Stern School of
Business
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. 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 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 four 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, Ninth 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, 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
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 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)
Will consumers pay for early at home release?
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?)
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
THE
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
* 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
Does
File Sharing Reduce Sales?
More
evidence on file sharing based on release of high quality works
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
March 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
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
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 Exchange) SoundExchange 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
Professor
Greene's home page
Stern web page..