Oct 27, 2014 1208 Words 5 Pages
Porter ‘s Five Forces Analysis On New Zealand Cinema Industry
Porter ‘s five forces analysis on New Zealand Cinema Industry
New Zealand cinema industry can be referred as the production, post production,
film distribution and film exhibition (Ministry of Economic Development, 2012).
Industry profitability and attractiveness can be identified using Michael Porter ‘s
Five Forces analysis. This analysis includes following forces:
• Threat of new entrants
• Rivalry among existing competitors
• Threat of substitutes
• Bargaining power of buyers
• Bargaining power of suppliers
It is possible to analyse the intensity of these forces and their impact on the
profitability of the industry in the future.
Threat of new entrant in New Zealand Cinema Industry:
New entrant to any industry brings higher competition, struggle for market share
and inevitably lower profit margins. Any industry that is enjoying reasonable
profitability always attracts new entrants. Barriers to the industry can be identified
by the Economies of scale, Product diffentiation, Capital requirement to enter,
Access to distribution channels, Government policy and expected retaliation.
New Zealand film industry has become stagnant with the domination of the
Auckland and Wellington markets. Major players in the market are Hoyts and Event
cinemas, which hold 97% of market share in New Zealand. These cinemas have
large economies of scale. For any new entrant, it would be difficult to achieve
higher economies of scale to survive in New Zealand market. Further due to
considerable amount of higher rate of NZD against USD, New Zealand market is
becoming expensive to any new entrant to launch themselves. This gives Negative
point to the New Zealand Cinema industry in terms of entering in to the market.
From above data, it is clear that since last four years NZD has gone more expensive
than CAD and relatively equivalent to AUD. New Zealand market is comparatively
less attractive than Australian and Canadian market when compared to the biggest
cinema market of USA. (The competitive environment for New Zealand film and
television)
Rivalry among exiting competitors:
The rivalry among the existing customers is high when there is high cost for a firm to
leave the industry, the growth rate of industry is declining and the product has lost
their differentiation. In such situation, a firm must focus on the actions of the
competitors to maintain or increase the market share (). Current New Zealand
cinema competitors are competing on the basis of the price leadership and the
services offered to the customers. However, the available market is limited due to
the population of New Zealand and their revenues are mainly depends on the
seasonal events. New Zealand cinemas are trying to remain competitive by
purchasing the first exhibition rights of specific films produced internationally or in
New Zealand. This gives negative point to the industry. The breakeven point of the
industry is a long period since it require huge amount of capital investment and
variable operating expense. This gives the negative force to any firm operating in
the New Zealand cinema industry. Offering differential services using Information
and Communication Technologies can certainly help to remain competitive in the
market. It includes but not limited to the operation systems and technologies used
by the firm to operate effectively and efficiently. Firm can use mobile application
which will enable the customers to view the promotions of current films exhibited
at the particular cinema screen. Further to this they will also communicated the
timings of the shows, prices and the special offers associated with it. Mobile
application can also help the customer to choose the seat of their choice on the
basis of their availability in advance. Product differentiation will help the firm to get
the competitive advantage over the rivals.
Threat of Substitutes:
Watching films in cinemas give a different experience to the customers, which is due
to big screens, digital Dolby sounds and with High definition picture quality. Further
to this three dimensional screens has added the advantage of watching films in
cinemas. Watching movies online and television has effectively substituted
conventional cinemas. However piracy laws has still kept this under control.
Experience of watching movies in big screen can not be substituted by television or
internet resources but up to some extent it is cheaper and convenient from
flexibility perspective. This gives New Zealand Cinemas, negative forces which can
be converted in to positive forces by the Information and Communication
Technologies like 3D and 4D technologies.
Total New Zealand cinema admissions and screen numbers, 1991–2010
Year Admissions (millions) 2D screens 3D screens IMAX Total screens
1991 6.1 140 0 0 140
1992 6.6 175 0 0 175
1993 9.7 211 0 0 211
1994 13.3 228 0 0 228
1995 14.1 255 0 0 255
1996 14.3 270 0 0 270
1997 16.1 285 0 0 285
1998 16.3 290 0 0 290
1999 16.8 315 0 0 315
2000 14.9 316 0 1 317
2001 16.6 324 0 1 325
2002 17.8 322 0 1 323
2003 18.4 336 0 1 337
2004 17.2 342 0 1 343
2005 15.5 368 0 1 369
2006 15.3 377 0 1 378
2007 15.4 402 0 1 403
2008 15.4 403 11 1 415
2009 15.3 389 20 1 410
2010 15.3 324 86 1 411
Source: Motion Picture Distributors ‘ Association of NZ
From above data it is clear that number of 2D screens are replaced by 3D screens in
New Zealand market. Invention of 3D technologies and ease of their availability has
made it possible to put more 3D screens in the New Zealand.
Bargaining Power of Buyers
Buyers can make industry less profitable by forcing down prices by demanding
more qualities and services. The ability of the buyers depends on the low switching
cost and availability of alternatives.
In New Zealand cinemas, buyer has strong buying power with ability to switching
from one service provider to other service provider with no or minimum higher
payment of prices of the services. The prices of the services are also comparatively
similar. This gives the buyers upper hand in the industry. Higher bargaining power
in the industry gives negative force to the New Zealand cinema industry.
Using Information and communication technologies this negative force can be
converted in to positive forces. By involving switching cost it can be possible. Like
various other industries like retail and aviation industry, frequent customers are
treated with special services and can be given special deals using technologies of
identifying customers from the ticket booking history. Further, the core services can
be combined with the auxiliary services like food and snacks available at the
Reference
Ministry of Economic Development. (2012). Final New Zealand Review May 2012.
Prepared by Sector Policy Team, Ministry of Economic Developments, Wellington
New Zealand
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