Risky Business

As Drake explains in this article the movie industry is a risky business. As he states, “Cinemagoing can therefore be considered a risky activity for consumers in that they are buying a product based upon a promise of a pleasurable experience, and risky for film financers in that they cannot guarantee demand for a particular film and cannot alter ticket price based on supply and demand.” Most people including myself thought every movie was making millions and millions of dollars in revenue. The economic models in the film industry are far more complex than most people think. Financers and investors have to take huge risks when backing a movie. They hope the demand for the movie is high enough so the financier will make money in the end, and not the other way around.

One aspect of film revenues is that it is “streamed across a lengthy period of time.” Over the last two decades DVD and the consolidation of videos are now the highest revenue earners for the movies, compared to the first week on the box office. This means that the economic models are shifting, because the change in technology more people are now viewing the movie at home or buying the DVD at a later time. Ticket sales have gone down in recent years. Consequently one key way to produce more revenue is through marketing and advertising. If the advertiser and marketer can keep the buzz around a movie for a longer time the revenues will increase. As Drake states, “Marketing is therefore a key means for the industry to establish product recognition and differentiation, and attempt to reduce these risks by highlighting the marketable elements prior to a film’s release.” The more people that know about the movie, and the more positive press can only result in higher revenues. As the economic models are changing, and as we shift to an age of digitization the movie industry is changing how to bring in profit. With a new age of social media, people in the movie industry are finding more ways to advertise. The reach of advertising today, is far greater than it was ten years ago. As we movie into the future, the film industry is going to have to adapt a new way to market a movie as well as keeping the money coming in.