The cinema industry involves all the operatives that show films in the various selected film-projection facilities. The highest number of these facilities are indoors, with few of them being outdoors or in the open air. Revenue in the cinema industry comes from box office sales, with epicfilms having the highest contribution in the market segment. Screen advertising is also beneficial in revenue generation in the industry. The cinema industry is significantly concentrated, with the leading operators being estimated to have 90.5% of the total cinema industry’s revenue.
Analysis of the market structure in the cinema market within the United Kingdom
The performance of this industry is intensely linked with the trends in households’ disposable proceeds. When disposable incomes are high, the users can access acquisition discretionary items like snacks and cinema tickets. A reduction in this amount was experienced to reduce in the period of 2015 to 2016 due to Britain’s choice of separation from the European Union. With this, consumer confidence is anticipated to continue performing poorly, considering the demand through the upcoming five year period all through 2024 and 2025. Through this period, the growth in expenditure and attendance per cinema attendee is anticipated to slow over the period.
The companies that hold the biggest market share in the cinema industry in the United Kingdom are inclusive of Odeon & UCI Cinemas Group Ltd, Cineworld Group plc, Natl Amusement (UK) Limite and Vue Entertainment. With this, there are several opportunities and threats that the industry is exposed to. The main competition, the cinema industry faces great competition from the TV. The demand for Tv broadcasting and programming is rising, thus showing an increase in the level of competition to the cinema industry. According to (IBISWorld, 2019) it informs that there is an expectation of an increase in TV broadcasting and programming demand in the coming period. This presents a significant threat to the cinema industry. The number of people choosing to visit the cinema plays a substantial role in the cinema industry’s revenue and also profit. Therefore, a reduction in the number of people in a year profoundly affects the industry’s income margins.
Overview of the global business environment
Inflation has a significant effect on everything, including shopping, travelling price to the cinema industry. The value of cinema tickets continues to rise even higher despite the low rates of UKs’ inflation. In 2006, according to data provided by BFI, the estimated price of cinema admission in the United Kingdom experienced an increase from £4.87 to £7.17, which was the price as of 2015. This shows a rise of 48.25% in a decade(Yeung, 2016).
The cost to the consumer more significant since the average price for a ticket is calculated by division of box office profits by the tickets sold. This thus leads to the creation of marketing deals such as daytime discounts or buy three get one free. This helps in inviting more customers to buy the tickets. As inflation continues to rise, the movie-making, marketing and distribution costs will experience a significant impact in a substantial way.
Various entertainment companies have stated that it resulted in expenditure on entertainment rising. In that, when inflation increases, the expense amount on entertainment also grows since the production budget increases. This forces the cinema companies to increase the ticket amount; thus, the consumers also feel a pinch of the inflation changes (Oxford Economics, 2007). This can affect the number of people visiting the cinema, therefore, could affect the profit margins.
British filmmakers are producing box office enticements and also winning awards. This helps in attracting more investments from abroad. Some of these investments can come in foreign currency; thus, the need to be converted by the UK receiver. Additionally, the skilled workforce of the professional crew and also the tax benefits have resulted in arising in the number of international co-productions. Also, staff, including writers, actors, assistants, camera crew, can request for payments in different currencies should they choose to live overseas or decide to repatriate cash abroad(moneycorp, 2020).
Every currency transfer is affected by the exchange rates in the market. The exchange rates can change the value one receives for the international payments and, in return, impact the cost of production or business. In one is interested in embracing international opportunities, they should maintain a close understanding of the fluctuations and the risks of currency exchange rates within the film industry and media(economics online, 2020). This will be highly helpful in making the most from international and global investment.
In most investments, the interest rates are essential in determining the viability of the investment. This is because lower interest rates make it easier for business people to borrow. Thus, the lower interest rate can encourage a company without enough funds to borrow money and invest in a film since the interest rates make it easier to borrow and pay back the amount(Riley, 2018). On the other hand, higher interest rates can discourage an investor from lending money to fund a project such as a film.
With lower interest rates, the marginal efficiency of the capital increases. In that, when it is cheaper to borrow, a higher number of investment projects are expected to give returns higher than the cost of debt and interest costs. Additionally, high-interest rates motivate Film Company to save the amount rather than investing it (Pettinger, 2010). The company can make good returns from just saving money in the bank. When at lower interest rates, companies have a smaller amount of incentives to save.
Also, a reduction in the interest rates can result in a decline in the exchange rates. In that, a reduction in the exchange rates can make exports to be more competitive, thus boosting the demand for exporters. The interest rates help in determining the height of economic activity in the economy. Higher rates lead to more savings rather than borrowing to invest in projects such as films. Therefore the film industry needs to take note of the interest rates when borrowing money for investment. This will help in comparison and calculation of the investment amount and the returns anticipated.
economicsonline, 2020. Exchange rate policy. economicsonline.
IBISWorld, 2019. Cinemas in the UK – Market Research Report. IBISWorld.
moneycorp, 2020. Currency exchange for the Film and Media Industry. moneycorp.
Oxford Economics, 2007. The Economic Impact of the UK Film Industry. Oxford Economics.
Pettinger. T., 2010. Impact of Interest Rates on Industry. Economics help.
Riley, G., 2018. Monetary Policy – Effects of Interest Rate Changes. tutor2u.
Yeung, P., 2016. 1 graph that shows how expensive it’s getting to go to the cinema. Independent.
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