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Growth and Concentration Trends in the English-language Network Media Economy in Canada, 2000-2012

This is the fourth post in a series on the state of the media, telecom and internet industries in Canada and has been cross-posted from the Canadian Media Concentration Research project website. It focuses on the growth of and concentration trends in ten sectors of these industries in the predominantly English-language speaking regions of Canada from 2000 until 2012: wireline telecoms, mobile wireless, internet access, broadcast TV, pay and specialty TV, total television, radio, newspapers, magazines and online (see herehere and here for the last three posts in this series) (for a downloadable PDF version of this post please click here).

The data and methodology underpinning the analysis can be found at the following links: Media Industry DataSources and Explanatory NotesEnglish-language Media EconomyCR and HHI English Media, and the CMCR Project’s Methodology Primary.

The Growth of the English-Language Network Media Economy, 2000-2012.

As with the rest of Canada, the English-language media economy expanded greatly from $31.7 billion in 2000 to $55.8 billion in 2012. Figure 1 below shows the trends over time.

Figure 1: The Growth of the English-Language Network Media Economy, 2000-2012 (Millions $)

Figure 1

SourcesEnglish-language Media EconomySources and Explanatory Notes.

The fastest growing sectors of the English-language media economy have been internet advertising (2,782%), internet access (284%), mobile wireless services (284%), cable, satellite and IPTV (103%) and television (74%). The rapid growth of mobile wireless, internet access and cable, satellite and IPTV are leading to an ever more internet- and mobile wireless-centric media ecology, hence the notion of the network media ecology. For the most part, these trends are similar to patterns in the French-speaking regions of Canada.

At the opposite end of the spectrum, revenue for wireline telecoms has fallen by nearly a quarter since 2000. Newspaper and magazine revenues also seem to have peaked in 2008, and have fallen since then from $4.9 billion to $4.3 billion last year – a drop of 13%.

One crucial thing distinguishes English-language dailies from their French counterparts: paywalls. Two out of ten French-language dailies – Quebecor’s Le Journal de Montréal and Le Journal de Québec – have put up paywalls that limit readership to paid subscribers only (albeit with a soft cap that allows several free articles per month). For the English-language daily press, in contrast, twenty-four dailies accounting for two-thirds of average daily circulation are now behind paywalls.

All of the major English-language daily newspaper ownership groups have put paywalls into place over the last two years. Brunswick News (Irvings) led the charge in early 2011, followed by Postmedia (May 2011), Quebecor (September 2011), the Globe and Mail (October 2012) and the Toronto Star (August 2013). Many smaller papers are testing the waters as well (Glacier, Transcontinental and Halifax News). There are no hold-outs among the English-language daily newspapers equivalent to the role played by Power Corporation’s La Presse group of papers in Quebec.

While it is difficult to say exactly what accounts for this contrast, the fact that the CBC plays a much smaller role in English-language regions of the country compared to its place within the Quebec media landscape, probably explains much of it. As the fifth largest player with over 5% market share in Quebec, Radio Canada/CBC has maintained a large place for the public service model of news within the French-media ecology, whereas the CBC’s seventh place rank and two percent share of the English-language market means that it is correspondingly easier to carve out a near universal role for the commercial news model (see Picard and Toughill). Recent statements by the Globe and Mail about its target audience being households with more than $100,000 in income demonstrate exactly the kind of market failure that makes news a public good to begin with.

Radio still constitutes an important medium within the media ecology and actually grew significantly from 2000 to 2012, with revenues rising from $1070 million to $1,600 million. While revenues dropped for the two years following the financial crisis of 2008, the medium appears to be more resilient than many might have once thought, with revenues increasing ever since and reaching an all-time high last year – a pattern that mirrors trends worldwide.

As I have pointed out many times, the economic fate of the media hinges tightly on the state of the economy in general (see PicardGarnhamMiege). This can be seen in Figure 1, which shows how the growth of several media flat-lined, declined and sometimes even dropped steeply after the onset of the “great financial crisis. Even fast growing segments like mobile wirelessinternet access and total TV were not immune to this, while growth for cable, satellite and IPTV tapered off considerably.

Figure 2 below gives a snapshot of the patterns of growth, stagnation and decline that have taken place within different media sectors since 2000.

Figure 2: Growth, Stagnation and Decline in the English-language Media Economy, 2000-2012

Figure 2

Leading Telecoms, Media and Internet Companies in the English-Language Media Economy

The following paragraphs shift gears to look at the biggest media, telecoms and internet companies in the English-language media. Figure 1 sets the baseline by ranking the sixteen largest media, internet and telecom companies in these areas based on revenues and market share.

Figure 3: Leading Media, Internet and Telecoms Companies in English-Language Markets, 2012

Leading English Media Economy

SourcesMedia Industry DataEnglish-language Media EconomySources and Explanatory Notes.

As Figure 3 shows, Bell is the biggest player by a significant stretch, accounting for just under a quarter of all revenue. In Quebec, it was also the largest player, with an even larger one-third share across the French-language mediascape. It’s share of the national market is 28%.

The two biggest companies – Bell and Rogers — account for 43% of all revenues; the “big four” for 70%: Bell, Rogers, Shaw and Telus. Three of these four companies — Bell, Rogers and Shaw — are vertically-integrated giants, and their reach, as Figure 1 shows, stretches across the sweep of the English-language mediascape.

Quebecor – the fourth biggest media conglomerate in Canada, hardly registers at all, ranking 13th with one percent share of revenues. Its dominance is limited to Quebec. Telus is not vertically-integrated at all, eschewing the idea that telephone companies need to own content to be effective players within the network media industries.

Bell, Rogers, Shaw and Telus’ control over communications infrastructure (content delivery) is the fulcrum of their business. Given the massively larger scale of these sectors relative to media content it is not surprising that these four firms rank at the top of the list. Their stakes in content media, while extensive, are modest; Telus is not in the content business at all beyond acquiring rights for its IPTV service, Optik TV and mobile TV.

As Figure 4 shows, between two-thirds and 100 percent of the big four’s business comes from control over connectivity and content delivery rather than content creation.

Figure 4: Content Delivery versus Content Creation

Content Creation v Content Delivery (2012)

Content media are but ornaments on the carrier’s organizational structure, but they are being used to drive the take-up of mobile wireless services, broadband internet as well as cable, satellite and IPTV services, as telecom and internet gear makers like Sandvine and Cisco, and the International Federation of Phonographic Industries all observe. Illustrating this point, half the advertised roster of Bell’s Mobile TV service is filled with tv networks and specialty tv channels it owns: CTV, CTV News Channel, CTV Two, Business News Network, Comedy Network, Comedy Time, MTV, NBA TV, NHL Centre Ice, RDI, RDS, RDS2 and TSN, TSN2. Whether it ties this control over content and the means of delivering it to our doorsteps and into the palms of our hands in ways that confer preferential benefits on its own services at the expense of other content media and platform media providers and, ultimately, users, is an open question that merits further investigation.

While Bell, Rogers, Shaw and Telus tower over their peers, a dozen or so smaller entities fill out the field: MTS, Google, CBC, Torstar, SaskTel, Cogeco, Postmedia, Eastlink, Quebecor, Astral (before it was acquired by Bell in 2013), the Globe and Mail as well as newspaper and magazine publisher Transcontinental.  Several things stand out from the list.

First, these companies’ revenues and market shares are less than a tenth of the corresponding figures for the big four. Second, second-tier firms, except Quebecor, are either in the content delivery business or the business of making content, but not both. In other words, they are not vertically-integrated, and depending upon which side they stand, this leaves them vulnerable to the three vertically-integrated goliaths when it comes to gaining access to either content, carriage or audiences, hence the interminable disputes over access to all three resources (see hereherehereherehere and here for a sample of such disputes).

Third, with estimated revenue of $1,274 million from English-language markets in 2012, Google is a very big player and ranks sixth on the list. Facebook and Netflix, on the other hand, rank 17th and 18th on the list, based on estimated revenues of $182.3 and $114.2 million, respectively, and market shares of .2 and .3 percent. They are not big players on the Canadian mediascape.

The CBC still plays a significant role in English language markets, but it is steadily losing ground. At the outset of the 21st century, it accounted for about 30% of all TV revenue; today that number has been cut in half. Today, Bell and Shaw stand where the CBC stood a dozen years ago, with revenues and market shares nearly double those of the CBC.

In radio the CBC has slipped precipitously. Whereas it stood out within the field in 2004, by 2012 it was on an equal footing with Astral, Rogers and Shaw/Corus, each with between 11 and 14% market share. In English-language regions of the country, it is clear that public service core media have shrunk while the role of the market has expanded enormously.

Concentration in the English-language Network Media Economy, 2000-2012

Beyond the individual companies and their ranking, the most notable point with respect to the English-language media is that concentration levels are lower than in Quebec. While the HHI across all segments of the media combined in Quebec is at the moderate end of the scale at 1,800, in English-language markets it is 1,300 and at the low end of the scale, when we take the media as one large undifferentiated whole.

That, however, is the endpoint of analysis rather than the starting point, and it is essential to climb down from this view from the tree-tops to examine things sector-by-sector and then by broader categories (i.e platform media, content media, online media) before arriving at conclusions for the network media economy as a whole. And it should also be noted that while the HHI score is at the low end of the scale for the network media, the CR4 is not; the “big four” accounted for 70% of all revenues in 2012, as noted earlier – the same level as in French-language markets.

While Bell, Rogers, Shaw and Telus are top-ranked players in many of the sectors they operate in, none are dominant in all sectors. Table 1 below illustrates the point.

Table 1: Rankings of the Big Four by Media

Table 1

The Platform Media Industries

Figures 5 and 6, below, depicts the trends with respect to concentration levels over time for the platform media industries within the English-language media economy based on Concentration Ratios (CR4) and the Herfindhahl – Hirschman Index (HHI) (see methodology review in the second post in this series and the CMCR project’s methodology primer). Unlike the French-language media sectors assessed in the last post, the results are more mixed.

Figure 5: CR4 Scores for the Platform Media Industries in the English-language Media Economy, 2000-2012

Figure 5

Sources: CMCR Project CR and HHI English-language Media.

Figure 6: HHI Scores for the Platform Media Industries in the English-language Media Economy, 2000-2012

Figure 6

 Sources: CMCR Project CR and HHI English-language Media.

As Figure 5 shows, all of the English-language platform media industries, except internet access, are very concentrated on the basis of the CR4 measure. Indeed, using the CR4 measure, concentration in each of these areas is similar to levels in Quebec, except for internet access, which is less concentrated in English-language parts of the country than in Quebec. While there has been some fluctuation over time, and a recent dip for wireless and cable, satellite and IPTV providers, there is no long term, significant decline concentration levels across the platform media industries.

The HHI measure provides a more discriminating view, indicating that wireline and wireless are firmly within the ‘highly concentrated’ range, while cable, satellite and IPTV fell just under the threshold for that designation. In general, concentration in each of these sectors rose in the early 2000s, peaked between 2004 and 2008, and drift downward slowly thereafter. Every segment of the platform media industries, except wireless, is significantly less concentrated than in Quebec.

The first thing to note with respect to mobile wireless service is that is the most concentrated of all sectors reviewed. Second, the English-language market is more concentrated than in Quebec, with the recent downward drift slower in English-language markets than in French-language ones. The most important point in both cases is that concentration is and always has been “astonishingly high”, as Eli Noam has recently noted in relation to trends around the world.

New entrant’s – Wind, Mobilicity and Public – have gained ground since entering in 2008, but they do not pose a challenge similar to Quebecor/Videotron in Quebec. As a result, Rogers (37%), Telus (29%) and Bell (26%) still dominate English-language markets, with 95% of wireless revenues. An HHI score of 2922 underscores the key point: concentration remains firmly at the upper ends of the scale.

Internet access, in contrast, is the least concentrated of the platform media and un-concentrated by the standards of the HHI, with a score of 1024 and only modestly so by the criteria of the CR method. Concentration levels rose steadily during the first decade of the 21st century but remained low in comparison to other segments of the platform media industries. They have also modestly declined since 2010.

However, the reality on the ground is that when we look closely at the local level, 93% of residential internet users subscribe either to an incumbent cable or telecom company, according to the CRTC ‘s Communication Monitoring Report, pp. 143-144). In other words, seen from afar, internet access looks remarkably competitive, but up close, it is effectively a duopoly.

In terms of broadcast distribution markets (BDUs), IPTV services have steadily grown to become more significant rivals to the cable and satellite companies. CR4 and HHI scores have fallen as result since reaching their all time high in 2004, but still remain towards the high end of the scale with a CR4 of 88% and an HHI of 2400 — just beneath the threshold for highly concentrated markets.

Figure 7 below shows the market share and relative size of each of the main BDU players. With 79% of BDU revenues between them, Shaw, Rogers and Bell account for the lion’s share of the industry, while Cogeco, Eastlink and Telus, each with 3-7% market share, fill out much of the rest.

Figure 7: Cable, DTH & IPTV English-Language Market Share, 2012

Figure 7

SourcesEnglish-language Media EconomySources and Explanatory Notes.

The Content Media Industries

The big three – Shaw (Corus), Bell and Rogers – not only dominate the BDU side of the television industry, but the content side as well, although here it is becoming clearer over time that some clear blue water is opening up between Bell and Shaw (Corus), on the one side, and the more modest scale of Rogers, on the other, when it comes to TV holdings. I will return to explore this point further below but for now the main point to made is that, collectively, the big three control three-quarters of revenues across the entire TV landscape, i.e. distribution + broadcast TV and pay and specialty TV channels. Figure 8 illustrates the point.

Figure 8: Vertically-Integrated BDUs and Total Television by English-Language Market Share, 2012

Figure 8

SourcesEnglish-language Media EconomySources and Explanatory Notes.

The total English-language television market – excluding the BDU side of things – needs to take account of a crucial fact that has crystallized more clearly in the past few years: the extent to which just two firms – Bell and Shaw – dominate the scene, with Rogers and the CBC falling ever further into their shadow with the passing of time and further consolidation.

Combined, Bell and Shaw controlled 57% of total TV revenues in 2012 before Bell acquired Astral Media, the fifth largest TV company in English language markets. That figure will climb closer to two-thirds once the effects of the Bell-Astral deal become reality in the revenues for 2013 – a point that will be dealt with more fully in next year’s version of this post.

The extent to which Bell and Shaw now stand at the commanding heights of English-language TV markets can be gleaned from a quick reprisal of their holdings. Thus, Shaw’s acquisition of Global TV and a slew of channels from bankrupt Canwest in 2010 gave Shaw/Corus a dozen conventional TV stations that comprise the Global TV network, additional broadcast stations in Oshawa, Peterborough and Kingston (Channel 12, CHEX TV, and CKWS TV, respectively) and fifty-one pay and specialty channels (Shaw and Corus Annual Reports). It’s share of total TV revenues? 27.3%.

Bell’s re-entry into the field after re-acquiring CTV in 2011 created an even larger entity with twenty-eight broadcast tv stations and thirty three specialty and pay tv stations (or forty after the acquisition of Astral). Bell’s 30% share of all TV revenue in 2012 ranked it as the largest TV provider in the country. Its take-over, in a joint-venture with Rogers, of Maple Leaf Sports Entertainment (MLSE) and a roster of sports channels – NBA TV, LeafTV, GolTV, etc. – with the Competition Bureau and CRTC’s blessing last year only compounds the trend.

By comparison, CBC and Rogers are the distant third and fourth tv operators, with 15.6% and 13% share of total tv revenues – roughly half the scale of Bell and Shaw. The CBC had 5 cable TV channels in 2012, while Rogers had a dozen – again, paling in comparison to Bell and Shaw, i.e. 17 in total versus 90+ for Shaw and Bell.

The comparison of these four entities within just the pay and specialty tv domain is especially interesting because, first, this is one of the fastest growing domains of the media economy and, second, because Bell and Shaw’s respective stranglehold is greater here than in either broadcast TV or the TV market as a whole. In 2012, Shaw was the biggest player in the pay and specialty channel domain with 33% market share, while Bell followed close behind with 28%. Together, the two accounted for 61% of all revenues. This looks more like a duopoly then either competition or any kind of reference to the big four that lumps these two goliaths together with Rogers, the CBC or, for that matter, Quebecor.

Bell and Shaw’s respective share of the pay and specialty TV market will reach new heights in 2013 on account of the Bell Astral deal. Shaw will account for 35% of the market, Bell 34%. With just under 70% share of the specialty and pay TV market between them, this is effectively a duopoly. This is why, for instance, Rogers was not signing from the same hymn sheet as Bell at the Bell Astral hearings or the vertical integration hearings in 2011. Bell and Shaw, however, sang koombaya together on both occasions as everybody else receded from view.

In short, the TV marketplace is bifurcating, with Bell and Shaw at the apex, followed far behind by two mid-size players, Rogers and the CBC, and a smattering of small entities scattered after that: APTN, Blue Ant, CHEK TV, Pelmorex, Fairchild, and so forth. In sum, the wave of consolidation blessed by the Competition Bureau and the CRTC stand as testaments to diversity denied. Canadians and the future evolution of the network media ecology in this country will labour under these conditions for years, probably decades, to come.

Before turning to a quick discussion of radio and then newspapers and magazine to complete this post, I want to depict the trends for the content media across time on the basis of both the CR4 and HHI scales. Figures 9 and 10 depict the trends.

Figure 9: CR Scores for Content Media in the English-language Media Economy, 2000-2012

Figure 9

SourcesEnglish-language Media EconomySources and Explanatory Notes.

Figure 10: HHI Scores for Conent Media in the English-language Media Economy, 2000-2012

Figure 10

SourcesEnglish-language Media EconomySources and Explanatory Notes.

As has been the case at each other level of analysis, radio stands out as a clear contrast to trends in TV and in the platform media industries. The CR4 is at the low end of the spectrum, with the “big four” having just under 52% of the market between them: Astral (14.2%), Rogers (14.1%), CBC (12%) and Shaw (Corus) (11.4%).

Again, this will change in light of the Bell Astral deal with Bell catapulting from its fifth place ranking and 9.8% of the market to first place with 22% market share. Still, however, relative to the rest of the media, radio will remain relatively diverse.

This conclusion is illustrated more markedly on the HHI scale, with radio falling well into the un-concentrated zone with an HHI of 822.5. Moreover, the trend over the past half-decade has been steadily downwards – although that too is set to reverse in light of Bell’s take-over of Astral Media.

The last comments for this post are for the newspaper and magazine sectors which I treat together here, in contrast to separately in the Canada-wide analysis and hardly at all in the French-language media markets, mostly because of limits in the available data. Combining the two enlarges the size of the ‘relevant market’ and, consequently, diminishes the scale of specific players within either of these markets, nonetheless the analysis is still instructive.

The analysis shows several things. First, concentration levels are not high and have been falling for most of the past decade regardless of the measure used. Second, to the extent that we can speak of the “big four” press and magazine publishers, they are: Torstar (25%), Postmedia (19%), Quebecor (14%) and the Globe and Mail (8%). To be sure, while concentration levels are not sky high, that four entities account for more than two-thirds of all revenue does not seem worthy of celebration.

At the same time, however, this needs to be set against two other realities: first, both industries have fallen on hard times, newspapers more so than magazines, and as the big players stumble, they are losing market share and, in some cases, being broken up, with significant divestitures leading to the emergence of a stronger second tier of daily newspaper publishers: Transcontinental, Glacier, Black Press, notably.  These entities now need to be put more firmly on the analytical radar screen.

Concluding Thoughts

We can summarize the general results by sorting different sectors of the network media economy that rank low, moderate or high on the concentration scale according to the HHI. Figure 11 below does that.

Figure 11:  Media Concentration Rankings on the Basis of HHI Scores, 2012

Figure 11

Over and above just giving a snapshot of where things stood as of 2012, we also need to distill the key developments over time. Several things stand out.

  • the English-language media economy, like its Canada-wide and French-language counterparts, has grown greatly since 2000, although the course of development has been interrupted by economic instability since 2008. For a some sectors, notably daily newspapers, this may, with the passage of time, be seen as the tipping point in which they went into long-term decline, while for others conditions of prolonged stagnation seem to still be in play, i.e. radio and magazines;
  • the media economy is increasingly internet- and wireless-centric, and mobile, but TV is still a large and significant driver within the network media ecology – carriage, not content, is king.
  • Bell is the largest player in English-language markets with roughly one quarter of all revenues across a wide swathe of media, followed by Rogers, Telus and Shaw.
  • the media in English-speaking regions of Canada are less concentrated than in Quebec, except for mobile wireless services;
  • high levels of concentration persist across most platform media industries: wireless, wireline and falling just beneath the cut-off point, cable, satellite and IPTV services. Internet access is a partial exception when measured regionally or nationally, but not locally;
  • an emerging duopoly is taking shape within the TV landscape, with Bell and Shaw currently accounting for 61% of revenues in the specialty and pay TV universe. This figure is set to rise to just under 70% once Bell’s acquisition of Astral and divestiture of several of that entity’s TV channels to Shaw (Corus) sets in. The CBC and Rogers lag far behind, with a combined market share between them much less than half the share held by Bell and Shaw;
  • as a result of these trends, regulatory battles over access to the three essential resources of the media economy – carriage, content, audience attention – will persist into the future; whether regulators will rise to the occasion any better than they have to date is an open question;
  • Internet access, radio, newspapers and magazines stand out as exceptions to these general trends and as media in which greater diversity and some modest competition prevails.

Next post: How do concentration levels and trends in Canada stack-up by international standards?

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Movies and Money, 2011: Bluster and Blockbusters, the Sequel

The Motion Picture Association (MPA), the lobbying arm of the major Hollywood studios, was out again last week playing whack-a-mole with anyone audacious enough to entertain heretical ideas.

This time it was a three-page abstract (yes, the abstract) of a paper, Piracy and Movie Revenues: Evidence from Megaupload, by German and Danish scholars Christian Peukert and Jorg Claussen that seemed to get on the MPA’s nerves. The abstract had sat in relative obscurity on the SSRN research website for the past month-and-a-half until Torrent Freak trotted it out last week with a trumped up title that the MPA certainly did not want to hear: “MegaUpload Shutdown Hurt Box Office”.

The title played fast and loose with the thrust of Peukert and Claussen’s paper — most films probably see a small but insignificant negative effect on theatre attendance when sites such as MegaUpload are taken down — but it was not the journos and bloggers that the MPA went after, but the paper’s original authors. The thought that sites like MegaUpload might actually be good for the movie business by helping to put more bums in theatre seats must have seemed to be just too heretical to let stand, especially when coming from academics.

As Peukert and Claussen explain, file sharing may be good for a lot of movies released in theatres every year, but by no means all, because people sharing files online can

. . . spread information about a good from consumers with zero or low willingness to pay to users with high willingness to pay. The information-spreading effect of illegal downloads seems to be especially important for movies with smaller audiences.

The upshot is that, for most movies, putting file-sharing sites (Megaupload, Isohunt, Pirate Bay) out of business could reduce the size of the theatre-going audience — the exact opposite outcome intended by those who believe that strong copyright laws and enforcement are essential to remedying whatever might ail the traditional media. Whereas Peukert and Claussen deliver this conclusion in careful and measured language, the headline pinned on the article describing their work by Torrent Freak, “MegaUpload Shutdown Hurt Box Office”, definitely did not.

The thrust of the Torrent Freak piece played well to the open internet, copyright minimalist crowd, confirming that the incumbent Hollywood movie moguls must have their heads stuck in the sand, given their steadfast and stupid resistance to the new way of doing things in the ‘new internet economy’. Technically, the headline was true. The problem, however, is that this particular truth hides an even bigger one, at least for the MPA and its members: the slight impact seen for most films does not hold when it comes to the MPA members’ blockbuster films, you know, the big budget spectacles that open on 500 screens across North America all at once (before moving in carefully staged sequences across the planet).

This is a pretty big exception and basically covers the 140 – 150 films produced by the Hollywood studios each year and which are the real bread and butter of the MPA’s corporate rank and file: Time Warner, News Corp, Disney, Sony, Paramount (Viacom) and Universal (Comcast NBC). For these films and the majors that finance and produce them, Megaupload and its ilk are bad news indeed, and little in Peukert and Claussen’s study challenges this idea.

To suggest that this is not a main part, if not the main part of the story, is misleading.  As far as I can tell, however, this is not the fault of the paper’s authors but how their work was pumped up into something that it wasn’t by the blogerati and real journos who seem ever more prone to trolling the blogosphere and twitter for ideas and inspiration.

Not surprisingly, the MPA, had a radically different take on things, given that its main concern is not with most of the six hundred or so films released in theatres around the world every year, but the 140 – 150 films produced by its members which account for most of the revenues in the movie business worldwide.  As the MPA interpreted Peukert and Claussen’s paper, correctly in my view, the evidence seems to suggest that blockbuster films have bigger theater audiences when they do not compete with Megaupload and other such sites. This is probably because the massive promotional budgets associated with the blockbuster does not need file-sharing to amplify and augment word-of-mouth to build buzz around a film in the way that smaller films, of a more obscure vintage produced and distributed outside the Hollywood system, do.

However, to stop here would be to give the MPA too much credit. The MPAA does little more than point to the obvious. More importantly, instead of focusing on how scholarly findings have been twisted and trumped up by bloggers and journos, the MPAA takes a run at Peukert and Claussen’s methodology, as if it is the scholars rather than others that are out causing mischief.

The assault on methodology is wide of the mark. Designed more to dirty the waters and distract attention, it is an exercise in intellectual dishonesty. While trying to cast doubt on the paper’s methodology as if such things undermine the study’s conclusions, the MPAA offers zero evidence to buttress its criticisms or its own view that piracy and file-sharing are bad and the copyright maximalist position obvious and good.

Six Decades of Cassandra Calls and Falling Skies

These tactics are not new but part of the DNA of the film industry in the United States. Hollywood has been trotting out tales of impending doom since the Paramount Decision in 1948 by the Supreme Court that forced the major studios to divest themselves of the theatres they owned in order to foster independent theatres that would hopefully be more responsive to audiences because less obligated to show the slate of films foisted upon them by their studio masters.

The story of impending doom continued in the 1950s and 1960s when tv became a fixture in North American homes. To be sure, film theatre attendance did fall for nearly two decades during this time, but was this because people abandoned theatres for tv at home, or the result of a combination of factors: the move to suburbia, widespread adoption of cars as well as the embrace of television? I think it is the latter that is the case, as do others (see here and here, for example).

The more important point, however, is that by the 1970s television became the film industry’s pot of gold at the end of the rainbow, moving unequivocally from threat to one of the most lucrative new media markets the movie business has ever known. The same lesson came to apply to the VCR, DVD and every other personal video recording device thereafter, yet again, not before the MPAA and its members demonized each new technology as an existential threat to the movie business and a particular American icon.

Most famously, the MPAA’s then chair, Jack Valenti likened the VCR to the Boston strangler, as much a threat to the film industry as darkness is dangerous to damsels in distress. And yet again, a mixture of new, ever more personalized media technologies, along with the increased individualization of pleasure and social life in general, led the VCR, DVD, PVR, and so forth to become not just important new lines of revenue for the film industry but the most significant sources of growth (see below).

Movies and Money, 2011

If there was ever a case that an old medium would be decimated by the new, you might think that a medium born in the 1890s would be a star candidate for extinction. However, as one of my mentors and teachers Janet Wasko once told me and my fellow classmates, each new audio-visual medium has typically opened up a new market for the major Hollywood studios and other film distributors.

This was a lesson she had drawn from her research in the 1970s and 1980s and which she told us about in the early 1990s.  But perhaps everything has changed since then because of digitization and the rise of the Internet?

Not really.  A couple of things illustrate the point.

First, let’s take a look at the MPA’s most recent report on the subject. According to the MPA, worldwide box office revenues were at an all time high in 2011 at $32.6 billion (USD) – up from $31.8 billion a year earlier. The North American box office saw a very modest decline, but has generally stayed quite steady for the last few years, which also means that it was the global box office that helped to lift the tide. The following figure shows the trend.

Figure 1: Domestic and Worldwide Theatre Box Office Revenues, 1998 – 2011 (millions USD)

Dom & Int'l Film Revenues, 2011

Sources: Motion Picture Association (2011). Theatrical Market Statistics.

The fact that box office revenues have climbed significantly from $26.3 billion to $32.6 billion between 2007 and 2011 amidst the global financial crisis and ensuing economic downturn is also impressive, basically showing the resilience of the movie business in the face of economic hard times.

And this is less than half the picture, actually, as we can see as soon as we cast our net a little wider to consider all revenues sources across the ‘total film industry’, including pay-per view tv services, cable and satellite channels, rapidly declining video/DVD rentals and fast rising over-the-top (OTT) subscription services (Lovefilm, Netflix, etc.) and digital downloads (Apple, Amazon, etc.). As soon as we bring these areas into view, any sense of doom and gloom in tinsel town should dissipate.

Indeed, the movie business is doing even better than the box office numbers suggest, with total revenues rising sharply on a worldwide basis from $46.5 billion just before the turn-of-the-21st century to $83.5 billion in 2011. Figure 2 below shows the trend.

Figure 2:  Total Worldwide Film Industry Revenues, 1998 – 2011 (US$ Millions)

Total Film Revenues, 2011

Sources: Motion Picture Association (2011). Theatrical Market Statistics; PWC, 2012, Global Entertainment and Media Outlook, 2012 – 2016 (plus previous years; e.g. 2009; 2003).

Again, several things of note stand out from Figure 2. First, like the box office, revenues for the total film industry continued to rise from $80.3 billion in 2007 to $83.4 billion in 2011 despite the economic malaise affecting much of Europe and North America since the global financial crisis of 2007-8. Many areas of the media industry are very heavily dependent on the state of the macro economy but this seems less true of the movie business.

Second, while total revenues for the movie industry continue to grow, the number of films produced by the Hollywood majors per year continues its decade-long decline to the point where in 2010 and 2011, MPA members produced 141 films versus around 200 per year in the late-1990s and early-2000s. This is an important development and reflects the fact that the majors are trying to cut through the clutter of a crowded media economy by relying on a smaller number of spectacular blockbusters with massive budgets backed by equally massive promotional campaigns.

The average budget of the top 10 blockbuster Hollywood film nearly doubled between 2000 and 2010, rising from $109.2 million in the former year to $197.2 million last year. The primary objective, of course, being to keep the three scarce resources of the media economy — time, money and attention — fixed on the MPA members’ own wares.

Table 1 below shows the following trends: a declining number of blockbusters produced by MPA members, rising number of independent produced films over the past decade, and lastly a greater number of films overall, but with a relatively stable output of about 550 to 600 films per year for the past half-decade.

Table 1: Number of Films Released in Theatres, MPA vs. Non-MPA Sources, 1998 – 2011

1998 2000 2002 2004 2006 2008 2009 2010 2011
Total # Films Released 509 478 475 489 594 634 555 569 610
MPAA Total 235 197 205 180 204 168 158 141 141
Non-MPAA 274 281 270 309 390 466 397 428 469

Source: MPA (2012). Theatrical Market Statistics.

There is, however, one other thing that stands out from Figure 2 above that puts a bit of a fly-in-the-ointment in the story that I am telling of consistently rising total revenues: namely, that while increased revenues from television and various video services have added immensely to the movie biz’s total revenues over the past thirteen or so years, such revenues appear to have peaked in 2004 ($54.9 billion) and have fallen significantly since to about $50.9 billion.

Why is this? I’m not exactly sure. The days of torrential growth in television seen during the 1990s and early-2000s as countries the world over picked up the tv habit, notably in the fast growing economies of China, Brazil, Indonesia, India, Brazil and Russia, might be slowing down, perhaps. However, over and against this view, the size of the total tv market worldwide has continued, according to PriceWaterhouseCooper’s Global Entertainment and Media Entertainment Outlook, 2012 – 2016, to grow very significantly, rising from roughly $280 billion in 2004 to over $400 billion last year. I would love to hear why revenues in this area have fallen for the last several years.

Concluding Comments

The next time you hear about the movie industry (or any other media sector for that matter) falling on hard time because of digitization, the Internet, piracy, and so forth, think about these trends. And please repeat after me: the movie industry is not in crisis; for the most part it is flourishing.

These are important observations because it is the same vested interests that want us to think that the sky is falling which use these mistaken impressions to:

  1. push for changes to copyright laws and a clamp down on Internet Service Providers in ways that wouldn’t otherwise have a hope in hell of succeeding;
  2. exert leverage over politicians and policy-makers, who have often accepted the bulk of such arguments while crafting the raft of new and reformed copyright legislation that has been installed around the world in the past few years. As a recent example shows, even the Republican Congressional staff’s think tank in the U.S., the Republican Study Committee, felt compelled to yank a policy discussion paper on copyright reform authored by one of its staff from its website just hours after releasing it and after the MPAA and RIAA are said to have “went ballistic“;
  3. play cities, states, provinces and countries around the world off of one another for subsidies and favourable labour conditions;
  4. and in labour bargaining with unions representing film and television workers, with the latter easily made to appear outlandish in their demands for good wages and working conditions in light of the steady drumbeat of public relations saying that the movie industry stands on the edge of the abyss.
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