Entertainment and Media:Markets and Economics
Professor William Greene
Department of Economics
Office: MEC 7-90, Ph. 998-0876, Fax. 995-4218
This course is a survey of economic issues in the entertainment and media industries. It examines some of the special aspects of these businesses that complicate the market processes, such as the particular nature of demand for experience goods (interdependent preferences, fads), pricing strategy for providers of experience goods, scale economies and vertical integration in production, and obstacles to market equilibrium that motivate public policy. Industries examined will include:
* The movie
business: the staged project nature of production, vertical integration,
peculiar contracting mechanisms and the reasons
that nearly all films lose money
* Music and publishing with an emphasis on intellectual property, both legal and economic issues such as valuation and royalties,
the implications of new digital media;
* Television and radio, and the fundamental differences between public and private broadcast markets;
* Major league sports, and the implications of simultaneous production and consumption, labor markets, and value creation in the
* Art markets, the creation of and pursuit of economic rents through space and time;
* Gambling, uncertainty, and certainties of the casino business.
* We will survey several industries to provide an overview of the markets for different kinds of experience goods.
* We will use the tools of microeconomics to provide insights about features and processes that explain the specific outcomes observed in the markets for experience goods.
The course grade will be based on four written assignments and a take home final examination. Class participation is important, especially when discussing cases and current articles. Also, I hope that your classmates (and I) can obtain some benefit from knowledge that many of you who have worked in the entertainment and media industries can share with us.
Grades will be determined on the following basis:
1. Case: Coming Soon: A Theater Near You (Due on day 2) 20%
3. Written assignment; DMCA (Due on day 4) 20%
4. Written assignment 3 Industry Study (Due on day 6) 40%
You may work in small groups (up to three students) on the Theater case and the written assignments.
During the semester, we will examine three particular cases:
* Coming Soon: A Theater Near You,
ruling by the United States Copyright Royalty Board is closely related to this case.
* We will also take a less formal look at Cablevision, a local vertically integrated firm involved in several related business.
The assignments listed above include:
Coming Soon, A Theater Near You:
The theater case is assigned for submission. For your analysis, you will
prepare a 1-2 page writeup on the case. Note, this is to be a short (12
point, double spaced, 1 to 2 page) report, not a major research endeavor.
Also, you may work in groups of up to three individuals and submit a single
paper for the group, if you wish.
(Download specific guidelines for this assignment.)
Written assignment 1 - Entertainment Economics: This assignment will consist of three questions, answered separately. Each should be answerable in a paragraph or two, and the entire assignment should not take more than 1.5 pages.
(1) Examples of price discrimination can be found throughout the entertainment industry. Locate a clear example for a current type of entertainment. Describe the pricing strategy being used by the entertainment provider. Discuss the appropriate theoretical foundation for the pricing strategy.
(2) Locate an example of vertical integration among contemporary entertainment firms. Describe the firms in question and the nature of the vertical integration. Can you find counterpart firms in the industry that provide the same products but are not vertically integrated?
(3) How do Americans spend their entertainment budgets? Locate some general descriptions of the different ways that Americans spend money on entertainment. Have the amounts and proportions, or the forms of entertainment changed in the last 20 years? You may answer this question with respect to a different country if you prefer.
Written assignment 2 - The DMCA: In our 4th class, we will discuss intellectual property. This encompasses all of the creative arts in the economy including patents on products, devices, machines and processes, copyrights including, of interest in our class, music and video productions as well as publishing and a host of other creative expressions, and trademarks. A central feature in the current business scrimmage over music and now video copyrights is the Digital Millennium Copyright Act, or DMCA. This assignment asks you to, first, research the DMCA, itself, and find out what it is and what its intended role in the economy is, then, second, write a short paper (one page will suffice) documenting the role of the DMCA in the case of Viacom vs. YouTube. (Viacom sued YouTube (Google, its owner) for $1 billion for copyright infringement because users of YouTube posted vast numbers of clips containing copyrighted material and YouTube did not do enough to stop them.) An additional question you should pursue for this assignment - briefly: According to the copyright law, what is a "public performance (of a piece of music)?" Now, the large question: Is a "music (or video) download a performance?" Why would it be? (A useful place to start: Note the item in the last group of readings for session 4.)
Written assignment 3 - Market Study: Due on the final day of class is a short survey of one of the industries/markets that we will mention in the course, or some other related industry if you have a particular interest in a segment of the entertainment/media market that we have not discussed. (You may also go outside the list of markets we've discussed if you like. In the past, many students have provided surveys of the markets in which they are employed, for example, the computer game market.) What I would like here is a 3-4 page description of the market that you choose. Your writeup should describe the market structure, the major players, and changes that are taking place. Some other issues you might consider are: What are the current trends? Is the market growing or shrinking? How is technological change affecting the market? Are the major firms in the market merging - is the market consolidating? How does the market that you have chosen interact with other markets, both within Entertainment and Media and outside it?
A very useful reference book for the
course is: Entertainment
Industry Economics, Eighth Edition. Hal Vogel,
We will also draw occasionally on two
The Vogel book is used in other courses at Stern, and should be readily available at the school bookstore. If not, Amazon and Barnes and Noble can provide fast, cheap delivery at very advantageous prices. The Vogel book is widely used around the country and there is no shortage of copies. Consider the Caves books optional as well (though interesting - if you keep a library of books on this subject, you might find them appealing). Finally, I am not assigning any particular reference book for microeconomics, but you will probably find it useful to have one. Any of the standard industrial organization oriented books, for example, the one used in Stern’s Firms and Markets course, Managerial Economics and Business Strategy, 5th edition by Michael R. Baye, McGraw-Hill, 2006, should suffice.
The "Theater Near You," Cablevision and Syufy cases will be distributed in class.
We will discuss
Judge Kozinski's decision in
The Capital Cities case contains a large amount of legal opinion about basic microeconomics. This case is posted with the other articles for the course. (See session 4.) A recent ASCAP case, involving Yahoo!, AOL and Real Networks (April, 2008) grapples with the new problems created by online distribution of music. (This case is posted via the ASCAP website with the references for Session 4.)
We will also rely on several additional articles from the popular press and the formal economics literature. Excerpts from a few of these will be distributed in class. In some cases, full references will be given for those who wish to dig deeper into the subject. A large number of articles are posted below on the course website - some of these are links to online material. Most of these are optional; I have posted them for those who are interested in some additional material on the subjects we discuss in class. A few of these readings will be assigned for the respective class. These are highlighted below.
Course Outline and Schedule
Session 1 Introduction to Entertainment and Media
Part 1: Introduction, Overview of The Economics of E&M Industries, The Economic Setting (Notes for this session)
Part 2: Experience Goods; Demand for Experience Goods; Interdependent Preferences (Notes for this session)
Part 3: Demand and Pricing for Experience Goods (Notes for this session)
Text Reading: Vogel, Chapter 1, Caves, Chapters 11-13
Economics of Popular Music: Rockonomics
* Social Capital
A Study of Social Capital: Wal Mart
The movie industry defies the falling economy
* Stars and Star Power
Market for Superstars
Movie Stars and Economics - Superstar Economics (URL)
More on Superstars
Some Background on Rosen's Model of Superstars Markets
* Price Discrimination and Pricing Strategy
Economics for the Coolest Computer Ever Made
Price Discrimination in Black and White
Pricing Strategy for Multiple Outputs (Movies and Popcorn)
Elasticity of Demand for Baseball Tickets
Economics of Performing Shakespeare
* Interdependent Demand and Cascades
Theory of Interdependent Demand
Learning from the Behavior of Others
Is Justin Timberlake a Product of Cumulative Advantage?
Awards, Success, and Quality
Session 2 Production, Costs, Technological Change,
Organizations, Market Structure
Part 1: Production and Costs;Technological Change (the DVD market); Staged nature of Production. (Notes for this session)
Part 2: Vertical Integration; Boundaries of the Firm; Market Structures Cablevision (Notes for this session)
Text Readings: Vogel, pp. 41-49, 82-92, 143-161, 205-211, Caves, Chapters 5-7, Cablevision case materials, The Syufy Case)
Coming Soon: A Theater Near You - Case Discussion
Some readings related to the theater case
Movie Industry Projects Bottom...
Current problems in the movie business
Boundaries of the Firm (Holmstrom and Roberts)
Bollywood Film Producers Sue Theater Chains (PDF)
Bollywood Suit is Resolved
Readings and information: Right click to download; left click to activate
* Asset Specifity and the Holdup Problem
THE Hollywood Antitrust Case - US vs. Paramount (Download)
Asset Specificity - Actors and Studios (Relates to Theaters Case)
Asset specifity in India – Hollywood in reverse?
* Antitrust Cases
The Syufy Case
A Study of Block Booking of Movies
Competition in the Manhattan Theater Market
* Vertical Integration
Vertical integration approach to scalping - LCD
Vertical relationships in electronic book (e-book) publishing
Lots of interesting reports about financing in Hollywood (Net, Gross and Really Gross)
Vertical integration in the broadcast industry - the Fin-Syn Rules
Cablevision - A vertically integrated media company
Vertical Integration in Publishing: Amazon’s Kindle
Vertical Integration: Disney and Pixar
Case Study of Vertical Integration - The Publishing Industry (PDF)
Murdoch and Manchester - V.I. in Soccer
Vertical Efficiencies in the Movie Business
Vertical Integration - Theory (1)
Vertical Integration - Theory (2 - Williamson)
VI in the Music Business, SONY and BMG Europe Finally Merge
A Miami Fish Story - The Florida Marlins
* Vertical Relationships
Movies and Overcapacity
Interesting Stuff About Movie Distribution (Exhibition)
Who are the media conglomerates?
* Horizontal Integration – Sirius and XM Radio Monopolize a Market Segment
Sirius and XM
More on Sirius and XM
Will a Sirius-XM merger increase radio channels or choices?
Session 3 Market Structure (cont.), Boundaries of the Firm, Contracts
Assignment Due: Entertainment Economics
Contracts in the Entertainment Business (Notes for this session)
Contracts in the music business;
Those huge star contracts: A Rod, David Beckham, Kevin Garnet. Capital Assets;
Vertical Integration, Boundaries of the Firm, Contracts;
A Cold Eyed Look at the Live Nation 360 Deal with Madonna (The Madonna 360 Deal)
2: Business Models for Online Entertainment (Notes for this session)
Right click to download; left click to activate.
* Profits and Profit Sharing in the Movie Business
Gross and Net in Hollywood Contracts
Keeping It All for Themselves: Forrest Gump
Profit Sharing Arrangements in the Movie Business
Garrison vs. Hollywood
Session 4 Intellectual Property, Patents, Trademarks, Copyrights, Royalties, the Music Business
Assignment Due: The Digital Millennium Copyright Act (DMCA)
Intellectual Property - Patents, trademarks, copyrights (Notes for this session)
Topics to be discussed include: Intellectual property - patents, trademarks, copyrights, royalties, the music business, the DMCA
Part 2. Intellectual Property (Cont.) Movies and music, copyrights, royalties (Notes for this session)
* Music Royalties and the Music Business
Does File Sharing Reduce Sales?
* Legal Framework for Music Royalties
The consent decree (AFJ2) that governs performance royalties
U.S. vs. ASCAP Again -
Online Music (AOL, Yahoo and RealNetworks) (download
the 2008 decision/order)
Is a download a performance?
Some interesting commentary on the case
The Court says no, it isn't.
* Intellectual Property Rights
A Struggle for Rights - Spider Man
The sky is falling (on internet radio)
Viacom and YouTube
Some Comments on
Business Model Patents
Speaking of business model patents: Netflix sues Blockbuster
Cybersquatters still partying like it's 1999
* Digital Millennium Copy Right Act - DMCA
The Digital Millennium Copyright Act (DMCA)
Learn about DMCA and Safe Harbor Provisions
* Performance Rights Organizations (PROs)
The performance rights organizations (PROs) ASCAP BMI SESAC Mechanical rights organization Harry Fox
More rights - Soundexchange collects royalties for record labels (and others) SoundExchange
Session 5 Uncertainty, The Winner's Curse; Art; Casino Gambling; Sports
Part 1: Uncertainty and the
Winner's Curse. Uncertainty and star contracts. (Notes for this session)
A Puzzle: We'll discuss this in class. Please try to solve this, and think about the nature of the bargaining situation.
The Winner's Curse
Part 2: Market Structures and Market Outcomes (Notes for this session)
* Uncertainty in the Movies
The Ingredients of Movie Failure: John Carter
Bassinger's Ordeal - Star Power in the Movies
Movie Stars and Economics - Superstar Economics
Chaos in the Movie Business - Extreme Uncertainty
Movie Failure and Success
Star Power (again) - Reducing Uncertainty in the Movie Business
Model Building - Rank Uncertainty
Movie Puzzles - If they all lose money, why do they keep making them?
* Where does the money go?
There is never any net (Garrison vs. Warner Brothers -- and everyone else)
* Foreign and U.S. Markets
The Role of Culture and Foreign Markets for US Movies
A Study of How Foreign Box Office Success (Doesn't) Follow US Box Office Success
Part 3: Specific Markets-Art (Notes for this session)
The Antitrust Case Against Sotheby's and Christies
The Art Market: Art as an investment
Part 4: Specific markets-Gambling (Notes for this session)
Changing the house advantage
Part 5: Specific Markets-Sports (Notes for this session)
(Readings: Vogel, Chapters 11 and 12. See, also, Business Week)
Session 6 Media Markets: Television, Radio, Publishing
Assignment Due: Examination of an Entertainment/Media Market
Part 1: Some Specific Markets: Television, Radio, Publishing (Notes for this session)
Background about AEREO
Discussion of student market/industry studies.
Part 2: Some interesting trends (Notes for this session)