Economic%20Foundations%20for%20Entertainment%20and%20Media

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Economic Foundations for Entertainment and 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_misunderstand
ing.php?pageall
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Indie Box Office Revenues
Benedetta Lucini, Analyzing the ROI of
Independently Financed Films, Stern SoB, MBA
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Box office revenue is not the main event for the
movie industry.
Trend in Revenue Source of Revenue
Careful! This is 6, not 0.
DVD data http//www.edwardjayepstein.com
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Film Studio Revenues 2004, 2008, 2009
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
Studio Revenue vs. Profits
http//www.edwardjayepstein.com/TVnumbers.htm
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It gets worse! 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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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
• E.g., Star Wars
• 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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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
• 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 its 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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March May, 2014
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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
Summer 2001
Summer 1991

• 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

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Summer 2006October 2009
Source www.boxofficemojo.com
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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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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 May Change the Release Window
Strategy

• Useful Distinctions
• YouTube
• Television Hulu
• Netflix
• 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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Entertainment and Media Markets and Economics

• Movie distributors and book publishers time
  releases into different windows to exploit
  different market segments.