Economic Foundations for Entertainment and Media Windowing and Revenue Streams

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

Indie Box Office Revenues Benedetta Lucini, “Analyzing the ROI of Independently Financed Films,” Stern SoB, MBA

Trend in Revenue Source of Revenue 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

2012 Studio Revenue Sources 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

Studio Revenue vs. Profits 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

It gets worse! The studios are embedded in larger conglomerate corporations. How should studio “profits” be allocated?

Capturing Value – Films and More The 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.

Capturing Value – Films and More The 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.

Capturing Value – Films and More The 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.

Best Selling Movie By Year Every one is a franchise or sequel

Franchise Includes Movies This does not include licensed merchandise. Batman Franchise Includes Movies This does not include licensed merchandise.

Fast and Furious Movie Franchise

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)

Movie as Advertising Platform

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,.)

March – May, 2014

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

Dropoff in 2nd Week Revenues of the Number one Movie, by Week Summer 1991 Summer 2001 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 2006 October 2009 Source: www.boxofficemojo.com

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.

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.

Book Release Windows

Shorter Release Windows

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) 26

Changed Market – 40% Decline in Home Entertainment Revenue

Entertainment and Media: Markets and Economics Movie distributors and book publishers time releases into different windows to exploit different market segments.