Vertical Integration Movements Within the European Cinema Exhibition Industry
Since the 1950s, various theoretical writings dealing with industrial
strategy have shown the importance, for an economic actor, of being present
at the different levels of the sector in which he exercises his core business,
upstream activities (production, and even production of raw materials)
and downstream commercialisation.
This situation, known as vertical integration, can therefore be defined
as the presence of the same group, or the same enterprise, in the activities
of production, commercialisation and sales of a given product or service.
They are a result of the decision of a firm not to use market transactions
but rather to use its own resources to achieve its objectives, as this
latter solution is considered less risky, less costly and/or easier than
In the film industry, one can talk about situations of complete vertical
integration when describing cases where enterprises or groups take part
in the activities of production, distribution and exhibition. For our purposes,
we will also be considering as integrated structures which "only" combine
the activities of distribution and exhibition.
From this point of view, we consider that the film constitutes the
principal "input" of exhibition activity. However, even if it is the essential
element for this activity, it is not the only one: exhibition activity
also has recourse to other goods and services which can also be the object
of vertical integration initiatives. The Kinepolis group, for example,
alongside its exhibition activities, also has at its disposal a department
specialising in the distribution and maintenance of cinema equipment (projectors,
etc.) and an engineering and consultancy subsidiary. These strategic practices
remind us that, at the beginning of the century, cinema throughout the
world was dominated by integrated structures, controlling even the production
of materials. Such practices are marginal today. Although they are interesting,
it is beyond the scope of this analysis to consider them in depth, insofar
as they represent instances of diversification, rather than of a shift
On the other hand, we will look in some detail at downstream integration
- along the value chain upstream is the sector which sells, downstream
is that which buys - and at upstream integration, that is, exhibitors who
move up the chain in order to get a footing in the distribution market.
The dangers of vertical integration movements
Whatever sector one is dealing with, vertical integration strategies
are frequently vigilantly watched by the public authorities, who fear the
appearance of discriminatory practices - and therefore not optimal behaviour
- between the players within the sector. In cases of "complete" vertical
integration, the totality of "production" of the upstream company is absorbed
by the downstream firm, and it does not sell any output on the "open market",
while the downstream firm deals with the upstream company, and it alone.
Both companies then renounce the "open market" for the supply and sale
of their production.
In the cinema sector, the equivalent of this is that a company owns
or controls a cinema circuit and a distribution structure, and that the
group programmes the cinemas exclusively with films which are distributed
by the distribution unit of the group, and in which the latter unit only
offers prints to the cinemas belonging to the parent group.
This seems unlikely: this situation requires that the distributor has
at his disposal a cinema in each local market, which does not occur: it
seems limited in practice to a few alternative structures, in the art-house
and experimental sector, where the market potential is limited, in each
country, to the capital and a few important towns. It is therefore more
relevant to consider cases of "incomplete" or "compartmented" integration.
The principle of reciprocal exclusivity is then no longer applied.
However, in the cinema sector, such situations of "incomplete" integration
can still be sufficient to complicate, in one market or another, independent
(non-integrated) exhibitors' access to films.
In the United States, the authorities are - or rather have been - particularly
concerned to limit vertical integration strategies. Since the Consent Degree
of 1948 and according to the anti-trust legislation, the Majors are not
allowed to intervene in the exhibition sector(12).
This prohibition, reinforced by anti-trust legislation, is, however, only
applicable within the American internal market, and does not concern any
of the majors' foreign activity - particularly that in Europe.
Throughout Europe, there is not one example of a country which has
imposed comparable regulatory obstacles to those existing in the United
States. This is, undoubtedly, one of the reasons for the presence of the
leading US groups as exhibitors in the Old World.
This report aims therefore to identify trends towards vertical integration
in the European exhibition sector, to assess their significance and to
evaluate their repercussions.
It also seeks to show a dozen players whom it does not seem exaggerated
to describe as "integrated structures".
regulations are weakening at present: the shareholders of several studios
also have interests in exhibition. Thus Sony, owner of Columbia, also owns
the Loews network, with over 1,000 screens already. Another example is
Viacom, who are in the process of bidding for control of Paramount, in
a friendly takeover, and who also own a cinema circuit.