DavidWaterman Sevilla Movies 2011 Final
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Transcript of DavidWaterman Sevilla Movies 2011 Final
7/31/2019 DavidWaterman Sevilla Movies 2011 Final
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David Waterman
Dept. of Telecommunications, Indiana UniversityVisiting Fellow, Oxford Internet Institute, University of Oxford
with Sung Wook Ji, Dept. of Telecommunications, Indiana University
Technology and the U.S. Movie Industry
The Economics of Media and Content IndustryIPTS
European Commission
Sevilla, Spain
May 30-31, 2011
7/31/2019 DavidWaterman Sevilla Movies 2011 Final
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1
How has technology affected movie industry revenue
sources?
In domestic (U.S./Canada) market
In international (“foreign”) markets
What have been effects on movie production?
How is the digital (IPTV) conversion affecting the industry
—and why?
Questions
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Great expansion in domestic and foreign revenues since 1970s
due to:
Successful market segmentation and price discrimination as
new movie media proliferate—especially in the U.S.
Great expansion in U.S. production investments, due to…
higher revenues, more efficient distribution
Stagnant/falling revenues since IPTV diffusion, due to….
several factors…including lower costs of rentals and
VOD
Overview
2
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Use an economic model of market segmentation and price
discrimination to interpret trends
First, historical expansion, then…
Recent contraction
My approach
3
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U.S. Studio Domestic Market Boxoffice shares,
2008-2010 averages
Time Warner(Warner Bros)
19%
News Corp. (Fox).13%
Viacom(Paramount)
16%Walt Disney12%
Sony (Columbia)14%
NBC-Universal11%
MGM
1% Independents14%
Source: derived from SNL Kagan (2011)
4
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Theater
Broadcast TV
Basic Cable TV
Pay TV
Home Video
Domestic Digital
0.0%
0.5%
1.0%
1.5%
2.0%
%
o f G D P
Sources: Waterman (2005); SNL Kagan (2010)* Revenue from merchandise is not included.
U.S. Movie Distributor Revenues*, Domestic Market,
as % of GDP, 1970-2009
5
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Distribution technologies--analog and digital
Analog: broadcast/cable TV; VHS
Drivers of the expansion
6
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Theater
Broadcast TV
Basic Cable TV
Pay TV
Home Video
Domestic Digital
0.0%
0.5%
1.0%
1.5%
2.0%
%
o f G D P
Sources: Waterman (2005); SNL Kagan (2010)* Revenue from merchandise is not included.
U.S. Movie Distributor Revenues*, Domestic Market,
as % of GDP, 1970-2009
5
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Distribution technologies--analog and digital
Analog: broadcast/cable TV; VHS
Digital: digital cable/DBS;HDTV; DVD/Blu-ray
Drivers of the expansion
6
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Distribution technologies--analog and digital
Analog: broadcast/cable TV; VHS
Digital: digital cable/DBS;HDTV; DVD/Blu-ray
Economic factors
New media usually lower cost and/or higher quality--
especially digital
Successful market segmentation and price discrimination by
studios
Drivers of the expansion to mid-2000s
8
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(1) (2) (3) (4)
Media
Approx Window
(after theatrerelease)
Retail Price
per
Transaction(2002)
Realized Retail
Price per
Viewing**(2002)
Theaters $5.81 $5.81
Video sales 4-5 months $14.77 $3.69Video rentals 4-5 months $2.84 $1.13
Home PPV/VOD30-45 days after
video$3.50-$4.00 $1.50
Subscription pay TV 1 year $7.64/mo $0.76
Basic cable TV 2-3 years $34.52/mo $0.46
Broadcast TV 2-3 years $0 $0.00
Release timing and pricing of theatrical features
(2002-2005)
Source: Waterman (2005); SNL Kagan (2006)
9
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Distribution technologies--analog and digital
Analog: broadcast/cable TV; VHS
Digital: digital cable/DBS;HDTV; DVD/Blu-ray
Economic factors
New media usually lower cost and/or higher quality--
especially digital
Successful market segmentation and price discrimination by
studios
Result: stacking of media revenues over time
Drivers of the expansion to mid-2000s
10
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Theater
Broadcast TV
Basic Cable TV
Pay TV
Video
International Digital
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
% o
f G
D P
U.S. Movie Distributor Revenues*,
Foreign Markets, as % GDP, 1970-2009
* Revenue from merchandise is not included.
Sources: Waterman (2005); SNL Kagan (2010)
11
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Boxoffice market shares in European Markets
Sources: EU (1994); EAO (2011)
*not including European films with major US investment
A major reason: more rapid movie media development andhigher movie spending per capita in U.S. since 1970s (Waterman,
Hollywood’s Road to Riches, Harvard U. Press, 2005)
Changes in Hollywood shares of European film
markets over time
U.S.-producedfilms
European-producedfilms
1968 35% 60%
2010* 68% 25%
12
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0
500
1,000
1,500
2,000
2,500
3,000
i n d e x
number of theatrical features released by MPAA member companies
average production cost of in-house MPAA member company-produced theatrical features
$3.1 million138
$82 million
158
Number of MPAA Releases and Average
Production Cost per Movie: 1975-2010
Sources: Waterman (2005); MPAA(2010); MPAA&BMO (2011)
13
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14
The recent decline in U.S. studio revenues
(Domestic market)
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Theater
Broadcast TV
Basic Cable TV
Pay TV
Home Video
Domestic Digital
0.0%
0.5%
1.0%
1.5%
2.0%
% o
f G D P
U.S. Movie Distributor Revenues*, Domestic Market,
as % GDP, 1970-2009
Sources: Waterman (2005); SNL Kagan (2010)
* Revenue from merchandise is not included.
15
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Falling DVD revenues since 2004 the main factor
The recent decline in U.S. studio revenues
(Domestic market)
16
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13.314.3
15.015.8
18.4 18.0 17.616.5
14.8
13.3
0
2
4
6
8
10
12
14
16
18
20
2 0 0 9 C o n s t a n t B i l .
$
HD/Blu-ray
DVD
VHS
US home video retail sales spending, 2000-2009
(constant 2009 $):
Sources: derived from SNL Kagan (2010)
17
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Sources: derived from SNL Kagan (2010)
18
10.4 10.29.8
9.5 9.38.6
8.27.8
7.5 7.4
0
2
4
6
8
10
12
2 0 0 9 C o n s t a n t B i l . $
VHS
DVD
HD/Blu-ray
US video rental spending by format,*2000-2009
(constant 2009 $)
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19
Falling DVD revenues since 2004 the main factor
Mainly sales (some rise in Blu-Ray) Slower decline in rentals (28% vs. 20%)
The recent decline in U.S. studio revenues
(Domestic market)
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US home video rental spending by retail type,
2000-2009: (constant 2009 $):
Sources: derived from SNL Kagan (2010)
20
10.4 10.2 9.89.5
9.38.6
8.27.8
7.5 7.4
0
2
4
6
8
10
12
2 0 0 9 C o n s t a n t B i l . $
Kiosks
Subscript
Brick & mo
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21
Falling DVD revenues since 2004 the main factor
Mainly sales (some rise in Blu-Ray) Slower decline in rentals
Growth in subscription (Netflix), Kiosks (Redbox)
The recent decline in U.S. studio revenues
(Domestic market)
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24
Piracy
Several economic studies, mixed results
Cannot explain most of the decline Worst decline is sales
Relatively successful MPAA anti-piracy efforts
“We believe consumers are simply not interested in owningcontent anymore” – Richard Greenfield, BTIG
Implies evaporation of a very high value market (85%
margin for studios)
or…
Consumer substitution toward relatively low priced
rental/IPTV movies
Reasons for the DVD decline
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Total electronic a la carte spending, 2000-2009
(constant 2009 $)
Sources: derived from SNL Kagan (2010)
22
11.1 11.010.7 10.5 10.3
9.5 9.5 9.3 9.4
10.1
0
2
4
6
8
10
12
2 0 0 9 C o n s t a n t B i l .
$
Cable/DBSPPV/VOD*
Digital**
* PPV/VOD spending = U.S. motion picture distributor revenues from PPV/VOD × 2
** Digital spending = U.S. motion picture distributor revenue from Digital ÷ 0.7
Kiosks
Subscription
Brick & mortar
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26
“Brick & mortar” DVD rental (2002) vs. Online “rental” (2010)
Cost reduction in a la carte movie distribution
Rental price Studio share*
2002 $3.25 33%
2010 $4.41 70%
* Before duplications/distribution cost
Sources: author calculations from SNL Kagan and Adams Media data
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25
The studio copyright dilemma (“First Sale Doctrine”)
…but
Generally robust demand for movies
A direct pricing model that works
Lower costs mean expanding markets in long term
Prospects