LANGUAGES FOR COMMUNICATION IN INTERNATIONAL ENTERPRISES AND

Università degli Studi di Modena e Reggio Emilia D

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LANGUAGES FOR COMMUNICATION IN INTERNATIONAL ENTERPRISES AND

ORGANIZATIONS (LACOM)

The revolution of the entertainment industry's oligopoly:

Netflix versus Amazon

La rivoluzione dell'oligopolio dell'industria dell'intrattenimento: il caso Netflix contro Amazon

Prova finale di:

Erica Alberini Relatore:

Barbara Luppi

Correlatore

Donatella Malavasi

2017/2018

Abstract

Negli ultimi anni il settore dell'intrattenimento e, nello specifico, dei media tradizionali, ha subito una vera e propria rivoluzione. L'introduzione di internet e l'evoluzione tecnologica hanno comportato la nascita di nuove forme d'intrattenimento che si sono sono rapidamente imposte su quelle che hanno da sempre guidato quest'industria. La nascita dei serivizi streaming video ha cambiato il paradigma storico con cui per decenni la televisione e il cinema sono stati realizzati e consumati. Il principale protagonista di questa rivoluzione è Netflix. Partendo dagli Stati Uniti, il servizio streaming ha destabilizzato il predominio dell'oligopolio dei maggiori studi di produzione cinematografica di Hollywood nonché il mondo dell'audiovisivo e della televisione.

Il presente elaborato ha il principale obiettivo di approfondire la situazione attuale del mercato dei servizi streaming video che ha cambiato le dinamiche dell'industria dell'intrattenimento e ha determinato la nascita di nuove esperienze di consumo televisivo. Infatti, il player dominante di questo scenario, Netflix, ha interrotto il predominio delle major nella produzione e distribuzione di contenuti per la televisione e ha rivoluzionato questo oligopolio.

Per questo motivo, ho svolto un' analisi di questo servizio leader del settore e del suo maggior concorrente globale, Amazon Prime Video. Nel primo capitolo ho discusso l'evoluzione dell'industria dell'intrattenimento, dal dominio delle major hollywoodiane alla nascita della televisione online. Nel secondo e nel terzo capitolo ho svolto un'analisi delle due compagnie protagoniste del nuovo mercato del Subscription Video On Demand: Netflix ed Amazon Prime Video. In particolare, ho realizzato uno studio riguardante lo sviluppo nel corso del tempo, le strategie di business e i fattori principali del successo di queste due compagnie.

Nell'ultima parte dell'elaborato ho intrapreso una ricerca, tramite questionario, sulle scelte dei consumatori per quanto riguarda l'abbonamento ai servizi streaming nel mercato italiano.

Inoltre, ho delineato la posizione attuale di Netflix ed Amazon nel mercato americano ed italiano grazie ad interviste condotte personalmente a due giornalisti della rivista tecnologica WIRED e ai risultati del questionario. Infine, basandomi su entrambe le interviste ed il questionario per i consumatori, ho formulato ipotesi sul futuro sviluppo di questo mercato che vedrà l'arrivo del gigante hollywoodiano Disney come rivale diretto di Netflix.

Abstract

The entertainment industry and specifically, the traditional media, have been radically revolutionised in the last years. Internet and the technological advancement led to the introduction of new forms of entertainment which now dominate over the old ones. The debut of video streaming services has changed the historical model through which television and cinema were realised and consumed. The key player of this revolution is Netflix. Starting from the U.S., the streaming service destabilised the oligopolistic predominance of the major Hollywood studios together with the television and audiovisual industry.

The main purpose of this thesis is to investigate the current situation of the video streaming services market. The launch of video streaming services has changed the key dynamics of the entertainment industry and has led to the development of new consumption habits. Indeed, Netflix has hampered the dominance in production and distribution that Hollywood majors had possessed for years and has become the dominant player of this new scenario. The oligopolistic structure of the entertainment industry has been revolutionised by the innovation introduced by Netflix. For this reason, the focus of the present study is the analysis of the streaming service offered by Netflix and its main global competitor, Amazon Prime Video. In chapter one I discuss the evolution of the entertainment industry, from the Hollywood majors' supremacy to the rise of the Internet television. In chapter two and three I analyse the emergence of the leading players of Subscription Video On Demand (SVOD) market: Netflix and Amazon Prime Video. In particular, I focus on the chronological evolution, the business strategies and the key components of success of both companies.

In the last part of the dissertation, I conduct a research via survey in order to collect data on consumers' choices in the Italian market of streaming services. I define the current position of Netflix and Amazon in both the Italian and the American market based on the interviews, which I personally conducted to two writers from the technological magazine Wired, and the survey results. Considering all the collected data, I finally make a possible forecast on the future development of the SVOD market which will soon face the entry of a new player: the Hollywood giant Disney as a direct competitor of Netflix.

Resumen

En los últimos años los sectores del entretenimiento y, en particular, de los tradicionales medios de comunicación se han enfrentado a una profunda revolución. La llegada de Internet y la evolución tecnológica han favorecido la aparición de nuevas formas de entretenimiento que ahora prevalecen sobre las que siempre han liderado esta industria. La aparición de los servicios de streaming cambió el modelo histórico según el cual la televisión y el cine se expandieron durante décadas. Netflix es el principal protagonista de esta revolución.

Concebido en los Estados Unidos, este servicio de streaming desestabilizó tanto el predominio del oligopolio de las mayores empresas de producción cinematográfica de Hollywood así como el sector audiovisual y de televisión.

Este Trabajo de fin de Master tiene por objetivo principal investigar sobre la situación actual del mercado de los servicios de streaming que cambió las dinámicas del sector del entretenimiento y determinó la aparición de nuevas experiencias de consumo de contenido televisivo. Este es el motivo por el que realicé un análisis exhaustivo del líder del mercadon Netflix, y de su principal competidor, Amazon Prime Video. En el primer capítulo hablé sobre la evolución del sector del entretenimiento, desde el dominio de las “majors” de Hollywood hasta el nacimiento de la televisión online. En el segundo y tercer capítulo llevé a cabo un análisis de Netflix y Amazon Prime Video en cuanto empresas destacadas del mercado innovador de vídeos bajo demanda y con abono. Más en particular, examiné la evolución de las dos empresas a lo largo del tiempo, sus estrategias de negocios y los factores claves de su éxito.

Por último, realicé una investigación mediante encuesta sobre las preferencias de los consumidores acerca de la suscripción a los servicio de streaming en el mercado italiano.

Además, delineé la posición actual de Netflix y Amazon Prime Video en el mercado americano e italiano gracias a las entrevistas realizadas personalmente a dos periodistas de la revista tecnológica Wired y a los resultados obtenidos a través de la encuesta. Para concluir, basándome en el material obtenido, pude formular hipótesis sobre el futuro desarrollo de este mercado que se prepara para la llegada de Disney, el colosal grupo de medios y entretenimiento que competirá directamente con Netflix.

Introduction

Since the beginning of its history, American motion-picture industry has shown a strong tendency toward oligopoly market structure with concentration of resources, influence and power in the hands of few corporations. This trend has existed for almost a century, since the movie production market has been dominated by six major companies: Twentieth Century Fox, Paramount, Warner Bros, The Walt Disney Company, Columbia, and Universal. These large production companies, all located in Hollywood single area, have dominated the audiovisual industry for decades taking advantage of this cluster benefits. They have controlled the distribution in traditional channels by sorting their contents among cinema, video rental shops and television through effective launch strategies based on exclusive distribution. In this way, the majors maximised revenues and increased production costs to attract the best talents, intensifying at the same time the entry barriers for potential competitors. In turn, home video providers and television broadcasters acquired unique and attractive contents to sell to their subscribers, increasing their revenues. Netflix was the first company to break this tight oligopoly by realising in advance the disruptive power of content distribution via Internet, similarly to the other media industries such as music, press, games.

Netflix took advantage of the broadband revolution and became one of the top-performing tech-companies. As the company grew, it became a powerful competitor and no longer just a simple distributor of Hollywood majors' products. Netflix has changed the historical model through which television, cinema and audiovisual contents have been financed, realised, distributed and consumed. Indeed, today one of the most prominent forms of media consumption are over-the-top (OTT) services which deliver media over the Internet directly to consumers without the participation of a multichannel video provider, such as a cable company or a direct-broadcast satellite television system.

The present study examines the current situation of the video streaming services market in U.S. and Italy, since OTT services have changed the key dynamics of the entertainment industry and have led to the development of new consumption habits. Specifically, the main focus of this thesis is the economic analysis of Netflix as the undisputed leader of the industry as opposed to its main global competitor Amazon Prime Video, with a glance on a future giant player: Walt Disney Company. The analysis has been carried out in two phases: in the first

phase I underwent a theoretical and historical analysys of the evolution of the entertainment industry's. I have also conducted a in-depth analysis of the two main players of video streaming services market. In the second phase, I carried out a quantitative research through a questionnaire to a selected sample composed of 417 individuals. I have complemented the discussion with a qualitative analysis, conducted through interviews to two privileged witness in the entertainment industry. The economic analysis of the entertainment industry through the lens of Netflix provides a great opportunity to understand the future challenges the television industry is facing, the competitive strategies adopted by traditional content producers and consumers reactions to the market fragmentation.

In Chapter one, I investigate the evolution of the entertainment industry, from the Hollywood majors' supremacy to the rise of the Internet television and the increasing power of OTT services. The entertainment industry has undergone such stages as the oligopoly of vertically integrated studios and the rise of the Motion Picture Association of America (MPEAA) as main international cartel that supported that oligopoly and consisted of American firms.

Followed by the rise of the “New Hollywood” and of independent movie production. Finally, the concentration of influence and power in several major producers/distributors the acquiring thereof by multinational corporations and conglomerates linked with theatre chains, large electronic media corporations, including cable, broadcast, satellite TV networks, and video rental companies. The emergence in 1997 of a company like Netflix offered consumers a greater degree of choice by expanding the content diversity and the possibility to choose how to view this content given the increasing variety and portability of video players. These changes have not only ensured the growing success of video streaming services, by subverting the loyalties of users to the older media. They also contributed to the loss of competitive advantage of television programming. Nowadays, the real challenge concerns content and takes place between increasingly global operators: the Internet companies on the one hand and content providers such as majors, studios and broadcasters on the other. The competition in this innovative market will be soon fiercer since powerful technology companies such as Amazon, Youtube, Apple and Disney are already investing to replicate and beat Netflix's success.

In Chapter two, I examine Netflix's chronological evolution, business strategies and key success components. The company has strongly entered the television industry by combining complementary technologies, reinventing the home video rental model, and fulfilling costumer needs. First of all, Netflix challenged the homevideo market, accelerating the Blockbuster's failure. Then the company began to reduce pay televisions' power, encouraging the subscribers' cancellation (the so-called cord cutting) in favour of its own service that reached over 100 million subscribers. Netflix changed the way consumers watch TV series and movies. It caused a decrease in cinema visitors for smaller productions and directly put pressure on these films’ DVD sales, pay-per-view buys and pay-tv licensing rights fees. While Netflix started out as a distributor of big hit series and blockbusters, it changed its strategy by aggresively entering in the production of movies and series and it became in fact another major, with 12 billion dollars invested in 2018. Indeed, Netflix original programming is one of its key component of success together with the personalised viewing experience, the binge- watching practice and the concept of “TV everywhere”.

In Chapter three, I discuss Amazon's evolution from its beginning as an online bookseller to its global success as an E-commerce and technology company. Nowadays, Amazon is a giant Internet-based enterprise that sells just about anything either directly, or as the middleman between other retailers. The company is also a technology devices producer and a Web services provider. Thanks to its customer-centric approach and its low pricing strategy Amazon services gained through the years customer loyalty and profitability. The customer reviews of products served to create a stable consumer base. Even if the bulk of the company’s revenues continues to come through online product sale and the Amazon Web Service division, the company is active on multiple different business segments, competing with a multitude of organizations and achieving dominance in many sectors. Indeed, thanks to the monthly or yearly subscription service Amazon Prime, the company's offering widened including not only the famous free two-day delivery, but also streaming video and several other benefits. Nowadays, Amazon Prime Video is a global streaming platform with a vast content offering, since the company became a Hollywood player by aggressively investing in original content production in the attempt to compete with Netflix. Amazon's evolution and business strategies are completely different from Netflix's development since the latter aimed to become a video streaming service from the beginning. However, the Amazon's platform

wants to strongly impose its presence in the industry and Amazon Prime's 100 millions of subscribers make the company a powerful rival.

In Chapter four, I compare Netflix and Amazon Prime Video. First I analyse their current position into the American and Italian market and then I discuss their strategies with regard to price, international growth, content offering and release. My analysis of market positioning of Amazon and Netflix is realised by using both a qualitative and quantitative methodology.

From a qualitative perspective, I interview two experts of the entertainment industry, Angela Watercutter and Antonio Carnevale, who both work for the magazine Wired and share with me their view point on the market situation in the U.S. and in Italy respectively. From a quantitative perspective, I collect information about the choices of Italian consumers on streaming services subscription through an online questionnaire. The main purpose of the questionnarie is to understand Netflix and Amazon Prime Video's position and degree of penetration in the Italian market together with the consumers' evaluation of the services.

Finally, I predict consumers' reaction to Disney streaming service introduction in the Italian market together with a possible future trend of the OTT services market.

Chapter 1: The evolution of the entertainment industry

The entertainment industry and specifically, the traditional media, have been radically revolutionised in the last years. Internet and the technological advancement led to the introduction of new forms of entertainment which now dominate over the old ones. The debut of video streaming services has changed the historical model through which television and cinema were realised and consumed. The key player of this revolution is Netflix. Starting from the U.S., the streaming service destabilised the oligopolistic predominance of the major Hollywood studios together with the television and audiovisual industry. In chapter one I discuss the evolution of the entertainment industry, from the Hollywood majors' supremacy to the rise of the Internet television with a final overview over the major Over-the-top players in today market.

1.1 History of the American motion-picture industry

Today the motion-picture industry is one of the major providers of entertainment around the world despite the rise and steady growth of other forms of entertainment, especially via web, and even if numbers swing strongly, people still gather in movie theaters, watch movies on television, buy videos and DVDs. Like most media industries, the film industry has a worldwide presence and it is present in almost all countries in every continent. As it is common in media industries, cultural and linguistic barriers may pose limitations for increasing output, while very high first-copy cost structures usually limit production capacities if a quality goal is pursued. However, despite the worldwide presence of the motion picture industry, it must be recognized that not all players are equally important. When we think about the American motion-picture industry, the first thing that crosses our mind is Hollywood, the most famous agglomeration of motion-picture production companies.

Hollywood is a place, a brand, a business centre and the creative hub of the global filmed entertainment industry, which evokes images of glamour, red carpets and world class entertainment, both for American and foreign consumers and companies.

From the origin of photography and, consequently, of motion pictures, economic activity tends to agglomerate in clusters in the geographical space (Martin and Sunley, 2003). By

clustering together, firms can take advantage of the interdependence originated by the proximity, to benefit from the multiple advantages of spatially concentrated labour markets, to tap into the abundant information flows and innovative potentials that are present thanks to the concentration of different specialized but complementary producers, and so on (Scott, 2005). According to Porter (1998), a cluster is a “geographic concentration of interconnected companies and institutions in a particular field”. Hollywood is to be considered as the most impressive exponent of film industry clustering. Though not the only one, Le Blanc (2010) states that “the Hollywood movie industry is one of the most successful examples of this cultural industry clustering trend” (Medel and Gossel, 2015: 69). Hollywood is the only unbeatable player, according to the amount of dollars spent on the industry in terms of total production costs and total revenues. Another measure for success to consider is the market share of all productions, which again places Hollywood at the forefront, with little chance of being surpassed (Medel and Gossel, 2015).

Since the early 1900s, Hollywood has established itself as the major hub of the motion picture industry and right from its beginning it has been characterized by the aggregation of all the companies, the services and the labour market connected to the industry in one geographical place, precisely in Los Angeles or, more generally, in the Southern California (Allen, 2002).

Nevertheless, movies where already produced when Hollywood was still a remote rural settlement: the first short movies were shown to the public from 1880 and they were concentrated in New York and New Jersey (Gupta et al., 2006). However, the West Coast was the most suitable place for the production activity because it provided low-cost non-union labour and advantageous climate and geography for filming (Vogel, 2004). The first movie studio in the Hollywood area, Nestor Studio, was founded in 1911 (Gupta et al., 2006).

Nowadays the term “Hollywood” has a synecdochic rather than literal meaning as a geographic designation, because the industry has expanded well beyond its original confines.

In fact, Hollywood companies have developed a sophisticated network to spread their movies and content all around the world (Gutpa et al. 2006). Although it is frequent to think about studios as monolithic enterprises, they are simultaneously engaged in four distinct business functions that require the application of highly specialized skills: financing, producing, distributing, and marketing and advertising movies. The motion picture industry is truly

global since there are large production centres located in India and China, producing mostly for the domestic market. At the same time, every developed country has its own motion picture industry (Gupta et al., 2006).

There is a quite large contribution of academic research on issues related to the motion picture industry because the widespread appeal of American entertainment has been the subject of considerable attention since the 1910s (Miskell, 2014). The structure of Hollywood has changed in many ways over the last 75 years, and much of that change has served to increase the engagement of viewers’ perceptual and cognitive processes (Cutting et al., 2011). During the decades, Hollywood has experienced changes in its economic structure. By the 1920s, leading US studios not only invested more per film than other national producers, they had also become vertically integrated organisations controlling distribution and exhibition This gave them considerable control over access to the vast American movie market, which helped to cement their advantage (Miskell, 2014).

The period from the end of the silent film era in 1927 until 1948 is known as the “Golden Age of Hollywood”. During this period, Hollywood became the world's largest producer of films on the basis of an increasingly wealthy U.S. population that at the time depended mostly on cinema for mass entertainment (Lorenzen, 2008). The major studios all located in Los Angeles area, controlled the whole value chain and the system was different from the one that we know today: actors signed up with studio companies for an annual salary instead of being paid per movie and the studios themselves owned most of the movie theatres around the country so they controlled the promoting, the scheduling and the ticketing (Gupta et al., 2006). This typology of system can be described as horizontal integration where large studios mass-produced films through employing creative and technical labour on long-term basis (Lorenzen, 2008). After this period of adherence to traditional ways of producing and displaying movies, several technological shifts revolutionised the industry. In the last 50 years, outsourcing of creative and technical processes of production has proved to be more flexible as well as fruitful for product innovation so that the realization of movies was based on large pools of freelance labour and specialized suppliers (Lorenzen, 2008).

In the second half of the 20^th century from the emergence of television in the 1950s to the video system in the 1980s and digital production and distribution in the late 1990s, the

industry had to modernise its strategy and structure many times (Gupta et al., 2006). From the 1950s to the 1970s occurred a profound restructuring of the old studios system of production, therefore a new Hollywood has emerged resulting in a new business model and in a new aesthetics of popular cinema (Allen, 2002). From the 1980s, entertainment industry analysts began to use the term “new Hollywood” (post-classical cinema) in contradistinction to the old one that succeeded over the pre-war decades (Smith, 1998).

Allen J.Scott in his research “On the new map of Hollywood” (2002) sets forth that the transition from the old Hollywood to the new Hollywood happened because of five principal reasons:

1. the penetration of new computerized technologies into all stages of the motion-picture production and distribution process;

2. the steady bifurcation of the Hollywood production system into makers of high- concept blockbuster films on the one side, and more modest and independent film- makers on the other;

3. the intensifying geographic decentralization of film-shooting activities away from the core complex of Hollywood;

4. the proliferation of new markets based on the packaging and repackaging of intellectual property rights;

5. the merging of the major studios (or majors) into giant media conglomerates whose scale of operation is nothing less than global;

As demonstrated by the previous motives, Hollywood represents a complex scenario comprehending firms, workers, institutions and the numerous phases of the production and distribution of motion-pictures. The value chain of the motion-picture industry has developed into a tight network of formal and informal structures of limited transparency but, in the end, a movie goes through a similar value chain as any consumer product and the chain is divided into four different segments: production, distribution, exhibition and consumption (Gupta et al., 2006).

During the 1980's several researchers studied the transformation of the classical vertically- integrated studio system of Hollywood into the much more vertically-disintegrated production complex that it has become. The work of Christopherson and Storper in 1987 describes the

economic geography of the new Hollywood. The researchers affirm that during the Golden Age of Hollywood, motion picture production resembled large scale manufacturing industries with routinised production processes. From 1920 to approximately 1950, the motion picture industry was a concentrated oligopoly: seven major studios owned their own theatre chains, and five of these firms controlled 70% of first-run theatre capacity. In 46% of all markets, one of the major studios controlled distribution to all theatres (Christopherson and Storper, 1987).

After the Paramount antitrust decision in 1948 and the advent of television in the 1950's competitiveness, uncertainty and instability stroke the motion-picture industry and changed the system and the patterns of consumption. Audiences for low and medium budget films were most sensitive to competition from television,and studios became increasingly reliant on the performance of big-budget pictures. Television appeared to have created a totally new entertainment product capable of displacing Hollywood movies (Askoy and Robins, 1992).

The 1948 antitrust consent decree had considerable impact on movie industry structure because it disallowed control of the retail exhibition side of the business (local movie theatres) by the major production/distribution entities of that time. It forced studios to sell their theatres and broke up the vertical integration (Vogel, 2004; Miskell, 2014). Indeed, in the post-studio era economists have thus identified the film industry as one shaped by extreme uncertainty. Uncertainty grows with market size and due to this uncertainty, on mass markets, there are scale economies in production of films, as the use of expensive stars and high production values have proven to be important factors for capturing mass audiences (Lorenzen, 2008). The major studios maintained a firm grip on the financing and distribution of high-budget theatrical releases and also moved into production for television. But the production process itself became organized on the external market rather than within the firm because it was carried out through a series of transactions linking firms and individuals in production projects (Christopherson and Storper, 1987).

1.1.1 A closer look on the oligopolistic structure

Even if the theatrical film production and distribution have evolved into a multifaceted business, with many different sizes and types of organizations, the companies with considerable and long-standing presence in both these activities, with substantial library assets

and with some studio production facilities have been collectively and historically known as the “Majors” (Vogel, 2004, p.49). The dominant narrative about Hollywood is often one of resistance to, or collaboration with, the interests of major US studios (Miskell, 2014, p.2).

These companies, their importance and contribution to the industry was sustained and analysed throughout the years. In fact, as opposed to Christopherson and Storper's study, Askoy and Robin in 1992 affirmed that oligopoly never ceased to exist in Hollywood because the majors were able to use their financial power to dominate the film business and to use the independent production companies (Askoy and Robin, 1992, p.9). According to Vogel (2004, p.64):

“the majors still consistently generate the bulk of the industry revenues (an estimated 90% of gross domestic film rentals), and when they have problems, so does everyone

else in the business.”

This statement still holds true because the current situation (see Table 1.1) shows the six major studios leading the industry, with Buena Vista studio owned by Disney Company in pole position.

Rank Distributor Market

Share Total

Gross¹ Movies

Tracked 2018 Movies²

1 Buena Vista (Disney) 33.2% $2,715.6 10 7

2 Universal 13.2 % $1,081.8 12 10

3 Warner Bros. (Time Warner) 11.7% $958.7 27 16

4 Sony / Columbia 9.6% $782.7 18 13

5 20^th Century Fox (News Corporation) 9.1% $745.7 11 6

6 Paramount (Viacom) 6.6% $541.1 8 6

Table 1.1 Hollywood studios market share (period: January 1–August 26, 2018)

Note 1: In millions

Note 2: Total movies tracked that were released in 2018

Source: BoxOfficeMojo (www.boxofficemojo.com/studio/?debug=0&view=company&p=.htm)

The Hollywood production system can hence be described in terms of a prevailing model in which the majors and the independent film production companies coexist (see Table 1.2). The system is vertically-disintegrated, but the majors still have their capacity to produce motion

pictures in-house and they still own large-scale sound stages and maintain significant pre- and post- production facilities. However, it is also true that they also rely on smaller subsidiaries and independent production companies in order to spread their risks, to diversify their market offerings, and to sound out emerging market opportunities (Allen, 2002). The group of independent companies has thrived year by year as demonstrated in Table 1.2. They fed their productions into the established distribution pipelines of larger companies, or had mini distribution organizations of their own. Then, there is a third group, the so-called “mini- majors”, which includes MGM, New Line Cinema, Miramax, and Lion's Gate, that has become a more significant force in the past decade. Companies in this group generally have production and distribution capabilities, but their activities tend to have less scope (Vogel, 2004). In conclusion, the companies developed a mix of culturally influential blockbusters and high-quality independent movies that fascinated the audience worldwide.

Releases

Year Majors Independents Total

1980 134 57 191

1985 138 251 389

1990 158 227 385

1995 212 158 370

2000 191 270 461

Table 1.2 Feature films released in the US by majors and independents¹

Note 1: the term “majors” refers to both the majors proper and their subsidiary releasing companies

Source: Allen Scott (2002), “A new map of Hollywood: the production and distribution of American motion pictures”, Regional Studies p.961 (from Motion Picture Association of America, 2000 US Economic Review).

The names of the big Hollywood studios that release blockbusters in U.S. and worldwide are quite familiar to the public but few probably realize that each one has a long history in show business. In fact, some are over a century old and the others are quickly reaching that centennial mark. The historical major studios in Hollywood were all founded between the 1910's and the 1935's and each of them has had an illustrious history in entertainment, developing some of the most beloved movies and movie franchises over the past decades.

In their research paper “The LA motion picture industry cluster” (2006) Gupta et al. explain that the process of concentration in the media and entertainment business started in the 1970s and resulted in the system of the “Big Six” media conglomerates that have their headquarters

in California, expect Sony. The “Big Six” own the “Big Ten” movie studios (see Figure 1.3 below) that are fully integrated financially as they adhere to the overall corporate strategy but operate as independent sub-companies on a daily basis. The studios are in full control of the output because most of theatrical releases labelled as “independent” are produced and/or distributed by a subdivision of one of the major studios, one example is Warner Independent Pictures or Miramax. While some famous major studios do not longer exist (such as RKO) and others are no longer the powerhouses that they once were (such as MGM), there remain the big six major Hollywood studios that continue to release the vast majority of movies: The Walt Disney Company (Buena Vista, Touchstone, and Hollywood Pictures), Paramount Pictures (Viacom Inc.), Sony Pictures (formerly Columbia Pictures Entertainment), Twentieth Century Fox (News Corp.), Universal (formerly MCA,Inc. purchased in 2000 by Vivendi, and sold to GE/NBC in 2003) and Warner Bros. (Time Warner Inc.) (Vogel,2004, p.49; Gutpa et al. 2006).

Figure 1.3 Hollywood's “Big Six”

Source: the LA Motion Picture Industry Cluster (Gutpa et al. 2006, p.17)

All the previously mentioned major studios are joined together in the Motion Picture Association of America (MPAA) which is a trade association founded in 1992 to protect and support the global film and television industry. Indeed, in the United States, a movie needs to be rated by the MPAA before it can be released. As reported in its website, “the MPAA has

served as the voice and advocate of the film and television industry around the world, advancing the business and art of storytelling, protecting the creative and artistic freedoms of storytellers, and bringing entertainment and inspiration to audience worldwide¹.”

In addition to MPAA, there are other well-organized institutions that work for the interest of the industry and most of them have either their headquarter or main office in Los Angeles.

The major institutions are: California Film Commission, Hollywood Foreign Press Association, Los Angeles Film Critics' Association, National Association of Theater Owners and Broadcast Film Critics Association (Gupta et al., 2006).

1.1.2 Economic overview of the American motion-picture industry

The motion-picture industry has a high economic importance both in the American and in the global economy. As a matter of fact, the motion-picture industry employs almost half a million people in the United States (U.S. Department of Labor, 2017).

According to the MPAA's theatrical market statistics of 2017, in the United States and Canada, the box office was $11.1 billion (see Figure 1.4), down two percent from the record high of $11.4 billion in 2016, while the admissions, or tickets sold (1.24 billion), were down six percent compared to 2016 (see Table 1.5). The average cinema ticket price has risen throughout the years (see Table 1.6) but the admissions have maintained a constant trend in the last 10 years.

Figure 1.4 U.S./Canada Box Office (US$ Billions)

Source: comScore – Box Office Essentials (Total), MPAA (3D)

1

Table 1.5 US/Canada admissions

Source: National Association of Theatre Owners (Ticket price), Bureau of Labour Statistics (Consumer Price Index)

Table 1.6 Average Cinema Ticket Price (US$)

Sources: National Association of Theatre Owners (Ticket price), Bureau of Labour Statistics (Consumer Price Index)

Motion pictures are a key driver of the market for entertainment product and the industry has high cultural significance not only in U.S but also worldwide. Film-making is rapidly becoming a much more globally omnipresent activity, as the number of feature films produced for cinema, TV and other exhibition channels is growing outside USA. The film export is shifting in nature from being step-by-step internationalization of movies produced for home audiences and released in subsequently windows abroad, to being a global phenomenon, where products produced for global audiences are released on many national markets simultaneously (Lorenzen, 2008). Even if this global process includes producers elsewhere, Hollywood's global spread can be described as a cultural or media imperialism with film companies regarded among the chief architects of American cultural hegemony.

Indeed, movies originating in Hollywood dominate box office ranking across the globe (Miskell, 2014; Eliashberg et al., 2006). Although, of the almost 10,000 movies produced worldwide each year, only about 800 are produced in the United States. India is the most productive country (followed by Nigeria) since its motion-picture industry, referred to as Bollywood, produced around 2,000 movies in 2015 (UIS UNESCO, 2017).

Nowadays, according to the top 20 list produced by MPAA in 2017 final report, there are growing motion-picture industries such as China and Japan that have the higher box office in

2017. Film production has also grown in smaller state-subsidized film countries, where the film industry has been supported by new policies and funding opportunities. Film producing countries, such as Japan and India, have been more aggressive in utilizing new technologies for distribution and exhibition to keep pace with Hollywood's power (Lorenzen, 2008). With the notable exception of the above-mentioned cases, Hollywood products has dominated and keep dominating major markets around the world. Even in countries with highly acclaimed local productions, such as France and Italy, non-U.S movies often account for only a small fraction of box-office grosses (Eliashberg et al., 2006).

From early in last century, Hollywood sank high costs into large-scale marketing and distribution, overcoming liabilities of foreignness through being present with local distribution and locally adapted marketing campaign on a high number of export markets, dubbing films and, on some export markets, creating cultural preferences for Hollywood-style aesthetics and narrative as well as English.-language film rather than other foreign films (Lorenzen, 2008). Gupta et al. in their research paper “The LA Motion Picture Industry”

(2006) describe a number of salient features that explain Hollywood's success and its demand conditions. First of all, the US is the largest theatrical market in the world. Since “Going to the Movies” has always been one of the most desirable entertainment option, the American motion-picture industry can rely on being the first choice of million of people. Even with the advent of Cable TV and DVDs, going to the movies is still a popular socialization activity.

Furthermore, the wide acceptability of English language and American culture has given easy access to worldwide audiences for Hollywood movies. This is one of the reason why American movies and actors enjoy widespread appreciation and a high reputation in terms of technical and creative content. Indeed, the movies from Hollywood offer a variety of genres with both blockbusters and “Indie” movies as well as a large range of topics (comedy, drama, horror, thriller, etc.). The downside of this worldwide success is that the demand is very sophisticated as the audience expects very high quality products. Moreover, within the LA area there is significant local demand as the area has the most important concentration of movie theatres in the U.S. and is the site of many movies premieres.

Following the same method, also Miskell (2014) has studied Hollywood's motion picture industry and the author has found three main reasons that explain the extraordinary

international success of American movies. The first reason is related to the high production budget available to American studios that enabled them to outshine those of rival industries in international markets. The second reason is attributed to the extensive networks of distribution subsidiaries which the major film companies operated right around the world, which actively promoted their pictures to local exhibitors: for example, Paramount and Fox chose as their prime targets Australia and Latin America, whereas Universal initially prioritised Asian markets. While Warner Bros experienced a significant rise in the proportion of foreign revenue earned by its movies after the increase of the number of offices it ran outside US and Canada (Miskell, 2014). The third reason is that movies made by American producers have been more international in theme and content, in other words more exportable, than the product of other national motion-picture industries (which have tended to be more embedded in national cultural traditions).

There is no doubt about the incredible appeal of Hollywood that represents a cosmopolitan motion-picture industry capable of attracting audiences and influencing the global economy.

Quoting Vogel (2015, p. 83):

“movie-making is still truly entrepreneurial: it is often a triumph or hope over reality, where defeat can easily be snatched from the jaws of victory. But its magical, mystical elements notwithstanding, it is also a business, affected as any other by basic economic

principles.”

1.2 The rise of Internet Television

Television has become the dominant mass media channel in the United States since its introduction in the 1950s. The most recent estimates indicate that on average individuals in the U.S. spend nearly half a day listening to, watching, reading or generally interacting with media, over 11 hours and almost 5 of them daily devoted to TV (Nielsen, 2018). Mass distribution of entertainment content tended to be done through cable and satellite television, as this was the most common mode for people to consume television and films. Although its popularity among consumers has been persistent over the years, the signs of viewership decline are starting to show, especially among the younger population. This tendency is

largely attributed to the increased competition from alternative offerings brought about by new technologies (Nielsen, 2018).

In the early 1990s television services were completely different than what we have nowadays.

Until VCRs (Video Cassette Recorders) and later DVRs (Digital Video Recorders) became widely available and Video-on-Demand was possible, television broadcasting was based on a pre-set schedule. Shows, movies and TV-series were scheduled to specific time-slots. If a consumer missed an episode of his/her favourite TV-show or a movie on TV, he/she missed it literally, without the possibility to watch it at a different time-slot. It was quite rare that TV channels repeated their program, at least not soon after they played it. This has all changed with the Video Home Systems (VHSs) gaining more popularity and dominating the 1990s.

Video rental stores started to show up and grow into huge chains like Blockbuster and recording of TV programs straight from the television became possible. Although VHS was still number one at the end of the 20th century, the new millennium brought some more, important technological advancement. As the 21st century started, DVDs started to take over the market of VHS, Digital Video Recorders (DVRs) started to give more control to subscribers with their VoD functionalities and as the internet gained more and more popularity, content became a matter of just a few clicks. The spread of high-speed internet and increasing use of mobile devices made it possible to first download programs and later on also to stream entertainment content (Parsons, 2008).

In 1992, the size of the U.S. television market consisted of approximately 58 million subscribers (Parsons, 2008), 98% of which was served by cable companies. Although the number of subscriptions has significantly increased over the last 20 years, the growth of cable subscriptions has been significantly slowed down in recent years. As of 2013, the Pay TV market in the U.S. Including service provided by cable, satellite and telecommunication companies providing TV services, but not online streaming, has ended the year with a little over 100 million subscribers according to research firm SNL Kagan (Lee Bloomberg, 2014), and only 53% of it was cable’s market share. On the other hand, in the meantime a significant gain in popularity has been experienced by other forms of home entertainment closely related to the video and television market, mainly online streaming and video rental.

Entertainment is a huge business worldwide: as reported in the 2017 Top Markets Report Media and Entertainment published by U.S. Department of Commerce, the global Media &

Entertainment (M&E) market reached $1.9 trillion in revenues in 2016. It was expected to expand by nearly five percent to reach just under $2 trillion in 2017. In 2016, China ($190 billion) became the second largest market after the United States ($712 billion), followed by Japan ($157 billion), Germany ($97 billion) and the United Kingdom ($96 billion). By showing major contributions of uniquely American culture, the United States boasts the largest global share of M&E earnings for filmed entertainment, music, book publishing, and video games. The M&E industry consists primarily of small businesses but large corporations, often diversified with the digital and tech sectors. The U.S. M&E market alone represents a third of the global market and will reach approximately $771 billion by 2019. The largest U.S.

M&E firms (calculated by 2016 revenues) across four broad industry segments, include:

Penguin Random (Books), Sony (Music), Disney (Film), and Microsoft (Video Games). The biggest growth in Internet usage is recorded for video streaming, also called video on demand (VOD), which is one of the leading sector across M&E industry.

It is noteworthy to mention that the home entertainment industry is a huge domain consisting of several smaller sub-domains and sub-industries, for example newspaper, video games, television and even content production. Even though most of these sub-industries are considered to be in competition with one another on some level, the focus of this study is the analysis of how the innovative and increasingly popular video streaming services market has revolutionised the standard oligopolistic structure of the major Hollywood studios together with the television and audiovisual industry.

1.2.1 The oligopoly and the different types of television

According to economic theories, industry structures can be categorized according to how firms make price and output decisions in response to prevailing market conditions. The most balanced market structure is the perfect competition in which firms all make identical product and due to their small size, their operations have a marginal effect on price or on quantity supplied. Movies, Network TV and streaming video services fall generally into being classified as oligopoly. Indeed, this industry presents a combination of large oligopolistic

production/distribution/financing organisations regularly interfacing with and being highly dependent on a fragmented assortment of small, specialized service and production firms. In this case, the oligopoly is differentiated since the products of different firms are not identical but rather differentiated products, which means they are close but not perfect substitutes.

Therefore, in economics an oligopoly is a market structure characterized by a small number of firms and a great deal of interdependence. The small concentration of companies within oligopolies results from barriers to entry, such as high costs, that prevent newer and smaller firms from entering in the market (Vogel, 2015; Investopedia).

Analysis of the American motion pictures industry gives ground to conclude that there exists a strong tendency towards oligopoly market structure, that is the concentration of resources, influence and power in the hands of several corporations (the Majors). These companies have survived the world wars, recessions, innovated color and wide-screen technologies and dealt with advance of over-the-air and cable television and home video. All these factors, including other technological, economic and social changes of American and global landscape did not influence major Hollywood companies in drastic way. These companied did not only rule Hollywood, but conducted their operations around the world and thus were strongly vertically integrated enterprises. During the past century, the American movie industry has undergone significant changes, but still it preserved its main trend: the concentration of ownership in the hands of few major companies that remained relatively constant throughout these years. The industry has undergone such stages as oligopoly of vertically integrated studios, the rise of the Motion Picture Export Association of America (MPEAA) as main international cartel that supported that oligopoly and consisted of American firms, the downfall of vertically integrated major studios, the rise of independent movie production, the concentration of influence and power in several major producers/distributors, the acquiring thereof by multinational corporations and conglomerates linked with theatre chains, large electronic media corporations, including cable, broadcast, satellite TV networks, and video rental companies (Benjamin, 2000; Robert, 2002).

For what television is concerned, there are different typologies of it, according to the kind of transmission and consumers' freedom of choice. Linear TV is a term that indicates the real time television services that transmit programme schedules. Almost all broadcast TV services

count as linear TV, the main exception being Near Video-On-Demand (NVOD) transmissions of pay-per-view programmes over a large number of channel feeds. The programming of linear broadcasting is based on a pre-set schedule, where everybody is watching the same content at the same time. No alteration of the programming is available for the consumers.

This is what differentiates linear TV from non-linear TV, also called Pay TV. The alternative non-linear TV includes television service providers that cover all on-demand programming, which is available to consumers in different subscription packages at any time. Users decides whenever to watch them and they are not constrained by real-time broadcast schedules. The latest typologies of television are the ones whose development is based on technological innovations, specifically on Internet. Video-on-Demand (VOD) is a programme service where the content is not broadcasted, but stored in a library, which users can access on-demand.

Typical VOD content offerings include recently aired television programmes (as in catch-up TV), popular series, selected categories of thematic programming (e.g. music, children’s programmes), and movies. There are three models of VOD: content - free VOD, Pay-per-title, where the user pays an individual fee per programme or event, and subscription VOD, where the user pays a flat fee for access. VOD typically requires a media device, for example a Digital Video Recorder (DVR), with which the consumer can adjust the programming.

Generally available functions are pausing, rewinding, fast forwarding and recording programs so that they could be watched later (Television Audience Measurement, 2014; Collins Dictionary).

The increasingly popular type of Internet service is Over-The-Top Video (OTT) refers to the delivery of film and television content provided via a high-speed Internet connection without the involvement of a multiple-system operator (cable or satellite provider) in the control or distribution of the content. Viewers who eschew paying for bundled content are often referred to as “cord cutters”. OTT services are available over a network, but they are separate from those of what a network provider offers. Netflix is a perfect example, as it requires internet connection provided by the network operator, but the service is offered by a third party (Investopedia). In general the OTT category includes several different services (for example music/video streaming, peer-to-peer services), however, this study will only focus on the video streaming segment. More specifically, the video streaming segment that is perceived closest to the Pay TV services and therefore personal video production or video piracy will

not form part of this research. The emergence of OTT content providers can be heralded as revolutionary in changing the way consumers use mobile broadband.

1.2.2 Television industry characteristics in the Internet era

Technological innovation over the past ten years, especially through easy access and the commercialization of the Internet, has revolutionized film and television distribution. The most important technological development was digitalization, when cable operating companies started to upgrade their distribution networks from analogue to digital. More specifically, the rise of the Internet Communication Technologies (ICTs), such as video-on- demand (VOD) services, had and is still having a substantial impact on the entertainment industry (Parsons, 2008). This upgrade opened up the way to provide high-speed internet access, high definition and advanced digital video services, such as High Definition video content, Video-on-Demand (VOD) and Subscription Video-on-Demand (SVOD). In particular, cable TV is one of the media channels most affected by the expansion and development of these new technologies together with the motion-picture industry.

The emergence of companies such as Netflix, Hulu, and Amazon Instant Video offers consumers greater degree of choice by increasing the variety of content that is available.

Moreover, consumers also get to choose how to view the content given the increasing variety and portability of video players (e.g. smartphones, tablets, laptops). These changes have not only ensured the growing success of online streaming services by subverting the loyalties of users of the older media, but also contributed to the loss of competitive advantage of television programming services and to the reduction of the competitive advantages provided by economies of scale (Reis, 2015; Vogel, 2015).

The ever-changing nature of technology and consumer behaviour has prompted rapid changes in distribution methods from year to year, making this an intriguing topic of research within economic, business, legal, and media sectors. The Internet by now has become not only a major new medium for the transmission of information and entertainment but also an integral part of every day business operation. It has changed drastically the long-standing business models of virtually every industry, especially those pertaining to media and entertainment. In

the film-making process itself, for instance, the impact of technological improvement has been phenomenal not only in the movies production but also in their distribution and promotion. Since the mid-1970s, the motion-picture industry has been in a transition phase characterized by a shift to electronic/optic distribution and storage methods and by a decline of control of distribution and product pricing through traditional organizational arrangements.

Now distributors can easily launch international marketing campaigns while exhibitors can quickly estimate audience size and demographic responsiveness (Vogel, 2015).

There has been tremendous interest among consumers in watching movies on-demand and viewing video content on every device: television, video players, desktops, laptops, tablets, and smartphones. In the entertainment area, it is estimated that video streaming is responsible for 30 percent of overall Internet traffic (Dewey, 2014). During the history of media and entertainment industry there have been milestones that brought changes and developments.

According to Burroughs (2015), the history of streaming is often considered to be an entirely new phenomenon enabled by technological developments in bandwidth capacity and can be traced back all the way to the early usage of radio and traditional television with a stronger participation of the audience. Each of the technologies that nowadays are considered to be

“old” (television, radio) went through a social and cultural process of transformation as audiences, industries, and regulatory structures adapted to technological innovations. The rise of new mediated technologies can be considered as a moment of rupture in existing traditional media industries and the innovative intervention of the audience in the use and flow of media services is the signal of this development. Precisely, consumers demand increasingly sophisticated tools to access content, and technology is a big player and enabler for media and entertainment sectors.

The industry is still evolving from a physical marketplace to a digital economy where consumers create and publish content, and drive industry executive decision making.

Technological advance has changed the way in which we think of entertainment products and Internet has revolutionised the way in which the entertainment products are supplied. There are numerous examples of this Internet revolutions: telecommunication firms have moved to replace copper wire with fiber-optics and wireless technology. Consumers have moved from landlines to mobile devices and Internet delivery systems. Increasingly, people have accessed

and are accessing content on many different platforms: television, Internet streaming, tablets, and smartphones. They obtain information, undertake transactions, and communicate via the Internet as opposed to traditional communications. About 50% of Americans rely exclusively on mobile phones as opposed to landlines (Selyukh, 2017).

In addition, the rise of PPV/VOD (pay-per-view/video-on-demand) technology has dampened the growth of home-video unit demand, it has reduced the importance of video chain retailers, and also it has altered the sequential release patterns for certain type of films.

According to Vogel (2015, p.139):

“sequencing is a marketing decision that attempts to maximize income, and it is generally sensible for profit-maximizing distribution and price-discriminate in different

markets or “windows” by selling the same product at different prices to different buyers”.

Historically theatrical release, which generated the highest marginal revenue, was followed by licensing to pay cable program distributors, home video, television networks and finally local television syndicators. Nowadays, the streaming video services have revolutionised the system and gradually the trend moved toward the earlier opening of all windows. The Internet ability to make film instantly available anywhere requires now simultaneous worldwide day- and-date release for major projects.

Leisure is a form of activity engaged by people in their free time or, preferably, as time free from any sense of obligation or compulsion (Vogel, 2015). It goes without saying that the availability of time is a precondition for recreation and the cost of time and the consumption- time intensity of goods and services are significant factors when selecting from among entertainment alternatives. Technological development has obviously played an important role in the transformation of consumers habits with regard to entertainment. Theatres have historically been the primary entertainment choice and retail outlet for movies as well as the place where most of the revenues had been collected and where the most of the viewing had occurred. But since the mid-1980s, the total fees from the licensing of films for use in ancillary markets (network and syndicated television, pay cable, and home video) have

collectively far overshadowed revenues derived from theatrical releases. In other words, what was gained in one market might be at least partially lost in another. This change in the movie industry's economic was caused by the ready availability of television, cable and other home video displays that became competitors as well as supplementary media to theatrical exhibitions. Such unprecedented access to film entertainment, enabling viewers to control the time and place of viewing, has redirected the economic power of studios and distributors and opened the way for new enterprises to flourish. After the advent of other exhibition channels for films (TV, home video, and now Internet) and other sources of revenue arising from films (merchandise and royalties from film-related copyrights used in other media, such as games, music and publishing), Hollywood companies integrated these new exhibition channels and media partially replacing cinemas. This phenomenon led Hollywood companies to become multi-media corporations (Lorenzen, 2008). Many corporations have experienced significant convergence and moved from film or broadcast or news, for example, to offer a multitude of services across media and entertainment sectors. The largest example is the acquisition that led to Comcast NBCUniversal (Top Markets Report Media and Entertainment, 2017).

The first Internet-based video-on-demand services supported by the major studios was made available in late 2002, with the introduction of Movielink owned by Sony, Warner Bros, Paramount, Universal and MGM and sold to Blockbuster in 2007. Starz Entertainment Group introduce Vongo, the first service making recent (one-year delayed) mainstream films available on a flat-rate subscription plan over the Internet. In 2006, Movielink also began allowing downloads that enabled consumers to own copies. CinemaNow did the same with films from Sony and Lions Gate. Another movie-on-demand service operating through a box connected to the Internet and television is Vudu, which was bought by Wal-Mart in 2010 to provide on-demand download services. In early 2008, Apple also announced that iTunes would have movie rental support from all the major studios. Movie downloads were soon dominated by Apple, which gave about 70% of video revenues to content owners (Vogel, 2015).

The dynamics of media and entertainment industry have changed and are now characterised by a complex economic scenario regulated by agreements between players and extreme competition. Johnson (2014) examined through a legal lens how the distribution oligopoly,

threatened by emerging consumer trends supporting online distribution, might need government intervention to keep media conglomerates from using restrictive practices that block new companies from emerging. The oligopolistic playground of cable companies has been threatened by the increasing popularity of television accessed by millions via the Internet. The outdated frameworks of cable and satellite companies, also known as multichannel video programming distributors (“MVPDs”), waned in comparison to the reach and convenience of the Internet. Naturally, the Internet is the expanding frontier in the television distribution industry and has grown to be the preferred method of viewing programming content. Anticompetitive behaviour on the part of the MVPDs, however, has served to stifle new Internet television providers, particularly virtual cable companies.

Restrictive agreements between content programmers and the MVPDs prevent content creators from striking the most economically sound distribution deals, the fallout of which impacts negatively on the consumers. Internet television providers have been at the mercy of the leverage and bargaining power of the MVPDs, driven by cable, satellite and fiber optics companies such as Comcast, Time Warner Cable, Dish, Direct TV, Verizon and AT&T. These MVPDs do not only control the distribution of programming content but they also control distributions. Indeed, they are primary distributors of Internet broadband connection and they often bundle packages manipulating prices to discourage MVPD subscribers from cancelling their cable subscriptions.

The TV industry has evolved into a multi-sided market, with distribution platforms increasingly occupying a gate-keeping position in the market. Evens (2014) examined the clash of television platforms, drawing macroeconomic and microeconomic analyses of the role that technology has in disrupting or shifting the market. The transition consisted in a development of their business models. Previously, they resembled those of utility providers (e.g. cable/satellite access like water or electricity), then recently distributors start playing a multi-sided role, liaising with third-party content providers, advertisers and viewers.

Especially when they expand into the production of content themselves (e.g. establishing their own TV channels), distribution platforms may exert considerable power over TV broadcasters. Likewise, TV broadcasters are enveloping into a subscription platform (e.g.

Hulu in U.S.) that seek to control the customer relationship. As a result, it is frequent to observe struggles for platform leadership between TV broadcasters and distributors. These

struggles are further intensified by the rose and development of over-the-top (OTT) TV platforms, which challenge existing power relationships in the TV industry and give rise to conflicts of interests in the media ecosystem. Due to the huge popularity of Internet-based video delivery, the TV industry has evolved in a complex ecosystem, characterised by the emergence of potentially disruptive business models and hyper-competition from OTT services (e.g. Netflix, Apple, etc.). One key feature of this complex, multi-player environment is the possibility of disintermediation. The value creation process no longer follows a linear value chain, but digital technology allows plenty of opportunities to lessen reliance on their traditional suppliers/buyers. Indeed, content producers and TV broadcasters can bypass traditional distributors like cable/satellite operators, and build a direct relationship with the customer base.

Whereas in the past producers and broadcasters depended highly on the business terms imposed by traditional distributors, they can now use technology and offer their content directly to the audience. As an example of this transition, in the United States, broadcast networks ABC, NBC and Fox have launched the Hulu platform, which allows consumers to watch their favourite shows directly over the Internet across multiple screens. The opportunity of OTT platforms requires content producers and broadcasters to build straight-forward relationships with numerous distribution platforms in the TV ecosystem in order to benefit from a multiplatform strategy (Evens, 2014).

New Internet-based technology provide viewers with unprecedented control over when and where entertainment may be enjoyed. Such technology has already appreciably lowered the price per view and has reduced the economic power of the more traditional suppliers of programming. The new home-video options allow people to become more selective as to when and where they spend an evening out. Unquestionably, technology has made it possible for more content to be created by more people, and to be distributed more widely and at a lower cost, than ever before. There is a widespread common trend among consumers to prefer spending leisure-time with lower-cost and closer-to-home entertainment activities, making streaming video services a popular choice. Internet seems to reduce time spent in watching movies or television programming through traditional means. The downside of the advent of Internet and the success of new entertainment delivery and storage technologies is that they