The movie industry was once a creative stronghold, in which unique storylines and complex characters stood tall. While it can still be argued that the creativity of Hollywood is still intact, the corporate hand of influence has certainly changed the way in which it is presented. As bottom-line earnings become the sole (legal) goal of corporations, are industries evolving merely to meet the demands of shareholders? Perhaps a quick look at the movie industry can give some insight into the matter.

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Sequels, Prequels and Trilogies
Large conglomerates, such as General Electric (NYSE:GE) and Comcast (Nasdaq:CMCSA) (both significant owners of NBC Universal), and Viacom (NYSE:VIA), which owns Paramount Pictures, are required to obtain the highest possible return on equity (ROE) for their investors. As a result, taking DreamWorks as an example, blockbuster hits such as Shrek and Kung-Fu Panda must be followed with a sequel if those returns are expected to be higher than the next best alternative.

Movie viewers often complain that their favorite movie is often ruined by unnecessary sequels. However, if we think of entertainment as a business, it makes financial sense to indulge these practices. When an oil company encounters a successful well in a region, it is likely to increase production capacity on that field.

The "Little" Guy
One of the best examples to illustrate this concept is the Saw series. Saw 1 gave Twisted Pictures, Evolution Entertainment and Lions Gate Entertainment (NYSE:LGF) a greater than 10,000% return on the initial budget investment. In fact, shortly after the release of the movie, LGF shares appreciated by approximately 60%. Production and distribution companies aim to milk the series until it becomes unprofitable, and Saw 6 has seen a significant drop in return to 180%, although the picture was still slightly profitable. The Walt Disney Company (NYSE:DIS), Time Warner (NYSE:TWX) and Sony (NYSE:SNE), fall under the same corporate mandate of maximizing investors returns. Currently, the average expenditures for a film are over $100,000,000, with a large surge in the costs associated with marketing.

Quantity Over Quality
There has also been a steady rise in the number of pictures released per year, from 161 in 1980 and 173 in 1981 to 605 and 518 in 2008 and 2009 respectively. Like most industries, the film business suffered during the recession, but will surely rise as the economy turns the corner.

The Bottom Line
Despite the recent increase in movie production, 1939, 1941, 1967, 1974 and 2001 are often considered the best years for cinemas with such classics as The Wizard of Oz, Citizen Kane, Bonnie and Clyde, The Godfather Part 2 and Lord of the Rings: The Fellowship of the Ring respectively. Before the film industry became a corporate entity with bottom-line responsibilities similar to other major corporations, movies audiences were drawn to films due to their unique plots, rather than clever marketing campaigns.

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Tickers in this Article: EZA, GE, VIA, DWA, LGF, DIS, TWX, SNE, WMT, XOM

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