Warner Bros Entertainment Next Challenges

Warner Bros Entertainment

This case deals with Warner Bros Entertainment having difficulties in creating hit movies and ensure their revenues. Nowadays, the seven major film companies have the same strategy as Warner Bros, which consists in producing and distributing several big-budget "event" movies each year that are expected to become blockbusters and thus make up for the average or under-average movies. The problem is that this strategy has three weaknesses:

* It is very risky to expect that only 3 or 5 expensive movies (costing over $150 millions) will cover the costs of 20 average movies,

* Producing and marketing costs for an event movie are extremely high whereas the price for the customer is always the same,

* There is low predictability about the event movie becoming a blockbuster as it relies only on intuition.

Therefore, the question from CEO of Warner is whether they should keep making expensive "event" movies taking huge risks knowing that they can't be sure of the success of movie.

Nowadays, the entire movie industry is facing difficulties, mainly because of the rise of alternatives ways to access entertainment contents. In 2011, total U.S Box Office gross was $10.2 billion and it marked a 3.5 percent drop from 2010, even though many blockbuster movies were released in 3D with higher ticket price. Attendances in theaters have also decreased, and in fact, 2011 was the least attended box office year since 1995. This situation can partly be explained by the economic downturn but also by new technologies, such as On-Demand services with shorter gap from theatrical release. Also, people are getting accustomed to watching entertainment contents including movies with mobile devices such as tablets, and it can encounter for one of the reasons of the decrease in box office gross. Besides, we can see that in 2011, the top 10 domestic movies earned more money overseas than in America, and on average, about 63% of their revenues came from international markets.

As we highlighted the situation of the movie industry and Warner Bros, we can now propose solutions to Alan Horn, president of WB, and Jeff Robinov, president of production, to implement a new strategy to ensure their profits.

We can consider several alternatives to improve Warner Bros' strategy with different objectives. First, in an objective of lowering costs and increasing the potential of success of a movie, Warner Bros could turn successful TV shows into movies. For instance, they could convert final episodes into a movie version by coproducing with the drama production & TV channel such as HBO or Fox. Two or three movies of annual line-ups (about 10%) would be affordable. These movies could be a safeguard and ensure revenues for other average movies and event movies (if success fail to come). What would be the costs and benefits of this alternative?

* Costs: will lowered by using existing sets, OST, etc. and advertisement on co-operation channel.

* Benefits: can meet break-even point due to a certain size of lock-in audience. Besides, they can earn additional revenues from PPL advertisements, international premiere and later with TV premiere.