Unit 8 - Horizontal and Vertical Integration.

Horizontal and Vertical Integration

Vertical integration is when a production company has ownership of the means of production, distribution and exhibition of the film by the same company, because of this they receive all of the profit. An example of this would be 20th Century Fox. So this production company would produce it's own film, by giving the funds required for it to the director, Etc. Then when the film is finished they would distribute it to their own cinemas, viewing places them selves, this means that they do not pay any other companies to show their film to their audience as they have their own way of showing how their product. Then when it is distributed all equally among their 'cinemas' then they exhibit it,  they allow the audiences to come in and watch the film, and the ticket sale revenue that they get all goes to them, they don't have to pay private companies, such as Odeon, or VUE to show their film, as they have their own means of showing it, so the ticket sales are 100% theirs and there is not cut being taken from other companies. This way 20th Century fox keeps all the revenue they keep, and taking away the costs they have they have a bigger profit margin than they would if they collaborated with other companies. The Benefit to the Company, is that they reduce their costs of showing their film to the audience this gives them flexibility to work in a more 'loose' time scale as they are not pressurised by other companies to finish the film to the time limit that the other private companies said that the film will be released on, also quite obviously they make more profit by showing their own film in their own firms, this allows them to keep to all the revenue made as no companies take a profit or cut of the money made.

Horizontal Integration is when a private company extends into other areas of one industry. This means that the company can develop a particular area of production or they can buy out another company that deals with these areas. An example would be the Warner Bros Company, They have Bought other companies in order to reduce the competition that they face. So for example to reduce the competition in Warner Bros have bought their own News channel to combat the Fox News channel i mentioned earlier. They buy out other companies so that they don't have to worry about them, this means that they make more money, as they collect the revenue that that company makes, and so they make more profit. So it's a win-win situation for the company that buys them, especially if the company that they buy is very popular then they will get a cut of the revenue and also have no worry about that company taking over and dominating the market with their products. The benefit to this system is that it allows the parent company or the bigger company to make huge amounts of profit, without changing the product that was popular in the first place with the audiences, so they just take over the company that it causing them problems and this allows them to collect profit without having competition. they can become a monopoly and dominate the market by controlling  all the media that is produced and shown to the audience. The benefit to the Audience is that they can still enjoy the product that the company that was taken over was producing it is just produced under a different company, and if the company has the funds to be able to buy out another company then they will invest more into the company and create better products for the audience.