Entertainment. Industry. Economics. A Guide for Financial Analysis NINTH EDITION. Harold L. Vogel 11 CAMBRIDGE UNIYERSITY PRESS

Transcription

1 Entertainment Industry Economics A Guide for Financial Analysis NINTH EDITION Harold L. Vogel 11 CAMBRIDGE UNIYERSITY PRESS

2 Contents Preface page xix Part I Introduction Chapter 1 Economic perspectives Time concepts 3 Leisure and work 3 Recreation and Entertainment 4 Time 5 Expansion of leisure time Supply and demand Factors 9 Productivity 9 Demand for leisure 11 Expected Utility comparisons 13 Demographics and debts 14 Barriers to entry 17 vii

3 viii Contents 1.3 Primary principles 18 Marginal matters 18 Price discrimination 21 Public-good characteristics Personal-consumption expenditure relationships Price effects Industry structures and segments 28 Structures 28 Segments Valuation variables 34 Discounted cash flows 34 Comparison methods 35 Options Concluding remarks 36 Notes 38 Selected additional reading 44 Chapter 2 Basic elements Psychological roots Rules of the road 48 Laws of the media 48 Network features Legal layers and limitations 52 Layers 52 Limitations and concentration issues The Internet 54 Agent of change 54 Long-tail effects Advertising 59 Functionality 61 Economic and business aspects Accounting and valuation 64 Accounting 64 Valuation Concluding remarks 65 Notes 66 Selected additional reading 76

4 Contents Part II Media-dependent entertainment ix Chapter 3 Movie macroeconomics Flickering images May the forces be with you 86 Evolutionary Clements 86 Technology 86 Capital 89 Pecking orders 90 Exhibition 90 Production and distribution Ups and downs 92 Admission cycles 92 Prices and elasticities 94 Production starts and capital 95 Releases and inventories 97 Market-share Factors 98 Collateral Factors 98 Exchange-rate effects 98 Trade effects 104 Financial aggregates Markets - Primary and secondary Assets 112 Film libraries 112 Technology 112 Utilization rates 112 Interest and Inflation rates 113 Collections and contracts 114 Library transfers 115 Real estate Concluding remarks 117 Notes 117 Selected additional reading 124 Chapter 4 Making and marketing movies Properties - Tangible and intangible Financial Foundations 128 Common-stock offerings 129 Combination deals 129 Limited partnerships and tax shelters 130

5 x Contents Bank loans 133 Private equity and hedge funds Production preliminaries 135 The big picture 135 Labor unions and guilds Marketing matters 138 Distributors and exhibitors 138 Sequencing 138 Distributor-exhibitor contracts 140 Release strategies, bidding, and other related practices 144 Exhibition industry characteristics: 145 (a) Capacity and competition 145 (b) Rentals percentage 148 Video, Output deals, and merchandising 150 Video 150 Output deals 153 Merchandising 154 Marketing costs Economic aspects 155 Profitability synopsis 155 Theoretical foundation Concluding remarks 159 Notes 160 Selected additional reading 187 Chapter 5 Financial accounting in movies and television Dollars and sense 194 Contract clout 194 Orchestrating the numbers Corporate overview 196 Revenue-recognition factors 196 Inventories 197 Amortization of inventoiy 198 Unamortized residuals 199 Interest expense and other costs 201 Calculation controversies 201 Statement of Position Big-picture accounting 205 Financial overview 205 Participation deals 211

6 Contents Pickups 211 Coproduction-distribution 211 Talent participations and breakeven 212 Producers' participations and cross-collateralizations 216 Video participations 216 Distributor-exhibitor computations 217 Distributor deals and expenses 219 Studio overhead and other production costs 221 Budgets high and low Television-programming accounting 224 Feature licensing 228 Program production and distribution 229 Development and financing processes 229 Syndication agreements 231 Costs of production 233 Costs and problems of distribution 234 Timing troubles Weakest links 238 Exhibitors: The beginning and the end 238 Distributor-producer problems Concluding remarks 240 Notes 241 Selected additional reading 264 Chapter 6 Music Feeling groovy Size and structure 269 Economic interplay 269 The American scene 269 The global scene 274 Composing, Publishing, and managing 275 Royalty streams 276 Performances 276 Mechanical royalties 277 Synchronization fees 277 Copyright 278 Guilds and unions 278 Concerts and theaters Making and marketing recordings 280 Deal-maker's delight 280 Production agreements 280 XI

7 xii Contents Talent deals 281 Production costs 282 Marketing costs 282 Distribution and pricing 283 Structure 283 Pricing Financial accounting and valuation 285 Artists' perspective 285 Company perspective 290 Valuation aspects Concluding remarks 293 Notes 293 Selected additional reading 308 Chapter 7 Broadcasting Going on the air 312 Technology and history 312 Basic Operations 315 Regulation 319 Organizational patterns and priorities 321 Networks and affiliates 321 Ratings and audiences 322 Inventories 325 Independent and public broadcasting stations Economic characteristics 327 Macroeconomic relationships 327 Microeconomic considerations Financial-performance characteristics 330 Variable cost elements 330 Financial-accounting practices Valuing broadcast properties Concluding remarks 336 Notes 337 Selected additional reading 349 Chapter 8 Cable From faint signals 354 Pay services evolve 355

8 Contents 8.2 Cable industry structure 356 Operational aspects 356 Franchising 361 Revenue relationships Financial characteristics 365 Capital concerns 365 Accounting Conventions Development directions 369 Pay-per-view 369 Cable's competition 370 DBS/DTH 370 MMDS/LMDS 371 SMATV 371 STV 371 Telephone companies Valuing cable-system properties Concluding remarks 374 Notes 375 Selected additional reading 383 xiii Chapter 9 Publishing Gutenberg's gift 387 First words 387 Operating characteristics Segment specifics 390 Books 390 Educational and professional 391 Trade 392 Multimedia 394 Periodicals 395 Newspapers 395 Magazines and other periodicals Accounting and valuation 400 Accounting 400 Valuation Concluding remarks 401 Notes 401 Selected additional reading 406

9 Chapter 10 Toys and games 10.1 Not just for kids Financial flavors Building Nocks 10.2 Chips ahoy! Pong: Pre and apres 10.3 Structural statements Video games Profit dynamics Coin-op 10.4 Concluding remarks Notes Selected additional reading Contents Part III Live entertainment Chapter 11 Gaming and wagering 11.1 From ancient history At first Gaming in America Preliminaries The Nevada experience Enter New Jersey Horse racing Lotteries Other wagering segments Asia's jackpot 11.2 Money talks Macroeconomic matters Funding functions Regulation Financial Performance and valuation 11.3 Underlying profit principles and terminology Principles Terminology and Performance Standards 11.4 Casino management and accounting policies Marketing matters Cash and credit Procedura! paradigms

10 Contents 11.5 Gambling and economics Concluding remarks 466 Notes 467 Selected additional reading 474 xv Chapter 12 Sports Spiee isnice 480 Early Innings 480 Media connections 482 The wagering connection Operating characteristics 485 Revenue sources and divisions 485 Labor issues Tax accounting and valuation 489 Tax issues 489 Historical development 489 Current treatments 491 Asset valuation factors Sports economics Concluding remarks 495 Notes 496 Selected additional reading 506 Chapter 13 Performing arts and culture Audiences and offerings 514 Commercial theater 515 On and off Broadway 515 Circus 520 Orchestras 521 Opera 521 Dance Funding sources and the economic dilemma The play's the thing 525 Production financing and participations 525 Operational characteristics Art markets 528

11 xvi 13.5 Economist echoes Organizational features Elasticities Price discrimination Externalities About cultural economics 13.6 Concluding remarks Notes Selected additional reading Contents Chapter 14 Amusement/theme parks 14.1 Flower power Gardens and groves Modern times 14.2 Financial operating characteristics 14.3 Economic sensitivities 14.4 Valuing theme park properties 14.5 Concluding remarks Notes Selected additional reading Part IV Roundup Chapter 15 Performance and policy 15.1 Common elements 15.2 Public-policy issues 15.3 Guidelines for evaluation 15.4 Final remarks Appendix A. Sources of Information Appendix B. Major games of chance B.l Blackjack B.2 Craps B.3 Roulette

12 Contents xvii B.4 Baccarat 579 B.5 Slots 580 Notes 581 Appendix C. Supplementary data 583 Glossary 589 References 613 Index 669