Entertainment%20and%20Media:%20Markets%20and%20Economics

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Entertainment and Media Markets and Economics

• Television

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The Product

• Local News, Weather, Sports, Documentary
• Regional Sports, News
• National News, Sports, Entertainment

3
Delivery

• What (slightly meaningful distinction)
• Over the air broadcast
• Cable (Can use foul language, advertise
  liquor)
• Internet (Anything goes)
• How
• Subscription
• Cable TV
• Internet TV On Demand House of Cards
• Fee based - premium
• HBO (Game Change), Showtime, Adult
  entertainment
• Basic Fees and advertising
• ESPN, MTV, AMC, Discovery, HGTV, HSN

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Agenda

• Broadcast TV
• Markets and Issues
• Programs
• Cable TV
• Business Models
• Regulation
• Sports Broadcasting
• TV Everywhere

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Entertainment and Media Markets and Economics

• Broadcast Television

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What Do the Networks Do?

• ABC, NBC, CBS, FOX, CW
• Assemble Content
• Scheduling
• Lower transaction costs between
  producers/advertisers and audiences
• Sell bulk advertising time

7
The Production Stages

• Production
• Studios
• Sports
• Composers (Matt Groenig, Julie Kavner, Marge
  Simpson)
• Distribution
• Networks ABC, CBS, NBC, Fox, CW
• Integration (Disney/ABC), (Viacom/CBS),
  (GE/NBC/Comcast), (AOL-TW/WB/Viacom/UPN) (News
  Corp/Fox),
• Exhibition
• Local affiliates OO
• Independents (100 markets, Spanish, etc.)

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Vertical Relationships

• Networks and Affiliates
• Networks buy time for programs from affiliates
• Affiliates sell advertising time local and
  national
• Networks save transaction costs by buying
  advertising time for national advertisers
• Independent stations vs. Owned and Operated.
  Which is better? Vertical integration issue.

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Sources of Competition

• Within Industry
• Other networks
• Other content home shopping, Discovery
• Is there any brand loyalty to networks?
• Outside the Industry
• Cable
• Internet based. (Distinction is less meaningful.)
• Other forms of entertainment
• Other sources of news/information

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Entertainment and Media Markets and Economics

• Elements of Television Production

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Valuing a Prime Time Show

• Made for TV Movie Small production
• Sitcom or serial (BBT, CSI), larger
  infrastructure
• How to value the product?

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Nobody Knows

• Valuation is unknown until the good is consumed
  by the final consumer
• Valuation is different for every consumer
• Past success is uninformative for future
  performance e.g., the Leno primetime show
• Nobody knows (in advance)

13
Cost Structures for Production

• Sunk costs
• All costs are sunk in advance
• All costs must be incurred before an informative
  test of acceptance is possible
• Do focus groups work?
• Fixed Costs
• Marginal costs of delivery are zero
• Pricing implies finding the reservation price
• How are reservation prices determined?
• TV show sold to a network value of the
  advertising. Where does the value of the
  advertising come from?
• Music license sold to a TV station or a website.
  Where does the valuation come from?

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Entertainment and Media Markets and Economics

• Sports Broadcasting

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Barriers to Entry

• ESPN monopoly
• Fox Sports, NBC Sports, CBS, Turner
• Barriers to Entry Huge incumbent firmsNews
  Corp, Comcast-Universal, CBS Corp, Time Warner
• Economies of scale motivate joint ventures such
  as Olympics, NFL, March Madness

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Distinctive Features Shape the Market

• Time value of content Perishability
• Derived demand for social capital
• Live production resists technological change in
  delivery. Live TV production Model
• Long term contracts produce a barrier to entry.
  Why do long term contracts exist? E.g., NCAA
  sports

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Entertainment and Media Markets and Economics

• Explaining Why There Are So Many Reality Shows
  on Television

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Implications for a TV Show

• Environment in which it will air
• Infinite variety of preferences by consumers
• Market size and composition varies by time of day
• Quality is a fixed cost endogenous will vary
  by the anticipated size of the audience
• Costs are all sunk in advance

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Emergence of Cable Impact on Networks

• ABC, CBS, NBC ? UPN (until 2006), WB, Fox, more
  competition
• Many smaller cable channels
• Economic advantage subscribers and advertisers
• Shrinking market for major networks

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Endogenous Fixed Cost of Quality

• Shrinking market ? lower expected return to
  investment in quality
• Cable channels increase their investment in
  quality The Sopranos, 6 Feet Under, Sex in the
  City, Boardwalk Empire, Game of Thrones
• Reality shows cost roughly 1/3 as much as major
  drama Compare
• CSI, sitcoms vs. Survivor
• The natural response to the shrinking market is
  to invest in lower quality, less expensive shows.

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Entertainment and Media Markets and Economics

• Cable

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Cable

• Contrast to Broadcast Old style cable operators
  buy and resell content.
• Industry Structure and Players
• Disney, Comcast-Universal, Viacom
• News Corp, Turner, Scripps
• Pricing model Mixture of ads and subscription
• Regulation Issues
• Is the distinction still (or less) meaningful?
  (MSNBC, CNN)

23
Providers (Million Subscribers)

• Strong local concentration (e.g., Cablevision
  on Long Island) (Gross numbers are misleading.)

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Broadcast vs. Cable and InternetTwo Revenue
(Business) Models
Broadcast Cable
Signal Public Private
Revenue Advertising Subscribers (some advertising)
Technology Static Rapid change
TiVo is a major threat to broadcasters. Time
shift of programming alters the value of
advertising Bypassing advertising alters the
value of programming
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Tivo converts the broadcast model to the cable
model
One major concern of the media is the fact that
advertisements in television programs can be
bypassed by using TiVo. The media industry is
highly dependent on sponsorship via
advertisements and will lose revenue if viewers
adopt TiVo-like systems in large numbers. Knowing
this, some countries have taken protectionist
measures especially when the media is already
struggling due to poor viewing figures. The
government of Singapore has banned TiVo, citing
the potential adverse impact on the local media
industry if TiVo usage were to increase. The
government is, however, facing difficulty
regulating the use of TiVo in Singapore as
individuals are bringing in the sets from
overseas. TiVo has created a number of ad
solutions intended to reach the viewer that fast
forwards through ads. This has not been an issue
in Australia where the exclusive rights to TiVo
are held by Hybrid Television Services, owned by
the Seven Media Group and TVNZ. Seven Media Group
is one of Australia's largest free-to-air
broadcasters as Seven Network, and as part of the
local market adaptations to TiVo prior to launch,
ad-skipping was disabled. Users can still fast
forward through ads.
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Entertainment and Media Markets and Economics

• TV Everywhere

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TV Everywhere
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TV Everywhere

• Ad values change as competition expands
• Technology change mobile distribution (tablets,
  smart phones) produces competition for delivery
  mode.
• Demise of both broadcast and cable networks
• Major providers YouTube, Hulu, Netflix, Apple

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(No Transcript)
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Demographics of Cord Cutting Aug. 2013
Bushwick, S and D. Krenn Nielsen Custom Survey
of Zero TV Households
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Entertainment and Media Markets and Economics

• Regulation of Television

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Regulation Why?

• Cloaked in a public interest
• Congestion in the common resources
• Broadcast frequencies
• Technological change has made this less important
• Public good aspects
• Maintaining competition
• Outside guidance for technological advance HDTV
• FTC regulation of advertising
• Industry regulation NAB

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Regulation of Cable Why?

• Local franchises and public utilities
• Telecommunications Decency Act Bono Wardrobe
  malfunction, MIA hand malfunction
• Consumer Protection Act
• Rate Regulation