Entertainment and Media: Markets and Economics

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Entertainment and Media Markets and Economics

• The Art Market

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135 Million
Klimt, to Ronald Lauder
http//www.nytimes.com/2006/06/19/arts/design/19kl
im.html?ex1308369600en37eb32381038a749ei5088
partnerrssnytemcrss
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Going Once 43.7M
It looks like it should be worth 200, but it
sold for a whopping 43.7 million. An Andy
Warhol painting called "200 One Dollar Bills"
fetched the megasum at Sotheby's last night. It
represented an incredible profit for the seller,
who purchased the silkscreen for 385,000 in
1986, according to a spokeswoman for the Upper
East Side auction house. Sotheby's had estimated
it would sell for 12 million.
http//www.nypost.com/p/news/local/manhattan/item_
ZEdwTB6wV7tjoBRazvCIOO
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Going Twice . 80M
Jasper Johns 198817M to 200680M
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Going Three Times
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Gone! 119.9M
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100 Million sort of
Stephen Wynn with a Prized Possession, 2007
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An Enduring Art Mystery
Graphics show relative sizes of the two works.
The Persistence of Econometrics. Greene, 2008
Why do larger paintings command higher prices?
The Persistence of Memory. Salvador Dali, 1931
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Dali in Large and Small
Hallucinogenic Torreador (1969-1970) is 910
wide and 131 tall.
The Persistence of Memory. Salvador Dali, 1931.
9 x 11
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Monet in Large and Small
Sale prices of 328 signed Monet paintings
Log of price a b log surface area e
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Entertainment and Media Markets and Economics

• Art as a Financial Asset

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Art Market

• Market for paintings?
• Subjective returns
• Consumption value
• Measuring the return to art
• Ill defined asset
• Uniqueness of valuable pieces
• Repeat sales of the same print after long
  intervals (hundreds are recorded)

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Paintings as Risky Investments

Mean St.Dev. Inflation Interest Bond Stock
Inflation 4.2 8.8 1.000
B of E r. 4.7 3.6 0.58 1.000
UK Bond 4.8 10.6 0.32 0.67 1.000
UK Stock 4.9 21.9 -0.09 0.14 0.39 1.000
Art 17.5 52.8 0.18 0.52 0.54 0.78
Annualized Returns 1900 1986 Mean
Std.Dev. Correlations
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The Returns to Art, by Period
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Very Long Term Return to Art

• Van Goghs Irises
• 1987 40M
• 1990 53M (sort of)
• Getty museum, which wont tell how much
• Lauders 135M Klimt
• Baumols analysis of 640 transactions 1652-1961
• Remarkably low annual return close to zero
• High variance.
• Returns to art are all aesthetic

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Anti-Portfolio Theory (Pesando)

• Buy one masterpiece for 100,000, not ten lesser
  pieces at 10,000 each. (Wisdom)
• Conclusions
• Short run excess returns
• Masterpiece portfolio does not do better than the
  market
• Many price and return anomalies

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Crapshoot Theory

• Baumol There is no equilibrium and no anchor
• Why are money and art correlated?
• A wealth effect.
• An Intervening effect the stock market
• An issue of causation
• The greater fool theory

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A few weeks ago, a triptych portrait by the
British modernist painter Francis Bacon sold for
142.4 million, a record for a work of art at
auction. The next night, a silk-screen print,
Silver Car Crash (Double Disaster), by the
American pop artist Andy Warhol brought 105.4
million. And this week, Saying Grace, by the
American illustrator Norman Rockwell, sold for
46..1 million. The art market would seem to be
going through the roof. But is it?
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Mei-Moses Art Index
http//www.artasanasset.com/main/ (You need to
be a member to get past the front page.)
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Mei and Moses on Art

• 1950- auctions, Christies and Sothebys
• Underperformance of masterpieces
• Better than fixed income securities, worse than
  stocks
• Small variance ? good portfolio choice
• Loose ends
• Winners curse in bids?
• Income effect cyclicality of prices
• Euphoria effect movement with stock market
• The true return intangibles

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The Art Market vs. Stock Market
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Segments of the Art Market
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The Art Market Mei/Moses Measures
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How does art attain value? This article
describes a new vault where buyers of high end
art can store their assets while they wait for
them to become more valuable.
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Entertainment and Media Markets and Economics

• Art Auctions and Antitrust

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Art, Auctions and Antitrust

• Art Auctions
• Open outcry, English style (ascending)
• Private information only in valuation (by nature)
• High end art market dominated (90) by Sothebys
  and Christies

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Some History

• NY, 1960, dominated by Parke-Bernet
• Competition from London by Sotheby
• P-B for sale in 1963, 2M.
• S makes a credible threat to enter, drives the
  price down to 1.5M and enters
• Christies and Phillips enter in 1977
• Christies entry did not drive down the value of
  Sotheby. Entry established NY as a focal point
  for art sale drove up the stock value of both
  companies.
• S and C acted as a natural duopoly, heavy
  competition until 1995. Competition suddenly
  stopped.
• 1995, conspired to fix commissions.

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Art Auction Conventions

• The hammer price
• Two commissions wedged between buyer and seller
• Buyers commission about 10 of hammer price
• Sellers commission about 10 of hammer price

Seller Hammer Buyer
Commission
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Fixed Commissions
Sothebys essentially identical.
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The Civil Settlement

• About 300M for each company
• Some criminal penalties for some conspirators
  (notably Alfred Taubman who lost a lot - 7.5M
  and 10 months in jail.)
• Most paid (inappropriately) to buyers
• Theory is unambiguous buyers will just reduce
  their bids so that bidcommission will not exceed
  their reservation price. They were not harmed.
• A curious incentive the amnesty rule. The
  first company to confess gets off (partly) from
  the criminal prosecution. (Not the civil suit.)
• A curious auction The right to represent the
  plaintiffs was auctioned to the firm with the
  highest guess as to the minimum they believed
  they could win for the plaintiffs. (David Boies
  et al.)