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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

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

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”

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

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
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

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
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
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

drive ins
Drive-Ins

Source: NATO

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
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
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

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?