i n dustr y updates a n d a n a l y ses f or sou n d busi n ess p l a n n i n g

A publication of the School of Economics, University of Asia & the Pacific, Philippines

In this issue
Feature

2 Motion picture industry:

An analysis of the explanatory
power of brand-related variables
and word of mouth for industry
performance

John Harmon M. Camu

Josette Albertine S. Quintos
Althea Mae M. Salcedo
Rige Gabriel N. Tuason
Jovi C. Dacanay

Industry statistics
12 Gross value added (GVA) in
electricity, gas, and water supply

issn 0117– 1798

april The industry monitor is a monthly publication of the School of Economics of the University of Asia and the Pacific •
Pearl Drive, Ortigas Center, Pasig City, Metro Manila, Philippines 1605  •  Telephone: 637-0912 to 26; Telefax: 632-7968.

 2 0 1 4 The comments and views expressed in these papers are solely the responsibility of the authors and do not represent any
position held by UA&P. These papers may not be distributed in full or in part without prior written authorization.
Acknowledgements: Editing  Ma. Victoria Anastacio •  Layout  Rommel B. Casipit • Design  Art & Copy Communication
Design Inc.  •  Printing Inkwell Publishing Co. Inc.
 april 2014  F E A T U R E

Motion picture industry:

industry monitor

An analysis of the explanatory

power of brand-related variables
and word of mouth for industry
performance
The sharing of movie production costs by two production outfits increases their chances of gaining revenues at
minimal costs. They also share their respective contract talents who have attained significant stature or fame in the
industry. Third of four parts.

John Harmon M. Camu

Josette Albertine S. Quintos
Althea Mae M. Salcedo
Rige Gabriel N. Tuason
Graduate Staffmembers
Industrial Economics Program
School of Economics, UA&P

and

Jovi C. Dacanay
Economist
School of Economics, UA&P

T
he third part of this four-part series presents the five-forces analysis of industry
competition, the industry’s conduct, and initial results of the study.

Porter’s Five Forces Analysis Table 1 • Five forces analysis (Intensity of rivalry)
Michael Porter identified five competitive forces Factors affecting rivalry among existing Characterization
that shape every industry and market. Following is competitors (current)

a discussion of how the five forces affect competition Cost structure of firms: sensitivity of costs to capacity
utilization
High
in the movie production and distribution industry. Degree of product differentiation among sellers?
Cross-price elasticities of demand among competitors Low
Table 1 summarizes the intensity of competition. in industry?
A. Intensity of rivalry Buyer’s costs of switching from one competitor to
Low
another
Are prices and terms of sales transactions observable Low
Table 1 • Five forces analysis (Intensity of rivalry)
Can firms adjust prices quickly? Low
Factors affecting rivalry among existing Characterization Large and/or infrequent sales orders Moderate
competitors (current)
Use of “facilitating practices” (price leadership,
Degree of seller concentration High High
advance announcements of price changes)
Rate of industry growth Moderate History of “cooperative” pricing High

Significant cost differences among firms Moderate Strength of exit barriers High

Excess capacity Yes High industry price elasticity of demand Low

F E A T U R E 

Seller concentration can be measured by observing and the duration of the film exhibited in cinemas on
the market share of top production and distribution the condition that the film generates the standard
companies (sellers). If at most two companies exhibit a number of ticket sales. If not, the exhibitor may pull
large value of market share, it may be inferred that the out the film from its cinemas, which implies that the
selling of products is highly concentrated in these two bargaining power of exhibitors is high.
companies. The market share of the top five producer/ Moreover, the prices and terms of sales transactions
distributor companies in the film industry is highly are not considered observable. Firms cannot adjust
concentrated in two companies to a large varying prices quickly because the production companies
degree. The market share of the top two companies sell their final products at market price. From that
are 43.1% for Star Cinema and 16.64% for Viva analysis, we can infer that the industry cannot have
Films. The next three companies exhibit relatively low market dominance by being price-driven. Instead,
market share, with GMA owning 3.95%, Regal with firm players can resort to being quantity-driven to
3.77%, and Octoarts with 2.85%. The fact that only possibly gain a larger market share. Since film players
two companies pose double-digit market share upholds can only be quantity-dependent and the costs of
the statement that the supplier concentration of the producing a film are high, the most feasible way is
industry is high. Additionally, it may also be said that for coopetition to happen. Coopetition is defined as a
the market share is highly concentrated in Star Cinema form of strategic alliance between firms which can lead
despite Viva’s double-digit market share because Star to market expansion and the formation of business
Cinema has a large 27% lead in market share. relationships. In the case of the movie industry,
The growth rate of the industry is exhibited by production outfits share costs of a film, as well as their
the growth rate in revenues which stands currently respective contract stars, with the view of generating
at 1.184 in the year 2012. The cost difference among more profit, thus benefitting both of them. Given the
firms is considered moderate due to the fact that they power of brand-related variables and the sharing of
produce the same final products, which are films. The stars that goes with it, there is a greater probability
only difference may be attributed to the differences of increasing revenues and even profit given minimal
in processes followed by production companies to costs of production.
produce a film, such as the wages of actors. Meanwhile, the size of sales orders of the production
In the 2008 Annual Census of Establishments, total companies is considered to be moderate. From 2008-
compensation is listed at P255,994,000 and total 2013, production companies produce at least two
revenue at P3,000,750,000. Thus by calculation, the films in the same month of the same year. Usually,
ratio of total compensation is 0.085 which implies only one film is produced per month in the case of
that 8.5% of revenues is used to pay the employees of Star Cinema, while other production companies do
the industry. This value seems small considering that not produce films on a regular basis.
it includes actors’ compensation, and star power is The following are the instances when two movies
the film industry’s main driver for gaining revenues. were produced in the same month in a year: Who’s
Thus the compensation of actors should cover a That Girl? and Catch me… I’m in Love (Viva Films,
dominant portion of total compensation and total March 2011); Working Girls, and Babe, I Love You
revenue. This implies that the stars of films possess a (Viva Films, April 2011); Every Breath You Take and
UNIVERSITY OF ASIA
UNIVERSITY OF ASIA

high bargaining power which can eventually affect the Born to Love You (Star Cinema, May 2012); Way
costs of production companies and make them highly Back Home and Wedding Tayo, Wedding Hindi (Star
sensitive to costs. Cinema, August 2011); Sa Iyo Lamang and I Do (Star
The degree of product differentiation is considered Cinema, September 2011); This Guys In Love With
low due to the fact that all production and distribution You Mare and Suddenly It’s Magic (Star Cinema,
& THE

companies produce and manage the same final October 2012).

& the

product which is the movie itself. On the other The industry price of elasticity is considered
PACIFIC

hand, the cost to buyers or exhibitors of switching low which implies inelasticity of the production/
PACIFIC

from one competitor to another is considered low. A distribution companies’ products to buyers
written contract spells out the terms of opening day (exhibitors). Despite the relatively high price of the
 april 2014  F E A T U R E

films distributed, the exhibitors will still purchase Who’s That Girl? SMDC was said to have contributed
the films due to the few substitutes it can consider to to sunk costs in producing the movie of Anne Curtis
industry monitor

replace movies in their cinemas. and established a 50-50% partnership with Viva.
The strength of exit barriers is high due to the fact SMDC was said to have co-produced also the Anne
that it would be costly to stop shooting a film after Curtis’ film A Secret Affair.
having incurred expenses in the preproduction and/ Network externalities are considered to be highly
or production stages. Thus, firms strive to complete positive due to the fact that exhibitors are integral
producing a movie when expenses have already been for the production/distribution companies for the
incurred in order to prevent losses. A more feasible exposure of their film. Usually, the demand for
strategy is for film players to collaborate so as to working with a renowned exhibitor (SM Cinemas) is
reduce their costs. Given the high costs of production, high due to numerous branches and cinemas available
there should be an assurance of a greater return for for exhibiting films. If one company collaborates with
the company. Therefore, it is safer to cut production SM Cinema, other companies would also prefer to do
costs into two or three through collaboration, while at the same, and thus positive externalities are visible.
the same time gaining more revenues given the power Government protection of incumbents is considered
of the stars to influence their audience in watching to be low, primarily because of the large sum of taxes
their respective films. imposed on the companies. The Philippine movie
B. Threat to entry industry at present shoulders nine different kinds of
taxes. Government protection slightly exists only for
Table 2 • Five forces analysis (Threat to entry) companies that produce a film with an A grade which
Characterization
would exempt a company from paying an amusement
Factors affecting threat to entry
(current) tax fee.
Significant economies of scale Low Incumbents such as the five production/
Importance of reputation or established brand loyalties
High distribution companies are not known for retaliation
in purchase decision
Entrants’ access to distribution channels Low
or “toughness.” The fact that collaboration and
Entrants’ access to raw materials Low
coopetition is now the norm for higher profits to be
Entrants’ access to technology/know-how High
generated inclines companies to coproduce, and thus
Entrants’ access to favorable locations Moderate mutually benefit each other. Therefore there are low
Experience-based advantages of incumbents High perceptions of retaliation or toughness toward the
Network externalities: demand side advantages to
High
incumbent companies.
incumbents from large installed base
C. Pressures from substitutes
Government protection of incumbents Low

Perception of entrants about expected retaliation

of incumbents/reputations of incumbents for Low Table 3 • Five forces analysis (Pressure from substitutes)
“toughness”
Factors affecting or reflecting pressure from Characterization
substitute (current)
Economies of scale in the production/distribution Availability of close substitutes High
firms are considered low, rightfully because of the Price-value characteristics of substitutes High

risks and uncertainties of producing films. Not all Price elasticity of industry demand Low

films are guaranteed to be blockbusters or to generate Availability of close complements High

high revenues, enough for compensating the costs of Price-value characteristics of complements High

producing more films. The fact that the film industry

is considered a risky investment industry explains why There are other forms of media and entertainment
significant economies of scale are considered low. which can be presented and are easily accessible by the
The importance of reputation of established market. The Internet and television play a large role
brand loyalties in purchase decisions is considered 
“SM to invest in feel-good movies only,” Manila Bulletin,
high which can be proven by instances when February 27, 2011 http://ph.news.yahoo.com/sm-invest-feel-
good-movies-only-20110226-214922-636.html Accessed
SMDC collaborated with Viva in producing and 10/07/13
promoting a movie starring Anne Curtis, entitled 
J. Angara, “Explanatory Note.”
F E A T U R E 

of being close substitutes to films in cinemas. Many The volume of purchases by buyers highly
people engage in downloading or even accessing outnumbers the supply volume of suppliers. Exhibition
pirated movies through the Internet, reducing the companies such as SM Cinemas and Ayala Cinemas
potential revenues for the film industry. Additionally, purchase movies from varied production companies
people can access television and view movies without while suppliers produce films that come from their
having to incur an expense or leaving their homes, own production company. Thus the volume of shares
providing high availability of close substitutes. in purchases by buyers is higher than the volume of
The price elasticity of demand can be considered sales by suppliers.
low due to the fact that exhibitors (buyers) obtain films When considering supplier inputs, it may be stated
only through production/distribution companies. that the substitutes to inputs are low. The main inputs
Production/distribution companies will set prices of films are the actors and actresses that possess the star
according to the market price which the exhibitors power to attract a large audience to purchase tickets.
will accept. Complements to films in cinemas include Stars cannot be easily replaced. Not all actors/actresses
food and drinks such as popcorn and soda. These can generate high revenues for films. On the other
complements are usually readily available in stalls hand, the members of the crew, another necessary
near cinemas. Thus, there is a high availability of input for producing a film, cannot be replaced with
close complements. another factor of input. Thus there are few substitutes
D. Bargaining power of suppliers to supplier inputs.
The case of SMDC investing specifically in
Table 4 • Five forces analysis Viva Films is an example of an industry player
(Bargaining power of suppliers)
making relationship-specific investments to support
Factors affecting or reflecting power of input Characterization
suppliers (current)
transactions with specific suppliers.
Is supplier industry more concentrated than the Suppliers do not pose threats to forward integration.
Moderate
industry it sells to? There have not been any instances of any production/
Do firms in the industry purchase relatively small
volumes relative to other customers of suppliers? Is a
distribution company venturing into the exhibition
Large
typical firm’s purchase volume small relative to sales of side of the industry. The exhibitors remain the eight
a typical supplier?
film exhibition firms of the industry with SM Cinemas
Few substitutes for supplier’s inputs Yes
as the dominant firm.
Do firms in the industry make relationship-specific
investments to support transactions with specific Yes The most important indicator of high bargaining
suppliers?
power of suppliers is the producer and distributor’s
Do suppliers pose a credible threat of forward
integration into the product market?
Low price discrimination. In the written contracts between
Are suppliers able to price-discriminate among
film distributors and exhibitors, an anticipated
prospective customers according to ability/willingness Yes blockbuster film is usually given more screens than a
to pay for input?
non-blockbuster film in exchange for purchase by the
The buyer industry can be considered more exhibitors. Exhibitors will demand from distributors
concentrated than the supplier industry due to the films that are anticipated blockbusters and will thus
fact that one out of the eight exhibition companies comply with the film distributors’ decision on pricing,
as well as allocating the number of screens for the film.
UNIVERSITY OF ASIA
UNIVERSITY OF ASIA

in the Philippines (SM Cinemas) dominates the

market share with a total of 198 theatres available for A John Lloyd-Sarah film, a co-production of Star
film screening. The supplier industry, on the other Cinema and Viva, can have more screens as bargained
hand, has Star Cinema as the most concentrated firm by the producer-distributor because their big-screen
in terms of production/distribution market share. team-up had already drawn massive audiences
However, there are numerous production/distribution through the A Very Special Love trilogy. Thus, price
& THE

companies aside from the top five companies which discrimination is high and applicable in the sense that
& the

thus makes suppliers at least moderate in terms of distributors can manipulate prices of movies (highly
PACIFIC

concentration compared to buyers (exhibitors). 

Ibid.
PACIFIC


Mette Hjort, ed., Film and Risk (Detroit: Wayne State

“SM to invest in feel-good movies only,” Manila Bulletin. University Press,  2012), 194.
 april 2014  F E A T U R E

priced for anticipated blockbusters, a lower price for price elasticity of the buyer’s product is low due to the
movies not anticipated to be a blockbuster). fact that films are necessary for exhibitors to exhibit
industry monitor

E. Bargaining power of buyers the films in their movie screens. Especially if the film
to be distributed is a blockbuster, the exhibition firms
Table 5. Five forces analysis would agree to the high sale price of distributors in
(Bargaining power of buyers)
order for the film to be exhibited on their screens.
Characterization
Factors reflecting power of buyers
(current) Buyers can be considered to pose threats to
Is the the buyers’ industry more concentrated than the
High
backward integration, as occurred in the year 2011.
industry it purchased from?
SMDC collaborated with Viva Films in coproducing
Do buyers purchase in large volumes? Does a buyer’s
purchase volume represent a large fraction of the Moderate
the movie Who’s That Girl? If other exhibition firms
typical seller’s sales revenue? enter the film production/distribution market, a
Can buyers find substitutes for the industry’s product? High monopoly is possible in the entire film industry,
Do firms in the industry make relationship-specific
investments to support transactions with specific Yes
with one company dominating both production/
buyers? distribution and the exhibition industry. However,
Is price elasticity of demand of buyer’s product high
Low
SMDC’s venture into the production industry was a
or low?
collaboration and not a sole endeavor. Thus the threat
Do buyers pose credible threat of backward
integration?
Moderate is currently considered moderate.
Does the product represent a significant fraction of
High
The product represents a significant fraction of cost
cost in the buyer’s business?
in the buyer’s business, particularly because exhibitors
Are prices in the market negotiated between buyers
and sellers on each individual transaction, or do sellers require films to be distributed to them, and purchased
Low
post a “take it or leave it” price that applies to all
transactions?
by them in order to exhibit films in their movie
screens. If the film is an anticipated blockbuster, then
SM Cinemas has 198 movie screens, which highly the fraction of cost increases due to a higher pricing
outnumber Robinsons Movie World’s 43 movie decision by distributors.
screens. On the other hand, Star Cinema, the current Prices in particular are determined by distributors
leading production company in terms of movies, in collaboration with the producers on how much
produced movies in the double digits (17 for 2012). In exhibitors should pay to purchase the film for
terms of movies produced, Star Cinema outnumbered exhibition in their cinema movie screens. Rather than
Viva, the second production company, (Viva), by 7 to negotiating prices, terms of agreement exist in the
10 films for 2012. Thus, the concentration of buyers exhibition contract such as the percentage of ticket
(exhibitors) in the industry is higher than the industry sales received by the production/distribution firms
it purchases from. and the exhibition firm. These locked-in negotiations
These imply that exhibitors have the power to regarding prices makes the bargaining power of buyers
dictate the number of screens for a film. Given brand- low.
related variables such as star power, theater owners
have the final say as regards the number of screens Industry Conduct
in the first-week theatrical run of a film. Allocation
of screens is done in two ways: by bargaining of the Pricing policies
distributor or by evaluating the brand-related variables The determination of cinema prices is legally
such as star power. A proven team-up in the big-screen prepared by exhibitors but is also closely monitored
then has higher chances of having more screens and by distributors.
This is because revenues are shared
more chances of increasing overall revenues. 
Dave Roos, “How Booking Agents Work”. http://
Viva is an example of a firm in the industry entertainment.howstuffworks.com/booking-agent2.htm
Accessed 10/07/13
that makes relationship-specific investments to 
Jehoshua Eliashberg, Anita Elberse, and Mark A.A.M
support transactions with specific buyers. SMDC, a Leenders, “The Motion Picture Industry: Critical Issues in
conglomerate under SM and a film exhibitor, agreed Practice, Current Research & New Research Directions,”
Marketing Science 25, no. 6 (2006): 638-661. www.hbs.edu/
to support Viva in producing films starting 2011. The faculty/Publication%20Files/05-059.pdf (accessed August 2,

“SM to invest in feel-good movies only,” Manila Bulletin. 2013).
F E A T U R E 

not only by exhibitors during the exhibiting but also In multiplexes, theaters vary in quality of facilities.
by distributors as well as producers. This is where exhibitors practice price discrimination.
Movie theaters do not offer different prices for A grade A movie is shown in a renovated theater
different films showing at the same time. The price with better technology, while a lower grade movie is
remains the same throughout the specific length a usually in older theaters with smaller screens. Price
movie is shown in theaters, which makes the length of discrimination also offers more opportunities to
runs and displays on more screens or in larger venues attract more moviegoers to other movies.14 Ticket
the basis for selling more cinema tickets.10 There has prices also depend on the presence of other cinemas
been always one price charged for all movies. One- or other exhibitors nearby, allowing moviegoers to
price-tickets have been the tradition of cinemas, when choose a specific cinema.15
everybody would put a penny in a peep show machine.
Around 1910, movie prices varied according to length, Advertising/Promotions:
stars, and popularity. By 1940s, exhibitors would have A subset of film distribution is advertising and
the rights to each movie within a certain location. promotions. Advertising and promotions from
One-price-tickets started when the Paramount anti- movie distributors may serve as an indicator of box-
trust case broke up monopolies between producers office success. The more often teasers and trailers are
and distributors that led to multiplexes. The need to shown, the greater the chance for a movie to make it
rely on fewer and more expensive movies led to this to the box-office. People would want to know more
one-ticket-price. This system is a uniform practice for about the movie. The movie is written about in news
all the exhibitors until today.11 articles as well as talked about. Advertisements create
Different theories gathered to explain the said either positive or negative word-of-mouth. Even film
system all boils down to how consumers react to specialists affirm that good advertising and promotions
price when it comes to cinemas. First, cutting prices result in informational cascades and herd behavior.16
after a successful opening weekend would allow fewer If a mother network backs up a certain movie project
moviegoers in the first week, thus letting revenues go such that a teaser is shown every commercial break,
down.12 Of course, consumers would want to spend the public would know more about the movie and
less for a good. If they know that prices will eventually decide whether or not to watch it.
go down, they would want to wait for the succeeding As observed in the present scenario, months before
weeks. Second, price is a sign of quality.13 Some the release of a Hollywood film, trailers are released
consumers base their consumption on goods solely on so that the consumers can make an evaluation of the
price. They think that the more expensive, the more expected flow of story in a movie. The trailers stir up
a movie has been researched on, indicating grade A curiosity of consumers. Generally, trailers are shown
quality. If exhibitors or cinema theaters price movie 30 days before a movie’s release. There are different
A at less than Php 200, and movie B at over Php 200, types of release strategies: exclusive release is a non-
moviegoers would assume that movie B is better than commercial premiere of a movie in a few selected
movie A – thus more would want to watch movie locations only; saturation booking means a film is
B. Movies also receive grades ranging from A to C premiered in the widest and largest possible number
which correspond to their prices at cinema theaters. of theatres as possible; limited release is release of a
UNIVERSITY OF ASIA
UNIVERSITY OF ASIA

film in major cities only; platforming refers to the


Derek Thomson, “Why Do All Movie Tickets Cost the
Same? The Atlantic” News and analysis on politics, business,
distribution of a film in “gradually widening markets
culture, technology, national, international, and life http://www. and theatres so that it slowly builds its reputation and
theatlantic.com/business/archive/2012/01/why-do-all-movie- momentum through reviews and words-of-mouth.”17
tickets-cost-the-same/250762/ (accessed August 2, 2013).
10
Pascal Courty, “An Economic Guide to Ticket Pricing in 14
Ibid.
& THE

the Entertainment Industry” London Business School.http:// 15

Eliashberg et al., “Critical Issues in Practice.”
& the

harbaugh.uoregon.edu/Readings/Ticket%20pricing/LER.pdf 16
G Pasadilla and A Lantin Can the Philippines Follow
PACIFIC

(accessed August 2, 2013). Bollywood? Philippine Institute of Development Studies Manila:

PACIFIC

11
Thomson “Why Do All Movie Tickets Cost the Same? (2005)
12
Ibid. 17
T. Corrigan & P. White, The Film Experience: An
13
Ibid. Introduction. (USA: MacMillan Publishing Ltd, 2009).
 april 2014  F E A T U R E

In the case of our Filipino movies, trailers are shown talents of a specific film production outfit, players
two to three weeks before the movie’s release in the need to cooperate and to share stars with high market
industry monitor

market. The differences briefly explain the phenomena value in order to produce films that are blockbuster
in the country.18 in nature.
Convention-like events such as festivals offer Coopetition and sharing of stars are seen in the
opportunities to get attention especially for pairing of contract stars of different film production
independent film producers.19 A film festival is more outfits. John Lloyd Cruz is a contract talent of Star
than just the screening of films. There are launch Cinema, whereas Sarah Geronimo belongs to Viva.
parties and press conferences as well as educational Before they can be paired in a movie, Star Cinema
seminars and awards with judges and prizes. It is also and Viva Films need to co-produce and share the
a way to bring together in one event and location not costs of the film. Table 6 shows the gross revenues
only those who want to see new and unique films but of selected movies that were coproduced and their
also those involved in the moviemaking process such corresponding gross revenues and ranking out of the
as directors, producers, and seasoned and emerging 68 movies analyzed in this paper.
talent.20
Table 6 • Gross revenues of selected movies
Production/Marketing strategy:
Rank
Partnerships in the film industry include coopetition Movie
Production
(68
Gross
outfits revenues
and affiliation with a studio. Financing is also seen movies)

as less problematic if the producer is affiliated with a ItWoman

Takes A Man And A
Viva and Star 1st 401.03
studio. By signing a studio contract, a producer usually No Other Woman Viva and Star 2nd 278.42
gives up a wide range of rights that have something You Changed My Life (w/
Viva and Star 4th 225.62
to do with sequels, spin-offs, merchandising, and Viva)
other opportunities. The return to producers has Catch Me…I’m In Love Viva and Star 13th 120.21
Star and
to do with increasing the chances of securing bank Here Comes The Bride OctoArts
16th 117.16

loans or tapping into the studio’s own capital and Babe, I Love You Viva and Star 19th 96.19

securing favorable distribution and exhibition deals You to Me Are Everything  GMA and Regal 20th 93.82

for the series of movies. At the same time, studios are When Love Begins Viva and Star 21st 91.27

also growing more dependent on companies that are Pak! Pak! My Dr. Star and
28th 77.05
KwakKwak OctoArts
able to tap into overseas subsidies and tax incentives
In Your Eyes GMA and Viva 32nd 63.59
– efficient portfolio management strategies may help
Temptation Island GMA and Regal 33rd 62.78
to secure product placements, which can also help
One True Love GMA and Regal 37th 58.8
reduce costs and thereby risks.21
When I Met U GMA and Regal 39th 58.66
As for coopetition, the sharing of movie production
Wedding Tayo, Wedding Star and
51st 37.46
costs by two production outfits increases their chances Hindi OctoArts

of gaining revenues at minimal costs. They also share Working Girls Viva and Star 53rd 31.99

their respective contract talents who have attained Patient X GMA and Viva 60th 24.49

significant stature or fame in the industry. In the Source: IMDB

years following this market trend, stars have increased

their market value as well as their power to influence
the audience. Since actors and actresses are contract Industry Performance and Prospects
18
Pasadilla and Lantin, Can the Philippines Follow
Bollywood?
Theoretical Framework
19
B. Mamer, Film Production Technique: Creating the The motion picture industry is projected to be more
Accomplished Image. (CA: Wadsworth Cengage Learning, 2009), sustainable, following the concept of economies of
118. scope. The latter is defined as a scenario wherein
20
Yager F. and J. Yager, Career Opportunities in the Film
Industry (NY: Ferguson, 2009), 204. the joint output of a single firm is greater than the
21
Eliashberg et al., “ Critical Issues in Practice.” output that could be achieved by two different firms
F E A T U R E 

producing a single product.22 There are only five are based on the conceptual framework. These are the
major production and distribution outfits in the factors moviegoers consider when deciding whether
current Philippine motion picture industry. Despite to watch a film or not. These are used in the methods
their market share of more than 70%, there are two mentioned earlier to explain gross revenues.
firms, namely, Viva Films and Regal Films that have
incurred an average net loss instead of net profits. Table 7 • Summary of demand determinants
Given this circumstance, the question is, how do these Distribution-
Brand-related Objective Information
major firms maintain their market dominance? variables features sources
related
variables
Two methods, namely, factor analysis and regression Actors Age ratings IMDB rating Competition
are used in this study. Factor analysis is used to see Producers Movie genre Moral rating
Number of
screens
which variables are highly correlated. Artist-producer
Director Technical rating
and producer-producer relationships that frequently
Source: Authors’ framework
work together are obtained here. The results from this
method are used in regression models to determine
Coopetition
which factors have a significant explanatory power in
In the analysis of industry revenues, the regression
explaining the dependent
model incorporates the
variable, gross revenue. Figure 1 • Conceptual framework
HHI of the Top 5 and
The presentation of data
the Top 30 as possible
follows the structure of the
determinants of total
conceptual framework (see Week 1 Week 2 Week 3
industry revenue. Other
Figure 1). Factors affecting
variables included in
first-week revenues include
Word-of- mouth the analysis of industry
brand-related variables Word-of-mouth
Star power
Star power
Star power
revenues from 1996
consisting of genre, rating, Genre
Genre
Genre
MTRCB rating MTRCB rating to 2010 include the
and producer reputation Producer reputation
MTRCB Rating
IMDB
Competition for 1
Producer reputation
st Producer reputation average movie projection
but mainly driven by star week
Competition
Competition
Days cinema revenue (per film),
power.23 By the second Days cinema
the average industry
week, word of mouth
compensation (per film),
already takes effect Number of screens Number of screens Number of screens and the average sales of
and proves that it is an
Star Cinema and Viva
essential determinant of
Films (per film). Table 8
gross revenue. In the end, Ticket sales Ticket sales Ticket sales summarizes the variables
the results show what
used in the analysis of
technique or strategy these
the regression model for
firms may engage in over Source: Authors’ framework
industry revenues.
the years and the positive
implications of the strategy that will sustain their
Table 8 • Description and code of variables for industry
market dominance.
UNIVERSITY OF ASIA
UNIVERSITY OF ASIA

revenues
Table 7 shows the classifications of demand deter- Variables Description Code
minants,  namely, brand-related variables, objective Represents the summation
features, information sources and distribution-related HHI Top 30
of the market shares
HHITOP30
of the average 30 firm
variables. The components under each classification
24
players
Represents the summation
22
Robert Pindyck and Daniel Rubinfield, Microeconomics, of market shares of
& THE

(Singapore: Pearson Education South Asia Pte. Ltd, 2009), 250. HHI Top 5 the top five industry HHITOP5
& the

movie production and

23
Jovi Dacanay, Maia King-Calvo & Angelo Santos. distribution players
PACIFIC

Information Cascades as SocialLearning: The Case of Box-Office

Average movie
PACIFIC

Ticket Sales in the Philippines, Proceedings of the European projection

Represents the average
INDMOVPROJVALUEADDED/
projection sales per film
Conference on Knowledge Management; 2010. revenue
released
VOLUMETOP5
24
Ibid. (per film)
 april 2014 10 F E A T U R E

Table 8 • Description and code of variables for industry the success of coopetition leads to an increase in the
revenues respective market values of their stars, in simpler
industry monitor

Variables Description Code terms, their star power.

Average
Represents the average
industry INDUSTRYPDCOMP/ Table 9 • Summary of results on the effect of coopetition
industry compensation per
compensation VOLUMETOP5
(per film)
film released. on industry revenues

Average sales Represents the average Variable Significance

of Star Cinema revenues generated by the
SALESTOP2/VOLUMETOP2
and Viva Films top two film production HHITOP30 +
(per film) companies
HHITOP5 +++
Source: Authors’ framework
IndMovProjValueAdded/
++
VolumeTop5
Results show that HHITOP5 and the average
IndustryPDComp/VolumeTop5 +++
compensation per film are highly significant in
Average Sales per Film (Top 2) ++
explaining the total industry revenue (refer to Table
9). These are consistent with the results of the Pairwise R2 92.12%

Granger Causality Test, a process which determines Adjusted R2 85.22%

the relationship between variables with a specific
Note: +++ Highly Significant (p-value is less than 0.01); ++ Very Significant
lag period. Some variables then, may have a high (p-value is from 0.01 to 0.05; + Significant (p-value is greater than 0.05);
ns otherwise
explanatory power in determining industry revenues Source: Authors’ framework
only after a year, two years, or three years depending
on the lag period stated. The local film industry is dominated by
The Granger Causality Test suggests that average collaboration among firms, in the likes of Star Cinema
industry compensation significantly explains industry and Viva Films, as well as that of GMA Films and
revenues only after a lag period of three years. It takes Regal Films. Films, under the co-production of Star
three years before average industry compensation Cinema and Viva, have produced most of the movies
can have an impact on industry revenues because the in the Top 10 Highest-Grossing Local Films of all Time.
talents of film production outfits are tied in a contract These films are presented in Table 10.
of three years. Hence, the talents’ income may vary
depending on the number of projects in the succeeding Table 10 • List of highest-grossing films co-produced by
three years. By the time the contract has lapsed, the Star Cinema and Viva
talent’s market value may have increased or decreased. Movie Year
Gross Revenue (in million
pesos)
A higher market price entails that the talent is now
1. It Takes a Man and a Woman 2013 401.03
more marketable in terms of attracting a large number
of audience. Hence, the talent’s succeeding contracts 2. Sisterakas 2012 391.01

may demand greater compensation. Through the 3. The Unkabogable Praybeyt

2011 331.61
Benjamin
test of time, an actor’s bankability can positively
4. No Other Woman 2011 278.39
contribute to industry revenues and even profits.
Since talents are bound by contracts with their 5. This Guys In Love With You
2012 249.09
Mare
respective film production outfits, talents with high
6. You Changed My Life 2009 225.21
market value cannot star opposite a highly in-demand
contract talent of another outfit. Given the profit- 7. A Very Special Love 2008 179.25

oriented nature of the film industry, production outfits Source: Box Office Mojo (Philippines)

can share their highly valued stars by co-producing a

movie to boost sales and profits for both firms, while at Moreover, the Granger Causality Test (see Figure
the same time decreasing overall costs of production. 2) suggests that HHITOP5 is highly significant in
This is what coopetition calls for – production outfits explaining industry revenues in the sense that the
can resort to sharing of their contract talents for profit interaction among these outfits characterizes their
maximization and cost minimization. Ultimately, overall market share and eventually HHI. Results
F E A T U R E 11

Figure 2 • Granger-Causality test

Return on sales top 2

Return on sales next 3

Return on sales top 5

HHI top 30 HHI top 5

Industry PD compensation/volume
Return on sales top 2 Industry PD revenue top 5

Legend

Lag 1 Lag 2 Lag 3

Source: Authors’ framework

show that Star Cinema and Viva Films are not prime
movers; in fact, their reaction is dependent on the Ln industrypdrevit = β0 +β1 hhitop30it + β2 hhitop5it
performance of Regal, GMA, and OctoArts. The + β3indmovprojvalueadded/volumetop5 it + β4(profi
assertion of dominant firms cannot also serve as a ttop2+profitnext3/salestop2+salesnext3)it+β5genrei +
firm basis of industry revenues, given that the average β6screenweek2it + β7 revweek2factor11/grossrev – β8
profit of Viva and Regal is negative based on the data competeweek2
gathered from their financial statements from 1996
to 2010. Their negative profits imply that at certain
points from 1996 to 2010, Viva and Regal needed to Total industry revenue can be explained by the
co-produce and share their contract talents with more interaction between firms, as indicated by the HHI
stable firms – Star Cinema, GMA, and OctoArts. Top 30 and HHI Top 5, as well as the average
UNIVERSITY OF ASIA
UNIVERSITY OF ASIA

In the process of coopetition, production costs are movie projection, and return on sales. It is expected
cut, and the chances of earning increases, although that HHITOP5 can positively contribute to overall
it can be really small nominally speaking. Hence, the industry revenue, given the interaction among
presence of the five firms in their entirety characterizes firms. HHI can actually be a representation of the
the overall industry revenues. collaborative power between industry players, in the
likes of Star Cinema and Viva Films, GMA Films,
& THE

Regression results suggest that HHITOP5 and

& the

average industry compensation have high explanatory and Regal Films.

PACIFIC

power for overall industry revenues. Together with The last part of this four-part series presents the
PACIFIC

other variables, and using the formula below, the results on star power and word of mouth and discusses
adjusted R2 is 85.22%. the study’s conclusion. IM
 april 2014 12 statistics

Gross value added (GVA) in electricity, gas, and water supply

Q1 2011 to Q4 2013 (current prices)
industry monitor

Unit: P million
2011 2012 2013
Industry/industry group Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Electricity 64,848 82,662 63,544 58,542 73,537 94,540 71,631 66,715 82,163 103,051 78,557 71,750
Steam 2,345 2,609 2,285 2,893 2,879 2,818 2,124 2,720 2,248 3,410 1,824 2,301
Water 12,153 14,007 10,795 13,663 14,117 15,601 12,184 15,212 14,715 16,787 12,805 16,045

(GVA) in electricity, gas,

and water supply 79,345 99,278 76,624 75,098 90,532 112,960 85,938 84,647 99,125 123,247 93,186 90,095

GVA in electricity, gas, and water supply

Q1 2011 to Q4 2013 (constant prices)
Unit: P million
2011 2012 2013
Industry/industry group Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Electricity 40,518 45,165 49,387 41,603 43,671 47,772 50,623 43,022 43,807 50,681 54,199 44,139
Steam 2,218 2,340 2,176 2,641 2,540 2,615 2,194 2,667 2,425 2,720 2,279 2,596
Water 4,413 4,784 4,287 5,017 4,937 5,088 4,559 5,256 5,056 5,388 4,713 5,474

(GVA) in electricity, gas,

and water supply 47,148 52,289 55,850 49,260 51,148 55,475 57,375 50,946 51,289 58,789 61,191 52,209

GVA in electricity, gas, and water supply

Q1 2011 to Q4 2013
Implicit Price Index
2011 2012 2013
Industry/industry group Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Electricity 160.0 183.0 128.7 140.7 168.4 197.9 141.5 155.1 187.6 203.3 144.9 162.6
Steam 105.7 111.5 105.0 109.6 113.3 107.8 96.8 102.0 92.7 125.4 80.0 88.6
Water 275.4 292.8 251.8 272.4 285.9 306.6 267.3 289.4 291.0 311.6 271.7 293.1

(GVA) in electricity, gas,

and water supply 168.3 189.9 137.2 152.5 177.0 203.6 149.8 166.2 193.3 209.6 152.3 172.6

Source: Philippine Statistics Authority