Stern School of Business
Entertainment and Media:Markets and Economics

Description: L:\Courses-Stern\EMT\Website\mball9.gif  Professor

Professor William Greene
Department of Economics
Office:  MEC 7-90, Ph. 998-0876, Fax. 995-4218

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Description: L:\Courses-Stern\EMT\Website\mball9.gif  Abstract

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 sports leagues;
* Art markets, the creation of and pursuit of economic rents through space and time;
* Gambling, uncertainty, and certainties of the casino business.

Description: L:\Courses-Stern\EMT\Website\mball9.gif  Course Objectives

*  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.

Description: L:\Courses-Stern\EMT\Website\mball9.gif  Course Requirements

The course grade will be based on four written assignments. 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%

2.   Written assignment; Entertainment Economics (Due on day 3) 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 four students) on the Theater case and the written assignments.


During the semester, we will examine three particular cases:

* Coming Soon: A Theater Near You, Harvard Business School Case 9-797-011 (will be distributed in class)

United States vs. ASCAP (The Capital Cities Case: This is one of many cases involving music royalties.  The March 2, 2007 ruling by the

United States Copyright Royalty Board is closely related to this case.

United States vs. Syufy, Judge Kozinski's Opinion, May, 1990

* 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:

Case - 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 four individuals and submit a single paper for the group, if you wish. 

(Download specific guidelines for this assignment.)

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?  

Description: L:\Courses-Stern\EMT\Website\mball9.gif  Codes

Description: L:\Courses-Stern\EMT\Website\mball9.gif  Course Materials


A very useful reference book for the course is:  Entertainment Industry Economics, Ninth Edition. Hal Vogel, Cambridge University Press, 2015. Note that Vogel is optional, not required. If you work in the entertainment industry, or will do so, you should find this a useful work to have on your shelf. Also, if you have an earlier edition, you may use it instead.

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, Managerial Economics and Business Strategy, 8th edition by Michael R. Baye and Jeff Prince, McGraw-Hill, 2014, 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
U.S. vs. Syufy when we discuss the theater (movie distribution) market. (The judge's opinion in this case included the titles of over 200 movies (admittedly a bit old now). How many can you find?)

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.

Description: L:\Courses-Stern\EMT\Website\mball9.gif   Course Outline and Schedule

Session 1   Introduction to Entertainment and Media Markets

Part A: Introduction (Notes for this session)

Part B: 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

          Readings: Right click to download; left click to activate.

         * Music
          Economics of Popular Music: Rockonomics
          Scalpers Beware: Paperless Tickets
         Vertical Integration and Scalping in Ticket Markets

         * 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
          Price Discrimination on Broadway
          Economics for the Coolest Computer Ever Made
          Price Discrimination in Black and White
          Pricing Strategy for Multiple Outputs (Movies and Popcorn)
          Pricing Movies and Popcorn
          Did the Paramount Case (1948) Make Popcorn So Expensive?
          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?
          Information Cascades
          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)

          Minunderstanding Movie Studio Revenues

          The long tail in video sales (Elberse and Oberholzer-Gee)


Session 2   Production, Costs, Technological Change, Organizations, Market Structure

Part 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)

            Text Readings: Vogel, pp. 41-49, 82-92, 143-161, 205-211, Cablevision case materials, The Syufy Case)

          Coming Soon: A Theater Near You - Case Discussion

           Assignment Due:  Writeup for Theater Case

          Some readings related to the theater case
           New Technology and Movie Distribution

           New Technology and Movie Exhibition (Go digital or go dark)

           Proposal to Stream First Run Movies (Will This Eliminate Theaters?)

           More about ScreeningRoom Streaming Movies

           Small Theaters Cannot Afford the Conversion

           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

           Theater Chains in a Dispute with Disney Over Terms for Iron Man 3

           Theater Chains in a new Dispute with Disney Over Terms for The Avengers

           Resolution of the Dispute with Disney
           Substitution of Capital (Synthesizer) for Labor (Strings) in West Side Story
           Useful facts about movie theaters


          Readings and information: Right click to download; left click to activate

          * Asset Specifity and the Holdup Problem
  Hollywood Antitrust Case - US vs. Paramount   (Download)
          Asset Specificity - Actors and Studios (Relates to Theaters Case)
Asset specificity in India - Hollywood in reverse?
          * Production Function for Movie Making and More
          Hollywood Production Function

          * Antitrust Cases
          The Syufy Case
A Study of Block Booking of Movies
          Competition in the Manhattan Theater Market

          Background about AEREO

          AEREO Case 2014

          And more about Aereo

                       * Monopoly and Market Power
                       * (Alleged) publishers conspiracy with Apple
                       * Monopolization of the Las Vegas movie theater market; The Syufy case

                       * Monopsony Power in the Tech Industry Labor Market

          * 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

          Vertical Integration in Publishing: Amazon's Kindle

          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

          * Conglomerates
          Who are the media conglomerates?

          * Horizontal Integration: Comcast-TWC; Sirius and XM Radio: Monopolies?
          Antitrust Calculations for Comcast-Time Warner Cable Merger

          A vertical supplier, Netflix, opposes downstream horizontal merger
          Sirius and XM
          More on Sirius and XM
          Will a Sirius-XM merger increase radio channels or choices?

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)

Right click to download; left click to activate

$19 billion valuation for WhatsApp

* Profits and Profit Sharing in the Movie Business
Net Defies Gravity

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)


Part A:   Intellectual Property - Patents, trademarks, copyrights  (Notes for this session)
            (Readings: Vogel, Chapter 3 (Movies), 5 (Music);
            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)


            Readings: Right click to download; left click to activate.

          * Music Royalties and the Music Business

          Radical change in the music business

          More on Streaming. Will it kill songwriting?
          New technology mandates a new market structure and different regulations

          Does Spotify suppress music sales?


          How the music market works in 2015

          How Royalties work at Spotify

          Does File Sharing Reduce Sales?

          More evidence on file sharing based on release of high quality works

          Division of the pie and the pattern of music sales

Wixen Music Company explains music royalties
The original file sharing app - Napster

Royalties for Digital Performances

Pandora and Other Interests in Internet Radio Royalties

Tidal hopes to establish (and capture) a new business model for artists.


Something new in music performance licensing:   direct licensing:One opinion A second opinion

 * Legal Framework for Music Royalties
   The consent decree (AFJ2) that governs performance royalties

    U.S. vs. ASCAP - The Capital Cities Case
2, 2007 (very controversial) decision on royalty rates by the Copyright Royalty Board (Library of Congress)
   U.S. vs. ASCAP case reverse on appeal of the 2008 decision (Download the 2010 decision

    U.S. vs. ASCAP Again - Online Music (AOL, Yahoo and RealNetworks) (download the 2008 rate court decision/order)
   Some new ideas on music licensing (L. White and T. Lenard)
   Is a download a performance?
   Some interesting commentary on the case
   The Court says no, it isn't

   The Supreme Court Agrees
   ASCAP Business Model Challenged
   Judge Cote's Decision in Pandora vs. ASCAP
   ASCAP Reaction to Pandora Decision
   New Legislation for Songwriters

(Reading: Right click to download; left click to activate.
Background about AEREO

* Other Rights

The right of publicity

Ryan Hart (Rutgers Quarterback) vs. Electronic Arts

Detail on the Ryan Hart case

More detail on the Ryan Hart case

Publicity vs. The First Amendment

* Intellectual Property Rights
   A Struggle for Rights - Spider Man

   Property Right 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

* Patents

   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) (About Sound ExchangeSoundExchange Website

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)

Part B: Art  (Notes for this session)
Part C: Gambling  (Notes for this session)
Part D: Sports  (Notes for this session)

                       (Readings: Vogel, Chapter 3; Caves, Chapters 5, 8)
                        Readings: Right click to download; left click to activate

* Uncertainty
The Winner's Curse (A Puzzle)

                       * Uncertainty in the Movies
                      Economic Theory and Risk Avoidance; Hollywood's Tanking Business Model
                      Forecasting Movie Success with Bayesian Econometrics

                      Forecasting Movie Success with Lots of Data and Other Kinds of Econometrics
                      The Ingredients of Movie Failure: John Carter

                      Kim 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

                      Movie Success: How Much Does it Take to Make Money?

                      Star Power (again) - Reducing Uncertainty in the Movie Business
                      Model Building 1 - Rank Uncertainty

                      Model Building 2 - Skewness and Variation

                      Model 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 Christies                 
         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

         * Gambling
         Changing the house advantage


(Readings: Vogel, Chapters 11 and 12.  See, also, Business Week)

                  Readings: Right click to download; left click to activate.

                        Threat to the NFL business model
                        The Baseball Labor Market
                        FAQ on the baseball strike(s)
                        Business and Baseball - Finance and SaberMetrics

                       The Supreme Court Decision in the Americal Needle Case (Opinion)
                       More notes about American Needle

                        Economists weigh in on the antitrust exemption for sports leagues: (Economists on the American Needle Case)
                        A great summary of the American Needle case


Session 6   Media Markets: Television, Radio, Publishing

Assignment Due:  Examination of an Entertainment/Media Market


Part A: Television and Radio  (Notes for this session)

Part B: Publishing (Notes for this session)
Part C: Summary  (Notes for this session)


(A Survey: Cabral on Trends in Media and Entertainment)

         (Readings: Vogel, Chapters 6, 7, 9)

         Discussion of student market/industry studies.
         Vertical relationships in electronic book (e-book) publishing
         Vertical Integration in Publishing: Amazon's Kindle

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