Television 6:1 - 1(47) Entertainment and Media: Markets and Economics Professor William Greene.

Television6:1 - 1(47)

Entertainment and Media: Markets and Economics

Professor William Greene



Television


The Product

Local: News, Sports, Documentary Regional: Sports, News National: News, Sports, Entertainment


Delivery What

Over the air – “broadcast” Cable Internet

How Subscription

Cable TV Internet TV – “House of Cards”

Fee based - premium HBO (“Game Change”), Showtime, Adult entertainment

Basic – Fees and advertising ESPN, MTV, AMC, Discovery, HGTV, HSN


Agenda

Broadcast TV Markets and Issues Programs

Cable TV Business Models Regulation

Sports Broadcasting TV Everywhere



Broadcast Television


What Do the Networks Do?

ABC, NBC, CBS, FOX, CW Assemble Content Scheduling Lower transaction costs between

producers/advertisers and audiences Sell bulk advertising time


The Production Stages

Production Studios Sports Composers (Matt Groenig, Julie Kavner, Marge Simpson)

Distribution Networks: ABC, CBS, NBC, Fox, CW Integration: (Disney/ABC), (Viacom/CBS), (GE/NBC/Comcast),

(AOL-TW/WB/Viacom/UPN) (News Corp/Fox), Exhibition

Local affiliates: O&O Independents (100+ markets, Spanish, etc.)


Vertical Relationships

Networks and Affiliates 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.


Sources of Competition Within Industry

Other networks Other content – home shopping, Discovery Is there any brand loyalty to networks?

Outside the Industry Cable Internet based. (Distinction is less meaningful.) Other forms of entertainment Other sources of news/information


Entertainment and Media:

Markets and Economics

Elements of Television Production


Valuing a Prime Time Show

Made for TV Movie: Small production

Sitcom or serial (CSI), larger infrastructure

How to value the “product?”


Nobody Knows

Valuation is unknown until the good is consumed by the final consumer

Valuation is different for every consumer

Past success is uninformative for future performance – e.g., the Leno primetime show

Nobody knows (in advance)


Cost Structures for Production Sunk costs

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 Marginal costs of delivery are zero Pricing implies finding the reservation price How are reservation prices determined?

TV show sold to a network – value of the advertising. Where does the value of the advertising come from?

Music license sold to a TV station or a website. Where does the valuation come from?




Explaining Why There Are So Many “Reality Shows” on Television


Implications for a TV Show

Environment in which it will “air” 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


Emergence of Cable: Impact on Networks

ABC, CBS, NBC UPN (until 2006), WB, Fox,… more competition

Many smaller cable channels Economic advantage: subscribers and

advertisers Shrinking market for major networks


Endogenous Fixed Cost of Quality

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 CSI, sitcoms vs. Survivor

The natural response to the shrinking market is to invest in lower quality, less expensive shows.




“Cable”


Cable

Contrast to Broadcast: Old style cable operators buy and resell content.

Industry Structure and Players Disney, Comcast-Universal, Viacom News Corp, Turner, Scripps

Pricing model: Mixture of ads and subscription Regulation Issues Is the distinction still (or less) meaningful?

(MSNBC, CNN)


Providers (Million Subscribers)

Strong local concentration (e.g., Cablevision on Long Island) (Gross numbers are misleading.)


Broadcast vs. Cable and Internet:Two Revenue (Business) Models

Broadcast Cable

Signal “Public” “Private”

Revenue Advertising Subscribers (some advertising)

Technology Static Rapid change


TiVo is a major threat to broadcasters.

Time shift of programming alters the value of advertising

Bypassing advertising alters the value of programming


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


AEREO


AEREO: Cloud DVR

New York City now, 100+ cities later Retransmission to cloud based DVR Do the networks own the signal once

they broadcast it?

http://techcrunch.com/2012/03/12/aereo-countersues-broadcasters/


Last Saturday was a big day for Aereo, the best buddy of cable cord-cutters and mortal enemy of the big broadcast networks. The company's founder, Chet Kanojia, was in Austin, Texas, at the big, loud, and impossibly hip venue that is the SXSW conference, to announce his company's expansion to Austin. It's the 13th on the map of cities whose residents can dump big cable in exchange for access to broadcast television for just $8 per month. Meanwhile, that morning his company was forced to yank its service away from customers in Denver, Colorado, and Salt Lake City, Utah, after a US District Court injunction against it was upheld by a federal appeals court. For better or worse, the legal roller coaster will end sometime after April 22, when the US Supreme Court takes up the question of whether it is legal for Aereo to provide its customers with Internet access to 20 hours of broadcast network television for $8 per month.


What Business Model? Sale Price = $1.65 Billion


YouTube advertising has evolved(Ketchup ads are not very effective on YouTube)


Targeted Advertising


Modern Pricing: How much does it cost to have HBO?

Modern Pricing: How much does it cost to have HBO GO?


Triple play. Bundling and price discrimination


Just Cable TV.




Regulation of Television


Regulation: Why?

“Cloaked in a public interest” Congestion in the common resources

Broadcast frequencies Technological change has made this less important

Public good aspects (Howard Stern) Maintaining competition Outside guidance for technological advance: HDTV FTC regulation of advertising Industry regulation: NAB


Federal Regulation: Fin-Syn Era

Fin-Syn rules: 1971 – 1995: Networks could not own programs.

Post 1995, vertical integration (Disney/ABC) has circumvented

The rule has been abandoned Why would we have this rule?


Regulation of Cable: Why?

Local franchises and public utilities Telecommunications Decency Act

Bono; Wardrobe malfunction, MIA hand malfunction

Consumer Protection Act Rate Regulation




Sports Broadcasting


Barriers to Entry

ESPN Fox Sports, NBC Sports, CBS, Turner Barriers to Entry: Huge incumbent firms

News Corp, Comcast-Universal, CBS Corp, Time Warner

Economies of scale motivate joint ventures such as Olympics, NFL, March Madness


Distinctive Features Shape the Market

Time value of content – Perishability

Derived demand for social capital

Live production resists technological change in delivery. Live TV production Model

Long term contracts produce a barrier to entry. Why do long term contracts exist?




TV Everywhere


TV Everywhere Ad values change as competition expands

Technology change – mobile distribution (tablets, smart phones) produces competition for delivery mode.

Demise of both broadcast and cable networks

Major providers: YouTube, Hulu, Netflix


Demographics of Cord Cutting: Aug. 2013

Bushwick, S and D. Krenn: Nielsen Custom Survey of Zero TV Households



End Class 6 – Part 1

Television 6:1 - 1(47) Entertainment and Media: Markets and Economics Professor William Greene.

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Transcript of Television 6:1 - 1(47) Entertainment and Media: Markets and Economics Professor William Greene.