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
* 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 sports leagues;
* 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,
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,
Vogel 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. I am not assigning any particular reference book for microeconomics, but you may find it useful to have one. Any of the standard industrial organization oriented books, for example, the one used in the Firms and Markets course, Managerial Economics and Business Strategy, 5th edition by Michael R. Baye, McGraw-Hill, 2006, should suffice.
The "Theater Near You," case will be distributed in class. The Cablevision, Syufy and Capital Cities cases are accessible from this home page in the listings below.
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. 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.
Course Outline and Schedule
Session 1 Introduction to Entertainment and Media
Part A: Introduction (Notes for this session)
Overview of The Economics of E&M Industries, The Economic Setting (Notes for this session)
Part C: Experience Goods; Demand for Experience Goods; Interdependent Preferences (Notes for this session)
Part D: Demand and Pricing for Experience Goods (Notes for this session)
Part E: Aspects of Demand for Experience Goods (Notes for this session)
Part F: Pricing Experience Goods (Notes for this session)
Part G: Price Discrimination (Notes for this session)
Part H: Release Windows (Notes for this session)
(A Survey: Cabral on Trends in Media and Entertainment)
Text Reading: Vogel, Chapter 1
Economics of Popular Music: Rockonomics
Scalpers Beware: Paperless Tickets
* Social Capital
A Study of Social Capital: Wal Mart
The movie industry defies the falling economy
Sociological/Econometric study of social capital
* 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
Dynamic Pricing for the Lion King
Premium Pricing on Broadway
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
Extreme Price Discrimination in Movies
This is what happens when marginal cost equals zero.
* Interdependent Demand and Cascades
Theory of Interdependent Demand
Learning from the Behavior of Others
Is Justin Timberlake a Product of Cumulative Advantage?
J.K.Rowling Literary Fame
Why do we have the Academy Awards? A Panel of Experts
Awards, Success, and Quality
* Release Windows for Movies
Interesting Stuff About Movie Distribution (Exhibition)
Session 2 Production, Costs, Technological Change,
Organizations, Market Structure
A: Production and Costs;Technological Change (the DVD market); Staged
nature of Production.
(Notes for this session)
Part B: Markets, Boundaries of the Firm; Market Structures Cablevision (Notes for this session)
Part C: Vertical Integration (Notes for this session)
Some readings related to the theater case
New Technology and Movie Distribution
New Technology and Movie Exhibition (Go digital or go dark)
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 specificity in India - Hollywood in reverse?
* Antitrust Cases
The Syufy Case
A Study of Block Booking of Movies
Competition in the Manhattan Theater Market
* Monopoly and Market Power
* (Alleged) publishers conspiracy with Apple
* Monopolization of the Las Vegas movie theater market; The Syufy case
* Where does the money go?
There is never any net (Garrison vs. Warner Brothers -- and everyone else)
* 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
More Vertical Integration in
Publishing: Amazon and Comixology
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 Merger
A Miami Fish Story - The Florida Marlins
* Vertical Relationships
Movies and Overcapacity
Interesting Stuff About Movie Distribution (Exhibition)
Live Nation Vertically Integrates Madonna
Who are the media conglomerates?
* Horizontal Integration: Comcast-TWC; Sirius and XM Radio: Monopolies?
Antitrust Calculations for Comcast-Time Warner Cable Merger
Session 3 Market Structure, Boundaries of the Firm, Contracts, Business Models
Assignment Due: Entertainment Economics
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) (Evolution of the 360 Deal)
Major League Soccer Profitability (New Yorker Article)
Part A: Contracts in the Entertainment Business (Notes for this session)
Part B: Entertainment and Sports Megadeals (Notes for this session)
Part C: Appendix: A Regression Model for a Sports Megadeals (Notes for this session)
Part D: Valuation (Notes for this session)
Part E: Business Models for Online Entertainment (Notes for this session)
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 B. Property Rights (Notes for this session)
Part C: The Markets for Music and Music Royalties (Notes for this session)
* Music Royalties and the Music Business
How Royalties work at Spotify
* 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
rate court decision/order)
Is a download a performance?
Some interesting commentary on the case
The Court says no, it isn't
Background about AEREO
* Other Rights
* Intellectual Property Rights
A Struggle for Rights - Spider Man
or Dastardly Monopoly? Karl Marx
Intellectual Property Strategy - Long Tail in the Music Industry
The sky is falling (on internet radio)
Viacom and YouTube
Background about AEREO
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 A: Uncertainty and the Winner's Curse. Uncertainty and star contracts. (Notes for this session)
The Winner's Curse (A Puzzle)
Building 3 - Dynamics
Do Online Reviews Matter to Success of Movies?
Movie Buzz - Does the buzz predict success? Press Information The study
Movie Puzzles - If they all lose money, why do they keep making them?
* 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
* Art Market
The Antitrust Case Against Sotheby's and
The Art Market
Art as an Investment
Art Is Not Such A Great Investment
Art not as an Investment
The art market is an unregulated financial market
Hiding your valuable art while you wait for it to get really valuable
Changing the house advantage
(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 A: Television and Radio (Notes for this session)
student market/industry studies.
Vertical relationships in electronic book (e-book) publishing
Vertical Integration in Publishing: Amazon's Kindle