Professor Stan Liebowitz

Office: SM 3.801

Hours: R. 3-5 or by appointment


Telephone: 972-883-2807

email: liebowit@utdallas.edu

homepage:www.utdallas.edu/~liebowit/


 

The Business of Entertainment

This is a course that analyzes the entertainment industry using the tools of economics. It will be useful if you have had microeconomics sometime in your life although you can take the course without it if you pay close attention during the first few lectures when we will review the material. The entertainment industries we will examine are music, movies, radio and television, videogames, and books. Entertainment industries tend to follow similar patterns to one another although the current switch to digital formats is causing a great deal of upheaval in these industries. We will examine how entertainment products differ from regular goods, the nature of competition in these markets, how these goods should be priced, how these goods are distributed, how these markets have evolved and what might lie ahead, the nature of the contracts within these industries and the role of copyright. A topic of particular interest will be the impact of the Internet and file-sharing on these industries.

 

Materials

The material we will cover is not fully represented in any text, unfortunately. The closest thing to a text is Entertainment Industry Economics by Harold Vogel (Cambridge University Press, 6th edition). He provides a good deal of information about many industries. He provides much data but less analysis that I would like. The lectures, slides, and readings should help fill in the gaps. The price is about $30.

 

There are two types of articles on the reading list, some more important than others. The articles marked with an asterisk are more important than others.

 

Promises to Keep by William Fisher is an interesting book with which I have some important disagreements but which does a good job of presenting much of the current controversies surrounding these industries. It would make a useful second text. You should be able to get it for about $20.

 

Additional material: I have two books that discuss some of the issues that will arise in this course. “Rethinking the Network Economy” published by Amacom ($20) is the one I would suggest although “Winners, Losers, and Microsoft” published by the Independent Institute would work for anyone interested in the Microsoft case. Another book containing some useful information is Information Rules by Shapiro and Varian.

 

  There are several other texts on ‘media economics’ that you might find useful. One is Media Economics: Theory and Practice edited by Alison Alexander et. al., and published by Lawrence Erlbaum Associates. Media Economics by Alan Albarran is another. Neither is particularly good. All these books are much less expensive than the typical textbook so you can easily get several and still stay within you budget.

Finally, if you have had microeconomics I hope you still have your textbook (for example, Landsburg's Price Theory and Applications), since it will have useful background material.

 

The Wall Street Journal has news about these industries every day or two. I am requiring that you obtain access these articles. You can subscribe ($32 for 15 weeks; it is a great newspaper) or you can use the library “factiva” service on the Internet to find the articles which are online.

 

 

Grading

 

Exams: 30% for the midterm, 50% for the final

Paper: 20%.  Pick a market in transition—movies, television, music. Write a paper predicting what will happen in the next ten years. Use economic analysis as much as possible. Don’t just listen to the pundits. Be very critical of them.

 

PowerPoint slides exist for this class but they are always changing. The current PowerPoint slides are available here.

 

Practice Questions here.

 

I.              Basic economics

A.                Supply/Demand, Profit Maximization, Elasticity, Fixed and Variable Cost, Price Discrimination/ Versioning, bundling,

*Material in your old micro text (such as Landsburg) that talks about elasticity, monopoly, and price discrimination

*Chapter 1 in Vogel

Alexander et. al. Chapter 1

Shapiro and Varian, Chapter 3.

Stigler, G. "A note on block booking", The Supreme Court Review, 1963. click here

B.    Versioning and Movies: How long should the Window be?

*Movies May Hit DVD, Cable Simultaneously By Sarah Mcbride, Peter Grant and Merissa Marr; The Wall Street Journal, January 4, 2006; Page B1

*Will 'Bubble' Burst the Movie Business? Mark Cuban's Plans to Send Films To Theaters and DVD Simultaneously Are Making Some People Nervous,  Anthony Kaufman, Wall Street Journal Online December 3, 2005

II.           Some Understanding of Information Goods

A.                Network Effects and Lock-In, Winner-Take-All, First-Mover-Wins.

*Rethinking the Network Economy: Chapters 1, 2, 3

*W. Brian Arthur, “Positive Feedbacks in the Economy,” Scientific American, Feb. 1990 at: http://www.santafe.edu/arthur/Papers/Papers.html along with other Arthur papers.

*“Economists Decide to Challenge Facts of the QWERTY Story” Lee Gomes, Wall Street Journal, February 25, 1998 Click here or “The QWERTY Myth”, The Economist, April 3, 1999. Click here

*“So Long , Supply and Demand: There's a new economy out there -- and it looks nothing like the old one”, by Thomas Petzinger Jr., 01/03/2000, The Wall Street Journal, Page S1. Click here

*The Rise and Fall of Beta  by Marc Wielage with Rod Woodcock

Winners, Losers and Microsoft: Chapters 2-5

David, Paul. A. 1985. "Clio and the Economics of QWERTY", 75 American Economic Review, 332-7 (May). Click here

Liebowitz, S. J. and Margolis, S. E. "The Fable of the Keys," JLE, April 1990, pp. 1-26. Click Here.

Paul A. David, At last, a remedy for chronic QWERTY-skepticism! here

B.    iPod and iTunes: Will Open or Closed models win?

*RealNetworks Seeks To Unlock iPod From iTunes Nick Wingfield and Pui -Wing Tam, The Wall Street Journal, July 26, 2004; Page B1

*Apple Warns RealNetworks On iPod Access By Pui -Wing Tam And Nick Wingfield, The Wall Street Journal July 30, 2004; Page B3

Wall Street Journal “Amazon Plans Music Service To Rival iTunes” ETHAN Smith and Mylene Mangalindan February 16, 2006; Page B1

Calling All iPods By Bill Alpert 9 January 2006 Barron's

 Variety “Movie biz on the 'Bubble' Pic's triple bow inconclusive” GABRIEL SNYDER, STEVEN ZEITCHIK Sun., Jan. 29, 2006, 6:52pm

C.    Business Model of Nintendo versus Atari

*Atari Games Corp. vs. Nintendo of America Inc  (just first few pages describing nature of the suit).

History of early video games:  http://www.emuunlim.com/doteaters/play3sta6.htm 

D.    The Role of Network Effects in Video Games

*Microsoft Taps Top Designer To Win Over Japan's Gamers By Phred Dvorak and Robert A. Guth, The Wall Street Journal, February 25, 2005; Page B3

Helmut M. Dietl and Susanne Royer, Intra-system competition and innovation in the international videogame industry, INNOVATION: management, policy & practice Volume 5, Issue 2–3, November/December 2003 here

E.    Does this paper measure a form of network effect?

Experimental Study of Inequality and Unpredictability in an Artificial Cultural Market: here, here and here.

 

III.        Intellectual Property Issues: The Current Crisis

A.                Intellectual Property: Owning your Creation

Landsburg: Chapter 14.2, Public Goods

*17 Famous Economists Weigh in on Copyright: The Role of Theory, Empirics, and Network Effects. Stan Liebowitz and Steve Margolis. Harvard Journal of Law and Technology.  Click here

The 17 economists speak

*Liebowitz, S. "Some Puzzling Behavior by the Owners of Intellectual Products," Contemporary Policy Issues, July, 1987, pp. 44-53. Or click here

Samuelson “The Copyright Grab”

Play God – determine the ideal copyright length

B.                The Economics of Copying

*Rethinking the Network Economy: Chapter 7

*Hal R. Varian “Copying and Copyright” Forthcoming in Journal of Economic Perspectives, draft June 4, 2004 click here

Chapter 3 in Fisher Liebowitz, S. J., "Copying and Indirect Appropriability: Photocopying of Journals," Journal of Political Economy, October 1985, 945-957. Also: click here

 Shapiro and Varian, Chapter 4

C.    New Copying Problems

*Music Labels See New Threat From Satellite Radio Receivers That Can Record, Manage Songs Stir Concerns Over Copyrights, Royalties By Sarah Mcbride, The Wall Street Journal, December 8, 2005; Page A1

*Media Companies Go Too Far in Curbing Consumers' Activities, Walter Mossberg, Wall Street Journal, October 20, 2005; Page B1

*Tension grows between labels and digital radio, John Borland, URL: http://news.zdnet.com/2100-9595_22-6027079.html

IV.       Industry Specifics: The Music Industry

A.                The Basics

*Chapter 5 in Vogel

*Chapter 2 in Fisher

Chapter 11 in Alexander et. al.

 

B.                Compulsory Licenses, Performing Rights, and other legal issues

Music Rights Primer  http://stevegordonlaw.com/MusicPrimer.doc

A Better Way Forward: Voluntary Collective Licensing of Music File Sharing "Let the Music Play" White Paper http://www.eff.org/share/collective_lic_wp.php

C.                The Impact of File-sharing: Napster and its offspring.

* Stan Liebowitz  “File-Sharing: Creative Destruction or just Plain Destruction?” Journal of Law and Economics April, 2006. click here.

Rob and Waldfogel:Piracy on the High C’s: Music Downloading, Sales Displacement, and Social Welfare in a Sample of College Students”click here

Stan Liebowitz “Will MP3 downloads Annihilate the Record Industry? The Evidence so Far” Advances in the Study of Entrepreneurship, Innovation, and Economic Growth, V. 15, 2004, pp. 229-260. Click here

*Felix Oberholzer and Koleman Strumpf  “The Effect of File Sharing on Record Sales: An Empirical Analysis” working paper, 2004 click here

 “Appeals Court Blocks RIAA Efforts to Identify Music Downloaders” WSJ click here

“How record companies could embrace Napster and maintain profits” From Linux World, March 20, 2000, Nick Petreley click here

Story about RIAA beginning to prosecute students click here

 

 

V.          Advertising Based Industries [Television, Radio, newspapers and magazines]

 

*Vogel: Chapters 6, 7, 8, 9 (check in new edition)

Rethinking, 122-134.

Alexander et. al. Chapters 5,7,8,10,12

* Coase, Ronald (1979), “Payola in Radio and Television Broadcasting,” Journal of Law and Economics, October; 269-328.

*Stan Liebowitz The Elusive Symbiosis: The Impact of Radio on the Record IndustryThe Review of Economic Research on Copyright Issues Vol. 1, pp.93-118 2004.

Coase RH  “Broadcast Spectrum and the FCC”

A.                Audience Measurement Issues:

Nielsen, comScore, NPD, etc. People meters, surveys, software.

*“Trouble in Nielsenland” The Newsday Magazine; Pg. 8, Adam Snyder. April 1991. here

*Wall Street Journal “Ad Measurement Is Going High Tech” April 6, 2006; Page B4; Don Clark here

 

VI.       Other Industries [Movies, Software and Videogames]

 

*Vogel: Chapters 2, 3, 4

Alexander Chapter 9

A.                Distribution Arrangements and Restrictions on Ownership (antitrust)

Orbach Barak Y. “Antitrust and Pricing In the Motion Picture Industry”

Screenwriters Press For Bigger DVD Payday By MERISSA MARR Staff Reporter of THE WALL STREET JOURNAL April 5, 2004; Page B1

 

*Vogel, chapter 10

Ads in Videogames Pose a New Threat To Media Industry, Kevin J. Delaney, The Wall Street Journal July 28, 2004; Page A1

 

 

 

VII.    Alternative Distribution Systems

*Chapter 6 in Fisher: http://cyber.law.harvard.edu/people/tfisher/PTKChapter6.pdf

*”Alternative Copy Systems: The Problems with a Compulsory License”, Stanley J. Liebowitz, (Vol. 1, No. 2, May 6, 2004 http://ipcentral.info/review/v1n2intro.html

 “Impose a Noncommercial Use Levy to Allow Free P2P File-Swapping and Remixing”, Neil Weinstock Netanel, click here