Entertainment and Media: Markets and Economics

1. Entertainment and Media: Markets and Economics Professor William Greene

2. Economic Foundations for Entertainment, Media, and Technology Organization of Firms in E&M IndustriesVertical Integration

3. Food for thought …

4. This one’s not a wrap! The benefit of integration

6. Vertical Integration in Markets Financial Services Professional Sports Traditional Publishing Final Consumers

7. Vertical Integration in Entertainment and Media • Vertically integrated firms • Viacom, Paramount, Blockbuster • CBS, Showtime: • Disney and ABC • Comcast and NBC/Universal • AOL and Time Warner(?) • Clear Channel and Live Nation • Nokia and Loudeye • Microsoft and Nokia • Where are the gains?

8. Create Something That Was Not There Before ORLANDO, Fla. — Pull down your lap bars: Universal Studios, the theme park chain now controlled by Comcast, is rolling out new weapons in its battle against Walt Disney Parks and Resorts — and Disney is fortifying its defenses. Universal’s parks have always languished in the shadow of mouse ears, and that will not change anytime soon. Disney has eight parks in California and Florida that attract over 73 million visitors each year, with summer the busiest season. Universal operates three parks, with annual attendance totaling about 18 million. But, Universal is starting to look a lot less puny. A $265 million Harry Potter-themed addition to its resort here sent 2010 attendance soaring 30 percent over the year before, draining attention from Walt Disney World in the process. Universal is now racing to replicate the attraction at its parks in California and Japan while expanding the boy wizard’s presence in Orlando. To maintain momentum, Universal — with more Comcast money — is introducing a swarm of offerings.

9. Digital Comix

10. The Seattle-based online company has admired ComiXology and its reader experience for years, said David Naggar, Amazon vice president of content acquisition and independent publishing. He called ComiXology's panel-to-panel "Guided View" technology "the Rolls-Royce in the space.” "It felt like a really strong ability for us to work together and learn from each other," Naggar said. ComiXology will continue to exist as a wholly owned subsidiary of Amazon based in New York City, says CEO David Steinberger, who co-founded ComiXology in 2007. Naggar said there is no timeline for consumers on either the Kindle platform or those with the ComiXology app to notice a difference in their reading experiences. "ComiXology is a strong, healthy business," he said. "There are no plans beyond seeing what we can do to help that business grow, and see what are the ways ComiXology can help Kindle, as well."

11. AOL Time Warner • AOL • Internet service provider • Email, Instant messaging • Time Warner Time Warner Cable Time Inc. (Magazines) HBO Turner Broadcasting and CNN The WB Network New Line Cinema Warner Music Time Warner Publishing Warner Brothers Studio • Horizontal vs. Vertical Integration

12. The Dolans’ ongoing efforts to buy back the stock of the full company do not relate to this vertical integration. (It does focus its meaning, however.) Cablevision Knicks Rangers Liberty CSC Holdings and Optimum TV: The cable system Optimum Online Homes Radio City Enter. Rainbow Media Lightpath Businesses The Wiz Madison Square Garden FSN Sports Networks to Comcast, Feb. 2007 Clearview Cinemas (Now Bow Tie Cinema, 2013)

13. Viacom < Paramount

14. Implications of Strongly Multistaged Production:A Motivation for Vertical Integration • Where are the profits created • Where are the profits captured? • Applications: • Book production • Movies • Recorded music • Television

15. Benefits of Vertical Integration All arise from some market failure • Lower transaction costs: Firm organizational limitations • Transactions involving information • Avoidance of government restrictions, taxes, or regulations. • Extension of market power (forward or backward) • Avoidance of upstream market power • Assurance of steady or reliable input supply • Murdoch’s purchase of Manchester United • Internalization of market failures • Franchising reduces problems of free riding

16. BSkyB News’ View of Manchester United Murdoch Soccer Deal Sets Up Bigger Play Goals for Media Empire Motivate $1-Billion Purchase of Famed Team MARJORIE MILLER, Times Staff Writer LONDON--There is one reason media mogul Rupert Murdoch would spend $1 billion and change to buy Britain's most revered soccer team--more than three times what he paid for the Los Angeles Dodgers--and it is not just to tweak the noses of Manchester United fans.      Even more than potential profits, owning one of the leading teams in the world's most popular sport gives Murdoch's News Corp. enormous clout with broadcasters worldwide, while guaranteeing that its games never leave the company's flagship satellite service, British Sky Broadcasting, an international cable news and entertainment network that is the dominant pay television source in Britain. Manchester United was purchased in 2004 by Malcolm Glazier for $1.44 billion.

17. Costs of Vertical Integration • Private costs • Loss of economies of scale • Organizational complexity • Assumption of risk • Social costs • Creation or extension of market power (1948 Paramount case – forced divestiture of theaters by studios) • Possible cartelization

18. Foreclosure by Backward Integration? Echo Nest Music Data Service    Pandora Rhapsody Spotify Beats

19. Vertical Integration in E&M • Analysis • Where is it observed? • What are the benefits / motivation? • What are the costs? • Applications • Alleged conspiracy of Apple and 5 publishers • Cablevision and home delivery of cable generally • End to end production • Internet service providers and cable operators • The movie business (at several stages)

20. A Football Mini-Case Study: The XFL – 4th and Long

21. Football History The Major Player: NFL National Football League (NFL) 1920, 10 teams, Akron, Ohio American Football League (AFL) 1960, AFL merged with NFL, 1966, one schedule, 1970. The Competitors and Entrants • WFL: 1974-1975 • USFL: 1983-1985 • World League: 1991 • Arena Football League: 1987 – (a couple incarnations) • XFL: 2001 (RIP) • UFL: 2009 - 6 teams, 2012 – 4 teams. • Formative. • Attempted sale of 30% interest to NFL failed • Ceased operation in 2012 with only 5 teams existing

22. Football LeagueNFL XFL Labor Pool Labor Pool Other inputs NFL Draft WWF/NBC NY LA CLE CHI Homes ABC NBC ESPN FOX Is it vertical integration? Is it a cartel in the labor market? Why are salaries so low compared to NFL? What does WWF bring to the party? Homes

23. About the XFL: Marketing • What was the product? • What was the innovation? (Was there one?) • Why did the XFL Fail?

24. About the XFL: Economics • What was the form of entry? • What was the market structure? • Production structure? (What was the product?) • What was the demand? (What market segment)? • Was the product priced? How? • Why was there no profit?

25. WWW.XFL-Football.com (Or is it? … and only a smile remained.) What is this? Where is the word “football” in this web page? How does this website survive? Website Ca. 2005

26. Website Ca. 2007 Website Ca. 2007

27. The Real XFL – 2012, 2013

28. 2014 – A Texas Minor League: XFLFootball.com

29. Postscripts: XFL  AFL • Arena Football: www.arenafootball.com • XFL: www.XFL-football.com • The league is gone 2001 • A website lasted until 2012 • How do arena football and (the concept of) the XFL differ? • In general • In their relationship to the NFL

30. United Football League: Competitive threat to NCAA? 2013: No teams

31. Professional Football • Monopoly based on • Economies of scale • Barriers to entry • Vertical integration, foreclosure • Attempt(s) to enter • Strategy • Success (or lack of) – Why?

32. Concerts

33. Concert Production Live Nation's mission is to maximize the live concert experience. Our core business is producing, marketing and selling live concerts for artists via our global concert pipe. Live Nation is the largest producer of live concerts in the world, annually producing over 16,000 concerts for 1,500 artists in 57 countries. The company sells over 45 million concert tickets a year and expects to drive over 60 million unique visitors to LiveNation.com in 2008. Live Nation is transforming the concert business by expanding its concert platform into ticketing and building the industry's first artist-to-fan vertically integrated concert platform.

34. Ticketmaster

35. A Merger Made in Heaven?

36. Vertically Integrated Live Nation • The Back End • Frontline Management: Madonna, Jay-Z, Nickelback, Miley Cyrus, The Eagles, 200+ others • The Venues • Gibson Amphitheater, The House of Blues… • The Tickets: Ticketmaster • The Secondary Market (Scalpers): Tickets Now • The Issue: Is there market power? • British competition authority thinks so – rejected the merger in the UK http://www.reuters.com/article/industryNews/idUSTRE59F4CO20091016

37. Antitrust approval of Live Nation-Ticketmaster mandated that tickets be made available to Anschutz Entertainment Group.

38. Sports Broadcast

39. Vertical Integration in Sports Broadcasting: League Networks?

40. Vertical Relationship

41. What are the relation-ships? Where is the benefit to integra-tion?

42. Alternative Distribution: What does the NFL gain by becoming the network?

43. WWE Is Now a Network

45. Movie Studios: The Paramount Case

46. The Paramount Case (1948) • Block booking • Forward integration: theaters • Backward integration: the “studio system” (An exercise in monopsony power) • The Case http://www.cobbles.com/simpp_archive/1film_antitrust.htm

47. Echoes of Paramount • Paramount, 1920s – 1940s  The Paramount Case • ABC and CBS backward integration into the movie business, 1970s when the cost of a film for network broadcast rose 800% from 1961-1967. Produced 50% of their own output from 1967-1971. • Does this strategy reduce cost? • Violated Paramount • Violated the FCC’s Fin-Syn rules. (To be revisited later.) • 1980s studios reintegration into exhibition: 1986, MCA bought 50% of Cineplex-Odeon. 1987, Columbia bought all of TriStar. • 1980’s Time Inc. bought Warner Bros. linking cable networks and studios. Then, Turner Broadcasting. • 20th Century Fox acquired built Fox broadcasting. • Sony (electronics) acquired Columbia Pictures. (Shades of The Wiz?) • IN EACH CASE, IS THERE A CLEAR BENEFIT?

48. Visual Entertainment

49. Disney and Pixar On January 24, 2006, Pixar entered into an agreement with The Walt Disney Company to merge the two companies. The deal was approved by shareholders of both companies and the merger became effective on May 5, 2006. Pixar is now a wholly-owned subsidiary of The Walt Disney Company.

50. This one’s not a wrap!