The Film Industry: A Comprehensive Understanding of How it Works

Since the early1900's, the industry of film has evolved drastically, shaped primarily by the capital invested by millions of moviegoers. Until the 1950's, when the television was introduced for mass consumption, the film industry was responsible for the largest portion of entertainment available, and it was the seven big studios - Warner Brothers, Fox, Paramount, Universal, MGM, Columbia and Disney - who ruled the scene, and reaped the profits. While not much has changed with regard to the power domain of the big studios, more recent trends since the 1990's have urged for their restructuring. As with many companies at the end of the nineties, the studios began a rapid downsizing, and focused on producing fewer films, with higher expected revenues. This opened the door for smaller production companies to distribute their lower-budget films, many of which have grossed remarkable profit. The success of these lower-budget films, like Blair Witch Project, has influenced the studios to follow suit, and consequently most of the studios have acquired specialty divisions and smaller companies.

The film industry is a huge business, with nearly $9.5 billion annually being generated at the box office alone; according to the American Film Marketing Association (AFMA), independent films are generating a huge portion, roughly $3.4 billion in the U.S and over $7 billion internationally. Independent films, which are films financially supported outside of the major studios, have taken the industry by storm. Revolutionized by the Sundance Film Festival, a festival created by Robert Redford in the 1980's, independent films have proven to be successful for a number of reasons. With creative and financial control of productions, independent production companies have been able to plan their budgets more carefully and acquire necessary funding before commencing production; by hiring production and creative staff on a project-by-project basis, they have been able to cut back on substantial costs. Studios, on the other hand, with their seemingly unlimited resources, make excessive financial investments in their big-budget films, and often much higher than their initial projections. Whereas these big-budget films are marketed towards a wide audience for success, independent films with lower budgets can be directed towards a niche market, rather than the entire film-going audience.

The motion picture industry consists primarily of two activities - production and distribution. Production consists of the financing, development, and physical creation of the film. Distribution, on the other hand, refers to the marketing and theatrical exhibition of the film. For big-budget studio films and smaller budget independent films, these activities are for the most part identical; however, each is handled very differently.

The entire process of creating a film at a studio can be broken down into four parts: development, pre-production, principal photography, and post-production. Development, as the name of this step of the process describes, is attributed with the initial development of the film's concept. Formed one of two ways, a film's concept may either be created by an in-house producer, or initiated by a script sold to the studio by an agent. Either way, the story continues its journey to the big screen as budgets are approved and principle actors are sought. The next step, pre-preproduction, takes a great deal of planning and work; talent is secured, the director and crew are hired, the budget is finalized and most of the contracts are signed. At any point during these two processes, studios reserve the power to shut down production of a film. With the approval of the studio, the film goes into its next step, principal photography, which encompasses the filming of the motion picture and usually takes between twelve to twenty-six weeks. The last stage of the film production is called post-production. After the filming has commenced, the raw footage is edited and special effects, voiceovers and soundtracks are added. Post-production, which generally takes six to nine months to complete, creates the film in its final form.

Independent films go through the same processes of production that a studio film goes through, except that development and pre-production are generally controlled by one person: an entrepreneur who might be the film's director or producer. The entrepreneur of an independent film, unlike in the studio system, holds all the power and maintains creative control over the final product.

When a film is completed, the studio or distribution company takes over the theatrical exhibition of the motion picture. In the past, major studio films have opened on as many as 3,000 screens, whereas independent films will generally open somewhere between one and five hundred screens. It is common for independents to open on fewer screens and by building on their success and popularity, open on more throughout their run. With over 40,000 screens in the United States (a fifty percent increase from 1990), there is no lack in the potential for theatrical exhibition. Regardless of how many screens it's projected onto, when a film opens in a theater, the film can begin accruing funds. Generally the exhibitor (theater) pays a percentage of the picture's box office grossing ("rental") back to the studio or distributor, in a 50/50 split. After the distribution fees and production costs are paid off, the revenues from the film can be divided between the investors and the producer.

Theaters aren't the only source of revenue for motion pictures; a huge source of profit for films lies in the video and DVD market. The international market for the rental and sales of DVDs and VHS tapes is massive. Similarly, the television market, with an increase of networks available in the comfort of audience's homes proves to be an essential part of a film's distribution. New channels, including the Sundance Channel, have become a huge outlet for independent films. Pay-per-view television as well as OnDemand, are services that allows cable subscribers to purchase individual films for their enjoyment. These can further amplify a film's profit. Both the cable networks and the pay-per-view services must purchase distribution rights in order to exhibit the film. With digital media taking over the film industry, it is estimated that a digital motion picture projection and distribution system is just around the corner.