Entertainment Industry Economics: A Guide for Financial Analysis

by Harold L. Vogel

• ISBN13: 9780521792646
• ISBN10: 0521792649
• Edition: 5th
• Format: Hardcover
• Copyright: 2001-04-23
• Publisher: Cambridge University Press

Summary

The entertainment industry is one of the largest sectors of the United States economy and fast becoming one of the most prominent globally as well. In this newly revised book, Harold L. Vogel examines the business economics of the major entertainment enterprises: movies, television and cable programming, music, broadcasting, casino wagering and gambling, sports, publishing, performing arts, theme parks, and toys. This edition incorporates a full chapter on the Internet, covering the web's operational features, revenue sources, and the net's role as an agent of change. Other expanded features include sections on industrial structure, asset valuation methods, and comparative price trends. The result is a comprehensive, up-to-date reference guide on the economics, financing, production, and marketing of entertainment in the US and overseas. Investors, business executives, accountants, lawyers, arts administrators, and general readers will find that the book offers an invaluable guide to how entertainment industries operate.

Author Biography

Harold L. Vogel is the author of Travel Industry Economics: A Guide for Financial Analysis (Cambridge University Press, 2001), a companion volume to this study of the entertainment industry. He was ranked as top entertainment industry analyst for a record ten years by Institutional Investor magazine and served for seventeen years as senior entertainment industry analyst at Merrill Lynch and Co. A chartered financial analyst and member of the New York Society of Securities Analysts, Mr. Vogel formerly served on the New York State Governor's Motion Picture and Television Advisory Board. He is a frequent writer and speaker on investment topics related to leisure, entertainment, and travel, serves as adjunct professor of media economics at Columbia University's Uris Graduate School of Business, and is author of the novel Short Three Thousand (2000). Mr. Vogel currently heads an independent investment fund in New York City.

Table of Contents

Preface	xvii
Part I Introduction
Economic perspectives	3	(32)
Time concepts	3	(6)
Leisure and work	3	(1)
Recreation and entertainment	4	(1)
Time	5	(1)
Expansion of leisure time	5	(4)
Supply and demand factors	9	(7)
Productivity	9	(1)
Demand for leisure	10	(2)
Expected utility comparisons	12	(1)
Demographics and debts	13	(1)
Barriers to entry	14	(2)
Primary principles	16	(3)
Marginal matters	16	(3)
Price discrimination	19	(1)
Public good characteristics	19	(1)
Personal-consumption expenditure relationships	19	(4)
Industry structures and segments	23	(4)
Structures	23	(1)
Segments	24	(3)
Valuation variables	27	(2)
Discounted cash flows	28	(1)
Comparison methods	29	(1)
Options	29	(1)
Concluding remarks	29	(6)
Selected additional reading	31	(4)
Part II Media-dependent entertainment
Movie macroeconomics	35	(37)
Flickering images	36	(2)
May the forces be with you	38	(6)
Evolutionary elements	38	(1)
Technology	38	(3)
Capital	41	(1)
Pecking orders	42	(1)
Exhibition	42	(1)
Production and distribution	43	(1)
Ups and downs	44	(14)
Admission cycles	44	(2)
Prices and elasticities	46	(1)
Production starts and capital	47	(1)
Releases and inventories	48	(3)
Market-share factors	51	(1)
Collateral factors	51	(1)
Exchange-rate effects	51	(5)
Trade effects	56	(2)
Financial aggregates	58	(1)
Markets---primary and secondary	58	(6)
Assets	64	(3)
Film libraries	64	(1)
Technology	64	(1)
Utilization rates	64	(1)
Interest and inflation rates	65	(1)
Collections and contracts	66	(1)
Library transfers	67	(1)
Real estate	67	(1)
Concluding remarks	67	(5)
Selected additional reading	70	(2)
Making and marketing movies	72	(31)
Properties physical and mental	72	(2)
Financial foundations	74	(6)
Common-stock offerings	74	(1)
Combination deals	75	(1)
Limited partnerships and tax shelters	76	(3)
Bank loans	79	(1)
Production preliminaries	80	(3)
The big picture	80	(2)
Labor unions	82	(1)
Marketing matters	83	(14)
Distributors and exhibitors	83	(1)
Sequencing	83	(1)
Distributor-exhibitor contracts	84	(3)
Release strategies, bidding, and other related practices	87	(2)
Exhibition industry characteristics Capacity and competition	89	(2)
Rentals percentages	91	(1)
Home video and merchandising	91	(1)
Home video	91	(5)
Merchandising	96	(1)
Marketing costs	96	(1)
Profitability synopsis	97	(2)
Concluding remarks	99	(4)
Selected additional reading	99	(4)
Financial accounting in movies and television	103	(45)
Dollars and sense	103	(2)
Contract clout	103	(1)
Orchestrating the numbers	104	(1)
Corporate overview	105	(9)
Revenue-recognition factors	105	(1)
Inventories	106	(1)
Amortization of inventory	107	(2)
Unamortized residuals	109	(1)
Interest expense and other costs	109	(1)
Calculation controversies	110	(1)
Statement of Position 00-2	111	(2)
Merger and acquisition issues	113	(1)
Big-picture accounting	114	(16)
Financial overview	114	(3)
Participation deals	117	(3)
Pick-ups	120	(1)
Coproduction-distribution	120	(1)
Talent participations and breakeven	120	(3)
Producers' participations and cross-collateralizations	123	(1)
Home-video participations	123	(1)
Distributor-exhibitor computations	124	(1)
Distributor deals and expenses	125	(3)
Studio overhead and other production costs	128	(1)
Truth and consequences	129	(1)
Television-programming accounting	130	(13)
Feature licensing	130	(4)
Program production and distribution	134	(1)
Development and financing processes	134	(1)
Syndication agreements	135	(3)
Costs of production	138	(1)
Costs and problems of distribution	139	(1)
Timing troubles	140	(3)
Weak links in the chain	143	(2)
Exhibitors: the beginning and the end	143	(2)
Distributor-producer problems	145	(1)
Concluding remarks	145	(3)
Selected additional reading	146	(2)
Music	148	(25)
Feeling groovy	148	(2)
Size and structure	150	(10)
Economic interplay	150	(1)
The American scene	150	(5)
The global scene	155	(1)
Composing, publishing, and managing	155	(2)
Royalty streams	157	(1)
Performances	157	(1)
Mechanical royalties	158	(1)
Synchronization fees	158	(1)
Copyright	158	(1)
Guilds and unions	159	(1)
Concerts and theaters	160	(1)
Making and marketing records	160	(6)
Deal maker's delight	160	(1)
Production agreements	160	(2)
Talent deals	162	(1)
Production costs	162	(1)
Marketing costs	163	(1)
Distribution and pricing	163	(1)
Distribution	163	(2)
Pricing	165	(1)
Internet effects	165	(1)
Financial accounting and valuation	166	(4)
Artists' perspective	166	(2)
Company perspective	168	(2)
Valuation aspects	170	(1)
Concluding remarks	170	(3)
Selected additional reading	171	(2)
Broadcasting	173	(28)
Going on the air	173	(14)
Technology and history	173	(3)
Basic operations	176	(3)
Regulation	179	(1)
Organizational patterns and priorities	180	(1)
Networks and affiliates	180	(2)
Ratings and audiences	182	(4)
Inventories	186	(1)
Independent and public broadcasting stations	186	(1)
Economic characteristics	187	(3)
Macroeconomic relationships	187	(2)
Microeconomics considerations	189	(1)
Financial-performance characteristics	190	(3)
Variable cost elements	190	(1)
Financial-accounting practices	191	(2)
Valuing broadcast properties	193	(2)
Concluding remarks	195	(6)
Selected additional reading	197	(4)
Cable	201	(22)
From faint signals	201	(2)
Pay services evolve	202	(1)
Cable industry structure	203	(8)
Operational aspects	203	(5)
Franchising	208	(1)
Revenue relationships	209	(2)
Financial characteristics	211	(4)
Capital concerns	211	(3)
Accounting conventions	214	(1)
Development directions	215	(3)
Pay-per-view	215	(1)
Cable's competition	216	(1)
MMDS/LMDS	216	(1)
SMATV	216	(1)
DBS/DTH	217	(1)
STV	217	(1)
Telephone companies	217	(1)
Valuing cable-system properties	218	(2)
Concluding remarks	220	(3)
Selected additional reading	221	(2)
The Internet	223	(13)
Casting a wide net	223	(2)
Rules of the road	225	(3)
Laws of the media	225	(2)
Network features	227	(1)
Operational aspects	228	(3)
Agent of change	228	(2)
Revenue sources	230	(1)
Advertising	230	(1)
Fees	231	(1)
Accounting and valuation	231	(3)
Accounting	231	(1)
Valuation	232	(2)
Concluding remarks	234	(2)
Selected additional reading	234	(2)
Publishing	236	(15)
Gutenberg's gift	236	(4)
First words	236	(1)
Operating characteristics	237	(3)
Segment specifics	240	(6)
Books	240	(1)
Educational/professional	240	(1)
Trade	241	(1)
Periodicals	242	(1)
Newspapers	242	(3)
Magazines and other periodicals	245	(1)
Multimedia	246	(1)
Developer/publisher issues	246	(1)
Distribution issues	247	(1)
Accounting and valuation issues	247	(2)
Accounting	247	(1)
Valuation	248	(1)
Concluding remarks	249	(2)
Selected additional reading	249	(2)
Toys and games	251	(16)
Not just for kids	251	(6)
Financial flavors	253	(3)
Building blocks	256	(1)
Chips ahoy!	257	(3)
Slots and pins	257	(1)
Pong: pre and apres	258	(2)
Structural statements	260	(2)
Home video games	260	(1)
Coin-op	260	(1)
Profit dynamics	261	(1)
Concluding remarks	262	(5)
Selected additional reading	263	(4)
Part III Live entertainment
Gaming and wagering	267	(33)
From ancient history	267	(12)
At first	267	(1)
Gaming in America	268	(1)
Preliminaries	268	(1)
The Nevada experience	269	(1)
Enter New Jersey	270	(3)
Horse racing	273	(1)
Lotteries	273	(3)
Indian reservations, riverboats, and other wagering areas	276	(3)
Money talks	279	(5)
Macroeconomic matters	279	(2)
Funding functions	281	(1)
Regulation	282	(1)
Financial performance and valuation	283	(1)
Underlying profit principles and terminology	284	(5)
Principles	284	(2)
Terminology and performance standards	286	(3)
Casino management and accounting policies	289	(4)
Marketing matters	289	(2)
Cash and credit	291	(1)
Procedural paradigms	292	(1)
Gambling and economics	293	(2)
Concluding remarks	295	(5)
Selected additional reading	296	(4)
Sports	300	(17)
Spice is nice	300	(5)
Early innings	300	(1)
Media connections	301	(4)
The wagering connection	305	(1)
Operating characteristics	305	(3)
Revenue sources and divisions	305	(1)
Labor issues	306	(2)
Tax accounting and valuation	308	(3)
Tax issues	308	(1)
Historical development	308	(1)
Current treatments	309	(2)
Asset valuation factors	311	(1)
Sports economics	311	(1)
Concluding remarks	312	(5)
Selected additional reading	312	(5)
Performing arts and culture	317	(20)
Audiences and offerings	317	(8)
Commercial theater	318	(1)
On and off Broadway	318	(5)
Circus	323	(1)
Orchestras	324	(1)
Opera	324	(1)
Dance	325	(1)
Funding sources and the economic dilemma	325	(3)
The play's the thing	328	(3)
Production financing and participations	328	(2)
Operational characteristics	330	(1)
Economist echoes	331	(2)
Organizational features	331	(1)
Elasticities	332	(1)
Price discrimination	332	(1)
Externalities	333	(1)
Concluding remarks	333	(4)
Selected additional reading	334	(3)
Amusement/theme parks	337	(14)
Flower power	337	(2)
Gardens and groves	337	(1)
Modern times	338	(1)
Financial operating characteristics	339	(5)
Economic sensitivities	344	(2)
Valuing theme-park properties	346	(1)
Concluding remarks	347	(4)
Selected additional reading	347	(4)
Part IV Roundup
Epilogue	351	(8)
Common elements	351	(3)
Guidelines for evaluating entertainment securities	354	(3)
Cash flows and private market values	354	(1)
Debt/equity ratios	354	(1)
Price/earnings ratios	354	(3)
Price/sales ratios	357	(1)
Book value	357	(1)
Final remarks	357	(2)
Appendix A: Sources of information	359	(2)
Appendix B: Major games of chance	361	(20)
Blackjack	361	(2)
Craps	363	(2)
Roulette	365	(3)
Baccarat	368	(2)
Slots	370	(1)
Other casino games	371	(5)
Poker	371	(1)
Keno	371	(1)
Big Six Wheel	372	(1)
Bingo	372	(1)
Pai Gow, Fan Tan, and Sic Bo	372	(2)
Pan	374	(1)
Trente-et-quarante (Rouge et Noir)	375	(1)
Lotteries	376	(1)
Tracks	377	(2)
Sports book	379	(2)
Appendix C: Supplementary data	381	(30)
Glossary	411	(24)
References	435	(16)
Notes	451	(74)
Index	525