Economics of Culture

The New York Times ran an article this morning entitled “Movies Try to Escape Cultural Irrelevance”. I had to smile because I have been thinking for a while about what is going on culturally in our entertainment universe and trying to ponder how the economics of various distribution platforms determine the daringness of what gets produced. It is clear that the cultural conversation today is around TV and not the movies. The movie business has long since surrendered to producing cartoon fantasies (Spider Man, X Men, etc) for teenagers while the TV business seems to thrive on serious dramas that plumb the depths of character in dramatically satisfying ways (Mad Men, The Good Wife, Breaking Bad, etc). The Movie industry thinks they have a PR problem, when they really have a content problem.

Several industry groups, including the Academy of Motion Picture Arts and Sciences, which awards the Oscars, and the nonprofit American Film Institute, which supports cinema, are privately brainstorming about starting public campaigns to convince people that movies still matter.

You wouldn’t have to convince people that movies mattered in 1975, because every week there was a movie that mattered. So what is it about the platform that determines this differential? To begin with, TV still has a business model that works, unlike either the film business or the Broadband Internet distribution business. TV works because it has a limited supply of commercial spots per hour. With increasing demand from advertisers, the price for each spot rises and so production costs can be covered and a profit can be made. Contrast this to the Internet advertising platform. Here you have an infinite number of ad units so that prices never rise even if demand rises.

Google is in essence trying to repeal the laws of supply and demand, which is why their recent financial results disappointed analysts.

Analysts focused on the amount that advertisers pay for clicks on Google ads, a metric called cost-per-click, which dropped 8 percent over both last quarter and last year. Susan Wojcicki, Google’s senior vice president of advertising, told analysts that a drop in average cost-per-click often accompanied an increase in the number of paid clicks on ads, which rose 34 percent over last year.

In contrast, even though TV viewership is down, ad rates have stayed high because of supply constraints. Which leads us to the movie business model.  Unlike TV, movies are a total crapshoot. Each film is a one off product, almost impossible to predict demand. The only possible indicator is sales of a very similar product—thus the sequel. It’s hard to imagine, but the sequel is a relatively new phenomena. No one suggested a Gone with the Wind II or a Casablanca II. But once Star Wars II made more money than the first one, the die was cast and now Hollywood is a crackhead chasing sequels. Of course the agents know this, so the price for talent soars as the number after the title rises. Now a rational business would look for metrics such as return on investment to determine whether spending $200 million on Tron Legacy was a good idea. In that world, Bob Zemekis’ new film Flight, made for $30 million, may seem like the best investment of the year. Whether Hollywood will be able to kick it’s sequel habit is a question, but in the mean time the movies will continue to suffer from a kind of cultural irrelevance and TV will continue to thrive.

This entry was posted in Advertising, Entertainment and tagged , , , , , . Bookmark the permalink.

19 Responses to Economics of Culture

  1. Gary Myer says:

    “TV works because it has a limited supply of commercial spots per hour” is only true when a given program is shown at a specific time in a linear, prescheduled world (supply constraints). This model falls apart in the à la carte, on-demand environment where the audience is fractured in time, which is why VOD advertising is difficult and key to the future of TV (and film).

  2. Bruce Nethercut says:

    Within the context of contemporary U.S. culture, your argument is completely correct. The movie studios make at least half their revenue overseas these days, so that is a major causative factor behind their preference for ‘branded’ action-and-effects-driven behemoths with generic plot lines and characters. Their output is smaller (and costlier per production) and their target market is broader and multicultural, but that shouldn’t be enough to justify the lackluster output we’re witnessing from Hollywood’s current business model.

  3. Fentex says:

    The amount of TV channels available to people, like the number of websites or interesting destinations online and at the movies, is an arbitrary number.

    There is only a limited supply of TV advertising because the Network/TV Channel concept survives though I don’t think it’s clear why it does – it may just be inertia. There’s no gaurantee it’ll survive ubiquitous broadband and a’la carte provision of programming and other future challenges.

    that shouldn’t be enough to justify the lackluster output we’re witnessing from Hollywood’s current business model.

    Then look outside Hollywood for your movies. If you’re a customer demanding better product and believe in the benefits of competitive markets go to others for your movies. Watch a French or British film, find some of the many, many smaller budgeted independent movies distributed separately from the Hollywood eco-system.

    Watch some of the many excellent Asian films.

  4. Pingback: Plugs, Posters, and Power Strips: Hitting the Outdoors at the USC Stevens' Innovator Showcase « Project Holodeck

  5. len says:

    About the economic model, I’ve no original thought. As for the art, in the multiplex era of movie making, the sound systems are finally on an equal footing with the projectors.

    If only they were used for subtlety.

  6. Rick Turner says:

    Then there are folks like me… No TV. That was one positive result of a divorce! Not even NetFlix yet, though I probably will get that service. Every time I stay in a hotel I try out TV, and every time I find myself NOT disappointed that I gave up the habit. I’ll catch a movie every now and then, but more often than not, a “small” foreign flick like “Intouchables” which was utterly charming and wonderful…truly the equivalent of fine literature.

    But then again, I was always mainly a music guy, and there is great radio where I live, a pretty amazing number of good clubs, and a lively under the radar festival scene. And I seem to be in an active rock’n’roll band again; we’re playing South by South West in March, so I’ve a much greater need to practice than watch vacuous TV with even worse advertising.

    Speaking of which, what with that whole tradition of ads where the guys are hopelessly stupid and the women are so disdainful of how lame their boyfriends/husbands are? To whom does that appeal?

  7. len says:

    @Rick Turner

    I’m getting addicted to Nashville. It’s been forever since I’ve watched a soap opera with a decent soundtrack. The fake accents are over the top but then, Nashville IS about fake accents so that’s accurate. And since the only way we get to hear a whole song is to buy it the next day from the usual suspects, it’s true transmedia. :)

    So off to finish Yet Another Version of Cohen’s Hallelujah, which as it turns out is a good song. 😉

    what with that whole tradition of ads where the guys are hopelessly stupid and the women are so disdainful of how lame their boyfriends/husbands are? To whom does that appeal?

    Insecure women, of course, with rabbit brains. Romney Supporters.

  8. Fentex says:

    Speaking of which, what with that whole tradition of ads where the guys are hopelessly stupid and the women are so disdainful of how lame their boyfriends/husbands are? To whom does that appeal?

    Whilst waiting to talk to a marketing manager at a company I was contracting to once, I read an advertising industry magazine I found in their office. It had an article by someone complaining that in NZ advertisers tried to appeal to the Do It Yourself homeowner.

    They thought that local advertisers should be doing their best, and they said it this clearly, to undermine peoples confidence in their own abilities so that there would be more business and helpful aids that could be sold to them.

    It makes one wish one could come across that person in danger just to have the opportunity to disclaim “oh no, I couldn’t possibly be capable of helping you.”

  9. len says:

    Rick sez: And I seem to be in an active rock’n’roll band again; we’re playing South by South West in March

    So how does it feel to have the band back together headed to the big gig? How are you picking the songlist? Same axes or new? New material? Recording planned?

    Ahm so jealous. :)

  10. Hugo St. Victor says:

    […definitely see what you mean, len: compliments to Rick. I’m also happy for him — compliments, Rick, and best wishes on it — and also am excited about folks who can hear the music and about the prospect that eventually we might hear it too. Just for one, imagine the resonance of Turner instruments played to their intended potential…how cool!]

    This really gets me to thinking. At my end it’s a rare view into the workings of how digital entertainment products are variously (in law) “published” and “broadcast” via media modes, outlets and the consumers’ proliferating subspecies of screens, speakers and semi-invasive “ear buds”. Note the blend of clinical/technical and creative nomenclatures in both the preceding sentence as well as in Jon’s piece. This kind of vaguely Sci-Fi techno-artistic pidgin lingo is a useful tool for placing one at a panoramic vantage. In cultural anthropology this is “remove”; in historiography (e.g. versus journalism), “distance”; in socioeconomics, the “macro perspective”; in military science, “strategic thinking”; in the algorithmic cyber-kriegspieling of Turing, Von Neumann and Nash, the prerequisite for and product of “advanced simulation modeling”; in business, the corporate “broad view” or “long view”; in urban and environmental design, the “conceptual” formulation deliverable by engineers; in social policy, the metier of “master planners”; in Art, the playfully or daringly “avant garde” — and in all of these, the methodologically formal futurism of Illich, Brand, Kurzweil, Negroponte, or our own Jonathan Taplin. In the Reformation Period of Hus, Luther, Knox, Calvin, the Wesleys, this was hazardous “Iconoclasm”. In the Late Medieval’s obstetrical delivery of the Renaissance, the Alma Mater was the Cathedral, her midwife the University. Heady stuff. But then futurism always is.

    This has everything to do with Jon’s characteristically effortless yet portentous counterposition of structures with their content. Eighteen years ago Ray Kurweil warned, “Never mistake the bottle for its contents”. Now, that caveat is easily located in lineage of the builders of the first great cathedrals and the first universities. Just as Kurzweil did then, so here we now find Jon, Gary, Bruce and the rest of us again worrying that technology has been so privileged, and so overvalued, that it has shaped, perverted and impoverished content in both quantity and quality. That we, in our own time and place, earnestly concern ourselves with striking a beneficial balance of technical structures vis-a-viz Ideas and The Arts, surely would move Turing and Illich deeply, while winning a wink and a smile from, say, Hugh de Ste.-Victoire, John of Salisbury and the author of this nation’s first comprehensive, and public university, the Master Architect Thomas Jefferson of Virginia. Therefore I’d urge us to feel free to place these discussions in continuum with the Western patrimony of Science, Art, Culture and History, of the elaborately simple mandalas blueprinting the interior designs for, the cerebral contents and affective expressions of, the great Cathedrals and the most historic of universities. Our heritage and our secularized home in which this elegant dining room is well located. Now here goes a modest attempt to practice what I preach…

    In the parlance of a casual, cotemporary American futurist moving from trends perceived and examined, Jon of Princeton writes: “…I’ve been thinking for a while about what is going on culturally in our…universe and trying to ponder how the economics of various distributions platforms determine the daringness of what gets produced”. (Et Voila! Duby or Panofsky on the Medieval cathedrals!) There’s quite a bit of thought and beauty in Jon’s offhand sentence, and it’s tranferable not only to the supply/demand models of Economics but also to the methodologies useful in shaping other social institutions. Take Banking, Medicine, and Education.

    In my years as an “Education Planning Specialist” for Stanford, the American Institutes for Rearchh, UC Berkeley, UCLA, the CA State Assembly, the CA State Senate, the President of the UC System, and the Getty Trust, I assembled over time a really brilliant, often formal advisory coterie of (mostly) Californian visionaries to which I wish Jon and several of the rest of you had belonged. Though we hailed from diverse fields, we thought the same way Jon does: structurally, with an eye on the bottle’s contents. Eventually I asked them to think in terms of “modes” and “points” of “service delivery”, the delivery of services in the private, the public/private, and the public industrial sectors; thus, at Banking, then at Medicine and, only then at Education.

    The trapline is rather straightforward once you get that the architecture of service delivery remains common across the service sectors despite the changing forms and contentent of each sector’s particular structure of a given moment. (I’ll not here offer a social critique of this archictectonic rigidity except to say that, as Turing so brilliantly foresaw, it was hijacked from the Proto-Renaissance and the Enlightenment structures and profoundly, ominously degraded by the post-War Systems thinking, which now degrades us all apace by dint of its most ominous product to date, digital communications technology devouring of Humanistic content). The point is that the wines vary in age and quality while the wine skins, though somewhat dissimilar, nonetheless are recognizably wine skins.

    In Banking, then, we looked at A.P. Giannini’s explosion of Main Branch banking, with financing available mainly to elites, into ever more nodal points of accessible service delivery. To the extent that Giannini’s legacy begat its own fairly long-lived renaissance in banking, leading eventually to e.g. ever newer and more available instruments of credit; diversified, tailored account plans for customers from individual children to the world’s largest crprations; to the Automatic Teller Machine; to staffed bank counters in diverse shopping venues; to customized credit card accounts; and to telephone and online banking, Giannini almost single-handedly transformed centralized services co-located into services distributed, and posthumously into location-independent services consumable globally and irrespective of temporal or spatial restraints (and soon, one should hope, of geopolitical restraint). Giannini effectively was Humanist Capitalism’s apology for Teller’s Hydrogen Bomb, that proudest achievement of Systems Thinking. Gianinini’s Fermi Reaction was in its effect the opposite of the latter day Neutron Bomb’s raison d’etre: rather than melting people while leaving buildings intact, it instead melted buildings in favor of serving people.

    From this special study of Mr. Gianini it was easy for us to recognize in modern American health care a very similar shrinking of hubs — counterproductively complex, unaffordable, and bureuacratically and evironmentally sickening, comprehensive hospital complexes — increasingly in favor of a panoply of hubs that increasingly vary in shortness as well as in length.

    These lessons, we found, though they were not lost on Sam Walton, continue very willfully to elude the politicians, administrators and government bureaucrats, the pampered researchers and avaricious unionists who operate education systems as models of veneration of the archaeologist’s reassembled, huge bottle artifact; all the while glorifying not just the bottle, but also themselves, and not learners and Learning, as the Bottle’s most precious contents.

    In sum, I too “have been thinking for a while about what is going on culturally in our…universe and trying to ponder how the economics of various distribution platforms determine the daringness of what gets produced”. And Jon and I are not the only ones.

    Much work left to do.


  11. Hugo St. Victor says:

    Erratum: I’d meant to describe, in re the counterproductivity of artifactual, gold-leafed Taj Mahal hospitals, a trend toward service SPOKES and not merely toward the crucial, nodal subsidiary hubs. The options are those of an engineer: trade-offs, not binary Either/Or’s. So the dynamic in all the sectors I mention isn’t one of Spoke vs. Hub, but rather of spokes that both shrink (not eliminate) hubs — including main branch banks, destination hospitals and medical centers, and fairly large-footprint school plants — while leading to sparks and bursts of service forms not yet invented. Mine is not a diatribe. It’s a call to return to battle on the encouraging and still undefeated side: Humanism, Humanities, High Science and the Universal Arts including those of Medicine and Education.

  12. Rick Turner says:

    Just a quickie here, Hugo. Giannini must be rolling over in his grave if he can observe what his “Bank of Italy” has become…

  13. Fentex says:

    TV works because it has a limited supply of commercial spots per hour. With increasing demand from advertisers, the price for each spot rises and so production costs can be covered and a profit can be made. Contrast this to the Internet advertising platform.

    This doesn’t make much sense to me. Hollywood makes most of it’s money from theatre tickets, bluray sales and subscription fees. Not advertising online.

    I don’t think this difference betwen online advertising and TV commercials has anything to do with Hollywood movies, except possibly it contributed to TV execs confidence in paying for quality if they felt they had less risk to their cash flow in taking chances.

    It does seem obvious that Hollywood is more risk averse than TV, but I think it’s likely more to do with the financial circumstances of funding. Movies are sold, financed, marketed, individually. Making each one, and all it’s investors, individually a risk on it’s own.

    Whereas the TV market is about keeping going concerns running, continuing to bring eyeballs back to a predictable time and place and I think that difference between changes the calculations.

    Hollywood looks for more security in each investment, TV looks to protects it’s investment (and cash flow) by maintaning attention.

    The first militates for lack of originality in lieu of predictability, the second for quality in lieu of losing audience through indifference.

    And I think the different nature of the audiences contributes. People will watch TV at home, competition is for what they will watch. People going to the movies are indulging in a social event where the movie isn’t neccessarily the whole point of going out.

    In the first networks/channels must compete continuously, in the second it only matters that a movie has a momentary grasp on peoples attention.

    I suspect movies would improve if their distribution could be prised free from their production.

  14. len says:

    Let’s see what Disney does with LucasFilms.

    Concerts cost a lot. Movies ain’t cheap. TV is mostly free. A movie coke costs what a six pack cost in better times. Tough times for workin’ folk. I wonder how movies and multiplexes would do with better written movies that cost 3 dollars a ticket and fifty cent popcorn and a ninety nine cent coke.

    Nah. Can’t happen this side of a college campus or a city park.

  15. JTMcPhee says:

    It pervades everything now.

    I got to say, who cares about movies versus TV? Except as they are vehicles to peddle, subtly or unconsciously, the Downhill Narrative? What are shadow pictures going to do to change our world in any way for the better? Hollywood navel-gazing ain’t in it. It’s all just about money.

    I worked ten years as a diligent, conscientious employee for West Marine Products, which used to have a fairly healthy corporate culture. The text for management training was “Zzap! The Lightning of Empowerment!”, one sick hippie joke by current lights. It was a sort of good place to work, a nice employee discount to make up for the slightly better than average retail pay. Expertise in the products was treasured and expected by the clientele.

    The guy who built the company and set the old tone went off to Chairman-land and brought in “retail experts” who weren’t, who instituted all the elements of the New Business Model: Fuck the customer, incredibly burdensome metrics that stole effort and enthusiasm from store employees, management-by-intimidation, more and more work from fewer and fewer people, kill-the-benefits, get rid of “well-paid” experts in favor of teenagers with pimple-brains who could parrot the sales-maven tactics and techniques of up-selling and pushing the add-ons like meaningless extended-warranties. And in conference rooms in Watsonville, enthusiastic marketers determined that they could coat-tail shit-poor products on what used to be a “trusted brand.” So the push to sell cheap “chinese” spotlights with switches that failed after a few uses, and a Watsonviller told me in response to a challenge to the wisdom of pushing shit products out the door that came back as disgruntled returns a week later, “Who cares? We have the use of their money for that amount of time,” until the return got processed through the credit card company.

    Or this conversation: The “retail experts” noted that there’s a huge market for fishing gear. So West Marine, with maybe 9% of the retail boat gear trade, was going to become a “category killer” in fishing gear. And so the W’villers bought a bunch of cheap “chinese” rods and slapped the potent blue “West Marine” brand sticker on ’em, and pushed them out to the stores. Same rods at Walmart, $9.39. WM price? $119.99, because, in the Spinnaker Conference Room in W’ville, the shits provd their corporate loyalty by bidding each other up on how much MARGIN the company would make on each sale: “Hey, if you think 80% is good, Bob, why, my region’s store managers can manage 120%!” “*I’ll see your puny 120%, Phil, and raise you to 165%!”

    So my SALT-WATER store was loaded with hundreds of FRESH-WATER rods-n-reels, with zero hope of selling them. Made the stock price jump at the time, with big annoncements and all that, and the retail experts took their bonuses and stock profits and moved on to fuck up other places. And those rods sit on the racks, still, in all those stores, because who would be brave enough to direct selling them off at market and take the inventory value hit on their resume? Just like fucking banks and the mortgages and derived shit they are sitting on.

    This thinking is pervasive, invasive and seductively terminal. And what, in the sacred realm of Art and Entertainment, is going to do anything different?

    Many of us old guys are all about “Who fucking cares?” We done seen it all go round and round, there’s no up and endless down… for all the Innovation in Annenberg.

    Hope, such as there is, is in SMALL and LOCAL, but the fuckers burning carbon and fracking our groundwater, and turning the fucking planet into nothing but nine life-and-real-wealth-eating “Areas of Responsibility” making up the the Great Networked Inter-Inoperable Innovative Global Forever Battlespace, are BIG and EVERYWHERE, and just getting MORE of the same.

    Good fucking luck with all the pedigreed filigreed simply-GREED fiddling (“What can extract more money? Movies or TV?”) at the margins of what’s really happening. How is any of that going to fix any of the rest?

  16. Hugo St. Victor says:

    You guys are right. What’s best is free. Or pretty much so. Nonformal education, like cheap entertainment, is where it’s at. And as my late friend liked to say at the end, “The corruption of the best is the worst”. Take what’s beneficial, what’s happy also, and scatter them. That’s the “doing” of democracy. Moreover it’s damned surprising, how lucrative it can be.

  17. AMusingFool says:

    I wonder how much of the movie quality issue is driven, also, by how many screens are available. Raiders played for over a year, but on, at peak, a bit over 400 screens. Now 3000 screens for one movie is far from rare (I think 4000 might even occur with the really big ones, but I’m too lazy to check that). Word of mouth is much less important if everyone can see it on opening weekend.

Leave a Reply