The value chain and system has already been applied by business academics and consultants in various sectors, including for example the automobile industry and food processing and retail sector (Lynch 2006, pg 203-6). It can also be applied to the film industry. In the US studio system a film is often developed, produced, distributed and exploited without leaving a single integrated company or consortium: a simple corporate value chain.
This is also the case with a small number of international studio-style companies. 1 However the independent feature film production and distribution sector (the prevalent model outside America) is a value system business, in that a feature film is not made and delivered to its final audience by a single company. Instead there is a chain of companies, businesses, and freelancers, all working on different elements of the production and exploitation process, and adding value in different ways along the chain.
Furthermore once the film is exploited, the money handed over by the consumer (whether it be in return for a cinema ticket, DVD purchase or online download) is subject to various revenue shares or commissions as it passes back through the chain, which then complicates the revenue flow. There has recently been a rise of interest in the analytical concepts of the film value chain and value system, as a result of changes in the economies of film financing and distribution which threaten the existing business models (for example technological convergence, the decline of DVD sales and the projected rise of digital downloads).
A key part of competitive business strategy involves aligning an organisation with its strategic environment (Porter 1985), so it is therefore vital for those running businesses in the film industry to fully understand the value chain they are working in. This context makes this paper both timely and relevant. Despite the recent use of the “film value chain” as a concept by writers, consultants and lecturers in the UK, there have been few attempts to accurately codify the chain and explore its complexity, especially within the independent sector.
The aim of this paper is to provide a workable diagram to define the current customary independent film value chain and system, for use as a teaching aid and as a tool for further analysis of the strategic challenges and opportunities facing companies in this sector. It is not the aim of this paper to look at potential future models for the value chain. 1 Examples in France are Pathe, Studio Canal, UGC, and Gaumont. Other international examples include Japan’s Shochiku and Australia’s Village Roadshow. 1
Literature review: the origins of the value chain concept The term “value chain” was codified in 1985 by Michael Porter, in his influential book “Competitive Advantage: Creating and Sustaining Superior Performance. ”2 He subsequently summarised the value chain as “the set of activities through which a product or service is created and delivered to customers” (Porter 2001, pg 74). Within Porter’s definitions the value chain refers to the activities within a single company, as shown in the diagram below.
The company value chain is used to help analyse that company’s competitive advantage and strategy within the marketplace (in combination with Porter’s Five Forces, as defined in his earlier book Competitive Strategy (1980)). In a later article on the growing power of the internet he summed up the value chain as follows: “When a company competes in any industry, it performs a number of discrete but interconnected value-creating activities, such as operating a sales force, fabricating a component, or delivering products, and these activities have points of connection with the activities of suppliers, channels, and customers.
The value chain is a framework for identifying all these activities and analyzing how they affect both a company’s costs and the value delivered to buyers. ” (Porter 2001 pg 74) However some products are not created and delivered to the end user by a single company. To accommodate this Porter created the concept of the “value system”, which includes the individual value chains of all the separate companies or players who are co-operating within an industry to deliver a final product. As shown in the
It was developed from existing concepts of business systems being used by the consultants McKinsey and co. , and writers like Gluck (1980), Bauron (1981) and Bower (1973); as cited by Porter 1985, pg 36). 2 2 diagram below, this could include the suppliers of raw materials, the manufacturers, the distributors (or channels) and the end buyers. It is important to note that the value chain concept does not in any way attempt to represent the flow of revenue back through the chain from the exploitation of the product. It is only concerned with value addition during production and distribution.
Porter has also subsequently observed the effects on the value chain of information technology (Porter and Millar 1985) and the internet (Porter 2001), even to the extent that he foresaw the contraction and integration of the value chain and the value system, absorbing the tiers of suppliers, channels, and customers: “SCM (supply chain management) and CRM (customer relationship management) are starting to merge, as end-to-end applications involving customers, channels, and suppliers link orders to, for example, manufacturing, procurement, and service delivery.
Soon to be integrated is product development, which has been largely separate. ” (Porter 2001, Pg 74. ) Perhaps reflecting that integration, writers and academics in the media sector have gradually dispensed with the distinction between the value chain and the value system, and refer to them both as the value chain (encompassing all the separate stages of value addition, whether within one company or several). This is confirmed by one of the more recent books on media strategy, written by Lucy Kung: 3 The value chain has been a tool of preference for analysing convergence in the media industry for practitioners, consultants and academics (see for example Tapscott, 1996; Yoffie, 1997; Downes and Mui, 1998). However in the majority of examples it is not used in the “pure form” described above – where individual firm activities are disaggregated and analysed – but rather at industry level as a shorthand means of depicting graphically the various stages by which media products are created and delivered to the end consumer. ” Kung, 2008, page 20.
As a result this paper will follow current media sector usage, and will use the value chain title to apply to all the various stages of product creation and distribution, regardless of whether they are in one company or not. Literature review: Existing attempts to apply the value chain to the independent feature film industry: In recent years a number of analysts and academic writers have referred to the relevance of the value chain concept for analysing the feature film industry, including Zerdick et al. (2000); Eliashberg et al. (2006); Lampel et al. (2006); Aris and Bughin (2006); Vogel (2007); Vickery and Hawkins (2008); and Kung (2008).