History and Frameworks – Where Are We Coming From?

1. History and Frameworks – Where Are We Coming From? Gigi Johnson Communication Studies 197C Media Madness? August 9, 2004

2. Course Structure • History and Frameworks – This Week • Control and Concentrations – Aug. 16 • Niche Media – Aug. 18 • Personalization and two-way – Aug. 23 • Midpoint Group Presentations – Aug. 25 • “Gear” – Aug. 30 & Sept. 1 • TV Model – Sept. 6 • Media Pipes – Sept. 8 • International – Sept. 11 • Papers and Wrap-up – Sept. 15

3. “Deliverables” • Group Presentation – Aug. 25 • Teams of 3 • 10 minute presentation • A key change occurring in US or international media • 30% of grade • Individual Paper – Sept. 15 • Current media trend of the student’s choosing • Analysis of that topic from the standpoint of its importance on the future • 10-12 pages, double-spaced, with 1” margins • All research used must be cited with footnotes • 60% of the final grade

4. “Media” • Nature of “media” is changing • Mass communication from institutions to individuals? • Pipeline and content of sharing information and entertainment? • This course will focus on electronic media and media being made electronic, but will touch on changing elements and other segments (e.g., print).

5. Today – Frameworks and Some History "Those who do not know history are doomed to repeat it.“ George Santayana “History is merely a list of surprises. It can only prepare us to be surprised yet again.” Kurt Vonnegut “False history gets made all day, any day,the truth of the new is never on the news.” Adrienne Rich “It’s déjà vu all over again.” Yogi Berra Intertwined histories and drivers

6. 10 Hours Per Day Consuming Media Ad-based: Broadcast TV, radio, newspapers, consumer magazines Consumer-Paid: Cable & satellite TV, box office, home video, interactive TV, recorded music, video games, consumer Internet, consumer books Source: Veronis Suhler Stevenson, MPAA

7. Shifting Consumption: 1998-2002 884

8. Business Models: Who Pays? Broadcast TV, radio, newspapers, consumer magazines Advertising Cable & satellite TV, box office, home video, interactive TV, recorded music, video games, consumer Internet, consumer books Subscription/Purchase

9. More than $700/person/year

10. Home Video Dominates

11. Major Themes: Value Shifters • Regulation – shifting of rights, barriers, and wealth • Technology – selling “gear” • Globalization – removal of and challenges from global barriers • Consumer Taste – predictability and inalienability • Charismatic Visionaries – Media Moguls – breakthroughs from “Outsiders” • Infrastructures -- Leveraged Cash Flows – Borrowing against distribution • Gatekeepers – who “owns” the consumer? • Relationships – alliances between production, distribution, and exhibition

12. Value Chain for Most Media Companies Distribution/Sales Network Exhibition/Retail/”Pipe”/“Box” Production/Creation/”Content”

13. U.S. “Banks/Libraries” -- Content Companies

14. 28% of Moviegoers Make Up 81% of Box Office – Only 5.7 Films/Year/Person in the U.S. Source: MPAA

15. Box Office: Youth Market Source: MPAA

16. 2% CAGR Growth in Ticket Unit Sales Source: MPAA; Variety

17. On Top of a 3.6% CAGR in Ticket Prices Source: MPAA

18. Longer Term U.S. Box Office : Long Term Growth, Recent Plateau

19. What Is Box Office? • Self-reported by companies and by certain services • ~ 50% goes to theater, 50% goes to distributor and other parties • Misleading figure as to profitability of film

20. …If They Get Released… Source: MPA

21. New Films Released in U.S.

22. Average U.S. Box Office Growing (?)

23. U.S. Film Economics – Big Bets MPAA Member Company Avg. Theatrical Costs Source: MPA

24. >$50MM – 19-20 Films/459? Source: MPA 2002 U.S. Box Office Leaders 2003 U.S. Box Office Leaders

25. Value Chain: Box Office and Ancillary Revenues Distribution Exhibition Production

26. Let’s Step Back Into History…

27. Pre-film Experiments 1867-1893 • 1867 -- Phenakistoscope – graphing motion • 1872 -- Muybridge motion studies of a horse • 1879 -- Zoopraxiscope 24-image projector • 1873 -- Revolver camera • 1887 -- Hannibal Goodwin’s patent for film • 1889 -- Eastman’s roll film • (1906 -- first experimental sound-on-film)

28. Kinetoscope 1893-1895 • 1888 -- Edison patented camera • 1891 -- prototype Kinetoscope (nickelodeon) 35mm film, sprocket, intermittent shutter • 1893 -- Black Maria studio built around 500 lb camera • 1894 -- Andrew Holland’s individual viewers • 25 cents for 16 second film • 1895 -- The Execution of Mary, Queen of Scotts • 30 seconds long

29. Different Standards, Different Technologies 1895-1905 • 1895 -- Auguste and Louis Lumière, Paris, 16 pound camera and projector; US screening soon followed, as did the Vitascope projector • 1896 -- Biograph Projector • 1897 -- Vitagraph projector • 1897 -- Cineograph projector ($150) • 1896 -- first public movie theater • 1899 -- Georges Méliès makes first 12 minute film • 1989-1901 -- Patent Wars with Thomas Edison; • settled by NY Circuit Court • 1902 -- first LA movie theater – 10 cents

30. Early Film Technologies 75 mm 70 mm 70 mm 68 mm 65 mm 63 mm 63 mm 60 mm 38 mm 54 mm 35 mm 51 mm 20 mm 63.5 mm 54 mm 43 mm 17.5 mm 35 mm 70 mm 42 mm 35 mm 54 mm 35 mm 15 mm 35 mm 28 mm 35 mm 35 mm 16 mm 1890 1895 1900 1905 1910 1915 1920 1925... Sources: Fotografica Society (1996), www.film-center.com

31. Growth, Trust, & Competition 1905-1915 • 1903 -- The Great Train Robbery – 20 shots in 12 scenes for $150 – purchased by storefront owners • 1904 -- Pathé Films already has 12,000 title catalog and studios in Berlin and France • 1908 -- Motion Picture Patents Company – “The Trust” -- Edison, Kleine, Melies, Pathe, Vitagraph, Selig, Essanay, Lubin, Kalem, Biograph; 8,000 nickelodeons in U.S. • 1910 -- Carl Laemle took Florence Lawrence – The Biograph Girl • 1911 -- first “feature film” (imported from Europe) • 1912 -- Government filed Antitrust Suit against The Trust (helped Fox & IMP/Laemle) • 1915 -- Birth of a Nation • Over 2 hours long • $2 to view; $110,000 to make • 1916 -- Intolerance

32. The Early Beginnings of Today’s Companies • 1903 -- Marcus Loew (furrier) opened penny arcades • 1903 -- Harry, Albert, Sam, and Jack Warner bought a nickelodeon in Pittsburgh • 1904 -- William Fox (clothes dealer) formed Greater NY Film Rental Company; starts making movies in 1909 • 1906 -- Carl Laemmle (clothier) opened a nickelodeon in Chicago; founds IMP in 1909 to make movies • 1907 -- Louis B. Meyer bought a nickelodeon • 1907 -- 4 Warner Bros. found film distribution business

33. The studio system: 1920’s

34. Los Angeles As Production Center • Why did they set up the studios in Los Angeles? • Good weather • Variety of scenery and differing terrain • Cheap land and lots of space • Avoidance of the Trust? • 1910 -- Vitagraph Studio launched in Hollywood • 1915 -- Carl Laemmle bought 230 acre chicken ranch, calling it Universal City • 1917 -- Charlie Chaplin built movie studio in LA • 1918 -- Louis B. Mayer Pictures founded in LA • 1918 -- Warner opens film production studio on Sunset Blvd.

35. Golden Age of Hollywood • 1928 -- half of the U.S. went to the movies per week (60 million per week out of 110 million population • 1946 -- attendance peaked at 90 million per week Why?

36. Case Study: Color • 1920s -- Industry experimented with tinting and two-color systems • 1935 -- first feature film using three-color Technicolor released (Becky Sharp) • As color stock was more expensive and difficult to work with, it was used in animation and costume dramas (i.e. Gone with the Wind, 1939) • Color and black-and-white coexisted • Color market share: 12% in ‘47, 50% in ‘54, 94% in ’70, 96% in ‘79 • Sale of films to television market drove change • Color market share dipped to 25% from ’55 to ‘58 • Conversion of TV to full-color in ’65 accelerated change

37. Conversion to Sound • Warner Bros. (which was a smaller studio) that introduced sound through the songs in the Jazz Singer • Cost to converting to Talking Movies: • Converting the theaters to accommodate sounds → speakers, replace projectors • Sound-proof stages • Actors now had to memorize lines • Not everyone sounded good even if they looked good; need to get new actors in the mix; required dialog and scores • New equipment and labor to make the sound element • Impact of Sound on Film • Very expensive and studios needed to take out loans to cover this • Loss of easy translation across countries and languages – diminished the internationality of films (at least for awhile)

38. Conversion to Sound • 1925 -- Western Electric (AT&T) and Warner Bros. Agree to develop a sound system; Warner Bros. establishes KFWB-AM; purchases Vitagraph • 1926 -- GE forms Radio Corporation of America • 1926, August -- First Vitaphone program (Don Juan) debuted August 1926 to enormous success • 1927, February -- five largest studios (MGM, Paramount, First National, Universal, Producer’s Distribution Corp.) signed an agreement to take a year to study competing sound systems • 1927, October -- Warner releases The Jazz Singer (sound on disks) – borrows to convert theaters; $3MM revenue • 1928 -- Steamboat Willie – 1st cartoon with soundtrack • 1930 -- William Fox ousted from bankrupt Fox for $18MM loan; bankruptcies at RKO, Max Sennett, GFFA, Paramount; Universal sold by the family for $5MM • 1932 -- Only 2% of screens not wired for sound • Negative costs are 3x higher; deals change from flat fee to % split to share risk

39. Case Study: Sound -- Results • 1930 -- silent films no longer viable • 1927 to 1930 -- admissions increased by 50% (60 million/week to 90 million/week) • To pay for conversion, studios borrowed $300 million, 4x their 1928 market value • Warner Bros. acquired First National and catapulted into ranks of major studios • WB Profits: -$1MM in ‘27, +$2MM in ‘28, +$17MM in ‘29 • Fox leveraged earnings to to acquire control of MGM and 45% of Gaumont-British

40. Consent Decree – the Beginning of the End of the Studio System • 1938 -- U.S. Dept. of Justice starts antitrust suit – restraint of trade, block booking, and ownership • 1940 -- Consent Agreement Signed – block booking max 6 films and films must be screened for buyers • 1944 -- US reopens antitrust litigation • 1946 -- DOJ failed to convince court of monopoly • 1947 -- Supreme Court rules block booking violates antitrust; DOJ appeals • 1948 -- Supreme Court reverses district court – studios lost 5-12% of their stock value in 2 days • 1949 -- Paramount signs the Consent Decree (1,395 theaters); Loews (135), Fox (636), Warner (501), RKO (109) ordered to divest • Loews doesn’t until 1959!

41. Growth of Television -- Finally Box office dropped 23% from $1.7 billion to 1.3bn; 4,000 theaters closed

42. Technology Challenge: Digital Sound • Competing digital sound formats • Dolby Digital: Batman Returns (Warner Bros., 1992) • DTS (Digital Theater Systems): Jurassic Park (Universal, 1993) • SDDS (Sony Dynamic Digital Sound): Last Action Hero (Columbia, 1993) • Retrofit cost of $5k to $15k per screen • Formats continue to co-exist despite economic inefficiency • Raised baseline standard for theaters to compete at top end of the market

43. Technology Challenge: Digital Cinema • Digital Cinema Initiatives, LLC formed in March 2001 by seven studios to establish voluntary technical specifications • Member studios: Disney, Fox, MGM, Paramount, Sony Pictures, Warner Bros. Studios, and Universal • Technical specifications to be released in August 2004

44. U.S. “Banks/Libraries” -- Content Companies

45. Production vs. Distribution

46. Distribution: Licensing Windows & Channels Theatrical $9.5+9.6bnUS+Int’l DVD & Home Video 6 months DVD and Home Video$20.3 bn* Pay TV & VOD 12 months Premium Cable, PPV, VOD $5.5 bn* PPV 7 months Free TV 24-30 months Broadcast TV$16.9 bn* Sources: Variety, MPAA, Kagan World Media * Includes non-film revenue Basic Cable 60+ months Basic Cable$40.4 bn* Months After Theatrical Release 2002 Revenues/Window

47. PPV / VOD Pay TV G.E. Channel Genre Channel Network TV Syndication Website Theatrical Home Video ISP Cable/Satellite System TV Station Technology-Driven Film Value Chain Production Distribution The Consumer

48. Old Technology – U.S. Theater Marketplace Source: MPAA

49. Growing Concentrations in Exhibition Source: NATO

50. Drive-Ins Source: NATO