During the 80’s the wold’s film industry experienced its worth crisis ,a lot of economist predicted the end of it.During the 90’s the situation completely change.Europe was and still is late ,and the USA reach a world dominant position .Now that the reshaping of the industry is almost finish a new technology will change again the rules of the game.

In the first part of the work we will explain how a film is made and what are the economical characteristics of it.Then We will look at the structure of the industry and also of the european market.Finally we will try to predict how the structure of the industry will react to the arrival of a new exhibitor:Internet.

1.2 Limitation of the research.

As the american market is almost mature , the two main market to achieve growth is Europe and Japan.We will limit our research on the European market.We will look at the european industry and compare it to the american industry.We will not talk about other industry as the asian industry.

2 ECONOMICAL FEATURES OF A FILM

2.1 Film as a good

2.1.1 Film and club goods

2.1.1.1 Characteristics of club good

R.Cornes and T.Sandler base this paragraph and the next one about club goods on the book.

Club goods are impure publics goods.

Public goods are non-rival and non excludable, like the national defence or all the externalities, which are by definition out of any market: There is no market for pure air. Public goods are not exchange on a market because they are non excludable, and even if you manage to exclude, because it is non rival (marginal cost=0), most of the time excluding diminish the welfare as you exclude some consumer who could consume with no cost for the economies .New technologies manage to change a public good into an excludable good like to scramble TV channel for non payers.

We can show 5 differences between a pure public good and a club good.

1-Volontarism

Members choose to belong to the club because they anticipate a net benefit from membership (this net benefit must exceed the toll). In a pure public good everybody is part of a the “club»; a pure public good is a club good where the club have the size of the whole nation.

2-Congestion and crowding which leads to a finite membership

Crowding depends on some measures of utilisation: which could include the number of members, the total numbers of visit or the ratio of members per number of unit provided.

Congestion may be positively related to utilisation measures and negatively related to the provision level of the shared well.

If congestion rise it can result in two opposite effects: the cost reduction and reduction in the net benefit as more people means lingers waits, slower service, greater accident rate on highways etc. This problem of crowding leads to a finite membership (opposite to public goods where the membership is the entire population) that we call exclusive group (e.g.: sports club).

3-Disposition of the non members

For pure public goods non-members do not exist .For club goods non-members have two choices: they can join another club providing the same good or they may not join any club at all. If all population individuals are allocated among a set of clubs without overlapping (e.g.: energy providers), the population is partitioned by the set of clubs. When some individuals do not belong to any club (e.g. tennis club) then the population is not partitioned. In the case of partitioned club, the choice of number of clubs is an important variable.

4-Presence of exclusion mechanism

It can be a user rate, which can be monitored, or non-members and/or non-payers can be bared. Without a mean of exclusion, there would be no incitatives for members to join and to pay. This mean must be at a reasonable cost .We mean by reasonable that the cost of excluding must be less than the benefit of providing the good within a club .For example trying to exclude people from national defence would have an astromical cost if feasible at all. If by excluding we rise the total benefit of about 1000£ and that the excluding cost (the total charge on the members) for example the toll fees are less than 1000£ then providing the good through a club arrangement then the exclusion would be justified.

5-Dual decision

For pure public goods as we know the member size the only thing which need to be considered is the amount of the allocations. For a club good the allocation depends of the member size and the member size depends of the allocations (as the taste for congestion have to be maximized) .A cross problem not easy to solve.

Some work about club decision have been conceptually build in two stage the first stage is the determination of the member size then only the toll and provision decision are made (Fraser and Hollander 1992).

A great feature implied by all these characteristics which differentiate the pure public and the club good is that for pure public good the provision is associated with a Nash equilibrium, which is sub optimal, hence the intervention of government could be necessary. However, club goods can achieve a Pareto optimum without the intervention of government.

2.1.1.2 Film is a club good

Films and the distributors (multiplex and TV channels) have mostly fixed cost which is the same as a marginal cost=0. But for cinema as for pay channel there is an exclusion mean, voluntarism, and dual decision .It fulfil all the characteristics of a club good with two provisions: one for the films and one for the size (size of cinemas, the power of the emetors for TV or the price of the technology for the new waves of distribution like satellite or scrambling technologies .Two other characteristics of this clubs are: The club is not partitioned and is anonymous (you do not care about the people in the cinema, you care about the film ).

For television the congestion problem is less obvious which leads to important difference between TV and cinemas. It is maybe why many TV channels actually produce the movies as their real cost are mainly the price of the movies. This fact linked closely TV to the film industry. In a way TV, channels are club with only one allocation problem: the film, as congestion is not a real problem.

The members of the clubs agreed to pay the cost of the film and the distribution at a price, which is less than their benefit but that could be more than the cost if competitive advantage, exists. This advantage can come from distinctive capabilities which are high in the film industry (there is bad film which cannot compete against masterpiece) or from strategic assets which lead to a non competitive market (like the dominant position of the American film industry) .We will discuss more deeply these in the next chapter about the film industry structure. Because films are club goods and not pure public goods allow the consumer to choose what he wants to consume (in which club he want to be) and give more freedom and less censorship that systems where government control the production. This government monitoring could be dangerous for democracy: in this case, government would not solve the problem of negative externalities. We have to say a word about the externalities of arts even if we will discuss this more deeply on chapter V about cost disease as baumol discuss also about this problems. Externalities by definition are out of any markets, they are non excludable and have no pricing. Hence, Externalities are public goods, which lead us to say that films are club goods with some externalities (it is a polemic but as Baumol said violence, education, national pride etc are externalities), which enforce the public good aspects of it. If we do not care about externalities, we can say that films as club goods can reach a Pareto optimum without government incitatives.

2.1.2 Films are prototype

Some specialists compare films to prototypes or rockets (L.Creton), as a film is unique and very expensive which makes it a very risky asset.

Even if producers and studios try to limit the risk by using stars as S.Stallone and A. Schwarzeneger, data shows that it does not really diminished risks (L.Creton). Therefore, the first difficulty is the unpredictable demand. The second major problem is to know the price (the budget). As a movie is a prototype (it is unique), it can cost sometimes far more than expected (L.Creton). We could say that is a bit like building the eurotunel. For example a few years ago a French film “les amants du pont neuf” had be planned to cost 3 million £ and finally cost 15 million £(L.Creton), or, the famous Cleopatra which was planned to cost 4 millions $ and finally costs 42millions $ (equivalent of 300 millions $ of today!). Of course, these examples are historic ones, but it shows how it can be unpredictable.

Therefore, film is a specific product because it is very hard to establish the cost on one side, and even more difficult to establish the demand on the other side. Of course, it can play in both directions; “Mad Max” had a rentability of about 4000%(L.Creton). These characteristics make some people say that Hollywood is the new Las Vegas (L.Creton).

Some very rich people invest in films because it is for them the most glorious way of loosing or earning money. This mean that on the financing side cinema is not a normal investment or a normal financial good. Cinema makes people dream, even the richest.

In conclusion, we can say that producing films is highly risky, and sometimes not rational at all.

We have to say that it exists a difference between an independent low budget film and a blockbuster. Even if studio diversified in making both kinds of movies as low budget films limit the financial risk and has the opportunity to give a big yield, globalisation of the economy goes in favour of very high budget movies called “blockbusters», worldwide distributed (L.Creton).

2.2 DEMAND FOR CINEMA

We can wonder which parameters influence the demand of cinema, as during the 80’s the film industry collapsed and just 15 years later, it is successful again.

We can say that most studies (C.Forest) cannot find evidence of correlation between the demand and:

The price,

The revenue per inhabitant, as poor countries in Europe can be bigger consumer than richer countries.

The offer (no correlation with the number of screens). Even the arrival of multiplex cannot fully explain the change in demand.

Two explanation for this second youth of cinema are given by C.Forest

The lowest economical life of a film

The concentration of the audience on few movies (podium effect of L.Creton)

2.3 About the cost disease of Baumol

This Paragraph is based on the book of W.J Baumol and G.Bowen

If you imagine two sectors:

-Sector 1:productivity gain

-Sector 2:productivity stagnant

Then on the long run, the salaries are going to increase because of the gain in productivity. The salaries going to rise uniformly through the economy and in the sector with no productivity gain the salaries going to raise too so the cost increase as there is no productivity gain.

Another way to see it: if the productivity increase then the opportunity cost of using the labour in the stagnant sector will increase too.

The film industry as all the arts and other features like education is labour intensives so the productivity is difficult to enhance (an author now is not more productive than Shakespeare) and cost disease occurs. For the film, industry there is two kinds of costs:

Over the line costs: which are subject to cost disease as it is the creativity and labour cost

Under the line costs: which are the costs of the technologies used which have gain of productivity

We can conclude that the technology cost is diminishing and could fall dramatically in the next years because of the new digital technologies. But that the cost of the directors, actors, and other technician will continue to raise .On, the short run we will experience a reduction of costs but on the long run, obviously we will experiment the opposite trends.

Baumol explain that we do not have to be scared of the cost disease, and that we do not have to enjoy when we observe a reduction of cost in arts because it means a fall in quality and not in costs.

Of course, one can say “what we going to do?» Nothing is the answer excepted being delighted.

Because the rise in productivity for manufactured goods allows us to have more time and resource, for other activities, .The cost disease is not a loss but at the opposite, it is a gain.

We can imagine a time when human being will have plenty of energy and robots doing all the manufactured goods. Capital will have to be shared, as the capital will be the only input in manufacturing. If everything is unlimited, there is no need for exchange and money. It means that we can imagine a time when all the materialistic needs will be fulfil given the resource to the society to concentrate their mind on another type of good: the spiritual one. Money will be useful just to exchange arts and services.

Are you afraid of that?

The cost disease does not mean a fall in consumption at all. Imagine 90% of the economy subject to improvement in productivity and 10% subject to cost disease .The rise in productivity will give us more good to consume but part of this “surplus” is going to shift to the 10% of cost disease industry. Maybe the ratio will be 88% and 12% but the 88% is going to be 88% of a bigger pie, which might be far bigger in quantity than the 90% of the smaller pie.

Cinema and arts have a great future if we manage to understand that material is not everything and that spirit is valuable. The data show us that it is the case. People work less and spend more and more in leisure. The danger would be to leave the space empty, leaving people with time and a lot of existential problems which could lead them to extremisms and other sects .The crisis could be not an economical one but a spiritual one, putting in danger not only the economy but our whole society.

2.4 Financing films

Finding the funds is usually the role of the producer which is not an easy job as financing movies is a risky job that banks traditionally did not wanted to do because of the risk, and because of another particularity of cinema (L.Creton): it is almost impossible for a banker to know if the shooting of the movie goes wrong. He has very few information, in fact only the director really know how is going the making of the film. There is highly asymmetric information. So, they use to limit their action to the discount of contract, as the buyer of a movie pays only after the movie is made. Most of the funds are coming from “business adventurer” and from the studios. L.Creton in his book said that the theory of techno structure of Galbraith could be applied in cinema production:

A microcosm of a few managers being in key positions, and the investors (owners of capital) having no real power and information’s, seduced by the “El Dorado” of cinema (which can potentially give a high return), loosing nearly all the time their money. Even if, theoretically, investing gives the legal right of ownership and leadership of the enterprise, practically how could external capital control such a complicate and intangible system as Hollywood?

The very famous case of the “credits lyonnais” is maybe the best example (sony, Matsumita cases also)

The financial evolutions of the last decade, maybe one of the most important change in the “new economy”, give the opportunity to raise venture capital for the production of movies .In fact, this last decade, there was money available for cinema like never before (L.Creton). More and more money, and Increasingly expensive films. Actually, it is maybe easier to raise money for a very expensive movie than for a low budget one (L.Creton). A new race for the most expensive film has begun. Many of the data are just invented for marketing reason: “the most expensive movie ever made” is a very good marketing argument (L.Creton).

This way of thinking and the growing international market is at the origin of a particular way of judging investment opportunities in the cinema industry: investors are looking more for a high number of sales than for a high rentability (L.Creton).

Another change, maybe the most important, is the growing demand for films by television as new paying channel are created. Now a lot of money is coming directly from televisions, which buy the rights of the film before it is shoot. And if only 1 or 2 out of the ten annually blockbusters (more than 100 millions $ of total budget) are successful, they have a second life in video, DVD, and television. We could say the same about lower budget movies except that the financial risk is lower, but some argue that they are more risky than a movie with very well known actors and with expensive special effects. Data’s are not really in favour of this argument as inflation of costs for blockbusters (technician, special effects, actors, directors) make that sometimes there is no reason for such high prices when you are looking to the quality of the film (L.Creton). However, it is true that because of the globalisation fewer movies are produced so they can have higher budget for the making of the film and for the very high marketing costs. This characteristics, and the new habit of consumers leads to a trends of a more and more concentrate market, with higher absolute cost advantages leading to a more oligopolistict structure of the market on the producing and distribution aspects of films.

Another big source of finance in Europe is the help from the government (Grants):

The idea of externalities, public and club goods follow all the discussion. These issues are linked closely to the government and the disruption about cinema being a cultural and merit good creating externalities like education, national pride, and beauty for the positive ones or violence, racism, and indoctrination for the bad ones. This problems leads to analyse a quite complicate aspect of the welfare economic. Some say also that the cost disease could be a good reason for the government to help the film industry

In many European countries cinema is helped by state initiatives, these initiatives are different from countries to others, even if the growing importance of the European union leads to a lot of energy spend for harmonisation. We will give the five more common ways of granting films and how they are spread through Europe (C.Forest).

Selective help to production (almost all European countries)

Can have two forms

-Direct subsidy (giving money)

-Grant that have to be repay with the future revenue

As it is selective not all film can have it

Automatic help to production (adopted by half of the European countries):

The government give 10 to25% of the revenue of the first years of exploitation or even during the whole life of the film (France). France is the main user of this help.

This help is automatic

Figure 1Government help to production in EU (1998) (C.Forest)

Figure 2Nationality of the government help to production in EU (1998) (C.Forest)

The automatic help to distribution (Two third of Europe using it): Usually very low

The help to exhibitor (almost every countries use it but France is the bigger user): The governmentgive a certain amount of subsidy per client

The fiscal help: low VAT and sometimes other exemption of tax.


	VAT	Tax oncinemas	Local tax
Germany	7%
Austria	10%		0 to 10%
Belgium	6%		0 to 18%
Denmark	25%
Spain	7%
Finland	12%
France	5,50%	11%
Greek	8%	12% or 6%summer
Irland	12,50%		function of turnover
Island	24,50%	37,38% 0%national
Italy	10%	9%
Luxembourg	3%		10%
Norway	-
Netherland	6%
Portugal	5%
UK	17,50%
Sweden	-	6%	10%
Suizerland	-		10%

Table 1Tax on cinema in europe

2.5 Marketing

Marketing is part of the job of the distributor, as we will see later.

Marketing costs in the cinema industry are very high, for example a film like “independence day» cost to produce it 75 millions $ and the marketing costs were 75 millions $(L.Creton). We can say that for the “blockbusters” internationally distribute the marketing costs are equivalent to the cost of making it (L.Creton). However, this amount of money is not enough, advertising a movie involved the whole media system as television and the press. Medias and film industry have both interests in creating big events and stars as they highly interested the consumers of newspapers and television (L.Creton). That is why we observe this race to have the most expensive film ever made: To make the press creating an event. We observe now also a new tendency for the less expensive film (i.e.:” the Blair witch project”), particularly in USA. ”The Blair witch project” is a very interesting example for something else too, as it is the first movie to be advertised by the web: months before the film was made a lot of rumour was on the web (about the forest inhabited by a witch etc), even after the film was on the screen, a lot of people thank that the story was real. By choosing this strategy, “The Blair witch project” had a huge marketing campaign free.

In general, low budget films find more and more difficulties to follow these trends of high marketing costs. Hopefully films can find an audience even with very low marketing budget as the reputation of a movie can spread very quickly helped by the fact that people like to talk a lot about cinema, which is maybe the most appreciate arts of our time.

2.6 DISRITIBUTION

In this part, we will talk about the main issue of cinema: distribution. Distribution had dramatically changed since the beginning of the 90’s.From the 50’s(the golden age of cinema) until the late 80’s; attendance in cinema had fallen by 87% in Germany, 97% in UK, and about 70% in most other European countries (L.Creton). We can see three different periods for the different way of distribution of films since its creation (L.Creton). The first generation of cinemas from 1897 to 1957 had the monopoly of the motion pictures. Then after the creation of television, we see the second generations of cinemas, which was in constant decline (1960 to the mid 80’s). Then the third generation of cinemas (since the mid 80’s) with the arrival of multiplex. The definition of multiplex are quite different from countries to others, but we will define them as cinemas with more than 10 screens, with a modern managerial strategy, high technologies investment as THX sound, and with high presence of other commercial products (L.Creton). Since 1985 the attendance in cinemas rises constantly, from 70 millions entries in 1985 in UK to 140 millions in 1999(L.Creton).

But the high capitals requested to make this multiplex, increased the concentration of the distribution market quite dramatically, changing the market structure from competitive market to oligopolistic market (in France the oligopoly Gaumont-Pathé-UGC have 20% of the number of cinemas but have 50% of the sales, these data are about the same all through Europe)(L.Creton).

As the multiplex try to found their customers by decreasing their price and by programming high budget films, the smaller structures try to differentiate and program some lower budget films. As we saw before, the production of low budget film (independent) is slightly different than for blockbusters, we see now that the distribution is also different (L.Creton).

But the importance of the attendance to cinema to judge the rentability of a film decreased as new way of distribution rise, it is no more a monopsony .The new cable and satellite TV channel is now a very important way of distribution, and even if a film has bad result on the big screen, it can still make money and audience on television, or also in video and DVD (renting and selling) .Of course the price of a film for television depends of its success in cinemas as well as its success on other support, but most of the main TV channels buy the rights before the film is even made , in fact they have an active part in the producing system as we already said before. Distributor take in charge the marketing and promotion of the film through their network and using there know how. The American way of leaving those jobs to highly integrate companies called majors seems to be to most efficient as we will see in more detail in the conclusion of this chapter and in the next two chapters.

2.7 Value chain as a conclusion

2.7.1.1 A small definition of the four main industrial characters involved in the creation of a movie

(E.Dubet p20-40)

The artistis the creator

The studiosgive the tools to make a film

The produceris an intermediate between the artists, the studios and the distributors

The distributorsorganise the marketing, the promotion and the delivery of the film. It is an intermediate between the producer and the cinema owners (or any other way of watching a film)

2.7.1.2 A resume of the different stage of the value chain of a film

(Based on Dexounet’s value chain of music but reshaped by G.Reniers)

The Artist:

The scriptwriter and/or the director sell the rights of his stories and find a producer to finance and develop the script

The development:

The studio or producer(rarely his own money, his role is more an intermediate) invest money to develop the script ,this investment can be very expensive. At this stage, the project can be stop or reshape to be a telefilm (or a DVD). Europe neglects this aspect and as a result, many inappropriate films reach the cinemas in Europe decreasing the prestige of it. In USA, many projects are stopped even if millions of dollars are already invested and a third to the half of the produced movies never reaches the big screen (C.Forest).

Financing:

Can be through banks or through public funds or by the studios or by a distributor, it is more likely to have a bounded of all; this is also the job of the producer to organise the finance.

Studios:

The studios give all the hardware and staffs needed for the shooting of the film including the locations the cameras, the technicians and the actors. This is the stage of the value chain where the film is build.

Post-production:

Processing film, editing and special effects, then putting the film on any support.

Distribution:

Promoting, marketing and delivery of the movies on different support. Distribution request strong networks with the different media and a lot of capital. This appears to be the core business of the majors (Dexounet). The other steps can be done by independents as the relationship with the artists is very important (Dexounet). However, in cinema as the amount of money is huge, the producing can be more efficient through the big studios as the pooling allow an easier management of this high risk incurred in the film industry.

Screens:

Cinema, Television, DVD, Video, Internet

2.7.1.3 The value chain

The part of the value chain in blue is what the highly integrate majors do (The Majors are highly integrate studios, producers and distributors). For independent movies, the producer takes in charge to organise the finance, the studios, the castings and the postproduction. Majors sometimes give some projects to those producers after the development and take the film back for the distribution, this method reduce costs .The coexistence of this two systems in USA is very important as independent productions allows the industry to find new talents. We can also say that the scriptwriters of the majors create some of the scripts internally and then the first part of the value chain is internalised. Same for the screens as the majors own some of the multiplex in Europe and that majors want to control the new screen which is Internet. In this case the last bit of the value chain is integrate. These value chains are inspired by the music Value chain of Dexounet, but reshaped.

Figure 3American value chain (G.Reniers)

In Europe due to a different traditions and intellectual rights (author having the important final cut) the value chain is differently integrated. Actually, we see that there are more producers than the annual number of film produced. The two first bits are made by the author (scriptwriter and/or director). Then the producer take in charge the rest of the value chain until the distribution. Nevertheless, Europe is now trying with quite a success in France to make a film industry shaped on the American system.

Figure 4EU value chain (G.Reniers)

In white: The author (scriptwriter/director) ;In Blue: Producer; in orange: Studio, usually some of the postproduction is made by a specialised lab (special effects, processing films). A different firm also can do distributor and then the value chain in not integrate. However, distributor and screens can be the same firm. We see that the level of integration can vary from film to film. In general, the European value chain is less integrates than the American one.

3 The structure of the film industry in the European market.

3.1 Introduction

As we saw in part 1 the films, is now part of a global audiovisual industry, the big screen is only a small part of this industry (6,5%In USA; 7,5% in EU)(C.Forest), but cinema is the most prestigious part of the audiovisual industry. Having a success on the big screen is a guarantee of success on the other channel of distribution. That is why we can say that cinemas and multiplex have a bigger strategic value than the profit expected from it. Most of the film produced are made for television, and motion pictures are used everyday for thousands of different use like news, advertise or TV programmes, we can see on the following figures that actually advertising is the first product of the audiovisual industry (42% in EU, 47%in USA) (C.Forest). A few decades from now, motion pictures were very rare and now they are in abundance because of the new technologies. Actually, the media industry changes more during the last years of the XXth century than the last three decades. Now this trend is even faster because of Internet, as we will see in the next chapter of this dissertation. We will see now in more detail how this industry and market looks after these few years of very quick changes.

Source OEA	Europe 1988	Europe 1998	USA 1988	USA 1998
Cinemas	41	25	37	22
Video rent	40	10	26	32
Video sold	5	25	5	26
Pay TV	14	40	32	20

Table 2Consumption (in %) of films depending of the support (C.Forest)

3.2 Horizontal and vertical integration of distributors

The following paragraph until 2.5 excluded are based on the Media salles web site which is the official website of the Media Program of the European Union.

3.2.1 Horizontal integration

As C.Forest wrote, the American film industry adopted two complementary strategy since the sixty’s. First, the majors regrouped themselves to export their movies through alliances (e.g.); changing geographically and in time .The, other way is to create alliances with some local distributors. Exportation is vital for the American industry as their industry is already mature.7 countries represent 50% of the revenue of the majors (Japan and France being the two biggest exporting place)(C.Forest). They also own a quarter of the multiplex

In 8 European countries, the only countries that owned most of their multiplex are France and Sweden (C.forest). In Europe, it is more a lack of integration, which is the rule: the numbers of producer exceed the number of film produced. We see that in Europe a lot of “cannibalism” occur, a lot of rival film arriving the same day on the screens. In USA, these alliance strategies allowed them to plan the released of the film, and to find common strategies to export.

3.2.2 Vertical integration

We showed in the last chapter that the value chain of American film industry and the European one looks different. The highly integrate American industry looks far more efficient as it reduce opportunism (Williamson) between the economic actors (producer, distributor, studios).

It also allows economies of scale, and a different process of fabrication that creates films, which are better adapted to the different channel of distribution. We will look at this in more details in this chapter.

3.3 Horizontal integration for the cinemas

The degree of integration of the cinema exhibition industry can be measured by reference to the numbers of screens controlled by the three most important operators in each country as a percentage of the total number of screens in a country.

The degree of integration can, however, also be measured by the market share (in terms of the numbers of admissions) of the three main players in each country

Figure 5screens owned by the top three firms in each country of EU (Media salles)

·by contrast, looking at the EU market as a whole, the degree of integration is low. The five main players in the EU control 14-18% of recorded admissions in the ten countries studied. Therefore, exhibition is still fragmented and compartmentalized at a EU-wide level, in the hands of different companies in each country.

·the degree of integration of the market is also very variable: ranging from 10% (Italy) to 80% (Ireland). This variation suggests that defining a common, coherent and relevant regulatory regime for the whole of the European Community will prove difficult.

·the countries where the highest degree of integration occurs are mostly the smaller ones

·If their contribution is measured by admissions rather than numbers of screens, then the part played by the market leaders is mostly larger, as figure 6 shows: there is a marked "leader-effect" which is by no means confined to exhibition, but which, in exhibition, is derived chiefly from the fact that the screens of the main players are almost invariably in the best locations. This "leader-effect" is also linked to the nature of programming of the circuits, as the "leader" can benefit, in terms of advertising, choice of films and cinema quality, largely than the rest of the sector.

·the difference between screen share and admissions share is not uniform across countries. It is particularly high in Belgium, Portugal and Denmark; this is partly because the three main players' numbers of admissions and the number of weekly admissions per seat are both higher there than elsewhere. By contrast, the difference is more moderate in the UK and Ireland, which reflects the fact that the big networks there (MGM and Odeon in the UK, Ward Anderson in Ireland) have a mixed bag of cinemas: certainly, some of these are modern and profitable, but there are also some old cinemas of which it is difficult to dispose.

Figure 6 Horizontal integration by country (Media salles)

Horizontal integration in each country
	% Of screens controlled by the three main players	% Of total admissions accounted for by the three main players
Belgium	29.0%	60.0%
Denmark	18.0%	49.0%
France	12.0%	33.5%
Germany	16.0%	25.0%
Greece(e)	10.0%	20.0%
Ireland	58.0%	80.0%
Italy (e)	3.0%	10.0%
Netherlands	34.0%	45.5%
Portugal	38.0%	70.0%
Spain	7.0%	19.0%
U.K.	53.0%	67.0%
Unweighted Average	28.0%	48.0%
Weighted Average	18.0%	34.0%
Source: MEDIA Salles/BIPE Conseil

Table 3Horizontal integration in each country(Media salles)

Independent cinemas probably encounter most difficulty in obtaining prints of the films they want in the countries with a high degree of integration, or may find it increasingly difficult to do so. Independent exhibitors are likely to become increasingly marginalized as the power of multiplexes grows.

3.4 Vertical integration of distributor and cinemas

Distributors' involvement in exhibition

There is more to the analysis of the vertical integration phenomenon than measuring whether the same group through different subsidiaries carries out distribution and exhibition activities. The major distributions companies (particularly the US majors) can in practice either have direct links (subsidiaries or a majority share) or indirect links with the major exhibitors. In order to define the level of vertical integration, it is often necessary first to determine the degree of independence of the different companies. In several EU countries, the Warner, UCI and MGM groups state that the links between the distribution and exhibition companies, which they control, are weak. This is even the case for several directly integrated groups, like UGC, whose distribution branch is more interested in optimising the profits of that activity than in supplying the cinemas owned or programmed by the group. A discussion of the degree of autonomy of the different levels of activity is therefore vital to our understanding of such a sensitive sector.

In our analysis, we have taken into account the financial links between the exhibition and distribution arms, but have also tried as far as it is possible to give weight to the cases where the companies consider themselves independent.

3.4.1 Distribution companies directly involved in exhibition, and their importance as exhibitors

In every EU country, with the exception of the Netherlands, distributors are also involved in exhibition. This can be judged by looking at table 3 and figure 7.
In Portugal, vertical integration is at its strongest, as two players control 60% of the distribution market and 65% of cinema admissions. Lusomundo essentially controls all channels of the Portuguese film industry.
The United Kingdom also has a very integrated market, with over 70% of exhibition controlled by firms who are also involved in distribution.
The influence of distributors is strongest in exhibition in Ireland, Denmark and France, with, respectively, 47%, 48.5 % and 33.5% of total admissions. However, while in France (UGC - Pathé - Gaumont) and Ireland this integration has been achieved by national players, elsewhere it is the province of the subsidiaries of US-based groups.
Although very precise data on Greece is not available, it is known that distributors control an important part of the exhibition sector in that country.
Vertical integration is much less pronounced in other markets: the distributors' market share of exhibition does not exceed 13% in Spain and Belgium, and is 6% in Germany. In the Netherlands, there is no vertical integration.

Vertical integration by country (1992)
	Principal distributors involved in exhibition	Combined market share at distribution level	Combined market share at exhibition level
Belgium	Belga (Hemelaer) Indep. Films Cine-libre Excelsior (1)	25.0%	12.0%
Denmark	Warner Camera Metronome	31.7%	48.5%
France	UGC Gaumont AMLF (Pathé)	30.2%	33.5%
Germany	Warner Neue Constantin	40.0%	6.0%
Greece(e)	Elke Spentzos Prooptiki	13.5%	15.0%
Ireland	Abbey (Ward Anderson)	12.0%	47.0%
Italy	Penta (Cinema Cinque) Istituto Luce	37.5%	3.3% (2)
Portugal	Lusomundo Castelo Lopes	60.0%	65.0%
Spain	UIP (Cinesa) Lauren films	25.0%	13.0%
U.K.	UIP (UCI) Warner Rank	51.0%	71.6%
(1)Excelsior went into liquidation in September 1993 (2) Only Penta Source: MEDIA Salles survey

Table 4Vertical integration by country (1992) (Media salles)

3.4.2 "Indirect" vertical integration: "alignments"

In order to have an accurate picture of the sector, it is important to take into account programming agreements, which have the effect of "indirectly" establishing the mechanisms of integration as well as constituting vertical restraints on the operation of the market.

In numerous countries, the extent of vertical integration is effectively doubled by more or less formal exclusivity agreements between distributors and exhibitors, commonly known as "alignments". The UK market is one arena for exclusivity agreements between the US majors, film suppliers and the circuits. In Spain, some distribution patterns in small towns have the characteristics of exclusive agreements, whereas in Greece, distributors are increasingly hiring cinemas, in order to control directly the release of their films. However, these practices are rarer where multiplexes are involved, as these cinemas have to have an "all product" programming policy because of the number of screens and the need for a multiplicity of suppliers to fill them.
Even if the cinemas directly owned by the distributors are not restricted to showing "own" films, the access of independent films to screens might seem to be hampered by the extent of vertical integration. However, despite the strong trends towards vertical integration within the market, the operators who responded to this part of the qualitative study showed that this was rarely the case: vertical integration does play a part in limiting access to the films which are extremely profitable, where a distribution subsidiary of a group can give preferential treatment to its sister companies, but in the majority of cases, the difficulty of access of cinemas to films was attributed to distributors' lack of interest in the less profitable screens, or to too few prints being put into circulation.

Figure 7Distributor also present in exhibition

3.4.3 The extent of competition in EU markets

The extent of competition in the market place is effected by both vertical and horizontal restraints. The diagram below (Figure 16) plots the position of countries in terms of two criteria: the market share of the different circuits (horizontal integration) and the distributors' share of the exhibition market. According to the diagram, the farther towards the top right-hand corner a country is positioned in the graph, the more imperfect the competition. Without taking account of agreements between distributors and exhibitors, nor of eventual correction mechanisms, it appears a priori that the problems of access of independent films to the cinemas and of independent cinemas to films will probably be most acute in Portugal, Ireland and the United Kingdom.

Figure 8Competitive position of the European exhibition markets. Vertical and horizontal integration (Media salles)

3.4.4 Conclusion

A high degree of integration means less independence of choice and could mean a danger for the access of other films (from smaller producers) to the screens. A high level of integration could be economically inefficient as the welfare could be reduce if some film could not be seen only because of market failure leading to negative strategic behaviour .Of course a film is a club good and as we showed earlier the market can achieve a pareto optimum but because of the increasing cost of the multiplex (few are making profit, as we saw the big screen is more strategic as a success in cinema increase the value of the film on other support. The access of good quality but independent movies in good quality cinema could just be denied for strategic reason. This kind of integration if it is to high can have negative effect on the offer and reduce welfare. We see in the following paragraph that the regulation might be to weak. In UK, for example the access to the screens for English films is a real problem .

Regulation
Table 4 shows legislation and regulation in the various EU countries, which deal with programming practices, which could be considered anti-competitive.

For a distributor, exclusive programming, involving granting exclusive rights to films to one exhibitor at the local level, is not the subject of any specific regulation in most EU countries but the provisions of general competition law cover it. In France, by contrast, the Fair Trading Act 1984 specifically covers this type of practice.
The practice of "block-booking", granting to cinema operators a profitable film on the condition that they also take other films with less commercial potential, is not specifically forbidden by regulations except in France, Spain (where a tribunal defending competition exists) and Ireland. Nevertheless, the application of the law in these cases is far from straightforward.
In France, the resolution of any conflict concerning practices seen as abuses of market power by one party is speedily referred to the Mediator. In countries where corporate structures are well defined, competition authorities guarantee mediation. Elsewhere, as a general rule, the only source of redress is through the usual legal channels. Whatever redress is available, the efficacy of it is questionable, as exclusive practices continue in every country, and taking legal action remains both expensive and difficult for an independent exhibitor.

Access of cinemas to films
		Belgium	Denmark	France	Germany	Ireland
Exclusive programming at the local level	Regulatory position	General law	None	Competition is regulated	General law on competition	No law pertaining specifically to exhibition
	Regulatory authority	An action is being referred	-	The Cinema Mediator; Tribunal if legal action taken	"Cartel Office" at Länder and Federal level	-
	Powers of the authority	Restrictive	-	An indicative decision	Legal sanctions	-
	Effectiveness - actual position	Exclusivity does exist: US films Þthe circuits; Films from Ind.ÞInd. cinema	No problems of exclusivity	No sanctions (self-regulation)	-	Outside Dublin: monopolies exclusive relations Dublin, multiplex = "all products"
Block-booking (rental of packages of films)	Regulatory position	General law	Not practised	Forbidden by regulation	Not forbidden	Illegal
	Regulatory authority	-	-	The Mediator	-	-
	Powers of the authority	-	-	Indicative	-	-
	Effectiveness - actual position	-	Not practised	Often elaborate	-	-

Access of cinemas to films
		Italy	Netherlands	Portugal	Spain	UK
Exclusive programming at the local level	Regulatory position	New cinema law since March 1, 1994	General competition law	New cinema law	General law on competition in 1989	Films Order, 1989
	Regulatory authority	Anti-trust authority	Ministry of Economic Affairs	-	Tribunal defending competition	Office of Fair Trading (OFT)
	Powers of the authority	⁽¹⁾	Legal arbitration	-	Legal sanctions	Little authority; mostly self-regulation
	Effectiveness - actual position	Regulatory authority has never been invoked	Exclusivity: standard practice in commercial cinemas, but changes since 1.1.93	Lusomundo in the position of a quasi-cartel	Distribution patterns comparable to exclusive agreements in small towns	Local exclusivity - applies in 18 cities (and Dublin)
Block-booking (rental of packages of films)	Regulatory position	No law	Practised, but not official	General law	Forbidden (by competition law)	General law "Fair Trading"
	Regulatory authority	-	Arbitration by the Federation	No specific body for the cinema	Tribunal defending competition	OFT
	Powers of the authority	-	Arbitration	Not used	Legal sanctions	Rarely used
	Effectiveness - actual position	-	Few conflicts	Practised	Elaborate regulation by distributors	Exclusivity occurs

Table 5Access of cinemas to films (Media salles)

3.5 SWOT of US film industry vs. EU film industry

This paragraph 2.5 is based on the work done by C.Forest .

3.5.1 Weakness of the EU industry

In all industrialised nations ,the US film offer rose because of the decrease of the demand for local movies. Actually the film market and the exhibitors survived because of the increasing demand for US films (C.Forest).Why the demand for local films crushed in Europe ?Mainly because of the supply side policies which was highly paternalist ,and encourage a certain type of movies where the artist ,the author was the centre of the project, no matter nobody wants to watch his film (C.Forest).

Another cause is that most of the films produced were finance by TV channels and made for TV. Those inappropriate films disappointed most of the customers ,that they could see home.(C.Forest)

The highly unintegrate European industry and the absence of centralised area of activity like Hollywood prevent any synergy , economies of scale and scope , global strategy and pooling of the risk.(G.Reniers)

Too much nationalist ideology leading to a lack of respect for American films and artists.(C.Forest)

3.5.2 Strength of the EU industry

The highest variety and the widest offer in the world.(C.Forest)

A system, which allow original and risky films to be produced (G.Reniers)

High quality of the artist and the technicians (G.Reniers)

3.5.3 Strength Of the US Film Industry

The completely American system is based on a good story. They invest far more in the preparation of the movie, and can change the orientation of the project .They can simply accept the sunk cost and stop the project or reoriented it for television. Actually even after the film is made the distributor can choose not to release the films in cinemas and distribute it straight to the television , the DVD , video or any other mean of exhibition.(C.Forest)

By doing this they avoid to have too much films on the screens and to disappoint the customer ,by doing this they guarantee a degree of satisfaction that makes the customer coming back.(C.Forest)

By making alliance with other majors or local distributors, they increase their exportation, which is vital for this industry.(C.Forest)

Having a pole like Hollywood (same idea of silicon valley) facilitate the creation of network , allows bigger economies of scale and being higher on the learning curve . (G.Reniers)

An easy access for foreign artist to the US industry (C.Forest)

3.5.4 Weakness of the US industry

To much routine and a pure industrial way of making films could lead to a uniformity of the offer and standardized films (G.Reniers)

3.5.5 Power of the artist as supplier on the producer and the distributor

3.5.5.1 In Europe :

High power because final cut , complete property of the idea (nobody can change anything if the author does not agree ), and the policies of the Europeans countries following a policy in favour of the artist (Author system and government grants)

3.5.5.2 In USA:

lower power , because no final cut, different copyright policies (once the rights bought the owner of the right can change anything he wants)and the artists have to be more in ad equation with the demand as there is no policies (grants) making the market as the only power.

3.5.6 Opportunities and threat as conclusion

The widespread ideology that the American films are symbols of imperialism and that it is killing our industry is simply wrong. The strength of the American movies is mostly due to their know-how ,to a better-adapted system and by the weakness of the European entrepreneurs join with a supply side policy completely disconnected from the demand.

The opportunities for the European industry are the wider way of supplying image increasing the demand for motion picture. Because of the shape of its industry Europe have a wide variety of films with many different artists. The Risk for the American industry is to be more and more dependent of the success of few movies , and also the uniformisation of the product as the process and the people used are more and more standardised .But the American film industry understood this threat and give a risen importance to the independent system (largely controlled by the majors).The threats for the European industry are the opposite of the American ones:

a lack of integration (vertical but mainly horizontal) leading to a lack of strategy ,no pooling of risk and no economies of scale,

not finding some activity areas to allow synergy ,network and economies of scale

Not following the demand and continuing a restrictive supply side policy (paternalism)

Inadequate film like telefilm released in cinemas just to increase the value of it ,leading to frustrated customers.

The incredible success of the French industry last year is mainly due to those changes initiate by J-L Besson (as producer).The audiovisual industry is quite an issue as the audiovisual trade balance between USA and EU is 6 billions of dollars per year of trade deficit(C.Forest) .

4 How Internet will change the structure of the film industry

4.1 The Internet and its implications

The internet is a new exhibitor , and the fusion of televion and internet is planned for the next years (Davies report “funding the BBC”).This new exhibitor is integrate by the major as they are merging with the companies leading the content of internet (Warner merging with AOL).This new influence on the market structure and the value chain will be explained first. Then we will briefly look at the implication of Internet if we do not find a way of controlling hacking and ,by this, making impossible to exclude consumers. We can see straight that of course if a club good becomes unexludable it becomes simply a public good.

4.2 The five force of porter applied to the majors

The five forces influence the level of the competitive advantage. The companies try to have the lower level of rivalry, the most barriers to entry, fight substitute, and reduce the power of suppliers and buyers. By controlling these forces a company can achieve a competitive advantages.

4.2.1 Threat of New entrant

The major secured themselves against new entrants by

Having economies of scale

Controlling the distribution channel: As Internet is a new channel, it is vital for the incumbent (The majors) to take control of this new channel (merging of AOL and Warner Bros)

4.2.2 Switching cost:

There is some switching cost for a consumer to get used to the new technologies .It is one of the reason why the change is not brutal but progressive. But this switching cost will decrease, making even more vital for the incumbent to control the new channel of distribution. The switching cost to change one artist for the other is reduced by the accessibility to information

4.2.3 Differentiation:

Majors have already a name and Internet does not change this. But the importance of differentiation will be increase on the Internet, as we will see later on.

4.2.4 Sunk cost:

Sunk costs are high in the film industry, and the creation of an Internet server is more expensive than what we think

4.2.5 Other cost advantage than economies of scale :

The major have already the right on a lot of movies, which give them a cost advantage.

We can conclude that the majors and other incumbents have an advantage on the new entrants, and the only way of loosing would be not to be on the Internet.

4.2.6 The power of suppliers (Artists)

The power of the artists is bigger as they can choose (as it is the case now for some musicians) to distribute themselves on the Internet. Internet allows a close relationship between the artist and his customers. But Internet increase the degree of rivalry between artists

4.2.7 The power of buyers

The power of buyer is increased, as the switching cost from one retailer to the other is low as the information is easy to have. This affects the degree of rivalry through the different retailer, as they have to give a better product and a better service to keep their client. This pressure is reported on the distributor that has to give better product and better services to their retailer

4.2.8 New substitute

Now a lot of new software and compression software give the opportunity to have the information without the support, no need to have the DVD you can have a file. Those different software make hacking and fraud very easy. If the major want to keep the market they should have highly differentiate support with an interesting design or anything that would push the consumer to buy the product instead of having it for free. We will discuss briefly later this issue of hacking and the different law to fight it .Of course it is a new substitute but most of the consumer like to have a material product and not only a virtual one.

4.2.9 The level of rivalry

As the Internet is the future in distribution each major will want to impose his websites, increasing the level of rivalry. But as the website with the most choice have more chance to convince the customers, we can predict some alliance between the majors as they will try to have the biggest choice on the internet. The major will have also interest in making alliance with company already on the Internet with a know-how (e.g. Warner Bros).

4.2.10 Conclusion on the five forces

Internet reduces the power of the major on the artists as they can distribute themselves on the Internet. But it is quite likely that the major will keep their advantage even on the Internet. But the increased power of the customers and their preference for big database where they can choose between a wide amount of film will force the major to give a better service to the customers allowing differentiation. The industry will be more under pressure but also better linked with the demand. We can see that the big winner should be the customer and the artists (less dependent of the distributors, so less dependent of the majors)

4.3 Summary of Key Activities in the Value Chain

This is entirely based on a work from Prof.H.Mendelson available on the Stanford’s website.

Based on our understanding of the conventional (brick and mortar) music, print and film industry value chains, a generic value chain can be developed to summarize the key players and activities:

Figure 9conventional (brick and mortar) music, print and film industry value chains: a generic value chain by Prof.H.Mendelson

Working backwards along this chain, there are two things to understand for each player: their preferences (how to maximize utility) and their constraints.

4.3.1 Consumers

The consumer’s activity is the selection and purchase of artistic material. Our model of the consumer base going forward is built up of two parts:

Mainstream preferences – Consumers primarily seek out what may be broadly labeled as mainstream content. Fulfilling these desires is relatively easy through conventional channels

Niche preferences – In addition to mainstream content, consumers (either individually or as a group) also desire what may be labeled as niche content.

4.3.2 Retailer

The retailer (television, video, cinemas, etc.) seeks to match consumers’ selection and purchase preferences by selling material. However, retailers face an important constraint: shelf (or number of screens for a cinema or the 24H for a TV channel). Because of this shelf space constraint, retailers will choose to sell materials that can maximize a “sales per square foot” metric. This implies:

Mainstream material gets sold through brick and mortar stores

Niche materials get limited exposure since there is no scale in local demand

4.3.3 “Bits to Atoms”

This is usually part Major or the producer when this role is not integrated. The activity here is to convert the information that is contained in the artists’ material into a physical product that can be distributed. For any given product, the main driver, or constraint is scale. Since there is a large fixed cost associated with making a movie, products where there is a large demand will have a lower average cost. For niche and mainstream products this means:

Mainstream products will typically have a lower average cost of production

Niche products have a higher average cost – this generally means that consumers end up paying more for niche materials

4.3.4 Agents/Labels

Given the structure and constraints faced by retailers and producers, the agents’ primary role is to screen for artists that will be successful. Given the constraints, agents will prefer to seek out mainstream materials. These materials will be more widely distributed by retailers because of shelf constraints, and will be cheaper to mass-produce because of scale. However, the constraint that agents face is to be able to do their screen efficiently. Specifically, we often see “flops” in all forms of media entertainment.

4.3.5 Artists

The primary activity is the production of the material. Artists are constrained by their ability to find agents and distribution channels to reach the consumer. The structure of the rest of the industry and the shelf, scale and screen constraints have important implications for different artists depending on who they are. The matrix below describes four types of artist:

Have an Agent

No Agent

Mainstream Artist

These artists benefit from the current structure since they are not restricted by the shelf, scale or screen constraints

These artists are hoping to find an agent. The reason they don’t have an agent is because of the screen constraint (assuming their product is good)

Niche Artist

This is a very small category. Typically, niche labels serve them. Because of scale constraints, their margins will typically be lower on a product basis. In addition because of shelf constraints, they probably do not reach the full potential customer base

These artists face all three constraints, and consequently have very limited distribution mechanisms (word-of-mouth, etc.)

4.4 Consequences of Removed Constraints

With the breaking of the three constraints outlined above, there are a few broad things that will be observed.

4.4.1 Emergence of Niche Artists

The new economics of distribution will allow niche artists more exposure and an opportunity to sell to consumers. With the scale, shelf and screen constraints removed, niche artists will now be able to sell their product direct to consumers, bypassing traditional middlemen. The disintermediation is possible because of the features of the Internet.

4.4.2 Selection and Searching

Under the traditional model, selection was a two-part process:

Agent/Label screening – the agents/labels make a first screen of artists when they pick who to sign up and publish. As discussed above, this screening is not an efficient process.

Consumer selection – The final choice of selection and purchase is made by the consumer.

Under the traditional model, the agent makes the primary screen, while the consumer makes the secondary selection. The Internet allows the order of screening and selection to change. Since unsigned artists can publish their materials on the web, consumers can search and consume these materials. Thus, the consumers play a far more active role in the selection of materials.

Agents/labels are not made completely redundant, since they can add significant value through marketing the artist. Agents can also take advantage of the selection provided by the consumers to more efficiently make their screening decisions. Using the Internet as a giant focus group should enable more efficient screening.

4.4.3 Shifting of value

With the ability of artists to disintermediate the agents, labels, producers and retailers, they can put pressure on these middlemen. An example that is covered later is in the book publishing area where Stephen King and other authors believe that their publishers are not acting in their interest. These authors have made inroads in e-books and taking the whole margin. This is clearly a case of where value is being shifted between different players in the value chain.

What is significant is that there is potentially a great deal of value creation. This is covered in the next section.

4.5 Summary Remarks

Consumers and Artists stand to gain the most from the Internet. This is consistent with the idea of disintermediation where the middlemen are bypassed.

Agents are likely to benefit slightly as they can make more informed decisions. They will continue to be important in the value chain since they bring marketing expertise to the artists.

The losers will be the companies that physically package the bits, since the Internet allows the cheap distribution of bits separate from a physical product, and the retailers.

4.6 Is Costs will decrease?

We did not say anything about how costs will change. First, because there is no evidence that internet will reduce costs, but also because we hardly think that because films are highly differentiates product the technology increase the quality and do not reduce cost. Costs are more dependent of the demand, if the consumer is ready to pay a premium for a differentiate product, or if there is enough demand to have expensive films then there is no reason to reduce costs. Actually, films are increasingly expensive. The last reason is that because of the cost disease, some of the costs of the films (labour) increase while some other decrease and it is almost impossible to predict which effect will be the biggest.

4.7 Conclusion

We can see that the analyse of the 5 forces and the analyse of the value chain reach to about the same conclusion. The consumer should be the main winner. Artist also will have more choice as they can directly distribute themselves on the Internet, but this will increase the level of rivalry between artists. The majors should also make alliance with Internet based companies but also between majors, as the biggest database with the best service will be the winner.

4.8 If hacking cannot be monitored

If hacking cannot be monitored and if no substitute is found instead of the hacked format then film will shift to a public good then we can see three different ways of financing movies

Government funding: the government produce the films with the entire problem linked to it

Sponsoring: companies and private funds can be offered for the creation of films, but the independence of the artist is also threatened

Consumer wills sponsors the project they like the most: We can use Internet to show projects to the consumers and they can choose to sponsor a film.

All this solution could not replace the role of the market. Controlling hacking should be one of the main issues of the next decade as this problem concerns not only the film or the music industry but also all the intangible goods (information).

5 General Conclusion

We showed that the future success of the European film industry would depend on the aptitude to organise a real industry based on the strategy used by the American’s company. Integration is vital to pool the risk, to have higher quality and more adapted products, to have economies of scale and to be ready for the new challenge of Internet. The internet will allow to integrate even more as the last bit of the value chain (retailing, exhibiting) will be controlled by the major itself for the reason we analysed earlier. We do not say that the author system and the grants to the industry should be removed but that as in USA you can have different system living together: one for the mainstream films, and the other for films which target niche markets. We proved that the film industry had to reshaped to face the new economy during the 90’s.Actually the evolution of the film industry was faster during the last years of the XXth century than during the last three decades. Cinema had to faced threats, which appeared to be opportunities like television or now the Internet but it had also to face a lot of new substitute like video games and other leisure’s. Internet could be an even bigger change than the television was, because Internet was made to resist to a nuclear war, which means that even if you break one component of the network the information will always find another way. Knowing that, it is quite astonishing that their so few literature and people who really try to solve the problem of controlling hacking. Even if the industry after the change that occurred the last decade, seems ready for the next step of internet which is not such different than the television innovation (with all the sub innovation like making the TV excludable, or the pay per view), the internet could be a huge threats if hacking is uncontrolled. Even if internet looks like a great opportunity I would like to conclude with an amazing data :In 1992 Hong Kong produced 230 films, in 2001 only 40 films were produced partly because of hacking (Writing DV-rom)(Cahiers du cinema). This was before the possibility to hack on the Internet: now it is even easier with Kazaa or morpheus (P2P programms) and the different compressing software (Divx, Mpeg etc).

6 Bibliography

-Baumol W.J.,Bowen G.,Performing Arts:The Economic Dilemna,MIT Press,Cambridge (Mass),1966,582p

-Cahiers du cinema ,Made in China ,numero hors serie

-Cornes R.,Sandler T.,The Theory of Externalities,Public Good,and Club goods,second edition,Cambridge University Press,USA,1996

-Creton L.,Le Cinema et l’Argent,Nathan cinema,Paris,1999,191p

-Dubet E.,Economie du cinema europeen : de L’interventionisme a l’action entrepreneuriale,L’harmattan,Paris,2000,265p

-Forest C.,Economies Contemporaines du Cinema en europe :L’improbable industrie,CNRS edition,Paris ,2001,359p

-Greffe X.,Nicolas M.,Rouet F., Socio-economie de la Culture,la Demande de cinema,Anthopos,Paris,1991,152p

-MEDIA salles ,White book of media salles, www.mediasalles.it/whitebook.htm

-Prof Mendelson H. ,Self-Publishing on the internet,www.Stanford.edu/˜skothari/

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"A new European Film Industry for a New Global Economy " final dissertation 2001 Kingston university

INDEX

1 INTRO

1.1 Why this subject ?