Stern
Entertainment
and Media:
Markets and Economics
B30.2119.30
Spring, 2008
Professor
Professor William Greene
Department of Economics
Office: MEC 7-78, 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 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
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) 15%
2.
Written assignment; Entertainment Economics (Due on day 3) 10%
3.
Written assignment; DMCA (Due on day 4) 10%
4.
Written assignment 3 Industry Study (Due on day 6, 50 - 100 word
abstract due on day 5) 25%
5.
Final Examination (In class, open book, open notes, day 6) 40%
You may work in small groups (up to three students) on the Theater
case and the written assignments (not the final exam).
During the semester, we will examine three particular cases:
• Coming Soon: A Theater Near You,
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:
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. Your assignment will be to
comment on the specific case description, then do some searching in the recent
press to see how these issues have evolved. In particular, at the time
the theater case was written, most of the major theater chains were in
bankruptcy. What has happened since then? Are they still? Has
the industry changed? What does the future look like? 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
piece 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 current
case of Viacom vs. YouTube. (Viacom has sued YouTube (Google, its owner)
for $1 billion for copyright infringement because users of YouTube are posting
vast numbers of clips containing copyrighted material and YouTube is not doing
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 last item in the list
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? On day 5,
please submit a short (50 - 100 words) an abstract of the paper you will submit
on the last day of class. This need not be more than a statement of the
market you intend to study and a sentence or two about what you expect to write
about..
Final exam
This will be given in class in the second half of our last session. The final
will be an open book, open notes (closed email) quiz for 75 minutes, covering
the material of the course.
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 useful reference book for the course is:
Entertainment
Industry Economics, Sixth Edition. Hal Vogel,
We will also draw on two
books by
Creative
Industries: Contracts between Art and Commerce, Harvard
University Press, 2000. (At
Barnes and Noble)
Switching
Channels: Organization and Change in TV Broadcasting, Harvard University
Press, 2005. (At
Barnes and Noble)
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.
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.)
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 noted below.
Professor
Greene's home page
Stern web page.
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.) (Powerpoint format) )
Part 2.1: Experience Goods; Demand for Experience Goods;
Interdependent Preferences (Notes for this session.) (Powerpoint format)
Part 2.2: Demand and Pricing for Experience Goods (Notes for this session.)
(Powerpoint format)
Text
Economics of Popular Music: Rockonomics
A Lesson
in Pricing for Concert Promoters
The
movie industry defies the falling economy
Market for Superstars
Movie Stars and Economics - Superstar Economics
(URL)
More on Superstars
Some Background on Rosen's Model of Superstars
Markets
Economics for the Coolest Computer
Ever Made
Price Discrimination in Black and White
(PDF)
Pricing Strategy for Multiple Outputs
(Movies and Popcorn)
Elasticity of Demand for Baseball Tickets
Economics
of Performing Shakespeare
Theory of Interdependent Demand
Learning
from the Behavior of Others
Is Justin Timberlake a Product of
Cumulative Advantage?
Information
Cascades
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.)
(Powerpoint format)
Part 2: Vertical Integration; Boundaries of the Firm;
Market Structures Cablevision (Notes for this session.)
(Powerpoint format)
Text
Readings: Vogel, pp. 41-49, 82-92, 143-161, 205-211
Coming Soon: A Theater
Near You - Case Discussion
Assignment Due: Writeup for Theater Case
Some readings related to the theater case
Movie Industry Projects Bottom...
Current
problems in the movie business
Boundaries of the Firm (Holmstrom and Roberts)
Readings and information: Right click to download; left click to activate
THE
Hollywood Antitrust Case - US vs. Paramount (Download)
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
Competition in the Manhattan Theater
Market
Case Study of Vertical
Integration - The Publishing Industry
Vertical Integration: Disney and Pixar
The
Syufy Case
A Study of Block Booking of Movies
A Miami Fish Story - The Florida Marlins
Asset Specificity - Actors and Studios
(Relates to Theaters Case)
Movies and Overcapacity
Interesting Stuff About Movie Distribution (Exhibition)
Murdoch and Manchester - V.I. in Soccer
Vertical Efficiencies in the Movie
Business
Vertical
Integration - Theory (1)
Vertical Integration - Theory (2 - Williamson)
Who are the
media conglomerates?
Sirius and XM
More on Sirius and XM
Will a Sirius-XM merger increase radio channels or
choices?
VI
in the Music Business, SONY and BMG Europe Finally Merge
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.) (Powerpoint format),
Contracts in the music business (Notes for this session) (Powerpoint format) ;
Reading: Caves, Chapter 19
Those
huge star contracts: A Rod, David Beckham, Kevin Garnet. Capital
Assets.
Part 2: Vertical
Integration, Boundaries of the Firm, Contracts
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) (Powerpoint
format)
(
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) (Powerpoint
format)
Does
File Sharing Reduce Sales?
Wixen Music Company explains music
royalties
A Struggle for Rights - Spider Man
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)
Some Comments on Business Model Patents
Speaking of
business model patents: Netflix sues Blockbuster
Cybersquatters
still partying like it's 1999
Current
issues in the music business - House Judiciary Committee
The consent decree (AFJ2) that governs performance
royalties
Viacom
and YouTube
The Digital Millennium Copyright Act (DMCA)
Learn about DMCA and Safe
Harbor Provisions
The performance rights organizations (PROs) ASCAP BMI SESAC Mechanical
rights organization Harry Fox
More rights - Soundexchange collects royalties for record labels (and
others) SoundExchange
The sky is falling (on internet radio)
Copyright
Royalty Board decision (March 2, 2007); Discussion
Is
a download a performance?
Some
interesting commentary on the case
The Court says no, it isn't.
Session 5 Uncertainty, The Winner's Curse; Art;
Casino Gambling; Sports
Assignment Due: Abstract
of Proposed Entertainment/Media Market Examination
Part 1: Uncertainty and the
Winner's Curse. Uncertainty and star contracts. (Notes for this session.) (Powerpoint format)
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.) (Powerpoint format)
(Readings: Vogel, Chapter 3; Caves, Chapters 5, 8)
Readings: Right click to download; left click to
activate
Kim Bassinger's Ordeal - Star Power in the
Movies
Movie Stars and Economics - Superstar
Economics (URL)
Chaos
in the Movie Business - Extreme Uncertainty
The
Role of Culture and Foreign Markets for US Movies
Movie
Failure and Success
Star
Power (again) - Reducing Uncertainty in the Movie Business
Model
Building - Rank Uncertainty
A Study of How
Foreign Box Office Success (Doesn't) Follow US Box Office Success
Movie Puzzles - If they all lose
money, why do they keep making them?
There is
never any net (Garrison vs. Warner Brothers -- and everyone else)
Part 3: Specific Markets: Art; Casino Gambling (Notes for
this session.) (Powerpoint format)
Part 4: Sports (Notes for this
session.) (Powerpoint format)
(
The Antitrust
Case Against Sotheby's and Christies
The Art Market
The Baseball Labor Market
FAQ
on the baseball strike(s)
Business
and Baseball - Finance and SaberMetrics
Session 6 Media Markets: Television, Radio,
Publishing, Auctioning the Spectrum for 3G
Assignment Due: Examination
of an Entertainment/Media Market
Part 1: Some Specific Markets: Television, Radio,
Publishing (Notes for this session.)
(Powerpoint format)
(
(
The
Biggest Auction Ever - 3G in Europe
Discussion of student
market/industry studies.
Part 2: Final Examination (Notes for this session) (Powerpoint format)
Professor Greene's home page
Stern web page..