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Television 6:1 - 1(47) Entertainment and Media: Markets and Economics Professor William Greene.
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Transcript of Television 6:1 - 1(47) Entertainment and Media: Markets and Economics Professor William Greene.
Television6:1 - 1(47)
Entertainment and Media: Markets and Economics
Professor William Greene
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Entertainment and Media: Markets and Economics
Television
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The Product
Local: News, Sports, Documentary Regional: Sports, News National: News, Sports, Entertainment
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Delivery What
Over the air – “broadcast” Cable Internet
How Subscription
Cable TV Internet TV – “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
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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: O&O 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 (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)
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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
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)
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Providers (Million Subscribers)
Strong local concentration (e.g., Cablevision on Long Island) (Gross numbers are misleading.)
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Broadcast vs. Cable and Internet:Two Revenue (Business) Models
Broadcast Cable
Signal “Public” “Private”
Revenue Advertising Subscribers (some advertising)
Technology Static Rapid change
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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 a TiVo DVR. 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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AEREO
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AEREO: Cloud DVR
New York City now, 100+ cities later Retransmission to cloud based DVR Do the networks own the signal once
they broadcast it?
http://techcrunch.com/2012/03/12/aereo-countersues-broadcasters/
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Last Saturday was a big day for Aereo, the best buddy of cable cord-cutters and mortal enemy of the big broadcast networks. The company's founder, Chet Kanojia, was in Austin, Texas, at the big, loud, and impossibly hip venue that is the SXSW conference, to announce his company's expansion to Austin. It's the 13th on the map of cities whose residents can dump big cable in exchange for access to broadcast television for just $8 per month. Meanwhile, that morning his company was forced to yank its service away from customers in Denver, Colorado, and Salt Lake City, Utah, after a US District Court injunction against it was upheld by a federal appeals court. For better or worse, the legal roller coaster will end sometime after April 22, when the US Supreme Court takes up the question of whether it is legal for Aereo to provide its customers with Internet access to 20 hours of broadcast network television for $8 per month.
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What Business Model? Sale Price = $1.65 Billion
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YouTube advertising has evolved(Ketchup ads are not very effective on YouTube)
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Targeted Advertising
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Modern Pricing: How much does it cost to have HBO?
Modern Pricing: How much does it cost to have HBO GO?
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Triple play. Bundling and price discrimination
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Just Cable TV.
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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 (Howard Stern) Maintaining competition Outside guidance for technological advance: HDTV FTC regulation of advertising Industry regulation: NAB
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Federal Regulation: Fin-Syn Era
Fin-Syn rules: 1971 – 1995: Networks could not own programs.
Post 1995, vertical integration (Disney/ABC) has circumvented
The rule has been abandoned Why would we have this rule?
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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
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Entertainment and Media:
Markets and Economics
Sports Broadcasting
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Barriers to Entry
ESPN Fox Sports, NBC Sports, CBS, Turner Barriers to Entry: Huge incumbent firms
News 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?
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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
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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
End Class 6 – Part 1