Entertainment and Media Markets and Economics Television 6

Entertainment and Media: Markets and Economics Television 6: A - 1(38) Television

The Product p Local: Regional: p National: p 6: A - 2(38) News, Weather, Sports, Documentary Sports, News, Sports, Entertainment Television

Delivery p What (slightly meaningful distinction) n n n p “Over the air” – “broadcast” “Cable” (Can use foul language, advertise liquor) Internet (Anything goes) How n Subscription p p n Fee based - premium p n HBO (“Game Change”), Showtime, Adult entertainment Basic – Fees and advertising p 6: A - 3(38) Cable TV Internet TV & On Demand – “House of Cards” ESPN, MTV, AMC, Discovery, HGTV, HSN Television

Agenda p Broadcast TV n n p Markets and Issues Programs Cable TV n n Business Models Regulation Sports Broadcasting p TV Everywhere p 6: A - 4(38) Television

Entertainment and Media: Markets and Economics Broadcast Television 6: A - 5(38) Television

What Do the Networks Do? ABC, NBC, CBS, FOX, CW p Assemble Content p Scheduling p Lower transaction costs between producers/advertisers and audiences p Sell bulk advertising time p 6: A - 6(38) Television

The Production Stages p Production n p Distribution n n p Studios Sports Composers (Matt Groenig, Julie Kavner, Marge Simpson) Networks: ABC, CBS, NBC, Fox, CW Integration: (Disney/ABC), (Viacom/CBS), (GE/NBC/Comcast), (AOL-TW/WB/Viacom/UPN) (News Corp/Fox), Exhibition n n Local affiliates: O&O Independents (100+ markets, Spanish, etc. ) 6: A - 7(38) Television

Vertical Relationships p Networks and Affiliates n n n p 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. 6: A - 8(38) Television

Sources of Competition p Within Industry n n n p Outside the Industry n n 6: A - 9(38) Other networks Other content – home shopping, Discovery Is there any brand loyalty to networks? Cable Internet based. (Distinction is less meaningful. ) Other forms of entertainment Other sources of news/information Television

Entertainment and Media: Markets and Economics Elements of Television Production 6: A - 10(38) Television

Valuing a Prime Time Show p Made for TV Movie: Small production p Sitcom or serial (BBT, CSI), larger infrastructure p How to value the “product? ” 6: A - 11(38) Television

Nobody Knows p Valuation is unknown until the good is consumed by the final consumer p Valuation is different for every consumer p Past success is uninformative for future performance – e. g. , the Leno primetime show p Nobody knows (in advance) 6: A - 12(38) Television

Cost Structures for Production p Sunk costs n n n p 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 n n n 6: A - 13(38) Marginal costs of delivery are zero Pricing implies finding the reservation price How are reservation prices determined? p TV show sold to a network – value of the advertising. Where does the value of the advertising come from? p Music license sold to a TV station or a website. Where does the valuation come from? Television

Entertainment and Media: Markets and Economics Sports Broadcasting 6: A - 14(38) Television

Barriers to Entry ESPN monopoly p Fox Sports, NBC Sports, CBS, Turner p Barriers to Entry: Huge incumbent firms News Corp, Comcast-Universal, CBS Corp, Time Warner p Economies of scale motivate joint ventures such as Olympics, NFL, March Madness p 6: A - 15(38) Television

Distinctive Features Shape the Market p Time value of content – Perishability p Derived demand for social capital p Live production resists technological change in delivery. Live TV production Model p Long term contracts produce a barrier to entry. Why do long term contracts exist? E. g. , NCAA sports 6: A - 16(38) Television

Entertainment and Media: Markets and Economics Explaining Why There Are So Many “Reality Shows” on Television 6: A - 17(38) Television

Implications for a TV Show Environment in which it will “air” n n 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 6: A - 18(38) Television

Emergence of Cable: Impact on Networks ABC, CBS, NBC UPN (until 2006), WB, Fox, … more competition p Many smaller cable channels p n n 6: A - 19(38) Economic advantage: subscribers and advertisers Shrinking market for major networks Television

Endogenous Fixed Cost of Quality p p p 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 n p CSI, sitcoms vs. Survivor The natural response to the shrinking market is to invest in lower quality, less expensive shows. 6: A - 20(38) Television

Entertainment and Media: Markets and Economics “Cable” 6: A - 21(38) Television

Cable Contrast to Broadcast: Old style cable operators buy and resell content. p Industry Structure and Players p n n Disney, Comcast-Universal, Viacom News Corp, Turner, Scripps Pricing model: Mixture of ads and subscription p Regulation Issues p Is the distinction still (or less) meaningful? (MSNBC, CNN) p 6: A - 22(38) Television

Providers (Million Subscribers) Strong local concentration (e. g. , Cablevision on Long Island) (Gross numbers are misleading. ) 6: A - 23(38) Television

Broadcast vs. Cable and Internet: Two Revenue (Business) Models Broadcast Signal Revenue Technology Cable “Public” “Private” Advertising Subscribers (some advertising) Static Rapid change Ti. Vo is a major threat to broadcasters. Time shift of programming alters the value of advertising Bypassing advertising alters the value of programming 6: A - 24(38) Television

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 Ti. Vo. The media industry is highly dependent on sponsorship via advertisements and will lose revenue if viewers adopt Ti. Vo-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 Ti. Vo, citing the potential adverse impact on the local media industry if Ti. Vo usage were to increase. The government is, however, facing difficulty regulating the use of Ti. Vo in Singapore as individuals are bringing in the sets from overseas. Ti. Vo 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 Ti. Vo 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 Ti. Vo prior to launch, ad-skipping was disabled. Users can still fast forward through ads. 6: A - 25(38) Television

Entertainment and Media: Markets and Economics TV Everywhere 6: A - 26(38) Television

TV Everywhere 6: A - 27(38) Television

TV Everywhere p Ad values change as competition expands p Technology change – mobile distribution (tablets, smart phones) produces competition for delivery mode. p Demise of both broadcast and cable networks p Major providers: You. Tube, Hulu, Netflix, Apple 6: A - 28(38) Television

6: A - 29(38) Television

Demographics of Cord Cutting: Aug. 2013 Bushwick, S and D. Krenn: Nielsen Custom Survey of Zero TV Households 6: A - 30(38) Television

Entertainment and Media: Markets and Economics Regulation of Television 6: A - 31(38) Television

Regulation: Why? p p “Cloaked in a public interest” Congestion in the common resources n n p p p 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 6: A - 32(38) Television

Regulation of Cable: Why? Local franchises and public utilities p Telecommunications Decency Act Bono; Wardrobe malfunction, MIA hand malfunction p Consumer Protection Act p Rate Regulation p 6: A - 33(38) Television