Setting up and management of cultural systems and policies P-J. Benghozi lecture - Motion pictures -...

Setting up and management of cultural systems and policies

P-J. Benghozi lectureP-J. Benghozi lecture

- Motion pictures - Enforcement of property rights

I.L.O. International Training Center - Culture for development

Scientific coordinator : Walter Santagata

PJ Benghozi October 2004 Slide 2

Motion picture : content

Characterizing cultural industriesCharacterizing cultural industries Cinema industryCinema industry International outlookInternational outlook Budget analysisBudget analysis Trends and evolutionsTrends and evolutions Public policy and proposalsPublic policy and proposals


Introduction : Considering movie production as a cultural industry

An expensive businessAn expensive business Operated on a cooperative basisOperated on a cooperative basis Requiring economic and Requiring economic and

management abilitiesmanagement abilities


Managing cultural activities

Management is highly problematicManagement is highly problematic Several types of organizational Several types of organizational

strategies existstrategies exist Need for operative routineNeed for operative routine

The example of shooting scriptThe example of shooting script Property right and box office receiptsProperty right and box office receipts


Characterizing cultural industries Relying on technological and industrial Relying on technological and industrial

backgroundbackground Distribution channelDistribution channel Diversifying production scopeDiversifying production scope

Based on innovation and riskBased on innovation and risk economic vs. artistic rationaleeconomic vs. artistic rationale Mass media or “happy few” orientedMass media or “happy few” oriented IPR : retribution or incentiveIPR : retribution or incentive No rules or recipes for successNo rules or recipes for success

Calling for public policies and regulationCalling for public policies and regulation Both at national and international levelBoth at national and international level


Characterizing CI as creative industries Artistic dimensionArtistic dimension

Conception and creation are distributedConception and creation are distributed « Artist » brandmark is central« Artist » brandmark is central Cultural industries domains expandCultural industries domains expand

Defining qualityDefining quality No operative fonction for cultural goodsNo operative fonction for cultural goods Value is contentValue is content

No cost- price relationsNo cost- price relations• Different business production modelDifferent business production model• Price ruled by diffusionPrice ruled by diffusion

Cost inflationCost inflation• Baumol lawBaumol law• Economie of qualityEconomie of quality


Characterizing CI as production process Prominent editing roleProminent editing role

Incomplete information marketIncomplete information market A need for intermediary (certifying quality)A need for intermediary (certifying quality)

Prototype vs. reproductionPrototype vs. reproduction Unique vs. serial strategyUnique vs. serial strategy Standardization / customizationStandardization / customization Editing seriesEditing series

Flow or stock strategyFlow or stock strategy SubstitutesSubstitutes

Material copyMaterial copy Technology drivenTechnology driven IndustrializationIndustrialization

Success may rely on nichesSuccess may rely on niches


Characterizing CI as distribution channel

Reversing cost structureReversing cost structure production/ distributionproduction/ distribution Small part of the price paid by consumers is Small part of the price paid by consumers is

dedicated to creation and productiondedicated to creation and production Restructuring and diversifying distribution Restructuring and diversifying distribution

channelschannels New technical devices, internet…New technical devices, internet…

Weight and concentration of distributorsWeight and concentration of distributors Star system dynamicStar system dynamic

Concentrating success on blockbusterConcentrating success on blockbuster Articulating with media policyArticulating with media policy Growing ancillary marketsGrowing ancillary markets


Characterizing CI as industrial sector

Firms and sectors existing for longFirms and sectors existing for long Motionlessness in industrial structure, business model, Motionlessness in industrial structure, business model,

blockbuster strategyblockbuster strategy Similar competitionSimilar competition

Big / small – International/ nationalBig / small – International/ national Different production structuresDifferent production structures

Obsolescence and renewalObsolescence and renewal Markets and productsMarkets and products Platform and technologyPlatform and technology Finance and value added chainFinance and value added chain

DiversificationDiversification Cross subsidizationCross subsidization multimediamultimedia


Characterizing CI as renewing industries

Changes taking placeChanges taking place New technology, products, mediaNew technology, products, media Uses and consumer attitudesUses and consumer attitudes Risky and speculative businessRisky and speculative business

Industry life cycleIndustry life cycle Centre of gravity shifting downstreamCentre of gravity shifting downstream

Dominating investments, prices and volumeDominating investments, prices and volume Concentrating profitability and growthConcentrating profitability and growth Creation turn less and less importantCreation turn less and less important


Time

Life circle

Creation

Production

Distribution

Commercialization

innovations

Centre of gravity

Emerging market : to create new product in order to make the market more attractive

Standardizing creation : to reduce cost and increase results

Expending market : to find new customers

Consolidating market shares : to win over competitors


Public policies at stake

PP mainly designed to promote creation and PP mainly designed to promote creation and cultureculture Inspired by “traditional” cultural policiesInspired by “traditional” cultural policies

Calling for specific difficultiesCalling for specific difficulties Legitimacy of public intervention in market driven Legitimacy of public intervention in market driven

industriesindustries Distorting competition (intra and international)Distorting competition (intra and international) Interfering fieldsInterfering fields

Designing and enforcing policiesDesigning and enforcing policies Level, means…Level, means… At which step of value added chain…At which step of value added chain… Automatic or based on selectionAutomatic or based on selection


The case of cinema industry

Labour forceLabour force large number of professional involvedlarge number of professional involved highly structuredhighly structured

Production costsProduction costs Large variabilityLarge variability Different business modelsDifferent business models

Cultural policyCultural policy Supporting creationSupporting creation Stimulating commercial dynamicsStimulating commercial dynamics


Two perspectivesfor movie value added

chain

Piece of art and industrial product interactPiece of art and industrial product interact

D is t r i b u t o r

Author Book adaptator

Script-writer

Director

Technical crew

Critics

Movie-goer

Banks

Financing partners

P r o d u c e r

Theaters

Broadcasters

Movie-goer

A piece of art

Industrial product

Technical industries


Characterizing production …

No scale economyNo scale economy Highly risky and no success Highly risky and no success

grantedgranted More and more diversified marketsMore and more diversified markets

TheatresTheatres BroadcastBroadcast Video-DVD salesVideo-DVD sales


… distribution and exhibition

DistributionDistribution Structured on a local basisStructured on a local basis Relying on specific and intangible competencies / Relying on specific and intangible competencies /

assetsassets Key resource for productionKey resource for production Concentrating showingsConcentrating showings

ExhibitionExhibition Facing audience decline Facing audience decline

Technical innovationTechnical innovation Concentrating screensConcentrating screens Restructuring theatresRestructuring theatres Adjusting ticket priceAdjusting ticket price


Three groups of producing Three groups of producing countriescountries

According home market sizeAccording home market size Film export / import volumeFilm export / import volume Socio-cultural and economic indicatorsSocio-cultural and economic indicators

International outlook and competition

Production Films per year

Countries

Large More than 200

5

Medium 20 – 199 25

Small 1 - 19 72


Strong/ weak points for producing countries

LargeLarge+ large home markets, expanding broadcasting audiences, return on benefits + large home markets, expanding broadcasting audiences, return on benefits and structured cinema sectorand structured cinema sector- market competition vs. artistic production- market competition vs. artistic production+/- incentives to independant & distribution+/- incentives to independant & distribution

MediumMedium+ public support guarantee national infrastructure and free access to quality and + public support guarantee national infrastructure and free access to quality and local filmslocal films- National legal protectionism impede international trade- National legal protectionism impede international trade+/- new international and more balanced legal frameworks +/- new international and more balanced legal frameworks

Small and non productingSmall and non producting+ creativity does not suffer from industrial and financial constraints, production + creativity does not suffer from industrial and financial constraints, production as work of art.as work of art.- small size of national market, structural lack of investment, unfair international - small size of national market, structural lack of investment, unfair international trade practicestrade practices+/- digital technologies opportunities : less expensive production, more widely +/- digital technologies opportunities : less expensive production, more widely diffuseddiffused


Attendance and film release

Worldwide decreasing trendWorldwide decreasing trend Competed by televisionCompeted by television A positive evolution in recent A positive evolution in recent

yearsyears New roles of broadcastersNew roles of broadcasters Technological developmentsTechnological developments


Dominance of US industry

US MajorsUS Majors Early diversifiedEarly diversified Dominance over US marketDominance over US market Dependence upon international marketDependence upon international market

Other domestic marketsOther domestic markets Small sizeSmall size Requiring public supportRequiring public support

Large share of US films over each marketLarge share of US films over each market National identity National identity vs.vs. commercial concerns commercial concerns


Budget and finance structure

TrendsTrends Increase in mega-budgetIncrease in mega-budget Over-worldwide promoted productionsOver-worldwide promoted productions « Casino – economy »« Casino – economy »

Various competing business Various competing business modelsmodels BudgetBudget RiskRisk Main Main

ReleaseRelease

Blockbuster

High High Theatres

Multivalent Medium Low Broadcast

Indies Small High Theatre


Analysing budgets

Above the line Above the line ≃≃ above the line above the line Case study : a US studio filmCase study : a US studio film

Weight of personal costs (cast…)Weight of personal costs (cast…) Financial engineering involving:Financial engineering involving:

Theatrical revenueTheatrical revenue TV revenueTV revenue video-DVD revenuevideo-DVD revenue Foreign revenueForeign revenue

Case study : profitability analysis of filmsCase study : profitability analysis of films Short-long term return on investmentShort-long term return on investment


Bundles of rights and equity

Several type of interveningSeveral type of intervening Exploitation rights + equityExploitation rights + equity

As counterpart for various contributionAs counterpart for various contribution Financial or in natureFinancial or in nature Fragmented intoFragmented into

Particular release marketsParticular release markets Geographical areasGeographical areas Specific durationsSpecific durations

Difficult to handleDifficult to handle Case study : a small budget filmCase study : a small budget film


Film industry : trends and evolution

To focus on productionTo focus on production Rather than distribution – exhibitionRather than distribution – exhibition

Emerging new economic playersEmerging new economic players Undermines traditional organizationUndermines traditional organization Deepens divide production -Deepens divide production -

distributiondistribution Blurring traditional Blurring traditional boundariesboundaries

Oligopoly powerOligopoly power


A growing concentration

At each step of the industryAt each step of the industry Cinema exhibitionCinema exhibition DistributionDistribution ProductionProduction

For competitive advantagesFor competitive advantages Capturing audienceCapturing audience Controlling marketControlling market Rising Barrier to entryRising Barrier to entry Negotiating attractive termsNegotiating attractive terms Stabilizing cash flowStabilizing cash flow


Diversification from movie to audiovisual

1.1. Vertical or horizontal organizationVertical or horizontal organization By medium (film, broadcast…)By medium (film, broadcast…) By trade (production, distribution…)By trade (production, distribution…)

2.2. Supported by various factorsSupported by various factors TechnicalTechnical EconomicEconomic Consumer attitudesConsumer attitudes

3.3. Comprehensive production processComprehensive production process Organizing productionOrganizing production Involving broadcastersInvolving broadcasters Multimedia conglomerate strategyMultimedia conglomerate strategy Providing contents to new businessesProviding contents to new businesses


Regulation and public policy

International negotiations at stakeInternational negotiations at stake World Trade AgreementWorld Trade Agreement

To prioritize economic dimension…To prioritize economic dimension… Or to support cultural / national identityOr to support cultural / national identity

Questions addressed to public policyQuestions addressed to public policy Adapting cultural policyAdapting cultural policy Conciliating commercial / subsidized filmsConciliating commercial / subsidized films To regulate transnational tradesTo regulate transnational trades


Obstacles to be faced

Which objectives for policymaking ?Which objectives for policymaking ? Relevance and legitimacy of Relevance and legitimacy of

audiovisual policiesaudiovisual policies State and geographical barriersState and geographical barriers Vicious circle of overprotectionVicious circle of overprotection

Increasing costsIncreasing costs Reducing incentive to qualityReducing incentive to quality export competitivenessexport competitiveness


Some proposals ?

To support cultural exception or To support cultural exception or diversity as a world trade rule ?diversity as a world trade rule ? Exemptions in WTOExemptions in WTO Arbitration proceduresArbitration procedures

New issues for multilateral tradesNew issues for multilateral trades Managed market openingManaged market opening Multi-functionalityMulti-functionality Precautionary principlePrecautionary principle ResponsibilityResponsibility ReciprocityReciprocity

Setting up and management of cultural systems and policies

P-J. Benghozi lectureP-J. Benghozi lecture

- Motion pictures - Enforcement of property rights

I.L.O. International Training Center - Culture for development

Scientific coordinator : Walter Santagata


Enforcement of IPR : Content

Defining CopyrightDefining Copyright Impact of new technologyImpact of new technology Enforcement of IPREnforcement of IPR


Copyright : an economic perspective

Economic size of property rights Economic size of property rights activitiesactivities

An incentive to innovationAn incentive to innovation Individual reward (proportional paybacks)Individual reward (proportional paybacks) For the benefit of societyFor the benefit of society

Financial Financial vs. vs. intellectual investorsintellectual investors Contract limitations to regulate labourContract limitations to regulate labour Market uncertainty and imperfectionMarket uncertainty and imperfection

Monopoly power vs. large distributionMonopoly power vs. large distribution


Droit d’auteur et copyright

Two existing / competing modelsTwo existing / competing models Droit d’auteurDroit d’auteur

Tying moral right and economic rightTying moral right and economic right Inalienability and no registration Inalienability and no registration

requiredrequired CopyrightCopyright

Protecting investmentProtecting investment Held by producer rather than creatorHeld by producer rather than creator Registration requestedRegistration requested


Film release : an appropriate setting

identified transactionsidentified transactions With copyright holderWith copyright holder Ticket purchaseTicket purchase

FacilitateFacilitate Proportional share of receiptsProportional share of receipts Control of screenings and revenuesControl of screenings and revenues

But current practiceBut current practice Flat rate Flat rate vs. vs. royaltiesroyalties From droit d’auteur to copyrightFrom droit d’auteur to copyright


Copyright and new technologies

Re-evaluating the creative sideRe-evaluating the creative side The creatorThe creator

From « Auteur » to collective creationFrom « Auteur » to collective creation The artworkThe artwork The original creationThe original creation The creative processThe creative process

Artist’s or producer’s outcomeArtist’s or producer’s outcome Reference categoriesReference categories


… Re-evaluating the distribution

Implicit creation –distribution Implicit creation –distribution modelmodel

Notion of reproductionNotion of reproduction Undermined by digitisationUndermined by digitisation

Modes of consumptionModes of consumption Fragmented and repetitiveFragmented and repetitive

Duration of protectionDuration of protection The « Mickey mouse syndrome »The « Mickey mouse syndrome »


… Re-evaluating the market side

Principles of remunerationPrinciples of remuneration outdatedoutdated

Geographical basisGeographical basis Ill suitedIll suited

Markets and industries integrationMarkets and industries integration New economic playersNew economic players

New technology suppliersNew technology suppliers


Enforcement of property rights

distribution models - dominant actorsdistribution models - dominant actors

Model Technology

Investorsdistribution source

Character of the artworkspace and time accessibility

Unique artwork

creator material and unique(accessibility limited)

Publication Printing press

creator publisher

material, multiple copies(accessibility multiple but limited)

Performance creator publisher immaterial, multiple versions(accessibility multiple but limited)

Broadcast Television creator publisher broadcaster

immaterial and ubiquitous(completely accessible in space and in time on repeated occasions)

Network Networked computer

creator publisher consumer

immaterial, ubiquitous, atemporal(completely accessible in space and time)


Characteristics of artistic fields

Traditional distribution model

Production costs (magnitude)

Creator-producer relationship

Producer-distributor relationship

plastic arts unique work of art

Low the creator is the producer

sale of the finished product

literary work marketing of the medium

Low

Contract based on prototype

transfer based on prototype

live performance

marketing of the medium

high(105 €)*

collaboration(employment contract)

the producer is the distributor

musical creation

marketing of the medium

High (104 €)

transfer based on prototype

transfer based on finished product

film creation marketing of the medium

Very high(106 €)

collaboration(employment contract)

transfer based on draft agreement or prototypeaudio-visual

creationbroadcast High

(105 €)*collaboration(employment contract)

the producer is the distributor


Models for applying copyright

Art marketArt market

CinemaCinema Literary Literary

publicationpublication

BroadcastBroadcast

Private copyPrivate copy internetinternet

Creator

Seller

First buyer Second buyer

3 %

Reseller

Collective mgmt.

Creator

Publisher

Distributor

%

%

ticket

contro

l

Consumer

Creator

Producer

Distributor

Consumer

flat rate

Collective mgmt. company

% rev.

Creator

Producer

Media manufacturer

Collective mgmt. society

% rev.

Allocation prop. to copies

Distributor

Consumer buys

media


Thank you for your attention !


Produced films in the last ten years

Number of produced films US France

1992 389 113

1993 450 101

1994 575 99

1995 631 97

1996 570 104

1997 637 125

1998 509 148

1999 n.d. 150

2000 460 145

2001 445 172


Inhabitants by screen

Similar local market sizeSimilar local market size

Negative trendNegative trend


Attendance & admissions in Europe

Similar market size but profitability may differSimilar market size but profitability may differ


Density of screens in multiscreens

Geography and structure of screen differ according countriesGeography and structure of screen differ according countries


Average ticket price

•Price are growing and convergingPrice are growing and converging•An international model emergesAn international model emerges


International film production


Typologies of the countries

productionproduction LargeLarge MediumMedium SmallSmall NoNoInhabitantsInhabitants 516 M516 M 58 M58 M 23 M23 M 66% in cities% in cities 8484 8282 7070 6868GNP (US$)GNP (US$) 1100011000 99009900 70407040 37303730TheatersTheaters 97939793 15371537 702702 433433AudiencesAudiences 388 M388 M 49 M49 M 14 M14 M 9 M9 MTV setsTV sets 152 M152 M 15 M15 M 2,7 M2,7 M 0,30,3


Annual frequency per capita


Market share of domestic films

•Various impact according countries …Various impact according countries …

•… … But a common trendBut a common trend


Market share of US films


Trade balance US / UE

> 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

USA to EU3 133 3 280 3 947 4 106 4 642 4 886 5 331 6 262 6 645 7 313 8 117

EU to USA404 464 279 300 429 566 517 613 668 706 853

Balance-2 729 -2 816 -3 668 -3 806 -4 213 -4 320 -4 814 -5 649 -5 977 -6 607 -7 264


French production according size

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Over 10 M€ 4 3 8 7 6 9 9 10 14 20 5 - 10 M€ 23 14 12 26 20 24 26 23 26 29 4 - 5 M€ 13 10 10 8 9 11 11 11 19 9 2 - 4 M€ 45 38 28 25 30 38 57 59 43 40 1 - 2 M€ 20 27 24 18 21 24 26 28 21 32 Under 1 M€ 8 9 7 13 18 19 19 19 22 42 Total 113 101 89 97 104 125 148 150 145 172


Budget of Hollywood filmAbove-The-Line

Story 300,000

Scenario 1,450,000

Producer 1,000,000

Director 3,300,000

Principal cast 11,670,000

Supporting cast 950,000

Stunts 65,000

Fringe benefits 800,000

Travel & Living 720,000

A-T-L Total $ 20,255,000

Below the lineExtras/Stand-Ins 540,000Production Staff 980,000Art Department 580,000Camera 950,000Set Construction 1,750,000Miniatures 760,000Set Operations 850,000Electrical 720,000Special Effects 180,000Set Dressing 660,000Props 290,000Action Props 80,000Wardrobe 520,000Makeup & Hair 340,000Product. Sound 230,000Transportation 1,700,000Process Photo. 550,000Prod. Dailies 350,000B-T-L Travel 710,000Fringes 2,100,000Tests 60,000Facilities Fees 170,000Prod. Total $ 16,460,000

Post-ProductionEditing 500,000Music 1,300,000Post Prod. Sound 430,000Stock Shots 25,000Titles 55,000Optical, Matte,Insert 55,000Laboratory Processing 240,000Fringe Benefits 80,000 Post Prod. Total $ 2,685,000 Other Direct CostsAdminist. Expenses 260,000Insurance 200,000Publicity 120,000Fringe Benefits 20,000 Total $ 600,000 B-T-L Total $ 19,745,000

TOTAL BUDGET $ 40,000,000


Success level Film case

Break-even Mermaids

The Loser Bonfire

The Winner Home Alone

Box office revenue $ 30.0m $20.0m $250.0m

Rental share (per cent) 55 % 55 % 50 % Theatrical revenue $16.5m $11.0m $125.0m Video sales (units) 200, 000 150, 000 9, 000 ,000

Wholesale price per unit $55.00 $55.00 $15.00 Cost per unit $5.00 $5.00 $3.50 Home video advertising 0.5m 0.5m 15.0m Net video revenue $9.5m $7.0m $88.5m Pay television revenue $6.0m $5.0m $8.0m Other television revenue $2.5m $1.0m $4.0m Other (planes, jails, etc) $1.0m $1.0m $1.0m Merchandising n/a n/a $2.0m Total TV and other revenue $9.5m $7.0m $15.0m TOTAL DOMESTIC REVENUE $35.5M $25.0M $228.5M Foreign theatrical revenue n/a n/a $50.0m

Foreign video sales (units) n/a n/a 300, 000

Net price/unit n/a n/a $50.00

Net foreign video revenue n/a n/a $15.00m

Foreign pay television n/a n/a $5.0m

Foreign other television n/a n/a $2.0m

Foreign merchandising n/a n/a $1.0m

TOTAL FOREIGN REVENUE $24.9M $15.0M $73.0M AS PERCENTAGE OF DOMESTIC 70 % 60 % 32 % Total revenue before costs $60.4m $40.0m $301.5m Talent participation $6.0m $2.0m $15.1m As % of tot. pre-cost revenue 10 % 5 % 5 % Prints and advertising(domestic) $15.0m $12.0m $30.0m Prints and advertising (foreign) $11.0m $8.0m $250.0m PRODUCTION COSTS $25.0M $35.0M $18.0M Overhead and financial costs $3.8m $5.3m $2.7m TOTAL COSTS $60.8M $62.3M $85.8M

Operating profit (loss) ($0.4m) ($22.3m) $215.7m

Profitability analysis


Production of a small budget european film

Contribute M€ Composed by Arrangement

Distributor 1,19 M€ 0,49 Minimum garantee (MG) 0,7coproduction

80% theatrical revenues France-Belgium-Switz. 64% of producer’s revenues once distributor MG refunded

Broadcaster 0,46 M€ 1,6 M presales 1,4coproduction

First release 10% of producer’s revenues « first euro gross »

Talent participation

0,21 M€ 10% of producer’s revenues « first euro gross »

Video-DVD edition

0,1 M€ Presales of VHS-DVD distribution rights

Producer 0,18 M€ 16% of producer’s revenues once distributor MG refunded

Total 2,14 M€


Concentration in cinema exhibition


Concentration in cinema distribution


Expenses dedicated to audiovisual programs

(M€) 1980 1985 1990 1995 1997 1998 1999 2000 2001

Tax devoted to audiovisual

422 817 879 1 264 1 396 1 371 1 467 1 572 1 573

Subscriptions 0 79 892 1 618 1 804 2 120 2 403 2 551 2 691

VHS and DVD rent and purchases

79 399 955 1 361 1 280 1 296 1 301 1 400 1619

Cinéma 430 665 583 690 789 913 823 891 1014

Total 931 1 960 3 309 4 933 5 269 5 700 5 994 6 414 6 897

Setting up and management of cultural systems and policies P-J. Benghozi lecture - Motion pictures -...

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