Vogel, H ~ Entertainment Industry Economics

Vogel, Harold L.
Entertainment Industry Economics: A Guide for Financial Analysis
Seventh Edition

“the act of diverting, amusing, or causing someone’s time to pass agreeably; something that diverts, amuses, or occupies the attention agreeably.” From Webster’s Third New Unabridged International Dictionary, 1967.

Entertainment – the cause – is thus obversely defined through its effect: a satisfied and happy psychological state. Yet, somehow, it matters not whether the effect is achieved through active or passive means. Playing the piano can be just as pleasurable as playing the stereo.”

Entertainment indeed means so many different things to so many people that a manageable analysis requires sharper boundaries to be drawn. Such boundaries are here established by classifying entertainment activities into industry segments, that is, enterprises or organizations of significant size that have similar technological structures of production and that produce or supply goods, services, or sources of income that are substitutable.”
He defines entertainment from an industrial perspective.

“The concept of entertainment is thus subordinate to that of recreation: It is more specifically defined through its direct and primarily psychological and emotional effects.”

“As this post-war generation matures past its years of family formation and into years of peak earnings power and then retirement, spending may be naturally expected to collectively shift to areas such as casinos, cultural events, and tourism and travel, and away from areas that are usually of the greatest interest to people in their teens or early twenties.”

“[There] are several frequently observed industry characteristics.”

Many are called, but few are chosen: Perhaps the most noticeable tendency of entertainment businesses is that in the steady-state growth phase (i.e., after a segment has attained a size at which long-run domination by several large companies has been established), profits from a very few highly popular products are generally required to offset losses from many mediocrities.”

“Marketing expenditures per unit are proportionally large: […]”

“Ancillary markets provide disproportionately large returns: […]”

Capital costs are relatively high; oligopolist tendencies are prevalent: As happens in many other industries, once beyond the very early stages of a segment’s development, the cost of capital and the amount of it required for operations becomes a formidable barrier to entry by new competitors. Most entertainment industry segments thus come to be ruled by large companies with relatively easy access to large pools of capital. Such oligopolistic tendencies can, for example, be seen in distribution of recorded music and movies, and in the gaming, theme park, cable, video game, and broadcasting industries.”

Public-good characteristics are often present: With pure public goods, the cost of production is independent of the number of consumers; that is, consumption by one person does not reduce the amount available for consumption by another. Although delivered to consumers in the form of private goods, many entertainment products and services, including movies, records, television programs, and sports contests, have public-good characteristics.”

Many products and services are not standardized (which is good for entrepreneurs and bad for relative-productivity gains): There are four important consequences of such nonstandardization:

  1. Despite the oligopolistic framework, there is considerable freedom for the entrepreneurial spirit to thrive. That is, operas, plays, movies, ballets, songs, and video games are uniquely produced and are normally originated by individuals working alone or in small groups and not by giant corporate committees. One can become rich and famous as a direct result of one’s own creative efforts.
  2. The entrepreneurial spirit and thus the importance of the individual to the productive process is accommodated by means of widely varying, and uniquely tailored, financing arrangements. This is especially evident in movies, recorded music, and sports. Option contracts are central.
  3. Where the production is the product itself (e.g., live performance of music or dance), it is difficult to enhance productivity. To some extent, this aspect also appears in areas as diverse as filmmaking, sports, and casino gaming.
  4. Under the aforementioned conditions, the costs of creating and marketing entertainment products such as movies and television programs tend to rise at above-average rates.
  5. Technological advances provide the saving grace: Fortunately, ongoing technological development makes it ever easier and less expensive to manufacture, distribute, and receive entertainment products and services.”

    New entertainment media tend not to render older ones extinct: New ways to deliver entertainment products and services are constantly evolving. Although introduction of new entertainment media may diminish the importance of existing forms, the older forms are rarely rendered extinct.
    -> Thesis

    Entertainment products and services have universal appeal: Demand for entertainment cuts across all cultural and national boundaries

    “Yet the industries are already quite mature in the United States, and expansion will increasingly be linked to the rate of growth of middle-class populations outside North America.”

About the author

Woitek Konzal

Producer, Consultant, Lecturer & Researcher. I love working where technology meets media in novel ways. Once, I even won an Emmy for digital innovation doing that. Be it for a small but exciting campaign about underground electronic music collectives or for a monster project combining two movies, various 360° videos, 72 ARG-like mini puzzles, and a Unity game, all wrapped up in one cross-platform app – I have proven my ability to adapt to what is required. This passion for novel technologies has regularly allowed me to cross paths with tech startups – an industry and philosophy I am all set to engage with more. I intensely enjoy balancing out my practical work with academic research, teaching, and consulting. Also, I have a PhD in Creative Industries, a M.Sc. in Business Administration, and love to kitesurf.

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