Hollywood is a physical place, a district of the city of Los Angeles, California.
Hollywood is a metaphor for the American entertainment industry.
Hollywood is defined as the system of the US entertainment industry revolving around the following six major companies that are part of the Motion Picture Association of America (MPAA):
Paramount Pictures
Sony Pictures Entertainment
Twentieth Century Fox Film Corporation
Walt Disney Studios Motion Pictures
Universal City Studios
Warner Bros. Entertainment.
Hollywood’s economic leadership
US entertainment industry is the global leader in financing, producing, and distributing entertainment content.
Entertainment represents one of the most relevant exports for the US economy.
Entertainment products usually are exploited through a carefully designed “shelf life” including theatrical release, home entertainment, Video on Demand (VOD) and Pay per View (PPV), Pay TV, Network TV, Cable TV, and supplementary markets domestically and internationally.
It practices price discrimination of their products and capture a larger share of the value generated by their artifacts.
Hollywood studios are interested in increasing their presence in relevant territories to capture a larger share of local entertainment consumption in various markets, both in the movie and the TV segments. As a result, they have started to engage in coproduction in foreign languages and with foreign entities.
The end products adapt on the one hand to local cultures while on the other they rely on the existing global structures of distribution of entertainment content.
This strategy of localization of entertainment appears to be effective to increase even more their presence in relevant foreign markets within local regulatory environments, while at the same time leveraging existing corporate structures and content under intellectual property rights.
Economic analysis of the Hollywood system
To analyze the structure of Hollywood industry, Porter proposes the “five forces of competition” theoretical framework:
the competition and rivalry among the existing firms within the industry (the Hollywood studios)
the bargaining power of the suppliers (the content creators)
the bargaining power of the buyers (the media packagers)
the threats posed by new entrants
threats posed by potential substitutes
Drivers of Hollywood’s competitive Advantage
Competitive advantage
Factors conditions
Specific skilled labor, ranging from the “below the line” crews to the “above the line” talent operating in the industry,
Comprising veteran professionals in the different activities needed in the creation, production, and distribution of entertainment.
It also includes the role of prominent film schools
Relating and support industries
They are the talent agencies
The music and recording industries
The trade industry press and specialized research firms
The entities comprising the creative community and the industry labor.
Strategy, Structure and Rivalry
The major players would agree on key issues regarding the industry, such as
The production codes, rating systems, and generally how the industry would operate and evaluate itself through entities like the MPAA.
Demand Conditions
The US domestic market is by far the largest in the world in economic terms, with on average more than 1.4 billion tickets sold per year.
In the worldwide theatrical market the United States represents the most significant revenue stream, followed by the EMEA region (Europe, Middle East and Africa)
The percentage coming from the Asia-Pacific region has been increasing in the recent years.
