Globalization concentrated movie exhibition market in Latin America

After the mid-1990s crisis in the motion picture industry, theater operators underwent a process of concentration and internationalization of capital.

By José Tadeu Arantes  |  Agência FAPESP – In the 1990s, Argentina, Brazil and Mexico, the Latin American countries with the longest history of movie making, experienced a slump in the number of motion pictures produced locally. This was the first time the film production curves for these countries crossed each other, and they did so at a very low level. The trough coincided with a wave of globalization that engulfed all three economies.

“It was a tsunami that drowned the movie industry in all three Latin American countries, and the resumption that followed took place on very different foundations,” said Anita Simis, a professor at São Paulo State University’s Araraquara Department of Sociology (FCLAR-UNESP) in São Paulo State, Brazil. She specializes in the sociology of communication and recently completed the research project “Policies for audiovisual: Argentina, Brazil and Mexico”, supported by FAPESP.

Simis summed up the main findings in an article entitled “Economia política do cinema: a exibição cinematográfica na Argentina, Brasil e México,” published by Mexico’s Metropolitan Autonomous University (UAM) in the journal Versión – Estudios de Comunicación y Política (no. 36, 2015).

“Analysts frequently emphasize production, but my research led me to look at the phenomenon from the exhibition angle,” Simis noted. “Post-tsunami reorganization was characterized by strong concentration and internationalization of capital in the exhibition sector and by the introduction of a multiplex model with several movie theaters in the same venue, typically located in shopping malls.”

She went on: “Moviegoing ceased to be mass entertainment when it became affordable only for a social group with the purchasing power to pay the price of a ticket plus the cost of consumer goods on offer, from the food on sale at the door to the fashionwear and other products displayed by mall boutiques. The industry cast off the previous model of in-depth marketing, with exhibition first in first-world theaters followed by downtown theaters in the peripheral countries, and lastly in provincial towns and neighborhoods. In its place, we now have an extensive marketing model, with exhibitions in large numbers of theaters simultaneously and aggressive advertising that hinders the insertion of local productions, which are often marketed only by word of mouth.”

According to Simis, the three major exhibitors are Cinemark, Cinépolis and GSR, which control 35.9% of movie theaters in Brazil. “They own 1,017 theaters out of 2,833,” she said. “And, in 2014, they attracted 45.9% of moviegoers.”

Cinemark, founded in 1984 in the United States, is the world’s number one operator by number of theaters and number two by ticket sales, with a presence in 13 countries. In Brazil, where it introduced the multiplex model, it operates 585 theaters in 18 states.

Cinépolis, which is a subsidiary of Mexico’s Organización Ramírez but also has links with Coca-Cola, Medcom Group and IMAX Corporation, is the fourth-ranking operator in the world and the largest in Latin America. It currently operates more than 3,300 screens in 11 countries, and it has added 200 screens per year on average over the past five years.

GSR (Grupo Severiano Ribeiro), which in the exhibition sector trades under the name Kinoplex, is a Brazilian organization with 250 theaters in 11 states. It is the sole owner of 188 and runs 62 as a joint venture with United Cinemas International.

Control of distribution and exhibition processes

“Globalization in the film industry has taken the shape of very concentrated control of the distribution and exhibition processes,” Simis argued. “In production, there can be decentralization, as in Mexico, where local firms are strongly associated with foreign capital, or in Brazil and Argentina, whose local production, once tested, can be distributed by US companies. But distribution and exhibition are the key links of the chain in terms of accumulation of capital.”

The main driver of this concentration and internationalization of the exhibition process, according to Simis, was the sharp rise in Hollywood movie production costs, which reached the level of US$60 million in the 1990s. A study cited by her [Cinema, Desenvolvimento e Mercado, by Paulo Sérgio Almeida & Pedro Butcher, Rio de Janeiro, Editora Aeroplano, 2003] states that, whereas in 1986 domestic and foreign distribution accounted, respectively, for 75% and 25% of Hollywood’s revenue, by 1998 the proportion had switched, with foreign distribution accounting for 55% and domestic distribution for 45%.

“Jack Valenti himself has said that only two out of ten US films recoup their investment via exhibition in domestic theaters,” Simis noted. “The rest depend on television, cable, video, and above all the global marketplace.” Valenti headed the Motion Picture Association of America (MPAA) from 1966 to 2004. The MPAA represents the big six Hollywood studios.

This reliance on foreign revenue explains why control of global distribution and exhibition circuits has become the key to success for the major studios and also why exhibition strategy and tactics now have to be global. “Ticket prices are not set according to the purchasing power of the population in the areas where theaters are located. On the contrary, theaters are opened wherever it is believed that there are people who can afford the prices set globally,” Simis wrote.

“Local productions merely fill the slots left after the foreign blockbusters have been accommodated,” she went on. “Films do not directly reach screens for the audience to decide whether to consume them, but are first filtered by distributors and exhibitors using aggressive advertising. This prevents fair competition with local productions. The novelty here is that investment in this strategy is steadily increasing.”

Because distributors and theater operators are often part of the same media groups, concentration becomes almost absolute, restricting the space for cultural diversity to a few art houses or specialized theaters in major cities. One strategy that flows from this concentration is the simultaneous launching of films in thousands of theaters around the world, so that many copies may often be available.

“Whereas a Latin American studio puts one copy of its film on the market, a US studio launches 50 copies simultaneously,” Simis stressed. “According to veteran Argentinian film director Octavio Getino, there has not been a crisis in production but a reorganization of the system for selling movies triggered by the crisis in the traditional film circulation and reception model.”