COMPETING CYBERMEDIARIES BERNARD CAILLAUD AND BRUNO JULLIEN

The activities related to Internet can be decomposed into Infrastructures Support applications and services intermediation, Sales of good and services on line

The study estimates that intermediation already accounts for nearly 20% of the total revenue generated by these activities ($524 billion), of the order of the share of business-to-business (B2B) ecommerce, and far more than business to consumers (B2C) e-commerce. These figures show that intermediation represents a significant part of the activity. The main role of intermediaries is to gather and process information on users that visit their website so as to help different classes of agents, in particular buyers and sellers of one specific good, to find each others. Although intermediaries may also provide services to facilitate transactions, a specificity of many of them is that they specialize on the pure informational aspects of intermediation, the physical part being left to sellers distribution system. This article is concerned with this new type of specialized intermediaries, often referred to as cybermediaries example match.com or amazon.com. Consider two classes of economic agents, labeled i = 1 and 2. Each class consists in a continuum of agents of mass 1. These classes of agents could represent buyers and sellers, up-stream suppliers and downstream users, electronic shopping malls and standard consumers. There exists an electronic technology that allows to process, select and use information on a population of agents. A firm with this technology acts as a cybermediary. A cybermediary helps agents find their perfect match within its population of registered agents, provided the matching agent belongs has indeed registered Monopolistic Cybermediaries Competitive Cybermediaries

Demand and Supply Dynamics for Motion Pictures in International Markets

Demand

Expected Audience Demand

Supply

Screen Allocation

Demand

Behaviour of Audience

Supply

Screen Allocation

DOMESTIC

FOREIGN

Findings:
For Opening Week: Revenue Predictors: No.of screens, Star Power, Advertising Expense , Critical reviews , Competition from Movies with same TG Screen Predictors : Expected Revenues , Ad expense, Reviews having Negative Relationship! Strong connection between movies domestic performance and the no. of screens allocated to that movie in opening week in foreign market and higher demand Limited relationship between time lag and demand

Case For Sequential Release

Sequential release allows distributors to adjust foreign marketing strategies based on movies performance in domestic market. Thus more beneficial to wait and watch , rather than world wide release. But this also depends on other factors such as buzz created and quality.

Case For Worldwide Release

Someone might prefer to release worldwide to grab opening week eyeballs and later as the buzz dies down ,slowly withdraw, if quality is bad.

Bollywood Follows
Producing expensive movies with well known stars for high opening week screens and revenues. Careful planning of timing of movies release for competitive environment over course of run. Singh is King, Priyadarshan Movies Decisions about time of release in foreign market . If movie has big stars but doesn't appear to have legs (meaning that it will not stay popular for long), the distributor may opt to put the movie in as many theatres as possible during its first engagement. All of these factors help the distributor determine the number of prints to make. Takes us to the case of Ra-One

Economics of Digital Media

Introduction
Fifteen years ago, media options consisted of TV, print, radio, cinema and outdoor. Starting in the mid-1990s, the Digital category began to emerge. At the time, Digital was a term that primarily referred to banner advertising placements on a fairly small universe of large Web properties. Digital categories now span well beyond commerce sites to include gaming, user-generated sites, blogs, peer-to-peer and diverse technologies ranging from streaming audio/video to mobile. Digital advertising can be both more targeted and more trackable, resulting in a higher return on marketing investment.

Digital opportunities An advertisers own Digital properties Home page Sales channel Campaign landing pages Content / Web films / rich brand experiences

Video sharing and Search Web sites YouTube Revver Viddler Vimeo

 Guba Media hardware gateways Xbox/PS3/Wii Slingbox/Squeezebox

Scanscout.com

Sonos TiVo 2.0/DVRs

Social networking environments MySpace Xanga Hi5 Facebook LinkedIn Twitter Famiva Orkut

Picture and slideshow sharing environments Slide Instagram Photobucket Flickr

Immersive game environments Second Life World of Warcraft Doppelganger In-game advertising

Mobile service providers and services Airtel Reliance Out-of-home environments Digital billboards, posters, Short code redemption POS Digital displays jumbotrons, etc. Wi-Fi networks offers Vodafone and other global DoCoMo I-Mode (Japan)

Search Engine Optimization (SEO) and other advertising buying/serving optimization technologies Blind networks Viral/P2P Branding opportunities Site and Web design Applications Shopping Search Sites myntra.com flipkart.com Local Search Sites burp.com zomato.com yebhi.com Content and development Games SpotRunner Blue Lithium

 Citysearch.com A variety of search-oriented ad models Google Ad sense Windows Live Search

Economic Drivers and Average Agency Costs

1.Growth in labour intensity, driven by an increasing volume of assets, technologies required and complexity of the process from creation through measurement and continuous engagement 2. Shift from external third-party production resources to in-house agency resources 3. Blurring of lines between media, production and agency services 4. Establishment of new job functions and new organizational structures within agencies and client organizations, with related supply & demand cost ramifications

Consumer Surplus
1. Increased product variety 2. book titles available at Amazon.com is 57 times greater than the number of books stocked in a typical large independent bookstore. 3. Unlimited virtual inventory through centralized warehouses and drop-shipping agreements with distributors 4. the search and transaction costs to locate specialty stores or place special orders are prohibitive for most consumers 5. Recommender Systems hence increased product awareness 6. beneficial to those consumers who live in remote areas that do not have specialty retailers. 7. consumer surplus gain from increased competition and operational efficiency in Internet markets 8. availability of obscure titles on the Internet has led to somewhat increased sales through special orders at physical stores. 9. producer welfare also from the additional sales 10. most important benefits of Internet retailing are not fully reflected in lower prices, but rather are due to the new goods and services made readily available to consumers.

Producer Surplus
Paid Owned Websites Mobile Apps Search Results Banner Advertisements

Brand Facebook Page Brand Youtube Channel

Earned - Producer Surplus Social Fan Base Word of mouth Blogs

Derivation of the formula to calculate Consumer Surplus

Where

pe0 and pe1 are the vectors of pre- and post-introduction prices of existing products respectively, pn0 is the virtual price of the new product (the price that sets demand to zero), pn1 is the post introduction price of the new product, u1 is the post-introduction utility level. In effect, equation measures how much a pre-Internet consumer would need to be compensated in order to be just as well off as they would be after the emergence of online markets. To break the total effect into the variety effect resulting from the availability of the new product and the price effect resulting from changes of prices of existing products:

When the vector of prices of existing products does not change before and after the introduction of the new product, i.e., pe0=pe1=pe, one only needs to measure the variety effect and we can redefine the expenditure function such that e( p ,.,.) e'(.,.) e :

where p is the price of the new product, y is the income, is the price elasticity, is the income elasticity.

where CV is the compensating variation, is the income elasticity estimate, is the price elasticity, y is income,

(pn1, x1) are the post-introduction price and quantity of the new product, (pn0, x0) are the pre-introduction virtual price and quantity of the new product.

Economic Principles in Social Media

Market Structure: Monopolistic Competition Imperfect competition Differentiated/dissimilar product offering Entry barriers are not economic but popularity driven E.g.: Facebook is the worlds top social network. It overtook the likes of MySpace, Xanga and Friendster. Today, no network is even close to overtaking it.

Currency
Unlike a traditional market, consumers dont pay in monetary terms. Of course there are certain fixed costs like hardware and broadband costs

Real currency for social media is engagement, participation, value creation, etc. E.g.: Coca Cola has annual revenue of 35,119 million dollars and is the top brand page on Facebook with 55858969 fans. Both numbers are indicators, but of different types, of Coke being a top brand in the world.

Castronovas Virtual Economics

I. How Virtual Worlds Engage people II. Like Norraths GDP is between that of Russia and Bulgaria Farmvilles users are 80 million+ 70 million+ hours spent farming every week Allocating time between virtual and real world People divide time online and offline because they perceive real value in virtual assets Time spent in a virtual world is a substitute to activities in the real world

Social Media as a Public Good

One persons consumption of a social media platform does not diminish ability of another to consume it: public good Some economists believe it is also a public utility Goods/services necessary for the people such as electricity, water, and natural gas the

Many believe that it has become vital for living in an interconnected world and without it, being successful is difficult Has both positive and negative externalities Debatable issue

The Tipping Point

Dominant technology or player defines the standard for an industry-resulting in "winnertake-all" economies of scale and scope

Online Advertising: a Two-sided market

Joint product Content/ platform attributes are sold to users Access to these users is sold to advertisers Offers micro-targeting on basis of IP tracking Getting even more specific with growth in use of smartphones that have apps.

Cost cutting in Ad spends

Social media has now become a substitute to many traditional forms of advertising It reaches millions of users and is seen as credible Brands are now putting their money on social media platforms Maintaining company pages on Facebook, Twitter, Youtube, etc. is almost free Even paid advertising like stamp ads, etc. cost at least 1/10th of TV rates, thus leading to tremendous cost cutting in advertising spends

Dedicated agencies like Webchutney and 22Feet have sprouted whose bread and butter comes from social networking sites

The Flip Side

Buying likes and tweets to manipulate consumers Its a personal space where people connect and thus, in your face ads seem like a nuisance Fake bots

Paretos Principle: Brand evangelists

For an event, roughly 80% of the effects come from 20% of the causes Many people wear 20% of their clothes 80% of the time In case of social media, 20% of the fan following will lead to results This 20% are strong believers and act as evangelists of the brand Brands aim at targeting and engaging at least these many people

Celebrities on Social Media

Audience attention for celebrities creates two types of capital: Economic capital: money Symbolic capital: attention, awareness, image

Traditionally, mass media acted as interface between the stars and the audience. Positive or negative media coverage was symbolic capital which got converted to economic capital in the form of ad campaigns, stories, etc. E.g. Tiger Woods, Steve Jobs, Brangelina. Now, social media has removed mass media as intermediary. Celebrities can reach out to their fans directly. They can manage their fan following and perception. E.g. Lady Gagas Little Monsters USP: Exclusivity. There is only one George Clooney. Economic capital: Charlie Sheen charges $50,000 for internships.com

Consumer Surplus for Online ads

The difference between the maximum price the consumers are willing to pay and what they actually pay. Consumer surplus= (value to the consumer of the online services) (any costs associated with using those services) Value: content

Costs: Disturbance in the form of advertising interruption and the collection of private information The extent of the disturbance effect is measured by calculating the amount a consumer would be willing to pay to avoid being exposed to advertising formats and to limit private-information collection while using ad-funded Internet services. Advertising formats include video ads, pop-ups, and banners. This consumer surplus is high for internet services

Why the Facebook IPO failed...

Facebook and Morgan Stanley structured the public shares so as the holders have no say in the management and decisions The tools for measuring effectiveness of social media are at a very primitive stage. Any judgment regarding effectiveness is currently based on pretty flimsy evidence either way. General Motors pull out a day before from FB ads No one goes to Facebook to buy stuff. And buying stuff is what advertisers want. If buyers arent on Facebook, then advertisers wont be on Facebook. Assume all social networks to be like individual countries in a global economy Post Sharing Clicks/Views Goods or services Trade or distribution Consumption

Consider the equation Y(f)= {L, K, T} L = Content generation by people through blogs, posts, wiki pages K = Investments in a slew of digital start-up ventures T = Web 2.0 technology that enabled dual sharing

Together these 3 factors determine the productivity of the social media economy However, with ample amounts of all the components, productivity (content generation) is at an all-time high. Production of content > Consumption of content Thus, Supply > Demand Reduction in prices i.e. 2/3rd of all posts/tweets are ignored, leading to difficulty in determining a stable profitable business model for Social Media companies.

1. Other peoples opinion matters: we take great interest in what others think or do. we are a social species. 2. We are creatures of habit: Old Habits die hard

3. We want to do the right thing: we have an innate sense of justice that leads our behavior. 4. We act according to our self image: We see ourselves in a certain way that leads us to certain kind of behavior in order to avoid cognitive dissonance. 5. We are more loss averse than gain interested: we hang on to what we believe is ours. We treasure our possessions more than we value what we could potentially gain. 6. We are not very good with data: we dont really understand numbers, were bad at calculating probabilities and we take decisions based on how information is presented to us.

STRUCTURE, CONDUCT, PERFORMANCE

Economists have developed a branch of economic analysis called Industrial Organization to trace the relationship between the structure of a market and the performance of the firms in that market. Markets have three elements that may be the focus of public policy: structure, conduct, and performance

STRUCTURE
The structure of a market is the set of conditions and characteristics that describe and define the market type. To describe market structure, economists consider the number and size distribution of firms; the extent of product differentiation; the effectiveness of barriers to entry; and the degree to which the industry is vertically integrated.

Market Structures
Perfect Competition Monopolistic Competition Oligopoly Pure Monopoly

No. and Size of Firm

Many

Many

A Few

One

Extent of Product Differentiation

Identical

Different

Identical or Different

No Close Substitute

Barriers to Entry

None

None

Moderate to Difficult

Blocked

CONDUCT
Conduct refers to the behavior, policies, and strategies used by the firms in the industry. To describe firms conduct, economists consider the strategies used by firms as they affect pricing; production; promotion; and distribution

PERFORMANCE
Performance refers to the economic outcomes that result from the market structure and the firms conduct. To evaluate an industrys performance, economists consider allocation efficiency; production efficiency; equity; and technological advancement.

Demand and Supply Dynamics for Sequentially Released Products in International Markets: The Case of Motion Pictures
DEMAND AND SUPPLY ANALOGY

Initial Market: Domestic Market Subsequent Market: Set of Foreign Markets Products Sale Performance or Revenue >> Demand >> AUDIENCES Availability or Screens >> Supply >> DISTRIBUTORS In the initial market, the extent to which consumers adopt the product depends on availability, while the extent to which retailers make the product available in turn corresponds to consumer acceptance

FACTORS THAT INFLUENCE THE NEW PRODUCTS AVAILABILITY AND PERFORMANCE Product attributes( e.g. Sanjay Leela Bansali, Vishal Bhardwaj or Mahesh Bhatt movies)

 Advertising Support ( e.g.RaONE) Manufacturer/Distributor Characteristics(e.g.YashRaj Films) Testimonials by Third Parties(e.g. Apne and critics like Khalid Md, Roshmilla Bhattacharya) WOM ( e.g. 3 idiots) Competitive Environment (e.g. clash of Jaaneman with Don2) Seasonality (e.g. Salman Khan : Eid, IPL: no release)

CHARACTERISTICS OF ENTERTAINMENT GOODS Experiential Nature (Quality can be judged only through usage) Relatively short life-cycle Success-Breeds-Success in markets for popular culture

QUESTIONS TO BE ADDRESSED
To what extent and in what manner is the performance of a movie in a foreign (sequential) market influenced by its performance in the domestic (initial) market To what extent and in what manner is the relationship between the performance in the domestic and the foreign market moderated by the time lag between the movies introduction in both markets

DYNAMICS ACROSS MARKETS

1. The stronger a movies domestic market performance: a) The higher its number of screens in the opening week in the foreign market b) The higher its revenues in the opening week in the foreign market (e.g. 3 idiots: china distributors) 2. The longer the time lag between a movies domestic and foreign release, the weaker the relationship between a) its domestic market performance and its opening week number of screens in the foreign market b) its domestic market performance and its opening week revenues in the foreign market. (e.g. 3 idiots delayed distribution in foreign markets, by the his next movie) time Karan Johar released

DYNAMICS WITHIN MARKETS

 The higher a movies number of screens in a given week, the higher its revenues in the same week (e.g. Ek Tha tiger, Bodyguard) The higher a movies > expected revenues (slapstick comedy) > production budget ( e.g.Devdas) > star power (e.g. Talaash) > directors power (e.g. Vishal Bhardwaj:omkara, Rajkumar Munnabhai1 & 2 , 3 idiots) > advertising expenditure, (e.g. Ghajini) > critical acclaim, (e.g. DevD) > positive WOM communication (Vicky Donor) in any given week, the higher its number of screens in the same week The weaker a movies competitive environment, the higher its number of screens, and the higher its revenues( e.g. Mahesh Bhatt movies) The more a movie plays in a high season week, the higher its revenues(e.g. Amir Khan: Christmas, new trend: Independence Day etc) Hirani:

LEARNINGS
High correlations between screens and expected revenues: The number of screens is the key determinant of revenues and expected revenues are the key determinant of screens Advertising support is a key predictor of opening week revenues and screens while WOM communication is an important predictor in subsequent weeks Critical acclaim plays a surprising role: It is positively related to opening weeks revenues but negatively related to opening week screens Time lag between releases negatively moderates this relationship i.e. the longer the time lag, the weaker the relationship (buzz kill)

TIME LAG
The buzz that a movie is able to generate in the domestic market may quickly fade or wear out over time. This implies that provided a movie performs reasonably well in its domestic market, the movies foreign release should be scheduled reasonably close to its domestic release. The longer distributors delay, the lesser they will be able to hold on to the momentum that the movie created in the domestic market. This is where piracy also cannibalizes the revenue in the sequential markets. (E.g. The Artist)

MANAGERIAL IMPLICATIONS

 Exhibitors control the main predictor of a movies box office revenues throughout its run For distributors, the key to securing large audiences is to find a marketing mix that appeals to audiences (pull) as well as exhibitors (push) Allocating resources to a push marketing strategy is important in foreign markets, where additional opening screens go hand in hand with increasing returns Advertising is a crucial instrument of such a strategy (e.g. Avengers, Life of Pi)

RADIO BROADCASTING
Criteria for appraisal of workability
The public pays no direct price for the program. Listening is voluntary. The acquisition of listeners is a result of good program differentiation. The public is interested in the nature and quality of particular programs, and the pattern of programs that emerge.

How to define an optimum program pattern? The optimum pattern is one which satisfies as many people as much of the time as possible. Therefore it is difficult to define such a pattern since different people like different programs. Programs have to be extremely diverse to be able to attract as many listeners as possible. A person is considered satisfied when he finds a program in every period which he will listen to. So the greater the number listening to the radio show, greater the number of satisfied people. However there are 2 major assumptions here: People may be listening to a program that they consider a second choice to some unavailable program Intensity of satisfaction varies from person to person and impersonally.

One period model

P1, P2, P3: Series of Program Types L1, L2, L3 : Number of listeners in a given period. Lj : Number of listeners for any program that is being produced. Lk : Prospective number of listeners for an unproduced program X : Total number of stations. D : Duplication, i.e., simultaneous production of same program type by 2 or more stations. D= X- P Each station is assumed to strive for the maximum number of listeners. In general, this can be expressed as attempting to maximize Li/xi + 1 Duplication will take place when the share of audience a station can get by duplication is greater than the total audience for the most demanded unproduced program type.

Eg., Radio Shows broadcasting old bollywood songs are plenty while radio shows dedicated to English songs are few. Necessary and sufficient condition for First Order Duplication (one program duplicated) as soon as there is k stations: L1/2 > Lk. Coefficient of Diversification : 1 ( D/X-1) where X2

Programs & Preferences of listeners.

Production of a particular program of type Pi will change peoples preferences and attract new listeners to this program type. The increment of listeners : Lj can be broken down into listeners to some other produced program type, 1Lj and previous non-listeners 2Lj. The increase in the total audience due to increment of new listeners will typically not be as much as possible.

The station will duplicate instead of producing presently unproduced type of program if Lj /Xj + 1 + 2Lj > Lk + 2Lk

However, the socially optimized output level will be decided on the basis of whether

2Lj > Lk + 2Lk

Exclusive Preferences
People who do not get the program of their choice may either : Choose to listen to second choice of programs Choose not to listen at all. In case people chose to listen to second choice of programs, they are not really satisfied but are making do. Thus, the satisfaction criterion changes. However, since a producer can have them in his/her audience without needing to cater to their desire of a different program, their chances of getting a program of their choice decreases. A new producer will consider how many previous listeners will shift if he/she decides to produce an unproduced program.

Unequal Shares of Shared Audiences

In case stations have unequal shares of joint audiences, the station getting the smallest share will be more likely to find an unproduced program type appealing. However, since every firm will strategise at micro level, they will strive to maximize listeners at firm level and will therefore fail to achieve either the industry or the social good. In such situations, a monopoly or collusive oligopoly market structure would produce a socially more beneficial program pattern. Benefits of non-competition among stations would occur only if there were also no competition among advertisers.

LISTENER PREFERENCE
Nature of the available listening audience changes over time. Such changes are associated with a different pattern of preferences in different periods. Preferences may shift over time because of adaptability of some or all of a given audience to the actual programs produced. Shiftability might be impaired if same people want the same type of program in successive periods. It might further be affected if listeners are available for only part of time span covered by a series of periods. Shiftability is likely in the case program types such as News Program on AIR FM which are not subject to repetitive listening.

Complete Non-Shiftability of Preferences Every listener is available in only one specified time period or if the same L1 number of people wanted to hear P1 in every period. Each period is then a one period model and a station will strive for the maximum number of listeners in each period and this will maximize listener hours. Complete Shiftability of Preferences Every listener will be available throughout the entire span and there will be no repetitive preferences. In case of a single station, the station would produce each program type once and thus exhaust the total audience. In case of single station, the general statement of which program would be produced in any period is given by : Li/No. of periods In case of multi-stations, number of programs = X + No. of periods Partial Shiftability of Preferences If the audiences for the program type with the greatest number of listeners are shiftable while others are not, chance of getting less popular program types will diminish. If the audience for the program type with smaller audiences are shiftable, the chances for increased diversity are increased. Thus multi-period case makes more diversity possible by increasing the number of separate programs that can be presented by a given number of stations.

Relevance of the model to the market structure of the industry

Assumption of Listener Maximization as the goal of stations: Listener maximization may not result in profit maximization Profit maximization may not be the only objective of a radio station 1. All listeners are not of equal commercial value to a particular advertiser, because of the differences in their location, income etc. 2. Differential cost of program production modify strict listener maximization. High cost programs require a larger minimum audience than low cost ones. In Indian metro cities, Saturday night Programs on English Radio channels cover Club/House music to cater to the partying listeners. These programs are high cost as a DJ is required to be paid. 3. A station may choose to trade maximization of listeners to a dedicated loyal listener audience.

Application of the model to national and local markets

A national network finds advertisers among a relatively small group of producers, those with nationally distributed products for which high ad expenses are justified. In the Indian context, a national network provides live cricket commentary to listeners and has a tremendous reach throughout the country. The ads that are advertised for are usually telecom products and cellular network providers like Airtel and Vodafone. A local market situation is rather more complex. The programs created locally are generally low-cost and hence are of a lower standard than a national network program. For a national service/product provider it is much more beneficial to advertise on a national network as due to economies of scale they will have a better reach and a diverse audience. Micavaani is sponsored by local players like fertilizer manufactures , local FMCG palyers, farming equipment which target the farmers in and around Shela, Ghuma, Telav.

RELATIVE CONSTANCY
Principle of Relative Constancy(PRC) - Hypothesis(Scripps) The level of spending on mass media by consumers & advertisers is determined by the general state of the economy. Any change in the level of the economy causes a parallel change in spending on mass media. Recent research relates to a variety of economic concepts connected to consumer demand for media but is often ignored in the PRC research.

According to PRC
Media competition among types of media is a zero-sum game, where the winner takes from the loser. McCombs research - Media spending by consumers roughly paralleled the growth of consumers income. McCombs suggests 2 conclusions regarding new media PRC is a valid description of audience spending behavior even when highly fascinating new media appear in the marketplace. Even during periods of rapid economic growth, new media must battle some of the established media for a share of the market. New communication techniques require such large expenditure that they must drastically reduce share of spending on existing media.

Flaws in PRC
New video technology was established without displacing older mass media. Cable attracted further consumer spending not previously devoted to traditional mass media. Thus, introduction of new technology structurally changed consumer spending.

 Recent studies show that total consumer spending on mass media during the diffusion of cable television and VCRs increased rather than being relatively constant - increased from $1.37 in 1976 to $137.46 in 1987 for every household. For individuals and households, the relation between income and media spending varies with income level. Higher income spends lower percentage, but greater amount, than those with lower income. New research suggests that price and population better predictors of mass media expenditure than income. In a future decade, constancy would fail to hold as consumers devote a greater share of income to media to buy new technology.

Inconsistencies in PRC
McCombs - Only a fixed proportion of the economy is available to finance mass communication. In mathematical terms, PRC says mi = C ------ 1

where mi = expenditure on media, C = Sum of dollars spent on media C=xI ------ 2

where I = income and x = a proportion of I mi = xI ------ 3

Error 1: This fixed portion is x, but x has not been constant. Its slight variations(std. dev. .19) are not the same as being constant. Hence, relative constancy seems to be an oxymoron. Error 2: Is the proper measurement percentages(x) or is it dollars(C)? Minor variations in percentages becomes significant when the base figure is in trillions of dollars. PRC does not specify why people, households, markets and countries would spend the same percentage of their budgets on media every year. Because PRC does not specify the mechanism that makes mass media staples, it cannot provide a sense of understanding, explain the past, nor give the potential for control. Further, it does not provide a new typology. Test of usefulness determined whether or not it can predict accurately. Research suggests that it predicts only 34% of the variance in mass media spending, leaving almost two thirds of the variance unexplained. Considers only income, and fails to consider the price of the good, the price of the substitutes and complements, & taste as factors affecting demand - Recent research predicts that price is a better indicator than income for mass media expenditures by individuals.

 The PRC assumes that non-media activities do not substitute as well as other media for a particular type of media use. Through explanation for joint product nature of advertising media not given. Amount of time people spend with mass media is relatively fixed or constanterroneous - Concept of opportunity cost ignored.

Lessons from PRC

Mass communication scholars should not propose economic models without first reading materials from those disciplines. Scholars should pursue causal models. More exact in defining and labeling concepts.

FROM STUDIO TO STAGE

The greatest boon to the music industry has been the ban on alcohol advertising. Endorsements from alcohol sponsors account for about 60 to 70 percent of festival revenues. Finding a music festival to append to their name gives big brands much more mileage than any tie-ups with soda companies or releases of music compilations on compact discs. The market for non-Bollywood music may be just 30% of overall industry revenues but its growing at more than 20% year-on-year.

PIRACY
According to industry discussions, the estimated loss due to piracy is as high as 75 percent of the actual size of the industry. Apart from the legal music industry in the South which is around INR 2.5 million, there is a huge piracy industry, which constitutes about 75 percent of the total physical market i.e. the legal music industry is just 25 percent which means that the piracy industry is about INR 4.35 billion

Music industrys revenues from sale of public performance rights witnessed a strong growth of nearly 20 percent Y-o-Y in 2011 owing to the increase in the consumption of music at public places such as clubs, restaurants, gyms, malls, hotels, supermarkets etc. Further there was an uptrend in the average ticket prices on the back of rising disposable incomes and a strong base of young audiences. In the last three years, there has been a paradigm shift towards demand for non-film music.

Contractual Agreement
Bands make contracts with promoters to promote live concerts. 100% revenue from merchandise sales 25% of the ticket sales Data Number of performances rose in the 1980s, declined from 1996 to 2003 Number of tickets sold to concerts performed by these bands has been dropping from 30 million per year from 1980s till 2000. Since 2000, however, there has been a 10 % drop in ticket revenue for these artists.

Economics of superstars
To account for the quantity and price trends: 1. Superstar effects increased sharply after 1996. 2. Superstar performers have a backward bending supply curve that caused a decrease in concerts despite the increase in revenues per show.

The regression model is as follows: ln Yit = + p Si + xit + t +it ln Yit the log average price Si Measure of star quality xit Vector of covarities (number of years of t Set of 22yr fixed effects it Error term experience,etc)

Bowie Theory:
A lot of touring is what is the future of the music industry. Since, that is the only thing that would be unique.

The Media and Advertising: A Tale of TwoSided Markets

Popular Culture and its role in todays life Media Public Good

Merit Good Media Firms and Advertisers

TWO-SIDED INTERESTS
Eye-balls v/s value of content to consumer Total ad revenue 5.6 billion $ - 8-9% projected growth for 2012 economically significant Programming bias due to competition (making programs according to demographic) Conventional economic markets v/s media markets

TWO SIDED MARKETS

Two groups interact through an intermediary or a platform that accounts for externalities between the groups. Group1: Advertisers Group 2: Viewers Platform: Broadcast Company

E.g.: Last over of a cricket match E.g.: Credit Card

POSITIVE AND NEGATIVE SPIRAL

Ads in a newspaper v/s ads between TV programs Ad-loving behavior

PLATFORM COMPETITION
Pricing below marginal cost (pricing strategy for second rung channels, newspapers) More benefits to groups joining the platform at a lower price Preference of the Paying Side to eliminate other group.

ADVERTISERS
Spence And Owens, 1977: Flat Ad Demand and Regulatory Caps = No Ad Surplus And No Producer Surplus Social Waste v/s Consumer Surplus Welfare Analysis: Informative Providing welfare to society

Assumptions: Advertiser Demand is perfectly elastic E.g.: Limiting total duration of advertising minutes per hour on TV

EQUILIBRIUM: SHORT RUN ADVERTISING

= R(ai)Ni(fi, f-i)-K --------------------------------Equation1 ----------------------------Equation2

(R(a*)/R(a*))+nN=0 i= broadcaster

fi=full price of broadcaster f-i= vector of full prices of all broadcasters other than I Ni= viewership function R(ai)= revenue per customer

Cases Generating Case1: =0 (neutral) Case2: >0 (Ads are nuisance ) Case3: <0 ( Ads are informative )

EQUILIBRIUM: LONG RUN (FREE ENTRY)

Lack of barriers perfectly competitive firms can only earn zero profits in the long run Entry of new firms expansion of Supply price decrease zero profit Similar to situation with no advertising / only subscription fees E.g.: Tata Sky HD

PRODUCT SELECTION: CHOOSING PROGRAM TYPE

Opinions Range from 0 to 1. Higher the stance away from the ideal point, more the disutility E.g.: Mint v/s Economic Times Economics of media industries evaluation maximal differentiation - constrains welfare analysis Flexible solution; difficult to prove mathematically

Virtual Economies
WHAT IS VIRTUAL ECONOMY
MMORPG Entertainment Good which is simple and durable Alternative reality

WHY IS VIRTUAL WORLD IMP?

Generates high level of per capita production- people live, work, consume and accumulate wealth there Emotional impact on people - no different from the impact of Earth events Relationships, incomes and even lives on Earth may be affected Willingness to pay, sacrifice time and effort The Ultimate arbiter of significance - assessments of economic value

DIFFERENCE FROM EARTH ECONOMY

A puzzle of puzzles. Control prices - In virtual economy, the government can effortlessly peg many prices at any value Work is good Growth can be bad. Earth - Population of humans and its taste is fixed. virtual economies Flexibility in choices

MATHEMATICAL DERIVATIONS
Emotional well-being is always one goal of human behavior Function relating challenge to fun is not monotonic If there are rewards for solving puzzles, we can assume that a puzzle with higher rewards is preferred, holding challenge levels equal.

S = R - (C - )2
Where, S= Satisfaction R= Reward

C= Challenge (Graph is like a bell shaped curve)

Differing rewards and challenges of the two games produce different levels of emotional satisfaction Satisfaction effects act as weights in the motivational function Play time in one game does not affect the satisfaction one receives from play time in the other Diminishing marginal utility from gameplay because repeatedly playing the same game gets boring

U(HA, HB) = SAln(HA) + SBln(HB) Where, HA, HB hours spent on game A and game B
HA + HB = T, total time spent in virtual economy

G = Y pAHA pBHB Where, G= consumption of all goods other than gameplay Y= income to spend on games and other goods U(HA, HB, Y pAHA pBHB) = SAln(HA) + SBln(HB) + ln(Y pAHA pBHB) Y = wL Where, L= time devoted for work W= hourly wage rate Z=THL Where, Z is non-gaming leisure time U(H, wL pH, T H L) = Sln(H) + ln(wL pH) + ln(T H L)

MARKET FOR VIRTUAL WORLDS MONOPOLY?

Network development Positive Externalities Email, hanging out with friends Cyberwars Calvin plays Farmville, Hobbes plays Animal Kingdom If you cant beat them, join them Facebook Vs Orkut

NOT YET
Diversity of taste in different features of a world Congestion Virtual worlds have physicality to them New entrants, small barriers to entry, better strategies Low switching costs

Games are art

MACROECO IMPACT
Games are drugs! Unproductive 60-80 hours/week Little interest in the real world Basic necessities Basket of production changes New assets with real economic value But no value for online assets : GDP is nation based Migration of value creation not feasible Decline in standard measures of economic activity Brain drain problem Negative fiscal health of Earth Govt No taxable assets

BONUS POINTS
People will find freedom and relief when they live through less stigmatized virtual shapes There may be substantial reductions in demand for Earth government services (e.g. roads)

THE ANSWERS
Large revenues Digital capital goods Online Capital ~ Labor input No impact on the economy in near future New cyberspace policies can help