This category covers establishments primarily engaged in the production of theatrical and nontheatrical motion pictures and videotapes for exhibition or sale, including educational, industrial, and religious films. Included in the industry are establishments engaged in both production and distribution. Producers of live radio and television programs are classified in SIC 7922: Theatrical Producers (Except Motion Pictures) and Miscellaneous Theatrical Services. Establishments primarily engaged in motion picture and videotape reproduction are classified in SIC 7819: Services Allied to Motion Picture Production and those engaged in distribution are classified in SIC 7822: Motion Picture and Videotape Distribution.
512110 (Motion Picture and Video Production)
The U.S. motion picture and video production industry serves as a major supplier of entertainment and information to the world by producing videos, television programs, and movies that can be seen in more than 100 countries.
Despite hefty profits, some segments of the industry felt the effects of the recession in the early 1990s. Fewer people went to the movies in 1992 than during any single year in the 1980s. Following the recession, box-office revenues climbed again, but competition from cable television and video sales continued to erode the theatrical audience. A challenging economic climate emerged again during the early 2000s. However, the industry fared relatively well as interest in movies—at the theater and on home video—remained strong.
The home video market played an increasingly important role for the industry during the early 2000s. Fueled largely by the popularity of affordable digital videodiscs (DVDs), video sales outpaced movie theater tickets more than two to one. The television market also was very lucrative for industry players. According to research from Standard & Poor's, in 2002 sales garnered from television licensing were expected to surpass $10 billion, while movie ticket revenues were expected to reach $4 billion.
Several media conglomerates dominated the industry through the early 2000s. In 2002, six companies had a combined U.S. box office market share of approximately 70 percent: Walt Disney; Viacom; Sony; Fox Entertainment Group; AOL Time Warner; and Universal Studios, Inc. By 2001, box office revenues for the leading film companies totaled more than $8 billion. More than 90 percent of these revenues were attributable to the leading 10 entertainment companies.
Motion picture and videotape production is one element of a larger three-part industrial structure. After a movie or a video has been produced, it is usually transferred to a distributor, who in turn arranges to make the product accessible to the consumer through movie theaters, video rental and/or sale outlets, and television broadcasts. In the case of movies, the distribution company and the theater usually split the box office receipts. The financial and management structures of a production company often depend on the company's relationship to the distribution arm of the industry, which in turn often depends on a company's size.
Production companies can be classified according to three major categories: the "majors," the "mini-majors," and the "independents." The majors include large conglomerates such as AOL Time Warner, Disney, Sony, and Viacom. In the case of the majors, a single corporate structure often controls both the production and distribution of films, as well as an array of related operations through which the corporation can market movie sound-tracks, toys, and other promotional tie-ins. Warner Bros., whose merger with Time, Inc. in 1989 dramatically strengthened its distribution system, presented one of the most striking examples of coordinated production and distribution. Some major film corporations have also invested in movie theaters, despite the history of antitrust actions against theater chains owned by studios. Slightly smaller companies, often called "mini-majors," may have weaker distribution powers and may specialize in a specific segment of the film market, such as art films or action films. Small independent filmmakers may have no distribution capability at all and must depend entirely on outside distribution companies.
Because success in the film production industry depends largely on a wide distribution network and access to the substantial capital required for film production, major film companies have obvious advantages over smaller companies. In addition to distribution capabilities, many of the major studios have been operating long enough to build up sizable film libraries, which provide revenue through video sales or through sale or rental to television stations. These well-established companies are likely to wield substantial financial leverage and control physical production facilities. In fact, small production companies and independent filmmakers often rent the production facilities of the larger companies.
During the studio era, which lasted from 1920 to 1950, major studios considered their stable of stars, directors, and other talent under long-term contract as assets. Movie companies in the 1990s and early 2000s, however, were more likely to sign contracts with artists for a single project. Such one-shot contracts have given talent agents considerable power over the production process. Often agents will assemble a "package" including a script, a director, and a star and sell the whole project to a studio. By performing much of the preproduction work on a project themselves, agents give clients greater control over the kinds of projects they undertake. This sort of arrangement limits the movie company's artistic involvement to that of an investor who simply provides the money, facilities, and equipment required to complete the project.
The explosion of new television technologies since the late 1970s has had a significant impact on the financial structure of film production and has helped to encourage independent production. Developments such as cable TV, videocassettes, and pay-TV services like Home Box Office (HBO) have stimulated demand for new films and created new options for film financing. These ancillary markets allow movie companies to sell distribution rights before production has even begun on a movie. HBO, for example, has helped to finance new movies in order to ensure the steady supply of films necessary to fill its programming schedule. Video rentals have proven to be an even greater source of revenue for motion picture companies. During the late 1990s, a report by the American Film Marketing Association stated that slightly more than 43 percent of motion picture sales were derived from television, while video contributed nearly 26 percent and theatrical releases a little more than 31 percent. By the time a feature film has been fully exploited, it will have been released in a theater, on home video and pay-per-view channels, on cable television, and on the major television networks—most likely in that order.
Ancillary markets have been a boon to production companies of all sizes, but independent producers have had special cause to celebrate their rise. Lacking the financial leverage of the majors, small movie companies have often had to struggle to gather the capital required to make a film. The ability to sell ancillary rights to pay cable and video companies has expanded the financial resources available to independents, resulting in a healthy growth of independent film production since the mid-1980s. During the mid-1990s a growing network of satellite broadcasting systems; the arrival of an exciting new high-quality, low-cost consumer digital video system (DVD); and the latent potential of the emerging Internet created an ever-widening range of distribution channels, all hungry for new content.
In addition to producing a steady supply of feature films, many movie studios also provide programming for television. Telefilm productions range from made-for-TV movies to half-hour situation comedies. Major movie studios accounted for approximately half of all prime-time programming for the networks during the early 1980s, with gaps filled by independent telefilm producers such as Mary Tyler Moore's MTM Enterprises. Prior to 1991, the Federal Communications Commission (FCC) actually restricted the amount of programming that networks could produce for themselves and prevented networks from owning a share in the syndication rights of the shows they exhibited. These restrictions were designed to prevent the networks from developing a monopoly over television programming and to maintain a competitive environment for the program production industry. On June 15, 1991, the FCC altered some of these restrictions, permitting networks to hold the syndication rights for 40 percent of the programming that they run during prime time.
The U.S. film industry was born in Thomas Edison's laboratories in West Orange, New Jersey, when William Kennedy Laurie Dickson successfully devised a motion picture camera and the kinetiscope, a device that allowed a single viewer to watch a short film through a peephole. Dickson's invention enjoyed a period of brief profitability as consumers paid a nickel to enjoy the novelty of moving pictures, but widespread commercial success of motion pictures did not materialize until projectors made it possible to show a movie to more than one viewer at a time. The Vitascope, invented by C. Francis Jenkins and Thomas Armat, became the first movie projector to be publicly exhibited in the United States on April 23, 1896. The Cinematographe of Louis and Auguste Lumiere ran a close second, debuting in New York City on June 29, 1896—several months after its unveiling in France. Former Edison employee Dickson introduced his own Biograph projector on October 12, 1896.
Early manufacturers of cinematic equipment were also the first motion picture producers, who made the films to be shown on their own hardware. Before the advent of movie houses, production companies had to provide projectors, projectionists, and films to exhibitors. Employees of movie companies or owners of franchises purchased from movie companies would take the company's equipment and movies on the road, showing the films in vaudeville houses, empty storefronts, and a wide variety of other makeshift venues. Films for the Vitascope projector were produced by the Edison Manufacturing Company in a crude, black-painted shack known as the "Black Maria," whereas Biograph filmed its motion pictures on a movable outdoor stage with a camera that could be moved back and forth on wheels. The Biograph filmmakers and the Lumiere brothers gained a competitive edge by producing travel and documentary films on location in addition to studio productions. In all of these cases, the cameraman served as the chief creative intelligence behind each short film and was responsible for the subject matter, photography, printing, and editing.
This system was well adapted to a relatively low volume of production. A number of developments in the first decade of the twentieth century, however, worked dramatically to expand the market for new motion pictures and encourage the application of mass-production techniques to movie making. As more movie companies began selling movies outright to independent exhibitors, the number of exhibitors increased, and the need for an improved distribution system became clear. In order to be cost-effective, film exhibitors had to have access to a greater number of films than they could afford to buy. Harry and Herbert Miles solved this problem in 1903 by organizing a "motion picture exchange" that bought a large stock of films and then rented them to exhibitors. Other such exchanges followed, and the increased film supply fostered a proliferation of "nickelodeons"—makeshift theaters named for the price of admission—equipped with seats, a projector, and a piano. Many nickelodeons were originally installed in working-class neighborhoods, but around 1905 exhibitors worked hard to widen the movie-watching market to include the middle class. Demand soon escalated, and movie companies adapted by developing better mass production and techniques.
Mass production entailed a transition from the cameraman system of creative control to the director system and initiated an industry-wide shift away from documentary films toward narrative films. Under the director system, production labor was divided between a director, who coordinated and managed all aspects of production from scenario development to editing, and the cameraman, who handled the nuts and bolts of the photography and film developing. Narrative fiction became the budding industry's genre of choice because it offered producers greater control and efficiency than was possible for documentary films, which depended on the uncertain supply of newsworthy events. Edwin S. Porter's film The Great Train Robbery, filmed for Edison in 1903, broke new narrative ground in its length (around 15 minutes) and its depiction of a multiscene story, complete with close-ups and an unprecedented use of editing to build suspense.
Thomas Edison initiated the movie industry's long tradition of corporate struggle for monopolistic control. Patent infringement suits were Edison's first weapon against his competitors. With aggressive litigation, Edison sought to preserve exclusive rights to all motion picture devices, and he did manage to intimidate some companies from the U.S. market for a while. But Biograph held its ground and won an appeal of an important test case that Edison had won in a lower court. Before the legal battle could reach its conclusion, however, Edison changed tactics and began making pacts with his competitors. The final result was the Motion Picture Patents Company (MPPC), an organization formed in 1908 for the purpose of preserving the patent rights of all of its members, which included Biograph and other major producers. Through a system of licenses and fees for the use of motion picture equipment, the MPPC managed to exclude newcomers to the industry while sewing up the market for the technologies and films owned by its members. Ultimately, the MPPC, known informally as "the Trust," bought out almost all of the distributors to which it had granted licenses and formed its own distribution organization: the General Film Company.
The power of the Trust was eventually challenged by independent companies. Some independents confronted the Trust head-on by offering theaters a full program of short subjects that could rival those marketed by the MPPC. Carl Laemmle's Independent Motion Picture Company, for example, bypassed the Trust's distribution system by banding together with other independent filmmakers to create Eastman Kodak.
Other filmmakers, such as Adolph Zukor, avoided direct competition over the market for one-reel short subjects by pioneering the multiple-reel feature film and creating the distribution and exhibition system necessary to market the new form. Producers of feature films aggressively promoted products and, starting with smalltime vaudeville houses, gradually built up a network of exhibition venues that could generate the revenues required to pay for the high production costs of long features. The expansion of the feature film market led to the construction of palatial theaters dedicated solely to the exhibition of motion pictures. This sort of movie theater served the needs of the feature film producer much more effectively than the nickelodeons, which could accommodate only small audiences. Feature films also encouraged the development of the star system. By promoting individual actors and actresses, movie companies could guarantee a market for risky high-cost features. Performers like Charlie Chaplin, Mary Pickford, and Douglas Fairbanks quickly became hot commodities and commanded enormous salaries.
Competition and an antitrust suit, United States v. Motion Picture Patents Co., ultimately broke the hold of the MPPC over the industry. Other companies, however, were already integrating production, distribution, and exhibition operations on an unprecedented scale. This process of cohesion soon left the industry in the hands of a few massive studios known as "integrated majors" and ushered in the "studio era" of movie history. In 1916 Adolph Zukor executed a takeover of Paramount, a national distribution company that was created in 1914 to fill the distribution needs of feature film producers. Paramount then became a subsidiary of the new corporation formed by the merger of Zukor's own Famous Players company with the Jesse L. Lasky Feature Play Company. By the time the restructuring was completed in December of 1917, the Famous Players-Lasky Corporation had set a new standard of scale for the motion picture industry. In 1919, Zukor set about acquiring theaters, and in 1926 he inaugurated the Publix Theater Corporation. By controlling the production, distribution, and exhibition of its films, Zukor's organization became the first fully integrated movie company. Marcus Loew achieved a similar integration starting from the exhibition end of the industry, adding producer-distributor Metro to his theater chain in 1920. His company went on to acquire Goldwyn Pictures Corporation and Louis B. Mayer's production company, creating the studio that would eventually be known as Loew's Metro-Goldwyn-Mayer. By 1925 four companies held most of the power in the industry: Zukor's Paramount, Loew's, First National, and Twentieth Century Fox.
In the early 1920s, the major movie companies set about consolidating their gains and securing the place of movies in American culture. Financial institutions began to see the prospering movie industry as a legitimate investment. Although bank loans for movies were unheard of before the 1920s, in 1926 $1.5 billion of the industry's capital came from outside investment. To combat attempts by outside groups to censor movies, industry leaders created the Motion Picture Producers and Distributors of America (MPPDA) and hired prominent Republican Will Hays to head the organization and enhance the industry's respectability.
Just as the industry was settling into a stable status quo, the advent of sound technology upset the balance and resulted in two new major competitors: Warner Brothers and RKO Corp. Warner Brothers paved the way for the "talkies" when The Jazz Singer, using Western Electric's Vitaphone system, set off a national craze for movies with sound in 1927. Riding the flood of profits from the breakthrough, Warner was able to finance a massive expansion effort that put it in the ranks of the industry giants. Meanwhile, RCA had been working on a sound system to rival Vitaphone, which it called Photo-phone. In October of 1928 RCA created the Radio-Keith-Orpheum (RKO) Corporation, a fully integrated major studio from the very moment of its birth, in order to make use of the new technology. A slightly altered hierarchy of industry leaders emerged from the talkie revolution, with Warner Brothers, MGM, Twentieth Century Fox, Paramount, and RKO dominating the field as integrated majors. Columbia and Carl Laemmle's Universal (a later version of his Independent Motion Picture Company) controlled powerful production and distribution arms but lacked theater chains and were relegated to the status of "major minors."
Most majors and major minors employed similar systems of production in the late 1920s and early 1930s. The owners and corporate officers of a company were typically based in New York City, whereas most production took place in sprawling studio complexes in Hollywood, California. Hollywood's colony of movie studios had been growing since the early 1910s as more and more producers took advantage of the area's sunny weather and diverse scenery for movie making. In a studio's West Coast operation, a central producer served as an intermediary between the financial concerns of the New York office and the creative concerns of Hollywood, over-seeing such aspects of the process as script development, casting, and the production schedule to ensure that the studio produced marketable films as quickly and economically as possible. At MGM's Culver City studio, for example, central producer Irving Thalberg oversaw the production of one-third of the studio's projects himself (usually the big budget features that used the studio's most popular stars), whereas the rest were handled by supervisors nicknamed "Thalberg men" who answered directly to Thalberg. Thalberg shared the upper ranks of the Culver City management with studio boss Louis Mayer, who handled the studio's talent (the stars and directors), and E.J. Mannix, who handled the physical production facilities.
Censorship continued to be an issue during this period as reform groups pressured the industry to adopt stricter standards of decency in movies. Will Hays and the MPPDA responded in 1930 by replacing the trade organization's relatively informal list of "Don'ts and Be Carefuls" with a more comprehensive document entitled The Motion Picture Production Code. Although the new guidelines provided a more rigorous standard of decency for film producers, it made no provision for its own enforcement. Producers began to ignore the code when the economic pressures of the Great Depression made them resort to more controversial material to attract viewers, and the Legion of Decency waged a bitter protest in response. In 1934 the MPPDA created the Production Code Administration, a censorship board empowered to prevent offending films from reaching audiences in theaters affiliated with the MPPDA. This form of industry self-censorship proved to be acceptable to champions of moral decency and remained intact for decades.
The Depression dealt a heavy blow to the movie industry, but with the help of President Roosevelt's National Industrial Recovery Act (NIRA), the industry was able to regain its footing quickly and maintain a healthfulness unusual for the era. Between 1930 and 1931 the total profits of the eight leading movie companies fell from $55 million to $6.5 million. NIRA, enacted in June 1933, loosened restrictions on monopolistic business practices in hopes that the increased freedom would help large corporations lead an economic recovery. When NIRA was ruled unconstitutional in 1935, it had already helped the major studios strengthen their hold on the movie industry and get back on their feet. The latter half of the decade marked the beginning of a new period of creative fertility and financial prosperity for the film industry.
The 1930s also marked the transformation of the central-producer system of production management. Although the central producers of the 1920s had helped the majors develop production methods, it eventually became clear that these methods had become so ingrained in the studio system that they no longer required the guidance of central producers like Thalberg. The middleman between the administrative and creative branches of the typical corporate structure disappeared, widening the split between the New York corporate headquarters and the production process and allowing individual artists greater control over film production. The central management teams at the Hollywood studios came to assume a more purely administrative character, backing away from the sort of hands-on approach they had taken in the past. The unit production system that came to replace the central-producer system dispersed production authority over a number of "unit producers." These unit producers were essentially "Thalberg men" without a Thalberg—supervisors who oversaw a relatively small number of projects without having to report constantly to a central supervisor.
In 1938 the U.S. Justice Department began the campaign of anti-trust litigation that would eventually result in the demise of the studio system. By controlling the production, distribution, and exhibition of movies, the integrated majors had been able to use strategies such as block booking, the practice of forcing theaters to book movies in blocks, which included a few quality films with several B-grade productions. As a result of the 1938 court battle, the integrated majors consented to curtail block booking and other tactics that took advantage of the integrated structure.
Before the final demise of the integrated studio system, however, the majors enjoyed a boom brought about by World War II. The wartime economy gave Americans the money they needed to go to the movies, and the movies satisfied their hunger for morale-boosting entertainment. The prohibition of block booking forced studios to de-emphasize B-movie production, which led to an increase in the quality of films that ultimately benefited the majors. Following recommendations issued by the Office of War Information, Hollywood fed America a steady diet of war movies and other patriotic fare. This boom lingered for several years after the war ended.
In the late 1940s, however, the Justice Department resumed its anti-trust campaign against the majors, and with the advent of television, the end of the studio system was drawing near. The consent decrees forced out of the integrated majors by the 1938 court battle had expired toward the end of the war. In May 1948, however, the Supreme Court upheld a decision against Paramount that restricted block booking, admission price fixing, and other practices classified by the decision as illegal restraint of trade. The battle continued as the Justice Department pursued its ultimate goal of forcing the integrated majors to give up theater chains. In order to avoid further legal conflict, Paramount and RKO signed consent decrees requiring them to divest all theater holdings, and Loew's MGM, Twentieth Century Fox, and Warner Bros. soon followed suit. The five integrated majors became producers and distributors but lost exhibition powers. Independent producers soon took advantage of the increased access to theaters created by this divestment. The number of independents doubled between 1946 and 1956. Divestment also weakened the power of the Production Code Administration. Without the theater chains, the five majors who dominated the MPPDA could no longer threaten to deprive offending movies from exhibition.
The year 1948 also marked the beginning of the television era. Americans owned 172,000 television sets in that year, compared with 14,000 the previous year. Combined with the post-war trend toward suburbanization, the rise of television ate into movie companies' profits. Between 1946 and 1956 the combined profits of the top 10 movie companies fell 74 percent. As companies tightened their belts, they discarded the practice of maintaining a stock of actors and directors under long-term contract. As a result, talent agencies assumed a more important role in the industry, frequently operating as "packagers" who sold the studios a preassembled combination of star, director, and story scenario or script. In order to provide consumers with entertainment they could not get on a small black and white television screen, moviemakers produced more color films and blockbuster epics and experimented with gimmicks like 3-D and the wrap-around screen of Cinerama.
At the same time, some movie companies tried to exploit the television market. While a number of independent companies like Desi Lu Productions were created specifically for the purpose of producing television programming, established movie companies also began to explore the possibilities of "telefilm" production. Columbia led the way in 1949 by converting its Screen Gems subsidiary into a telefilm outfit. The Walt Disney Co. combined program production with advertising when it created its Disneyland television series, complete with plugs for its current movies. By 1963 almost 70 percent of prime-time television programming was being produced in Hollywood. Some of the leading Hollywood telefilm outfits were run by old major movie studios, while others like MCA (originally a talent agency) became major production operations only after the advent of television.
Movie companies also took advantage of the new market created by television by selling old films to television stations. In December of 1955 a programming syndicate bought RKO's library for $15 million; Warner's library went for $21 million the following February. Before long all of the major studios were capitalizing on this type of asset, and they soon realized the true value of old films to television networks hungry for programming. By the 1960s an amicable relationship had developed between Hollywood and the networks, with Hollywood-based companies providing both new programming and old products.
Federal action further solidified the role of the major studios and other non-network producers of network programming. Fearing that the networks could gain monopolistic power over television communication, the Department of Justice filed an antitrust suit in 1972. As a result, the networks signed consent decrees limiting the amount of program hours a network could produce for itself and stipulated that networks could gain no financial benefit from the syndication of programming. The Federal Communications Commission (FCC) altered this rule 19 years later to allow networks to own up to 40 percent of the syndication rights of their prime-time programming.
Having experienced the benefits of diversification into television, the majors diversified into other entertainment markets, such as music recording, by acquiring or creating new companies. Some production companies became a part of diversified corporate structures through a different route: by being acquired themselves. In 1966, for example, Gulf Western took over Paramount. Hotel developer Kirk Kerkorian acquired MGM in 1969, and the same year Kinney National Services took over Warner Brothers. By the end of the 1960s the heavily diversified media conglomerate had become the standard corporate structure in the movie and telefilm production business.
In 1969 this trend toward expansion was interrupted by an industry-wide crisis. The heavy emphasis on high-grossing films had placed many movie companies in risky financial positions, and the advent of three new major production companies (ABC, CBS, and National General) created a glut of big-budget pictures. At the same time, the market for feature films on television also became saturated. Television audiences could watch a feature film on network television every night of the week, and the networks had accumulated a stock of films that would last for several years. Hollywood had come to rely on the television ancillary market as a way to stabilize risky productions, and this crutch was suddenly no longer secure. As movie studios tried to cope with the losses created by over-production, they trimmed corporate structures and began to emphasize low-budget films. Although the success of The Godfather in 1972 quickly revived the credibility of the blockbuster strategy, movie companies had learned to be cautious. They realized that the market could support only a few big hits a year, and they began to capitalize on the reliable profitability of sequels to popular films like Rocky and Jaws.
The next revolution in television and film production took place in the 1980s, as new television technologies became commonplace. Videocassette recorders allowed consumers to do their own television programming, and cable television and satellite broadcasting popularized such programming innovations as pay TV services and 24-hour music video stations. Although some analysts feared that these new technologies would threaten the motion picture industry, they actually had the opposite effect of providing new ancillary markets for feature films. Home Box Office (HBO) led the way for pay television by using satellite broadcasting at a time when few cable companies had the equipment to receive such broadcasts. The gamble paid off as more and more cable companies bought receiving dishes. After HBO successfully fought FCC regulations designed to protect free television, other premium channels such as the Movie Channel and the Disney Channel debuted. Not only did these channels need films to fill programming schedules, they also occasionally financed the production of new movies in order to supplement their supply.
Home video similarly affected the financing of movies. Producers could sell video rights before production on a film even started and apply the proceeds toward the cost of the film—an arrangement particularly useful for small independent producers. Videocassettes provided yet another arena in which filmmakers could exploit products. At the same time, however, videocassette rental and home taping of movies from television decreased the power of studios to garner profits from every exhibition of a film. Once a rental store or home viewer had its own copy of a movie on tape, that tape could be shown repeatedly and the production studio would gain nothing. MCA and Disney had tried to nip these practices in the bud in 1976 by accusing Sony, the manufacturer of the Betamax Videocassette Recorder, of copyright infringement. By 1981 the Betamax case had reached the Supreme Court, which ruled that neither taping a broadcast for home use nor purchasing a cassette for the purpose of rental constituted copyright infringement. Although the Betamax machine itself eventually became extinct due to the popularity of the VHS cassette format, cassette rental and home taping became everyday practices.
In addition to these new ways of exploiting the feature film, new technology also brought a new form of film and video art—the music video. Music videos originated in the United States as a programming strategy for the Warner Cable Corporation (WCC), a division of the giant media corporation Warner Communications Inc. By April of 1979, WCC had two satellite-broadcast channels available for cable systems: Nickelodeon and Star, a pay channel that later became The Movie Channel. When John A. Lack became executive vice president of WCC, the operation was losing money, and he attempted to turn WCC around by expanding the preschool audience of Nickelodeon to include teenagers. The centerpiece of Lack's new format was a show called Pop Clips. Produced by Mike Nesmith, formerly of the rock group the Monkees, and his Pacific Arts Corporation, Pop Clips consisted of a half-hour of short video clips accompanying pop songs. The idea caught on, and Lack went on to create Music Television (MTV), a 24-hour cable channel composed entirely of such clips or "videos." The new channel debuted on August 1, 1981.
Initially, a scarcity of programming material posed a problem for the network. The videos were provided at no charge by recording companies and were originally produced as promotional material for distribution to European television networks. MTV's original library of videos numbered no more than 125. Only when the value of MTV as a promotional medium started to assert itself did the recording industry invest in large-scale video production. Companies continued to provide videos free of charge until competing video music programs like NBC-TV's Friday Night Videos entered the market, creating a potential demand for exclusive rights to exhibit videos. NBC broke the ice by offering to pay for the right to premiere a video and have exclusive access to it for two days. By the time this "pay for play" policy became common practice, however, it became obvious that MTV had the competitive advantage in bidding for exclusivity. Recording companies valued the access offered by a 24-hour station to acts that might not make it onto a twoor three-hour video show, and MTV threatened to withhold this access from labels that favored other video programs with exclusive deals. Using tactics like these, MTV fiercely defended its status as the nation's primary source of video music entertainment. Rival 24-hour music video channels, such as the Discovery Music Network and Ted Turner's short-lived Cable Music Channel, challenged MTV's reign and failed.
With undertakings like MTV, Warner and other leaders of the motion picture and video production industry continued to diversify, expand, and set new standards of scale for media conglomerates. For many corporations, this sort of expansion could not continue indefinitely. Gulf Western jettisoned many of its noncommunications holdings in order to concentrate its corporate structure on the entertainment industry, and in 1989 renamed itself Paramount Communications Inc. to reflect this newly found focus. Similarly, when the popularity of Atari collapsed in 1982, Warner sold its video game operation along with many of its other ventures, including MTV. Nevertheless, Warner went on to merge with Time Inc. in 1989, and Time Warner became a media conglomerate of unparalleled size.
In the shadows of these giants, smaller film and video producers continued to make their voices heard. The new options for film financing offered by home video and other ancillary markets fueled a boom in independent production during the mid-1980s. Mini-majors and independents increased production by 100 movies per year between 1984 and 1987. In the late 1980s and early 1990s this boom resulted in a glut that damaged some independents.
In the early 1990s the motion picture industry suffered from the effects of the recession. While movies brought in a record $5 billion at U.S. theaters in 1989, box office receipts declined in the following two years, totaling approximately $4.8 billion in 1991. Box office receipts rose to about $4.9 billion in 1992, but increased ticket prices accounted for much of this rise. Admissions actually declined from 1.1 billion in 1990 to about 977 million in 1992, sinking below the lowest levels of the 1980s. Decreasing attendance seemed to translate into a decreased volume of production. In the first half of 1992 production started on 173 films, down from the 224 films that were started in the first six months of 1991. Independent production companies accounted for 150 of the 1991 film starts and 122 of the 1992 starts.
Increasing video sales softened the blow of falling box office figures. In 1992 an estimated $12.2 billion in revenues were gained from home video sales at retail outlets, up from $11.5 billion in 1991 and $10.8 billion in 1990. The demand for videotapes has been stimulated by a steady increase in the number of households with videocassette recorders (VCRs). According to the Electronic Industries Association, 77 percent of U.S. homes owned a VCR at the beginning of 1992, up from 72 percent in 1991. Just six years earlier less than 20 percent of U.S. homes were equipped with VCRs.
The demand for movies, television shows, and other forms of filmed entertainment has grown over the last 15 years as cable and home video have made it easier to deliver a wide variety of programming to consumers in their homes. In coming years the continued growth of movie and video production may depend on new innovations in delivery systems. Pay-per-view (PPV) systems may offer one such direction for growth. U.S. consumers paid a total of $350 million for PPV programming in 1992. This amount represents 3 percent of total spending on videocassettes.
By 1995, box office sales were back up over the $5 billion mark, but profits continued to erode in spite of increasing sales to the video and TV markets. Much of the decline could be attributed to the rapidly inflating costs of production and the industry's increasing reliance on "blockbuster" films as a primary source of revenue. After the release in the early 1990s of such films as Jurassic Park and Terminator 2, Hollywood movies became special-effects extravaganzas, with each new film upping the ante in an attempt to dazzle an ever-more jaded audience. Each year saw a new record set for production costs, with 1995's Waterworld totaling $150 million. Although some of these films—like 1996's Independence Day —were hugely profitable, they seldom brought in enough to cover less successful films. Not surprisingly, profit margins shrank, pressuring film producers to focus even more on producing sure-fire hits. Socalled "big-event" films became the mainstay of Hollywood. In addition to pumping out a seemingly endless stream of sequels, the industry turned to old television shows and comic books in search for product with a built-in audience. Major films of the 1990s, including The Flintstones, The Addams Family, The Beverly Hillbillies, The Brady Bunch, Mission Impossible, The Saint, and The Prisoner, were all based on television programs from the 1960s and 1970s. Comic book heroes such as The Phantom and Judge Dredd were also turned into film stars, though with less success.
Hollywood inflation was also fueled by the studios' need to grab attention in a crowded marketplace. Marketing costs rose dramatically through the early part of the decade, jumping 20 percent between 1995 and 1996 alone. Talent fees also rose rapidly through this period, with actors such as Tom Cruise, Tom Hanks, Jim Carrey, and Arnold Schwartzenegger routinely getting anywhere from $10 to $20 million per picture. With costs leaping out of control, even major studios found it increasingly difficult to come up with the funds necessary to produce a "big-event" film. One solution was collaboration. In 1996, for example, Tri-Star teamed up with Disney to produce Starship Troopers, a big-budget science fiction film directed by Robocop 's Paul Verhoeven. Even without any major stars, this film was still expected to cost more than $100 million.
The trend in the motion picture industry at the close of the 1990s was the belief that the bigger the budget, the more successful the film. As the production costs for more and more motion pictures reached or exceeded $100 million, the studios were in the perilous position of trying to recoup costs at a box office that was increasingly being threatened from cable television, video sales, and the Internet and other new communication technologies. For every mega multimillion dollar hit like 1997's Titanic and 1999's The Phantom Menace, there were scores of underachievers that further depleted the coffers of the major studios.
In 1998, in an attempt to increase revenue sources, the motion picture companies increased the amount of money cable companies had to pay them for the rights to air pay-per-view movies. Motion picture companies were asking for a 5 percent increase in revenues that would bring up their cut of the pay-per-view fee to one-half. Cable operators were fighting this increase as the decade ended. The revenue-sharing agreement between the studios and video rental chains was also revised, although this revision was a bit more amenable to both participants. Previously, the studios charged a costly fee, sometimes $50 per copy of a rental videocassette to the video stores because the stores kept the income generated from each rental of the tape. As a result, stores would often purchase only a few copies of a popular title because of the prohibitive cost involved. The studio began to change that practice in the late 1990s as they set up revenue-sharing agreements with the video chains in which the studios would cut the cost of the rental cassette and share in the profits from the rentals of the tape.
Late 1999 saw the addition of the newest player in the motion picture distribution arena, Amazon.com, the Internet book and music superstore. Amazon.com has become involved in the distribution of independent films that may not have had a chance to be released any other way. Amazon touted independent distribution outlet as a new avenue for acclaimed and underground filmmakers.
According to research from the Motion Picture Association of America (MPAA), box office sales continued to increase in the early 2000s despite the rising popularity of home entertainment options like DVD, weak economic conditions, and rising U.S. unemployment levels. Sales increased from $7.7 billion in 2000 to $8.4 billion in 2001, and then grew more than 13 percent in 2002, hitting $9.5 billion. The number of films produced by the industry has declined in recent years, falling from 683 in 2000 to 611 in 2001, and 543 in 2002. On a per-feature basis, the MPAA reported that in 2002 its members incurred average production, overhead, and interest costs of $58.8 million. Average marketing costs that year totaled $30.6 million, the majority of which ($27.3 million) was attributable to advertising. Production and service-related industry employment was projected to reach 259,000 in 2002, down from 270,000 in 2000 and 265,000 in 2001.
By the early 2000s, DVD technology was making big waves throughout the entertainment industry. As consumer sales of DVD players exploded, strong growth took place in the home video market. Consequently, the leading entertainment companies released remastered versions of older titles from their libraries, in addition to new blockbuster releases. According to the MPAA, the number of titles available on DVD increased from 8,500 in 2000 to 20,000 in 2002. During this period, average DVD prices declined from $22.65 to $20.78.
The Consumer Electronics Association (CEA) revealed that manufacturer sales of DVD players reached 17.6 million units in 2002. This represented an increase of 39 percent over 2001 and pushed DVD penetration among U.S. households to 35 percent. Unit sales were expected to exceed 20 million units in 2003, fueling growth of 14 percent. The DVD Entertainment Group predicted that DVD penetration would exceed the 50 percent mark by the end of 2003. Citing figures from Adams Media Research, the MPAA reported that industry sales of home entertainment on videotape declined from nearly 670 million units in 2000 to 483 million units in 2002. Meanwhile, DVD sales increased almost 103 percent from 2000 to 2001, growing from 188 million units to 382 million units. Sales climbed another 84 percent in 2002, reaching 702 million units.
If one measures success in terms of box office market share, six large producer-distributors consistently lead the film entertainment industry: Warner, Disney, Fox, Universal, Sony, and Paramount. Competition is fierce, and rarely does a single company hold the top position for long. The multimedia conglomerate AOL Time Warner was the industry leader in 2001; Universal and Paramount were close behind. Disney, Fox, and Sony rounded out the top six. Together these companies accounted for about 70 percent of domestic box office sales in the early 2000s.
Warner and Paramount have both continued to rank as major studios since the studio era. Warner first achieved major status with the success of its sound technology. Paramount was, in fact, a division of the first studio to become fully integrated. Universal, a descendent of Carl Laemmle's Independent Motion Picture Company (a rival to Edison's "Trust"), was classified during this period as a "major minor" studio in spite of its major production and distribution capabilities, primarily because it lacked an exhibition arm.
Unlike these three studios, Disney operated as an independent studio specializing in animation during the studio era. Only when it began producing live action movies in 1953 did it attain major status. Throughout the 1950s and 1960s, Disney blazed the trail for diversification into a variety of entertainment markets. With its "Disneyland" network series it became one of the first movie studios to explore the promotional possibilities of television. The company's theme park in California provided 60 percent of its profits in 1969. Universal later followed suit with its Universal Studios theme park, and in 1992 Paramount bought into five theme parks. Disney's other early diversification efforts included publishing, recording, and merchandising. Throughout its development as an entertainment corporation, Disney has specialized in the family market. Not until the 1984 release of Splash under its new Touchstone division did Disney try to break into the adult market. Since then, the company has increasingly entered the adult market, but its target audience remains the family.
The entrance of the Sony Corporation into the film market in 1989 with its acquisition of Columbia Pictures and Tri-Star brought another major player into the business. Sony's vast resources and eagerness to integrate its hardware and software divisions with its new entertainment arm helped spur the explosion of production costs that occurred in the 1990s. Other Japanese electronics giants such as Matsushita Electric (Panasonic) and JVC followed Sony's lead, briefly leading to fears that Hollywood would fall under foreign control. But Matsushita's 1992 purchase of Universal Pictures soon proved a bust and the company sold 80 percent of its shares to Seagram's Co.
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