Thursday, November 1, 2007

Film and video distribution

Canada's film and video distributors posted a relatively healthy profit margin in 2005 despite a decline in revenues resulting from a sharp drop in foreign sales.

The industry reported revenues amounting to $1.7 billion, down 8.2% from 2004, mainly the result of a sharp reduction in exports. Foreign sales generated revenues of just $90 million in 2005, half the amount recorded in 2004.

At the same time, total expenses surged 8.3% to $1.4 billion.

As a result, distributors recorded a profit of $303 million in 2005, compared with $557 million in 2004. Even so, the industry still posted a profit margin of 18%.

The largest expense item reported by surveyed firms was the cost of sales, which represented 45% of total expenses. Royalties, rights, licensing and franchise fees accounted for 18%, and advertising, marketing and promotions, 13%.

The film and video distribution industry consists of establishments that are primarily engaged in acquiring distribution rights, and distributing film and video productions to motion picture theatres, television networks and stations, and other exhibitors. It does not include establishments that are primarily engaged in wholesaling pre-recorded videos.

Distributors in Ontario and Quebec combined accounted for the vast majority (96%) of total national film and video distribution operating revenues. Ontario firms dominated Canadian distribution, earning 79% of total operating revenues in 2005, while Quebec firms accounted for 18%.

Increase in revenues from the home video market

Data analyzed in the remainder of this release are based on establishments whose combined revenues account for about 95% of the industry's total revenues.

Industry revenues from exports and from the distribution of films to cinemas both declined from 2004. These declines were somewhat offset by an increase in revenues earned from the home video market (the rental or sale of videos for playback on household machines). However, this increase was not enough to keep industry revenues from falling.

Note to readers Data for 2005 should not be compared with previously published data for the Film, Video and Audio-Visual Distribution Survey since significant changes were made to the survey. Some key trends can still be determined as this release includes data for two previous survey years, 2004 and 2003, using the 2005 methodology. This industry-based classification is a departure from the activity-based classification used previously by the Culture Statistics Program. Some film distribution activity that was previously included in the survey is now excluded due to differences introduced in adopting the North American Industry Classification System classification. An example of the new exclusion is establishments that are primarily engaged in wholesaling pre-recorded videos. Data for this release include all provinces. However, provincial data are available only for firms in Ontario and Quebec in order to protect the confidentiality of survey respondents.

The growing popularity of cheaper home entertainment equipment, such as DVD players, and the popularity of renting DVDs help explain the increase. It is an indication that Canadians were more inclined to watch movies in their living rooms than in cinemas in 2005.

According to the Survey of Household Spending, Canadian households spent an average of $122 in 2005 on pre-recorded digital video discs, compact discs, video and audio cassette tapes, video discs, and paid audio or video downloads, up from $116 in 2004.

In addition, data from the Monthly Survey of Large Retailers showed that sales of televisions and audio and video equipment increased 10.5% over the year.

Survey data show that revenues from the distribution of films to the movie theatre market fell 1.6% in 2005 to $325.5 million.

This coincided with a decline in movie attendance in 2005, according to data from the Motion Picture Theatres Survey, released in The Daily on August 3, 2007. One reason cited in the report was a lack of major blockbuster films released during the summer of 2005. This may have dampened attendance and, in turn, reduced the demand for films by movie theatres.

Film and video distributors generate the bulk of their revenues from distributing film and video productions. However, they also make money by wholesaling these videos. Firms that engaged in some wholesaling (as a secondary activity) enjoyed increases in this revenue stream. From 2003 to 2005, revenues earned from wholesaling grew 11%.

Four large firms dominate the film distribution industry

Four large companies, ranked on the basis of revenues earned, dominated the film distribution industry in 2005. These companies accounted for about 70% of total national revenues, up from 66% in 2004.

Revenues for these four companies combined slipped 2.2% in 2005, but they still outperformed the industry as a whole. Revenues for companies in the rest of the industry fell 20.1%.

Revenues for the top four companies increased in two key markets—the motion picture theatre market and the home video market. Combined, these markets accounted for a revenue gain of 26.5% in 2005. This increase is in sharp contrast with the rest of the industry, where distribution revenues to the motion picture market dropped 14%.

The growth was more than offset by a 31.4% decline in revenues from distributing to pay and specialty television, and conventional television markets.

Film distribution companies are engaged primarily in distributing film and video productions to a variety of different markets, including motion picture theatres, television stations and commercial exhibitors. They are the film industry's intermediaries, the liaison between producers and exhibitors. Distributors obtain the rights to market and distribute films and videos.

Expenses for the top four companies edged up 6.1%, compared with a 12.7% increase for the rest of the industry.

With expenses increasing and revenues dropping, profits for the top four distributors plunged 21.4% in 2005. This was still better than the profit decline of 90.3% incurred by the rest of the industry.

Despite these developments, the top four companies still enjoyed a healthier profit than the rest of the industry. In 2004, the top four companies represented 65.2% of total industry profits. By 2005, this had increased to 93.8%.

At the same time, the share of total profits for the rest of the film and video distribution industry fell from 34.8% to 6.2%.

Revenues from products with Canadian content on the decline

Distribution revenues for the entire industry declined 9.5% from 2004 to 2005.

The revenues from distributing non-Canadian productions remained almost unchanged during this time, whereas the distribution revenue from Canadian productions to all markets fell almost 40%.

The Canadian theatrical market represented 4% of the total theatrical market in 2005. This was down slightly from 4.5% in 2004, but nearly double the proportion of 2.3% in 2003.

Definitions, data sources and methods: survey number 2414.

Selected information from the 2005 Survey of Service Industries: Film and Video Distribution, and Wholesaling of Pre-recorded Videos is now available in the publication, Film, Video and Audio-visual Distribution: Data Tables (87F0010XWE, free), from the Publications module of our website. These tables include breakdowns of data by province.

For more information about the survey, or to enquire about the concepts, methods or data quality of this release, contact Conrad Ogrodnik (613-951-3496; fax: 613-951-6696; conrad.ogrodnik@statcan.ca), Service Industries Division, or Fidelis Ifedi (613-951-1569; fax: 613-951-6863; fidelis.ifedi@statcan.ca), Culture, Tourism and the Centre for Education Statistics.

Selected statistics with backcasted data for the film and video distribution and wholesaling of pre-recorded videos industry
	Backcasted data1
	2005	2004	2003
	$ thousands
Industry estimates2
Total revenue	1,669,064	1,819,098	1,725,576
Salaries, wages and benefits	76,641	81,405	79,136
Total expenses	1,366,559	1,261,823	1,184,470
Profit	302,505	557,275	541,106
	%
Profit margin	18.1	30.6	31.4
	$ thousands
Surveyed portion2
Distribution revenue to theatrical markets by type of production
Revenue from Canadian productions	13,147	14,953	8,246
Revenue from non-Canadian productions	312,377	315,700	350,212
Total revenue from distribution to theatrical markets	325,524	330,654	358,457
Distribution revenue by type of domestic market
Total revenue from distribution to theatrical markets	325,524	330,654	358,457
Total revenue from distribution to pay and specialty television markets	119,097	132,039	101,151
Total revenue from distribution to conventional television markets	204,829	310,387	329,668
Total revenue from distribution to home video markets	x	x	x
Total revenue from distribution to other markets	x	x	x
Sub-total, domestic distribution	991,482	1,014,004	992,623
Distribution to foreign clients	90,244	180,970	199,050
Total revenue from distribution of film and video titles to all markets	1,081,726	1,194,974	1,191,673
Wholesaling of pre-recorded videos	495,015	489,478	444,568
All other revenue	51,012	89,622	46,625
Total revenue	1,627,753	1,774,074	1,682,866
Total expenses	1,329,218	1,227,344	1,152,105
Profit	298,535	546,729	530,761
	%
Profit margin	18.3	30.8	31.5
x suppressed to meet the confidentiality requirements of the Statistics Act 1. Backcasted data have been created in order to be able to compare the data from 2003 to 2005. This is necessary because of the major changes to the survey, including the use of a new frame, a new definition of the film and video distribution and wholesaling of pre-recorded videos industry, and the use of a sample survey. 2. Industry estimates are based on the surveyed portion and are augmented by administrative data for establishments that were too small to be eligible for sampling. The surveyed portion includes only data for surveyed establishments weighted to represent other establishments that were eligible for sampling but were not selected. The surveyed portion represents approximately 95% of total industry revenue. Note: Due to rounding, components may not add up to totals.

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