magical recipe. The answer lies in your unique value proposition as well as you own resources
and capabilities. Therefore the model that provides the greatest operating leverage
and opportunity for success and growth is also based two important factors – The synergy that
can be achieved by using a common brand name in order to promote different products or
services, and on the most important element of the company, the value chain.
