Stern
Entertainment and Media:Markets and Economics
GB.2119.30
Professor
Professor William Greene
Department of Economics
Office: MEC 7-90, Ph. 998-0876, Fax. 995-4218
e-mail: wgreene@stern.nyu.edu
Professor Greene's home page.
Stern web page.
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.
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.
Course Requirements
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%
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 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:
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 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?
Codes
- Stern Honor: Of course.
- Social: Your fellow students and your professor will greatly
appreciate it if you will please remember to turn off your cell phone
before the beginning of class.
Course
Materials
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 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," 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
Markets
Part 1: Introduction, Overview of The Economics of E&M Industries, The
Economic Setting (Notes for this
session)
(A
Survey: Cabral on Trends in Media and Entertainment)
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)
Part 4: Windowing
and Release Strategies (Notes
for this session)
Text Reading: Vogel, Chapter 1
* Music
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
* 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?
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)
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: Markets, Boundaries of the Firm; Market Structures
Cablevision (Notes
for this session)
Part 3: 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)
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
Resolution
of the Dispute with Disney
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
* 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
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 Merger
A Miami Fish Story - The Florida Marlins
* Vertical Relationships
Movies and Overcapacity
Interesting Stuff About Movie Distribution
(Exhibition)
* Conglomerates
Who are the
media conglomerates?
* Horizontal
Integration: Comcast-TWC; Sirius and XM Radio: Monopolies?
Antitrust
Calculations for Comcast-Time Warner Cable Merger
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
Part 1: 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)
Part
2: Business Models for Online Entertainment (Notes for this session)
Readings: Caves, Chapter 19
Right click to download; left click to activate.
$19 billion valuation for WhatsApp
* 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)
Part 1:
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
How Royalties work
at Spotify
Wixen Music Company explains
music royalties
The
original file sharing app - Napster
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
March 2, 2007 (very controversial) decision on
royalty rates by the Copyright Royalty Board (Library of Congress)
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.
ASCAP
Business Model Challenged
Judge Cote's Decision in Pandora vs. ASCAP
ASCAP Reaction to Pandora Decision
New Legislation for Songwriters
(
Background about AEREO
* Other Rights
Ryan Hart (Rutgers Quarterback) vs.
Electronic Arts
More
detail on the Ryan Hart case
Publicity vs. The First
Amendment
* Intellectual Property Rights
A Struggle for Rights - Spider Man
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) 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)
Part 2: Specific Markets-Art (Notes
for this session)
Part 3: Specific markets-Gambling (Notes for this session)
Part 4: Specific Markets-Sports (Notes
for this session)
(
* Uncertainty
The
Winner's Curse (A Puzzle)
* Uncertainty in the Movies
Economic Theory and
Risk Avoidance; Hollywood's Tanking Business Model
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 -
Rank Uncertainty
Do Online Reviews Matter to Success of Movies?
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
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
* Gambling
Changing the house advantage
(Readings: Vogel, Chapters 11 and 12. See, also, Business Week)
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 1: Some Specific Markets: Television and
Radio (Notes for this session)
Part
2: Specific Market: Publishing (Notes for this session)
Part 3: Summary (Notes
for this session)
(A
Survey: Cabral on Trends in Media and Entertainment)
(
Discussion
of student market/industry studies.
Vertical relationships in electronic book (e-book) publishing
Vertical
Integration in Publishing: Amazon's
Kindle
Professor
Greene's home page
Stern web page..