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Economic Foundations for Entertainmentand Media

Windowing and Revenue Streams

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Following the movie money Box office revenues overstate success Net box office revenues are not the major source of revenue Pay attention to profit, not revenue Profit is part of a larger movie enterprise Movie studio profits are part of a larger corporate enterprise

http://www.cjr.org/cover_story/gross_misunderstanding.php?page=all

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Indie Box Office Revenues

Benedetta Lucini, “Analyzing the ROI of Independently Financed Films,” Stern SoB, MBA

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Trend in Revenue

Source of Revenue

Careful! This is 6, not 0.

DVD data: http://www.edwardjayepstein.com

Box office revenue is not the main event for the movie industry.

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Film Studio Revenues: 2004, 2008, 2009Studio Revenue Breakdown, 2004

Theatrical20%

Free TV12%

Pay TV8%

Licensing7%

Home Video51%

PPV/Other2%

The share of theatrical rose from 2004 to 2008, from 20% to 25%.

This is consumer spending. Half of the revenue went to exhibitors.

2012 Studio Revenue Sources

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We need to distinguish between revenue and profit.TV appears to be the main profit center.But, the figures allocate the entire production cost to theatrical. This is grossly misleading

http://www.edwardjayepstein.com/TVnumbers.htm

Studio Revenue vs. Profits

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The studios are embedded in larger conglomerate corporations.

How should studio “profits” be allocated?

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Capturing Value – Films and MoreThe movie is rarely a one off project.

Multiple release windows A form of price discrimination Market segmentation (Can this be applied to the music business?)

The movie as product line What is the source of “value” generated by a movie? Successful strategies

Movie as part of a product line Batman: print media, movies, home video, domestic TV, foreign TV,

licensing and merchandise, Broadway show Harry Potter: Books movies infinite line of products Fast and Furious: Videoames, toys and models, movies Taylor Swift: Concerts, televised specials, movie(s?), lunch boxes,

awards shows, etc.

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Best Selling Movie By YearEvery one is a franchise or sequel

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Batman Franchise Includes Movies

This does not include licensed merchandise.

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Fast and Furious Movie Franchise

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Movie as Franchise: Capturing All the Value Out to the Margin

Movie Licensed Merchandise The Mummy Returns “Action Figure” + toys + Happy Meal + …

Product Movie Pirates of the Caribbean Disney Ride Movie (2003) Movie (2006) Movie (2007) Movie (2011) …

Movie Movie: “When Warner Bros. released “The Matrix,” the studio feared the movie would baffle audiences and bomb. Now it’s hard

to think of projects more eagerly anticipated than parts two and three.” (TIME, 4/22/02. Part Three bombed in 2003) Sequels are among the most successful: Iron Man, etc., Harry Potter

Movie and Movie and Movie … Fast and Furious. Is this a sequel? James Bond, Jason Bourne Shreck Cartoons

Not a sequence: Defiance video game and Syfy TV series (2013)

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Movie as Advertising Platform

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Movie Release Windows

First run theatrical: Domestic International

Home video: Domestic International

Cable: Domestic International

U.S. network TV U.S. syndication TV Foreign syndication TV

THE LORD OF THE RINGS

…Peter Jackson made three films at once and then sold them all to the same fans again and again and again. The theatrical releases, in consecutive years, turned out to be teasers for the DVD release.

(A.O.Scott, NYT Magazine,.)

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Market Segmentation?What is the strategy?What is the objective?

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Fame is Fleeting

Shortened Movie Runs – Why? Demand driven – short lived demand Supply effects – studio strategy

Implications for Production Implications for Profits and Revenues Costs and Benefits for Studios and for Exhibitors

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Dropoff in 2nd Week Revenues of the Number one Movie, by Week

FX2 -30% What about Bob? +22% Backdraft -28% City Slickers -13% Robin Hood -29% Naked Gun 2.5 -44% Terminator 2 -35% Hot Shots! -26%

The Mummy Returns -50% Shrek even Pearl Harbor -50% Swordfish -30% Lara Croft -59% Fast and Furious -50% A.I. -52% Cats and Dogs -45% Legally Blonde -46% Jurassic Park III -56% Planet of the Apes -60%

Summer 2001Summer 1991

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Summer 2006

Source: www.boxofficemojo.com

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October, 2009

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The initial run can be misleading

LOS ANGELES — In early April, as Lionsgate prepared to release “Kick-Ass,” the movie capital buzzed that the film looked to be a smash hit. Lionsgate had acquired it for just $15 million, and surveys that track audience interest projected a $30 million opening weekend. The movie, directed by Matthew Vaughn, instead opened with $19.8 million, and the chatter, fueled by the blogosphere, abruptly turned negative. Misfire! Bomb! Flop!

As it turns out, “Kick-Ass” is living up to its title. The picture, about a teenager who tries to become a superhero, went on to generate about $97 million in ticket sales and is on track to sell over two million copies on DVD and digital download services. Still to come: lucrative sales to TV channels around the world.

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But, the first run does matter as part of the promotion of the enterprise

Benedetta Lucini, “Analyzing the ROI of Independently Financed Films,” Stern SoB, MBA.

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Book Release Windows

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Shorter Release Windows

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Video on Demand

Useful Distinctions YouTube Television - Hulu Cable Operators’ Movie Distribution

Pricing Advertising model – in stream Subscription model

Mobile Video… (Important change. Blurs the distinction)

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Changed Market – 40% Decline in Home Entertainment Revenue

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Connecting Consumers: CinematchPersonalized movie recommendor provides Netflix visitors with highly accurate film recommendations based on their individual movie taste history.

http://www.nytimes.com/2008/11/23/magazine/23Netflix-t.html?hp=&pagewanted=all (11/23/08)

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Big Data in Music

How can companies use these data?

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Entertainment and Media: Markets and Economics

Movie distributors and book publishers time

releases into different windows to exploit

different market segments.