Competitive Analysis On Cinema Industry: External Environment And Porter’s Five Forces Essay.

External Environment analysis-Macro and Industry Level (Cinema industry)

Discuss about the Competitive Analysis on Cinema Industry.

The Australian cinema industry has been experiencing the robust growth in recent years. Since 1980, the number of cinema screens has risen more than 150%. From 1980 to 2015, the cinema screens have increased 829 to 2080 (Sereen Australia, 2016). By analyzing the business report published in 2015, among 2080 screens, 1179 screens are digital screens. The number of screens is being increased every year, which indicate the expansion of the particular industry in an efficient manner. In this context, the external environmental analysis on the cinema industry has been discussed along with the competitive analysis.

On the second part of the assignment, the competitive advantages of Hoyts cinemas have been highlighted in a detailed manner. The particular discussion has also included the analysis of company’s key resources, capabilities, and competencies.

External Environment analysis-Macro and Industry Level (Cinema industry)

Political:

There are several laws for the cinema industry in Australia. According to the Australian government, the National classification guideline for films needs to be followed by the film makers to produce and present the films to the market. Moreover, the classification guideline for publication along with the authorization also creates boundaries for the cinema industry in Australia. In this context, the political factors indicate the tax policies, labor law, environmental law, trade restrictions, tariffs and political stability (Murray, 2012). The Australian government has been contributing the cinema industry in enhancing the business opportunities in an efficient manner. Due to the political legislations, the cinemas have faced challenges in expanding the business into the international market. Consequently, the organization would not be able to accumulate the high sales revenues from the market. It has been seen that the limited global presence is responsible for the limited market share (Crane, 2014). Hence, it can be assessed that without political support, the organization would not be able to experience the profitable outcome. On the other hand, the cinemas pay high taxes to the Australian government. Subsequently, it facilitates in strengthening the national economic development.

The economic factors include the economic growth, interest rates, exchange rate and the inflation rate (Dunleavy & Joyce, 2012). The taxation changes need to be done in order to enhance the industrial growth in an efficient manner. The Australian government would decrease the tax percentage so that new development can be happened in the particular areas. After decreasing the taxation on the film industry, more new ventures will start producing films in Australia, which would adversely facilitate the government in enhancing the national economic strength. On the other hand, the economic crisis can affect the particular industry in enhancing the business opportunities in an efficient manner. Due to the economic crisis, most of the new organizations face challenges in producing more productive films in Australia.  By analyzing the annual report of the organization, it can be assessed that the company earned the gross sales of $417 million in 2013-2014. The huge profit margin facilitates the organization in enhancing the economic growth of the country. There are also some issues related to Australian foreign trade deficit. Besides this, the rising cost of the advertisement has created challenges in executing the business in an efficient manner. The inflation rate in the Australia was 2.0 percent to 3.0 percent on average in 2016 (Cunningham & Silver, 2012). On the other hand, the changes in the Australian Taxation system have created difficulties for the Cinema industry in enhancing the business opportunities in an appropriate manner.  

PESTEL analysis

Over the past few years, the entertainment values have increased in Australia. Hence, it provides adequate opportunities to the cinema organization for experiencing the high growth in the business. For example, the Hoyts industry has been operating 450 screens across both Australia and New Zealand (Hoyts, 2016).Due to the high social demand; the Hoyts cinemas have been experiencing enhanced sales revenues in the business. On the other hand, the increasing influence of the internet has improved the social life. Besides this, the increasing importance of the work-life balance would also facilitate the organization in including extra business tools. There are some positive and negative impacts of cinema on the society. By discussing the positive impacts of cinema on society, it can be assessed that the cinema often provides social messages to the society so that it could improve the culture of the society. Besides this, due to the cinema industry, many societal people get opportunities for being employee of the industry. Consequently, it indeed facilitates in reducing the unemployment issues. On the contrary, there are some negative impacts of cinema industry on the society. For example, some cinema spreads violence among the young group of people in the society. Hence, it ruins the normal living.

Over the past decade, the cinema industry has experienced many technological implementations. Consequently, the demand of the cinema industry has changed. For instance, the increasing demand for the 3D technology has facilitated the cinemas to bring anew dimension to the cinema lovers (Cunningham, 2013). With the involvement of the technological implementation, the cinema industry has experienced the high sales revenues. For obtaining the profitable outcome from the business, most of the cinema companies in Australia have included digitalization method for filming. In a recent business report, it has been published that the out of 2080 cinema screens, only 1179 screens are digital (Sereenaustralia.gov.au, 2016). Hence, it can be identified that the Australian government needs to focus on developing the cinema industry so that it could deliver high revenue in return.

Environmental issues are associated with the global warming. Moreover, it also includes other factors such as weather, climate, and climate change (McKenzie & Walls, 2013). It may damage the industry. Without having the appropriate weather, the cinema cannotbe shot in a proper manner. Subsequently, it creates challenges for the cinema industry to produce more films for enhancing the business opportunities within the short timeline.

Porter’s five forces analysis

Sometimes, the licensing issues create challenges for the cinema industry to experience the profitable outcome in an efficient manner. Due to the legal issues, the cinema industry in Australia has been facing difficulties in retaining the high sales revenues (Turner, 2013). On the other hand, most of the cinema companies in Australia have been facing challenges in operating their business in the foreign market due to the legal barriers. Hence, the Australian government needs to develop these key highlighting areas of the particular industry.

Figure 1: Growth of Cinema Screens in Australia

(Source: Sereenaustralia.gov.au 2016)

Threat of new entrants: HIGH

Due to the high demand for the entertainment, the threat of new entrants is very high. In the Australian market, cinema industry has been growing in a robust manner (Connell, 2012). For instance, the cinema screens in Australia have risen by 150 percent between 1980 and 2015. Hence, it can be identified that the cinema industry has been growing in an efficient manner. The screens number has been rising 150 to 175 per year. The enhanced demand for the entertainment indicates the high threats of new entrants to the existing cinema organization. Due to the significant economic crisis, most of the new entrants face challenges in establishing their business in the market. Besides this, the reputation of existing company would create difficulties for them to obtain high sales revenue within the short timeframe. Moreover, it becomes difficult for the new entrants for grabbing enhanced technological access and proper location for the business.  although the new entrants are increasing in numbers, they have to face several challenges at the initial stage of business establishment.

Bargaining power of suppliers is high, due to the low number of cinema screens available in the country. The suppliers are the distributors of the films. Due to the high demand of cinema screens, most of the companies have to bargain with the movie distributors. Sometimes, the distributors demand high amount due to accumulate high profit from the movies. Due to the low number of screens, sometimes, the low budget movies face challenges in obtaining the adequate number of cinema screens (Danaher &Waldfogel, 2012). Technology also indicates unusual competitors of the particular industry. Although the bargaining power of the supplier is high, they also might face challenges for retaining their high demand due to the low infrastructures of some cinemas located in the nation. Sometimes, the distributor has to decrease their demand for distributing the 3D movie prints, as the half of the Australian cinema screens are yet to be digitalized (Cartwright, 2013).

The substitute of the cinema industry is theaters, drama, and other acting activities. Over the past few decades, the demand of the theaters has significantly decreased. In these days, most of the audiences prefer cinema for getting entertained rather watching the theaters. However, the Australian government has been providing adequate support to the theaters and drama companies for retaining the tradition in an efficient manner (Mould, 2014). On the other hand, the substitute of the cinema indicates other fun activities including street plays, stage performance, etc. Hence, it can be assessed that the increasing demand of the cinema industry plays an integral role in decreasing the threat of substitute.

The bargaining power of the buyer is immense, as there is no switching cost for the audience to change the cinema hall at any point of time. Due to the high bargaining power, most of the cinema halls try to uphold the decent pricing policy (Khoo, Smaill& Yue, 2013). On occasion, the cinema theaters provide adequate discounts to the customers for enhancing the profit margin within the short timeframe. Consequently, the audiences obtain high opportunities to change the option easily. On the contrary, it creates a competitive situation in the market, where every cinema company tries to deliver the best possible services at an affordable cost.

In the global platform, the entertainment industry has been experiencing the immense growth due to the increasing demands. Hence, the new cinema companies have to face huge challenges in executing business into the existing market. There are some groups of cinema rule the Australian entertainment market. For instance, the Hoyts group is the second largest cinema chain in Australia. It has more than 450 screens across Australia. Consequently, it has high brand value in the entertainment industry (Hoyts, 2016). Most of the new cinema organizations face difficulties in enhancing the business opportunities within the short timeframe. At the initial stage of the business, the organization could face achallenging situation in engaging the audience. Over the past few years, the competition in the Australian cinema industry has risen. Besides Hoyts group, there are other cinema organizations including Wallis Cinemas, Palace Cinemas. Consequently, it indicates the high chance of rivalry for new entrants.

                                                                                    Figure 2: Porter’s Five Forces on Cinema industry

(Source: Created by author)

Key resources:

The Hoyts is an Australian group of companies. It includes the Hoyts Exhibition, HoytsKiosk, and Val Morgan. By discussing the key resources of the company, it can be assessed that the particular organization includes 450 screens across 40 Australian and 10 New Zealand cinema complexes. It is the second largest cinema chain in Australia. The organization was established on 29^thSeptember 1909 (Hoyts, 2016). Hence, it can be assessed that the particular organization has a high brand value in the market. The headquarter of the organization is located in Sydney, Australia. At the initial stage, the particular organization had faced challenges in expanding the business in an effective manner due to the lack of financial resources (de Valck, 2013). However, the continuous growth has facilitated the organization to experience the high growth in the industry. In June 2015, Wanda Cinema Line, the world’s largest cinema chain operator, acquired the organization.

By analyzing the recent growth of the company, it can be assessed that the particular organization has high capabilities of making a high profit in future. Hoyts has more than 4000 employees, who deliver their best performance for providing the enhanced experiencing to the audience. It has been reported that the Hoyts has earned $417 million gross earning as of March 2014 (Hoyts, 2016). Hence, it clearly indicates the capabilities of the company. On the contrary, the Australian Taxation Office has evaluated that the company has avoided paying tax.

The Hoyts has high competencies in enhancing the business opportunities within the short timeframe. By discussing the features of the cinemas, it can be identified that the particular organization has several facilities including Hoyts Lux, Recliner Cinemas, Xtremescreen, Hoyts IMAX, Bean Bag Cinema and D-Box. Hence, it can be evaluated that the organization has included several dimensions of the cinemas for providing enhanced theater experience to the audiences. Feedback- Make heading for Key resources, capabilities, and competencies and use theory to support this from book contemporary strategy analysis by Robert m. grant.

By discussing the contemporary strategies in context to the book written by Robert m Grant, it can be assessed that there is a link between the organization and its environment. The firm executes the business based on the goals and values, resources capabilities and structure and systems. On the other hand, the industry environment depends on the competitors, customers and the suppliers. Hence, the idea of strategy shaping an interface between the organization and its environment develops the organizing framework for the competitive strategy analysis. in this context, the goals, values of the Cinema company provides  a direction for developing contemporary strategy analysis. The strategy analysis would be focusing on the competitors, customers and the suppliers.

Figure 3: The basic frame work

(Source: Grant, 2016)

For obtaining the sustainable competitive advantages, most of the organizations have been focusing on including the enhanced technology.  With the involvement of improved technology, the organization could enhance the business opportunities in an effective manner. For example, nowadays, 3d movies have been making extra attraction to the audiences. Hence, new cinema organizations, which do not have the potential technology, could face challenges in enhancing the customer’s base. On the other hand, the cost advantages is also responsible for the upholding t he competitive advantage in the business. Besides this, the product differentiation is also responsible for making extra advantages for this particular industry. However, the product or service differentiation is largely dependent on the technological advancement. Without including the effective technological tools, the cinema organizations would not be able to obtain the competitive advantages. Hence, it can be assessed that the mix of both cost advantages and product or service differentiation facilitates in upholding the competitive advantages in the business. The Hoyts is the second largest cinema chain in Australia. The organization was established in 1909, nearly 100 years ago. Hence, the organization a huge brand value in the domestic market as well as in New Zealand. The high brand value is its prime competitive advantage that facilitates it in experiencing the high growth in the industry. By analyzing the key advantages of the business, it can be assessed that the particular company has over 450 screens across 40 Australian and 10 New Zealand cinema complexes (Osuri& Ghosh, 2012). Besides this, the advertising platform of the company named Val Morgan has been dominating the cinema advertising market with over 95% of market share. Hence, the particular organization has astrong advertising platform that facilitates thecompany in expanding the products and service related information to the large domestic market as well as in the international platform including New Zealand. Moreover, the Hoyts is the largest film distributor in Australia. Consequently, it is the biggest competitive advantage of the company, as it facilitates the organization in enhancing the business opportunities in an efficient manner (Doring, 2014). The particular company has been distributing independent films through television, theatrical, and home entertainment channels. Hence, it can be assessed that the competencies of the organization facilitate them in dominating the Australian film industry in an efficient manner. Although the particular organization has high capabilities, it has some competitors including Village, Greater Union, Wallis Cinemas, Place cinemas, etc. However, these competitors belong to the exhibition business. On the other hand, the company has gained themore competitive advantage after the emergence with Wanda Cinema Line, the largest property developer in China and it is the world’s largest cinema chain operator. The Wanda Cinemalines huge financial resource that facilitates the organization in enhancing the business opportunities in an easy way (Bye, 2013). Moreover, it would contribute the organization in expanding the business to the large demographic areas as well as in the foreign market.

The Hoyts group is an Australian group of companies that has several businesses including HoytsExhibition, Hoyts Kiosk, and Val Morgan. By discussing the internal factors, it can be assessed that the organization has adequate financial resources that facilitate them in enhancing the business opportunities in an efficient manner. Over the past few decades, the value of the entertainment has been increasing robustly (Arbuckle, 2013). Consequently, it becomes beneficial for the particular organizations. Hoytsgroup of industry has the high internal strength that enables them in expanding the business to the large demographic areas as well as international market. The prime strategy of the organization is to enhance the sales revenue in both domestic and international market. For achieving the particular goal of the company, the management has focused on their internal opportunities. By discussing the internal strength, it can be assessed that the organization has 4000 full-time employees. Moreover, it engages 450 screens across 40 Australian and 10 New Zealand cinema complexes. The prime advertising arm of the company is Val Morgan, which dominates the cinema advertising market with over 95% market share (Sereenaustralia.gov.au, 2016). It indicates the internal strength of the organization. It allows the organization to take up new strategic approaches for the enhancement of the business in an efficient manner.

Besides the internal factors, there are some external factors facilitating the organization in shaping up the strategic implementation. The external factors include political, social, economical, technological, legal and ecological factors. The political factors depend on the Australian market as well as New Zealand market. The organization has been operating its services through domestic market and New Zealand cinema complex. The particular organization is executing its business since 1906 (Hoyts. 2016). Hence, it can be identified that the organization has accumulated adequate financial resources and brand value in the domestic and international market. However, the company has been caught by the Australian Tax Companyfor not paying any tax for the session of 2013-2014. It creates difficulties in retaining the brand values in the market. Over the past few decades, the cinema industry has experienced robust technical change due to the power of invention (Murray, 2012). For instance, the popularity of 3D technology has risen to the extreme limit, and it facilitates the cinema industry to earn a huge amount of revenue from the market. For fulfilling the technological demand, The Hoyts cinemas has included enhanced technologies including Xtremescreen, Hoyts IMAX, etc. Moreover, the Hoyts Exhibition has replaced entire film equipment with the digital cinema equipment within the 18 months of timeframe. Hence, it can be assessed that the management has focused on their strategic implementation depending on the market demand.

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