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History and Frameworks – Where Are We Coming From?. Gigi Johnson Communication Studies 197C Media Madness? August 9, 2004. Course Structure. History and Frameworks – This Week Control and Concentrations – Aug. 16 Niche Media – Aug. 18 Personalization and two-way – Aug. 23

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History and frameworks where are we coming from

History and Frameworks – Where Are We Coming From?

Gigi Johnson

Communication Studies 197C

Media Madness?

August 9, 2004


Course structure

Course Structure

  • History and Frameworks – This Week

  • Control and Concentrations – Aug. 16

  • Niche Media – Aug. 18

  • Personalization and two-way – Aug. 23

  • Midpoint Group Presentations – Aug. 25

  • “Gear” – Aug. 30 & Sept. 1

  • TV Model – Sept. 6

  • Media Pipes – Sept. 8

  • International – Sept. 11

  • Papers and Wrap-up – Sept. 15


Deliverables

“Deliverables”

  • Group Presentation – Aug. 25

    • Teams of 3

    • 10 minute presentation

    • A key change occurring in US or international media

    • 30% of grade

  • Individual Paper – Sept. 15

    • Current media trend of the student’s choosing

    • Analysis of that topic from the standpoint of its importance on the future

    • 10-12 pages, double-spaced, with 1” margins

    • All research used must be cited with footnotes

    • 60% of the final grade


  • Media

    “Media”

    • Nature of “media” is changing

    • Mass communication from institutions to individuals?

    • Pipeline and content of sharing information and entertainment?

  • This course will focus on electronic media and media being made electronic, but will touch on changing elements and other segments (e.g., print).


  • Today frameworks and some history

    Today – Frameworks and Some History

    "Those who do not know history are doomed to repeat it.“

    George Santayana

    “History is merely a list of surprises. It can only prepare us to be surprised yet again.”

    Kurt Vonnegut

    “False history gets made all day, any day,the truth of the new is never on the news.”

    Adrienne Rich

    “It’s déjà vu all over again.”

    Yogi Berra

    Intertwined histories and drivers


    10 hours per day consuming media

    10 Hours Per Day Consuming Media

    Ad-based: Broadcast TV, radio, newspapers, consumer magazines

    Consumer-Paid: Cable & satellite TV, box office, home video, interactive TV, recorded music, video games, consumer Internet, consumer books

    Source: Veronis Suhler Stevenson, MPAA


    Shifting consumption 1998 2002

    Shifting Consumption: 1998-2002

    884


    Business models who pays

    Business Models: Who Pays?

    Broadcast TV, radio, newspapers, consumer magazines

    Advertising

    Cable & satellite TV, box office, home video, interactive TV, recorded music, video games, consumer Internet, consumer books

    Subscription/Purchase


    More than 700 person year

    More than $700/person/year


    Home video dominates

    Home Video Dominates


    Major themes value shifters

    Major Themes: Value Shifters

    • Regulation – shifting of rights, barriers, and wealth

    • Technology – selling “gear”

    • Globalization – removal of and challenges from global barriers

    • Consumer Taste – predictability and inalienability

    • Charismatic Visionaries – Media Moguls – breakthroughs from “Outsiders”

    • Infrastructures -- Leveraged Cash Flows – Borrowing against distribution

    • Gatekeepers – who “owns” the consumer?

    • Relationships – alliances between production, distribution, and exhibition


    Value chain for most media companies

    Value Chain for Most Media Companies

    Distribution/Sales Network

    Exhibition/Retail/”Pipe”/“Box”

    Production/Creation/”Content”


    U s banks libraries content companies

    U.S. “Banks/Libraries” -- Content Companies


    28 of moviegoers make up 81 of box office only 5 7 films year person in the u s

    28% of Moviegoers Make Up 81% of Box Office – Only 5.7 Films/Year/Person in the U.S.

    Source: MPAA


    Box office youth market

    Box Office: Youth Market

    Source: MPAA


    2 cagr growth in ticket unit sales

    2% CAGR Growth in Ticket Unit Sales

    Source: MPAA; Variety


    On top of a 3 6 cagr in ticket prices

    On Top of a 3.6% CAGR in Ticket Prices

    Source: MPAA


    Longer term u s box office long term growth recent plateau

    Longer Term U.S. Box Office : Long Term Growth, Recent Plateau


    What is box office

    What Is Box Office?

    • Self-reported by companies and by certain services

    • ~ 50% goes to theater, 50% goes to distributor and other parties

    • Misleading figure as to profitability of film


    If they get released

    …If They Get Released…

    Source: MPA


    New films released in u s

    New Films Released in U.S.


    Average u s box office growing

    Average U.S. Box Office Growing (?)


    U s film economics big bets

    U.S. Film Economics – Big Bets

    MPAA Member Company Avg. Theatrical Costs

    Source: MPA


    50mm 19 20 films 459

    >$50MM – 19-20 Films/459?

    Source: MPA

    2002 U.S. Box Office Leaders

    2003 U.S. Box Office Leaders


    Value chain box office and ancillary revenues

    Value Chain: Box Office and Ancillary Revenues

    Distribution

    Exhibition

    Production


    Let s step back into history

    Let’s Step Back Into History…


    Pre film

    Pre-film

    Experiments 1867-1893

    • 1867 -- Phenakistoscope – graphing motion

    • 1872 -- Muybridge motion studies of a horse

    • 1879 -- Zoopraxiscope 24-image projector

    • 1873 -- Revolver camera

    • 1887 -- Hannibal Goodwin’s patent for film

    • 1889 -- Eastman’s roll film

    • (1906 -- first experimental sound-on-film)


    Kinetoscope 1893 1895

    Kinetoscope 1893-1895

    • 1888 -- Edison patented camera

      • 1891 -- prototype Kinetoscope (nickelodeon) 35mm film, sprocket, intermittent shutter

      • 1893 -- Black Maria studio built around 500 lb camera

  • 1894 -- Andrew Holland’s individual viewers

    • 25 cents for 16 second film

  • 1895 -- The Execution of Mary, Queen of Scotts

    • 30 seconds long


  • Different standards different technologies 1895 1905

    Different Standards, Different Technologies 1895-1905

    • 1895 -- Auguste and Louis Lumière, Paris, 16 pound camera and projector; US screening soon followed, as did the Vitascope projector

    • 1896 -- Biograph Projector

    • 1897 -- Vitagraph projector

    • 1897 -- Cineograph projector ($150)

    • 1896 -- first public movie theater

    • 1899 -- Georges Méliès makes first 12 minute film

    • 1989-1901 -- Patent Wars with Thomas Edison;

      • settled by NY Circuit Court

  • 1902 -- first LA movie theater – 10 cents


  • Early film technologies

    Early Film Technologies

    75 mm

    70 mm

    70 mm

    68 mm

    65 mm

    63 mm

    63 mm

    60 mm

    38 mm

    54 mm

    35 mm

    51 mm

    20 mm

    63.5 mm

    54 mm

    43 mm

    17.5 mm

    35 mm

    70 mm

    42 mm

    35 mm

    54 mm

    35 mm

    15 mm

    35 mm

    28 mm

    35 mm

    35 mm

    16 mm

    1890 1895 1900 1905 1910 1915 1920 1925...

    Sources: Fotografica Society (1996), www.film-center.com


    Growth trust competition 1905 1915

    Growth, Trust, & Competition 1905-1915

    • 1903 -- The Great Train Robbery – 20 shots in 12 scenes for $150 – purchased by storefront owners

    • 1904 -- Pathé Films already has 12,000 title catalog and studios in Berlin and France

    • 1908 -- Motion Picture Patents Company – “The Trust” -- Edison, Kleine, Melies, Pathe, Vitagraph, Selig, Essanay, Lubin, Kalem, Biograph; 8,000 nickelodeons in U.S.

    • 1910 -- Carl Laemle took Florence Lawrence – The Biograph Girl

    • 1911 -- first “feature film” (imported from Europe)

    • 1912 -- Government filed Antitrust Suit against The Trust (helped Fox & IMP/Laemle)

    • 1915 -- Birth of a Nation

      • Over 2 hours long

      • $2 to view; $110,000 to make

  • 1916 -- Intolerance


  • The early beginnings of today s companies

    The Early Beginnings of Today’s Companies

    • 1903 -- Marcus Loew (furrier) opened penny arcades

    • 1903 -- Harry, Albert, Sam, and Jack Warner bought a nickelodeon in Pittsburgh

    • 1904 -- William Fox (clothes dealer) formed Greater NY Film Rental Company; starts making movies in 1909

    • 1906 -- Carl Laemmle (clothier) opened a nickelodeon in Chicago; founds IMP in 1909 to make movies

    • 1907 -- Louis B. Meyer bought a nickelodeon

    • 1907 -- 4 Warner Bros. found film distribution business


    The studio system 1920 s

    The studio system: 1920’s


    Los angeles as production center

    Los Angeles As Production Center

    • Why did they set up the studios in Los Angeles?

      • Good weather

      • Variety of scenery and differing terrain

      • Cheap land and lots of space

      • Avoidance of the Trust?

  • 1910 -- Vitagraph Studio launched in Hollywood

  • 1915 -- Carl Laemmle bought 230 acre chicken ranch, calling it Universal City

  • 1917 -- Charlie Chaplin built movie studio in LA

  • 1918 -- Louis B. Mayer Pictures founded in LA

  • 1918 -- Warner opens film production studio on Sunset Blvd.


  • Golden age of hollywood

    Golden Age of Hollywood

    • 1928 -- half of the U.S. went to the movies per week (60 million per week out of 110 million population

    • 1946 -- attendance peaked at 90 million per week

      Why?


    Case study color

    Case Study: Color

    • 1920s -- Industry experimented with tinting and two-color systems

    • 1935 -- first feature film using three-color Technicolor released (Becky Sharp)

    • As color stock was more expensive and difficult to work with, it was used in animation and costume dramas (i.e. Gone with the Wind, 1939)

    • Color and black-and-white coexisted

      • Color market share: 12% in ‘47, 50% in ‘54, 94% in ’70, 96% in ‘79

  • Sale of films to television market drove change

    • Color market share dipped to 25% from ’55 to ‘58

    • Conversion of TV to full-color in ’65 accelerated change


  • Conversion to sound

    Conversion to Sound

    • Warner Bros. (which was a smaller studio) that introduced sound through the songs in the Jazz Singer

    • Cost to converting to Talking Movies:

      • Converting the theaters to accommodate sounds → speakers, replace projectors

      • Sound-proof stages

      • Actors now had to memorize lines

      • Not everyone sounded good even if they looked good; need to get new actors in the mix; required dialog and scores

      • New equipment and labor to make the sound element

  • Impact of Sound on Film

    • Very expensive and studios needed to take out loans to cover this

    • Loss of easy translation across countries and languages – diminished the internationality of films (at least for awhile)


  • Conversion to sound1

    Conversion to Sound

    • 1925 -- Western Electric (AT&T) and Warner Bros. Agree to develop a sound system; Warner Bros. establishes KFWB-AM; purchases Vitagraph

    • 1926 -- GE forms Radio Corporation of America

    • 1926, August -- First Vitaphone program (Don Juan) debuted August 1926 to enormous success

    • 1927, February -- five largest studios (MGM, Paramount, First National, Universal, Producer’s Distribution Corp.) signed an agreement to take a year to study competing sound systems

    • 1927, October -- Warner releases The Jazz Singer (sound on disks) – borrows to convert theaters; $3MM revenue

    • 1928 -- Steamboat Willie – 1st cartoon with soundtrack

    • 1930 -- William Fox ousted from bankrupt Fox for $18MM loan; bankruptcies at RKO, Max Sennett, GFFA, Paramount; Universal sold by the family for $5MM

    • 1932 -- Only 2% of screens not wired for sound

    • Negative costs are 3x higher; deals change from flat fee to % split to share risk


    Case study sound results

    Case Study: Sound -- Results

    • 1930 -- silent films no longer viable

    • 1927 to 1930 -- admissions increased by 50% (60 million/week to 90 million/week)

    • To pay for conversion, studios borrowed $300 million, 4x their 1928 market value

    • Warner Bros. acquired First National and catapulted into ranks of major studios

      • WB Profits: -$1MM in ‘27, +$2MM in ‘28, +$17MM in ‘29

  • Fox leveraged earnings to to acquire control of MGM and 45% of Gaumont-British


  • Consent decree the beginning of the end of the studio system

    Consent Decree – the Beginning of the End of the Studio System

    • 1938 -- U.S. Dept. of Justice starts antitrust suit – restraint of trade, block booking, and ownership

    • 1940 -- Consent Agreement Signed – block booking max 6 films and films must be screened for buyers

    • 1944 -- US reopens antitrust litigation

    • 1946 -- DOJ failed to convince court of monopoly

    • 1947 -- Supreme Court rules block booking violates antitrust; DOJ appeals

    • 1948 -- Supreme Court reverses district court – studios lost 5-12% of their stock value in 2 days

    • 1949 -- Paramount signs the Consent Decree (1,395 theaters); Loews (135), Fox (636), Warner (501), RKO (109) ordered to divest

      • Loews doesn’t until 1959!


    Growth of television finally

    Growth of Television -- Finally

    Box office dropped 23% from $1.7 billion to 1.3bn; 4,000 theaters closed


    Technology challenge digital sound

    Technology Challenge: Digital Sound

    • Competing digital sound formats

      • Dolby Digital: Batman Returns (Warner Bros., 1992)

      • DTS (Digital Theater Systems): Jurassic Park (Universal, 1993)

      • SDDS (Sony Dynamic Digital Sound): Last Action Hero (Columbia, 1993)

    • Retrofit cost of $5k to $15k per screen

    • Formats continue to co-exist despite economic inefficiency

    • Raised baseline standard for theaters to compete at top end of the market


    Technology challenge digital cinema

    Technology Challenge: Digital Cinema

    • Digital Cinema Initiatives, LLC formed in March 2001 by seven studios to establish voluntary technical specifications

      • Member studios: Disney, Fox, MGM, Paramount, Sony Pictures, Warner Bros. Studios, and Universal

    • Technical specifications to be released in August 2004


    U s banks libraries content companies1

    U.S. “Banks/Libraries” -- Content Companies


    Production vs distribution

    Production vs. Distribution


    Distribution licensing windows channels

    Distribution: Licensing Windows & Channels

    Theatrical

    $9.5+9.6bnUS+Int’l

    DVD & Home Video

    6 months

    DVD and Home Video$20.3 bn*

    Pay TV & VOD

    12 months

    Premium Cable, PPV, VOD

    $5.5 bn*

    PPV

    7 months

    Free TV

    24-30 months

    Broadcast TV$16.9 bn*

    Sources: Variety, MPAA, Kagan World Media

    * Includes non-film revenue

    Basic Cable

    60+ months

    Basic Cable$40.4 bn*

    Months After Theatrical Release

    2002 Revenues/Window


    Technology driven film value chain

    PPV / VOD

    Pay TV

    G.E. Channel

    Genre Channel

    Network TV

    Syndication

    Website

    Theatrical

    Home Video

    ISP

    Cable/Satellite System

    TV Station

    Technology-Driven Film Value Chain

    Production

    Distribution

    The Consumer


    Old technology u s theater marketplace

    Old Technology – U.S. Theater Marketplace

    Source: MPAA


    Growing concentrations in exhibition

    Growing Concentrations in Exhibition

    Source: NATO


    Drive ins

    Drive-Ins

    Source: NATO


    The megaplexing of america

    The Megaplexing of America


    Consolidation in top 10 exhibitors

    Consolidation in Top 10 Exhibitors

    Source: NATO


    Current profit sharing agreements

    Contracts affect behaviors and decisionmaking

    Current Profit Sharing Agreements


    Superstars

    Superstars

    Reese Witherspoon

    Russell Crowe

    Michelle Pfeiffer

    Mel Gibson

    Anthony Hopkins

    Tommy Lee Jones

    George Clooney

    Julia Roberts

    Meryl Streep

    Tom Hanks

    Michael Douglas

    Sandra Bullock

    Harrison Ford

    Julia Stiles

    Robert Redford

    Robert DeNiro

    Tom Cruise

    Sean Penn

    Keanu Reeves

    Arnold Schwarzenegger

    $50 million

    $15 million

    $5 million


    Economic rent to actors long term issue

    Economic Rent to Actors – Long-Term Issue

    “When I first handled Gable, he was getting a mere $3,000 a week in pictures. I said to a bunch of studio executives: ‘You’ll see the day when stars will get a million dollars a film – and you’ll be glad to pay it.’ Well, they laughed.”

    • Charlie Feldman, Famous Artists Corporation, late 1940’s


    Net 1950

    Net – 1950????


    Actor s risk profiles

    Actor’s Risk Profiles

    • 1923 – David Belasco/Warner – early net profit contract

    • 1935 – bankruptcies of many studios; initial breaking away from fixed contracts

    • 1930’s – John Barrymore & Al Jolson: % of gross revenues

    • 1939 – James Cagney: package with % of gross

    • 1944 – Cal. Supreme Court rules Warner must release Olivia de Haviland from contract at end of 7 years

    • 1950 -- Jimmy Stewart – Universal -- Winchester 73: % of revenue – NO UPFRONT

    • 1953 – Warner releases contract employees

    • 1954 – films can be sold to TV w/o actors’ permission (US Supreme Court)

    • 1960 – SAG settles with majors about broadcast residuals

    • 1958-61 -- John Wayne -- Fox: 3 pictures + % of profits

    • 1975 – Rise of major agencies


    Actors paying for the brands

    Actors – Paying for the Brands

    • Fee – Fixed upfront, no risk sharing

      • Options written on this factor

  • Deferment – Fixed additional payment, after most/all costs, before profit sharing

  • Net – after costs, part of profit sharing, variable percentage

  • Gross – after specific levels of proceeds and costs

    • Types of Gross – First dollar after minimum (3%) expenses; Adjusted Gross, after negative costs, Prints & Ads, & a reduced/negotiated distribution fee; Gross after breakeven, etc.


  • U s dynamics theatrical customer acceptance

    U.S. Dynamics: Theatrical Customer Acceptance

    • First 1-1/2 days = all-important

    • Balance of run can be projected fairly accurately by “first weekend”

    • Shorter and shorter runs

    • Word-of-mouth vs. advertising

    • High points during 3-day weekends, summer, Thanksgiving and Xmas

    • Important to avoid big films targeting similar audience


    Quick drops film demand over time the world is not enough

    Quick Drops: Film Demand Over TimeThe World Is Not Enough

    Sources: IMDB, Variety


    Shortening life of films

    Shortening Life of Films

    $50

    $40

    $30

    Percent of revenue in first week

    Average advertising (in millions)

    $20

    $10

    Source: MPAA, Variety


    Distribution of box office revenues

    Distribution of Box Office Revenues

    202

    226

    256

    268

    Source: Variety


    How much has warner brothers made on the matrix 1

    How Much Has Warner Brothers Made on The Matrix 1?


    Risk mitigation opm

    Risk Mitigation – “OPM”

    U.S. Films Produced OverseasIn Production 9/03, major studio distributed films

    Source: Variety


    Conclusions so far

    Conclusions So Far?

    • High film costs lead right from high DVD sales

    • Small portion of leisure time and days; high portion of attention

    • Ability to cross-sell through chain – very important with fast life cycle

    • Large concentrations on both distribution and exhibition – no little guys

    • Restriction of voices?

    • Dependence on youth market? – piracy?


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