‘There’s no business like show business’. It is such a famous saying. And there are so many other sayings about the industry. From bad (‘everybody sleeps with everybody’) to great (‘I live for showbiz!’).
In this blog, I’m taking you on the road of discovering what makes showbiz showbiz. Using Porter’s five forces framework, we will analyse how the entertainment industry works. We will also see how it differs from other industries I will be focusing on the production side of showbiz, so I will leave the distribution part for what it is.
Get ready for a long article, but very interesting!
Defining the entertainment industry
Let’s see if we can define the entertainment industry. Why is a movie part of showbiz but a coat isn’t?
According to the dictionairy
If I look up the term in the Webster dictionary, it defines the industry as ‘providing entertainment: radio, television, films and theatre.’ So we can conclude that the industry has several products in multiple sectors. But then I found another definition on Simplicable, which was:
The entertainment industry is any business that generates value by providing people with something interesting to do or watch. The term is associated with vibrant and thrilling experiences that are packaged for mass consumption. Including, but not only: film, music, media, sports, attractions, museum, cultural events and performing arts.
This definition makes the entertainment field even bigger, as it includes all sports events! It also makes something else clear, however: all products created should generate some kind of value to people to use or watch it. The products are available for a large audience (mass production) and the value is often an experience.
According to the law
I also found how the entertainment industry is described in a law book. On LawInsiders I found the following definition according to an Australian contract:
Entertainment Industry means each and every branch of the entertainment industry now known or later developed including, without limitation, the fields of the making of audio and audiovisual sound recordings (including remixing, sound engineering and producing), the writing of lyrics and/or composing of music, the writing of literary only work, DJ appearances, engineer or producer of music, personal appearances and live performances, acting and presenting services, merchandising, endorsement and “multi-media” activities.
It states that the entertainment industry exists of multiple creative fields, like songwriting and acting. The product is formed by creativity.
So what is the final definition?
With these three definitions, we can finally identify the entertainment industry.
Showbiz is an industry where people with creativity produce a product that can be enjoyed by a large audience and that gives each audience member some kind of experience or value.
This excludes things like sports, media (in the sense of journalism) and museum. Whether art in museums is part of the industry, can be debated. I myself wouldn’t see it as entertainment, as it’s usually not created for mass production, but the phrasing is everything.
The exact borders of every industry can be debated, as we can also look at only one country or take only the film industry. And the film industry can be narrowed down to the film production industry and the film distribution industry. So it’s really just a matter of perspective and which one you choose. How would you define the entertainment industry?
Analyzing the entertainment industry with Porter’s Five Forces
Porter’s five forces is a widely used framework to analyse competition within industries. Usually, you would do this analysis if you want to move your company into an industry and you want to get a sense of what is happening within that industry. I will not take one single company to analyse the industry, but I will use the framework to define the entertainment industry as a whole. It shows how the competition is and the limits of the products. We will analyse five forces: the supplier power, the buyer power, the threat of entry, the industry rivalry and the substitute competition.
I will describe all five forces and then translate them to the entertainment industry. You can, however, also do this for every subgenre within showbiz. The theatre field has other specifics (live performances) than film (recorded performances) and radio will have again other demands. By doing a general overview I will give you a general idea about the entertainment industry, but if you have your company and want to do this analysis, I suggest taking a smaller and more specific industry.
Competition from substitutes
This section focuses on the availability of substitute products. If there are little to none substitutes, customers are willing to pay more for a product. If there are a lot of substitutes, the customer will just switch to a similar product the moment they disagree on a new strategy, like increasing the price.
For the entertainment industry, this section is often of little interest in theory. As the products are creative, they differ from each other and other industries. Even if you take two adaptations of ‘Romeo and Juliet’, their approach will be very different from each other. You can say that each product is unique and finding a close substitute is difficult.
In practice, this does not hold up. The products are substitutes of each other and other sectors. First of all, people can choose between films and find them equal. Or decide to go to stand-up comedy and pick one of the many comedians. Although they are all different, usually a customer picks just a few and might switch if they find the price too high or don’t like the summary.
This also brings me to my second point. Most products in the entertainment industry, like movies and theatre, are leisure activities for the customers. And there is a very high competition volume in the leisure department. Within the field, you can go to the theatre or go to the cinema. Outside the industry, you can also meet up with friends or kick a ball on the field next to your house. Money also plays a part in this. Especially theatre tickets can be very pricey (Hamilton on Broadway sells tickets for 600 dollars!), so people will have to pick their favourites and compare the products against each other which one is worth the most.
Threat of entry
The threat of entry is about the level of difficulty new companies have to enter the industry. In most industries, there are barriers to keep new competitors away. Many firms working in the same industry means more competition, which leads to products with low prices.
Have starting capital
There are several different barriers. The most logical one is that you need to have money to enter. If you go into the aeroplane building industry, you will need a lot of start capital as you will need billions to build your first aeroplane. In the entertainment industry, this barrier is often pretty low. It depends on the product and the quality that you want to make. Unless you start with a million budget mega-musical or movie, there are many opportunities to join the industry with little capital. YouTube is a great example of it. Although many will say that your quality is less if you have little capital.
High production costs
Other barriers are high production costs when you start. If you are a newcomer in the market, you probably have a small market share and you have to divide the costs over a smaller portion. In the entertainment industry, this barrier is actually similar to having starting capital. There can be low production costs, depending on your product. Again, a mega-musical requires high production costs as does a big A-film. The production budget of The Avengers Endgame was 356 million dollars. You need to invest that before you see any revenue. But you can also create videos on your mobile phone and edit them on a free editing program. Than your production costs are nearly zero.
Absolute cost advantages as a barrier is about having ownership of low-cost sources. You can think about gas fields for oil companies or the advantage of experiences for IT companies. In the entertainment industry, low-cost sources consist of personal and materials. Honestly, the production costs and the cost-sources are kind of the same. Do you rent a studio? What kind of camera or microphone do you need? Do you go for A-listed actors? Once again you can enter the industry with super low-cost sources. Sometimes you only need a camera and an idea. Or you can go all out and choose higher-cost sources.
And then there is the barrier of brand recognition. As a newcomer you need to find a way to increase your own brand awareness, fighting those with high brand awareness. Brand awareness is an interesting one. If I look at the film studios, the most known are probably Disney, Universal and Warner Bros. They have been building their brand for decades and have established an image of a certain quality. But independent producers also have their own market and can have great success with much less brand awareness. On many film festivals, there are even spots for newcomers. So I would say that brand awareness is also no barrier for entry.
Once you have your product, you want to distribute it. This can be difficult as a newcomer as the distribution channels are already filled or have high requirements. And here we will see the difference in the entertainment industry between ‘good’ products and ‘lesser’ products. Everybody can put a video on YouTube, so distribution is not the problem per se. But what if you want to be shown on Netflix or the cinema? They have very high requirements, often only showing films they are involved in themselves. So this makes it very difficult. Also with theatre, you can just perform on the street, but to get a spot in the season’s program might be very difficult. It often comes down to quality or the expected quality. And here brand recognition comes into play.
So in general, we can state that the entry for new companies or creators is low. Especially with the internet, everybody can create products and distribute them for mass production. However, there are levels in the industry and the higher the level you aim for, the more difficult it is to get in. Quality is the keyword here.
This one is obvious: companies compete against each other in the same industry. Depending on how many rivals there are, the competition is different. If there are only a few firms in the industry, they will dominate the price and strategies. But the more players there are, the higher the competition and the price is also suddenly competitive.
As the entry barrier to go into showbiz is low, there are many players in the field. Normally, this would mean competition for the best price. However, this is not (always) the case in the entertainment industry. Products are different enough to have their own value. This lessens the rivalry: if products are diverse, the competition tends to focus on quality, brand promotion and customer service rather than price. And this defines the entertainment industry exactly, as you have already read in the Threat of entry section. Quality is a big factor to be allowed to join distribution channels or to get brand awareness. So production companies often strive for the best quality they can deliver and not for the highest price of the product.
Leisure time rivalry
But there is a rivalry between companies in the industry. As mentioned before, all the productions of the entertainment industry fight for your leisure time. So they have to do something go get your attention. This can be with offering amazing quality or with something else. They can cast popular stars as lead roles (how many famous people are there in The Avengers?), use well-known storylines (think about another Cinderella movie) or play into trends (when is the lockdown movie coming?).
There are a few markets in the entertainment industry where price rivalry plays a role. Companies can charge a higher price if they feel the product is worth it. Remember the tickets for Hamilton for 600 dollars? That is only possible because the customers are willing to pay for it. The average ticket price on Broadway is around 125 dollars.
Amount of clients rivalryBut price rivalry is not possible in all markets of the entertainment industry. In most entertainment markets the price is fixed. Regardless of the production costs, every movie has the same price if you go to the cinema. You pay a monthly fee for Netflix or your TV subscription, regardless of what’s on. In that case, the rivalry is more about the number of clients than the price. Netflix wants as many subscribers as possible and attracts them with an offer of high quality and diverse movies and series.
Power of Buyers
Firms in any industry compete in two types of markets: in the market for inputs (buying supplies) and for outputs (selling it to the customers). The ‘power of buyers’ is about the output and how much influence customers can have on a company and products. And this power comes in two ways.
First is the price sensitivity. The more a customer wants the product or if it feels the product is scarce, the less he or she will care about the price. But if it’s a product that can easily be replaced by another brand, the customer is very price aware.
Since the competition of a lot of entertainment products isn’t about price (but rather quality), prince sensitivity is difficult in the industry. When can we expect price sensitivity? Maybe when a movie is in the cinema and it’s nearly going out. This counts as scarcity and thus someone will buy a ticket to go see the movie. Or in the theatre field, where a production can only be seen for a couple of months. But in general, price sensitivity is not really an issue as the products are too diverse.
Relative bargaining power
The second is the relative bargaining power. This is if one party refuses to deal with the other party. For example, if a firm sells a lot to two customers: those two customers have a lot of power as the firm doesn’t want to lose their customer. This would mean losing half their revenue. But if a firm sells to 300 customers, the bargaining power is much less, because one customer is worth less. Important in this bargaining power is information. If you, as a company, share the right information and you can for example show that your quality is much higher, you have more bargaining power.
In the entertainment industry, the customer has a lot to say. Actually, they can influence the entire product. Already in the 1930s, Hollywood made it clear that creating movies was for the entertainment value of the audience and that movies should adapt to the taste of the audience. You can find the entire blog I wrote about it here. The entertainment sector is completely dependable on the customers and is willing to change to get more audience. It was little to do with the price as Porter meant it, but more to do with the kind of products made. Think about Halloween products at the end of October and Christmas two months later. And this has also again to do with leisure time rivalry mentioned earlier.
Power of Suppliers
According to Porter’s five forces framwork, this power is similar to the power of buyers, only now the creative firms are the buyers who need their ‘raw’ material. Do also think about employees and services. A supermarket needs the groceries, but also cash desks, cashiers, shelving units, a marketing department and on and on. In the entertainment industry, it really depends on the market and the scale of production how interesting this section is. If you create a film from your mobile phone, you barely have anything to do with this. A movie studio however does. Again, the power of suppliers can be divided between price sensitivity and relative bargaining power, but then from the other way around.
How much are you willing to pay for something? Are you willing to pay millions to get Angelina Jolie in the lead? How many spotlights do you need in the theatre? How many episodes can you afford for that season on TV?
It’s a difficult question to answer for the entire entertainment industry as it’s so different for each company. In general, we can say: the more focus on quality that you want to deliver, the less price-sensitive you are as you are often more willing to pay a higher price to get something. If you are on a tight budget, you are more price sensitive. It is also depending on how important something is for the production. If you are talking about a lead role, you might be less sensitive than about a palm tree in the background.
People who work in the industry for a long time know the prices. I’ve met people who go to a musical and tell me exactly what it will cost to put it on stage. Budgets are being made in advance with the prices producers know they can get. So there is a little bit of price sensitivity, as all companies want to have the lowest costs possible and stay within budget, but it doesn’t have a big hold on the industry.
Relative bargaining power
How much can you bargain with your supplier? Well, the bigger the company, the more you can bargain. If you are Warner Bros studios, you use thousands of lights and you have a great reputation. You can probably get a deal. If you’re a starter or have a small unknown company, it will be more difficult. You will probably need two or three lights and you have no reputation guarantee for the supplier.
Sometimes you have no bargaining power at all. In the United States, unions have a firm hold in the entertainment industry and many rules and salaries are fixed. Meaning you know in advance how much you will need to pay a technician or actor. The only option is to work outside of the union, but that will have consequences. Some theatres only work with union-based productions. Or movies won’t be allowed in certain festivals.
To wrap it up
This long article has been to analyse the entertainment industry with Porter’s five forces framework. We wanted to see what entails the entertainment industry and how it differs from others.
We defined the industry as an industry where people with creativity produce a product that can be enjoyed by a large audience and that gives each audience member some kind of experience or value. This is still very broad and has many smaller industries and markets within it.
I think, after using Porter’s Five Forces analysis, we can say the entertainment industry is special in the sense that price is not central, although revenue is the end goal. Every product is unique, created by artists. This makes it difficult to switch from one product to the other, purely based on price. Therefore, quality plays a bigger role in the competition between companies in the industry.
It’s the creativity and the artists that make the industry so different. It’s open to everyone with creative ideas. Everybody, especially now in the digital age, can go and create a product within the entertainment industry. But at the same time, there are layers within the industry, graded by quality and brand awareness. The better the quality of the product, the more doors open for you.
I hope this has given you some thoughts and ideas. Let me know what you think! Remember that you can always do the same analysis of Porter’s Five Forces Framework on a smaller industry (like just the TV production industry) and you will get more specific answers. Good luck!