Stern
Entertainment and Media:Markets and
Economics
B30.2119
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 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)
15%
2.
Written assignment; Entertainment Economics (Due on day 3) 15%
3.
Written assignment; DMCA (Due on day 4) 15%
4.
Written assignment 3 Industry Study (Due
on day 6) 35%
5.
Final Examination (Take home, Due on day 6) 20%
You may work in small groups (up to three students) on the Theater
case and the written assignments. Please work alone on the final exam.
During the semester, we will examine three particular cases:
* Coming Soon: A Theater Near You,
ruling by 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. 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 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 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?
Final exam This will be distributed in class in the 5th session and will be due
at the end of the semester. The take home final exam should take about
two hours, and will cover the economic principles and results discussed during
the semester.
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, Seventh Edition. Hal Vogel,
We will also draw occasionally on two
books by
Creative
Industries: Contracts between Art and Commerce, Harvard
University Press, 2000. (Also
at Barnes and Noble)
Switching
Channels: Organization and Change in TV Broadcasting, Harvard University Press,
2005. (Also
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.) The most 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 also 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. 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 highlighted 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)
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)
Text Reading: Vogel,
Chapter 1, Caves, Chapters 11-13
* Music
Economics of Popular Music: Rockonomics
A Lesson
in Pricing for Concert Promoters
*
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
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
* Interdependent
Demand and Cascades
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)
Part 2: Vertical Integration; Boundaries of the Firm;
Market Structures Cablevision (Notes
for this session)
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)
The
U.S. Theater Case in Reverse: Bollywood vs. Theater Chains
Bollywood
Film Producers Sue Theater Chains (PDF)
Bollywood
Suit is Resolved
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)
* Antitrust Cases
The Syufy Case
A Study of Block Booking of Movies
Competition in the Manhattan Theater Market
* Vertical
Integration
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 Merge
A Miami Fish Story - The Florida Marlins
* Vertical Relationships
Movies and Overcapacity
Interesting Stuff About Movie Distribution
(Exhibition)
Technological
Change in Movies - 3D Movies
* Conglomerates
Who are the
media conglomerates?
* Horizontal Integration
– Sirius and XM Radio Monopolize a Market Segment
Sirius and XM
More on Sirius and XM
Will a Sirius-XM merger increase radio channels or
choices?
Sirius
XM Is Not Doing Very Well in 2008
Sirius
XM Prepares for Bankruptcy
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)
Right click
to download; left click to activate.
* Profits and Profit
Sharing in the Movie Business
A Trend in
Hollywood Pay
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
Does
File Sharing Reduce Sales?
Wixen Music Company explains music royalties
* 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 decision/order)
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.
* Intellectual Property Rights
A Struggle for Rights - Spider Man
The sky is falling (on
internet radio)
The Next Online IP Rights Battleground - YouTube.
Viacom
and YouTube
* 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)
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)
(
* Uncertainty in the Movies
Kim
Bassinger's Ordeal - Star Power in the Movies
Movie Stars and Economics - Superstar
Economics (URL)
Chaos
in the Movie Business - Extreme Uncertainty
Movie
Failure and Success
Star
Power (again) - Reducing Uncertainty in the Movie Business
Model
Building - Rank Uncertainty
Movie
Puzzles - If they all lose money, why do they keep making them?
* Where does the money go?
There is
never any net (Garrison vs. Warner Brothers -- and everyone else)
* 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
Part 3: Specific Markets-Art (Notes for this session)
The Antitrust Case Against Sotheby's and
Christies
The Art
Market
Part 4: Specific markets-Gambling (Notes for this session)
Part 5: Specific Markets-Sports (Notes
for this session)
(Readings: Vogel, Chapters 11 and
12. See, also, Business Week)
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)
Economists weigh
in on the antitrust exemption for sports leagues: (Economists on the American Needle Case)
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)
(
(
The
Biggest Auction Ever - 3G in Europe
Discussion of student
market/industry studies.
Part 2: Discussion (Notes for this
session)
Professor Greene's home page
Stern web page..