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What is Vertical Integration in Film?

In business, the term vertical integration is frequently used to describe businesses in which two or more stages of production usually operated by separate individually-owned companies are instead owned and operated by the same parent company to provide economies of scale. The term vertical integration represents the combination of two or more individual stages of production. Which would otherwise normally be operated by individually-owned companies. But what is vertical integration in film?

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What is Vertical Integration in Film?

In the film and media industry, vertical integration can be explained similarly to how it would be explained in any other business. Vertical integration is still an effort of the business to achieve economies of scale.

This happens when the media or film production company owns two or more businesses that are responsible for the production and distribution of a film. 

Consider This

For example, 20th Century Fox is a media company that owns film studios in Hollywood. They also own multiple cinemas which distribute films. And they own Television channels which also distribute the films for home viewing.

In addition to these businesses, 20th Century Fox also previously owned DVD rental stores which distributed films for home viewing as well.

This makes them the prime example of a vertical integration. In which there is multiple business ownership to produce economies of scale. Thus allowing them to offer lower pricing of their services down the line.

Why Prefer Vertical Integration in Film?

Business owners prefer vertical integration because it allows them to make money at each level of the production and film distribution process without paying excess to third parties.

Since they own various parts of the chain of production they are able to make money at every part. Rather than paying a premium at various parts of the production chain.

Expanding business into various other areas. In which the distributor’s product will cross paths allows these businesses and brands to prosper.

Vertical integration allows companies to reduce overhead costs, improve efficiencies in manufacturing and distribution, and eliminate third-party costs to reduce overall expenses while improving turnaround times to further take advantage of economies of scale. 

Vertical Integration is Dominant in the Film Industry

As we further investigate the answer to your question, “What is vertical integration in film?” It makes sense to explain how vertical integration in the film industry has become a dominant source of economies of scale.

In fact, filmmakers have been engaging in vertical integration practices for decades. 

Back in the Day

Going back all the way to the times when VCRs were common. Vertical integration has been a dominant practice in the film industry. Early filmmakers released and marketed their films under the same brands that owned cinemas.

And generated income through box-office sales and distribution of their films in their owned cinemas. As the industry would evolve, these same businesses would ultimately become distributors of VCRs and VHS tapes.

Which you can then use to distribute VHS tapes throughout markets to further initiate economies of scale within the industry.

In Summation

Ultimately, through a series of various initiatives which involved the purchasing and establishing of various businesses under a single ownership, filmmakers would take vertical integration initiatives to an entirely new level.

Since then, the Hollywood Studio System, a series of commercial businesses that are responsible for a vast majority of the production and distribution of major films, has been established.

And continues to be one of the key representations of vertical integration within the film industry still today.