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PENN STATE / Communications / COMM 180 / Why do live events cost more than recorded media?

Why do live events cost more than recorded media?

Why do live events cost more than recorded media?


School: Pennsylvania State University
Department: Communications
Course: Electronic Media and Telecommunications
Professor: Patrick parsons
Term: Fall 2018
Cost: 50
Name: Comm 180 Exam 2 Study Guide
Description: This study guide includes all notes from classes as well as the Barlow reading notes and Apocalypse Ad video notes. Don't forget to take the practice quiz on canvas! NOTE: Verizon - AT&T strategy con
Uploaded: 10/04/2018
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Comm 180, Exam 2 Study Guide

Why do live events cost more than recorded media?

Characteristics of information:

Intangible: ​Information is intangible, therefore no one has control over it

● That’s why we made tangible containers for information (CD with songs on it) ● Ex. favorite song is not tangible

Nonrivalrous​: can be used simultaneously and cannot be “used up”

Nonexcludable​: very difficult to control distribution

Perishable: ​Does it lose value over time or gain value over time? - both

Lose value: sports scores, technology becoming obsolete, theories that turn out to be wrong, stock quotes

● Gain value: census data, resumes, bible, famous artwork (only one painting) ● Information that used to lose value and now is gaining value again: archives to the new york times

What is a marginal cost?

Experience good - ​information is an experience

● Don’t know if you like it until you have consumed it Don't forget about the age old question of krista rudolph clemson

● How to creators overcome this problem? → have to create ways for people to trust to engage in the experience from the start

Why do live events cost more than recorded media?

● Economies of scale: live event has limited audience

○ You have fixed costs, bigger audience/customer base more you can spread those costs across the base

○ Limited audience = limited economies of scale

○ Expenses go up when performing for larger audience than smaller audience, but the expense you’re paying for ticket won’t change. We also discuss several other topics like What is the meaning of cultural imperialism?

Fixed costs: ​cost that does not vary with volume of production

● Ex. if you produce TVs, you pay $10,000 to fund for machinery a month, if you make more TVs one month than another you still spend $10,000 on the machinery. First copy costs: ​First copy costs are considered fixed costs

What are complementary goods?

● Ex. to make a movie you have to pay for the set, makeup and hair people, actors, etc. but after that you don’t have to pay for all of that again in order to make copies of the movie or have people watch the movie again.

Marginal cost: ​cost to reach one additional viewer ot to produce one additional unit

● Reproduction cost is a marginal cost

○ Ex. Netflix’s cost of producing TV show does not change, even when gaining new subscribers

Economies of scale: ​As production increases (number of units produced), the average cost per unit decreases

○ Average cost = total cost / units produced

● Strongest when there is a large difference between fixed cost and marginal costs ● Goal: spread out fixed costs over large number of units

○ Units can be copies sold OR size of audience (one viewer = one unit) ○ Emphasis on mass audience. NY vs. State College, National vs. Local

● Ex. when one wire is used for tv, telephone and internet to one home Economies of scope:​ sell multiple products using shared infrastructure If you want to learn more check out primer paso answers

Ex. when one wire is only used for tv but multiple homes use that wire

Barriers to entry:

Financial: ​Large capital requirements (need lots of money to launch business) ● Large economies of scale and scope (incumbents already have market share and cost advantage)

● Specialized resources: raw materials, suppliers, transportation, etc.

Regulatory: ​Government restrictions on entry

● Compliance regulations: need expertise and money to gain approval


● Sunk costs

○ Time, effort, and expense already committed to old technology

○ Issue for firms and consumer

■ Consumers: hesitant to buy new technology once used to a certain way ● Switching costs Don't forget about the age old question of diffusion material science

○ Time, effort, and expense required to adopt new technology

● Complementary goods

○ Depends on success of a third-party product

■ Software and operating system, video games and console

■ Ex: the more cars that are on the road, the more people will pay for gas ■ Ex: the more cereal that is sold will increase in the amount of milk sold ■ Ex: more xbox’s sold = more video games sold

○ How does this impact your decision?

■ Ex: if you want a certain video game and it’s only offered for a certain console, you’ll buy that console

■ Ex: you’ll buy Hulu or Netflix based on what shows you wanna watch ● Uncertainty

○ Will the new product succeed?

○ Dependence on complementary goods increase uncertainty

○ Technology standards​ and interoperability both reduce uncertainty

■ Ex of Interoperability​: being able to use nintendo games and wii games with a wii

○ When adoption achieves a critical mss, it reduces uncertainty?

■ When everyone else is involved with a certain technology you can be confident that if you buy that same technology, it won’t go out of business ○ Why would firms choose to cooperate?

■ Reduce uncertainty

■ Ex. Apple doesn’t cooperate with anybody else, they keep all their money but their risk of starting alone is pretty risky We also discuss several other topics like mgmt 1a study guides

■ Ex. Dell company laptops always have microsoft software pre-installed on it, so microsoft makes money when dell makes money

Backward compatibility: ​refers to a hardware or software system that can successfully use interfaces and data from earlier versions of the system or with other systems. Critical mass: ​venture has to reach critical mass to carry on and succeed 

● Ex. 10 million households that buy the PS3 because they want the game system, now there are that many homes with Blu-ray players as well → movie production in Blu-ray → more stores selling Blu-ray If you want to learn more check out brainks

HD disc format wars: ​Increase bit-depth to increase quality = ​that’s what DVDs did

● High definition - more scanning lines, increasing precision of sample of the image (but file size is larger), more pixels, better quality

● DVD can’t store enough information to make a high definition copy of the movie ● Blu-ray: Sony, Samsung, LG, Panasonic (manufacturers)

○ Columbia, 20th Century Fox, Walt Disney

○ They want to make their movies for blu-ray

● HD-DVD: Toshiba, Microsoft, Intel, RCA (manufacturers)

○ Universal, Paramount, Warner Brothers, DreamWorks

○ They want to make their movies for HD-DVD

● Industry split between these two - consumers hesitate, they’re not sure which one they’re going to buy

● Barriers to entry

○ No clear standard plus problem of complementary goods

■ People don’t know which one is going to succeed or have more movie choices

○ Solution? → make them interoperable

● 2007

○ Target and Blockbuster both chose Blu-ray

○ Target - focus on measurements of store, what shelves will hold Blu-ray/DVD ○ Blockbuster - made the choice of Blu-ray

● 2008

○ Warner Brothers and Paramount switch to Blu-ray - how does this help? ■ Push people to buy more Blu-ray, excel the trend

■ Complementary goods

■ Reduces uncertainty, you can see the results of which is better

○ Walmart chose Blu-ray

○ Sony PlayStation 3 includes Blu-ray player - how does this help?

■ Competing with Xbox because Xbox was winning

■ They included this Blu-ray player because Xbox didn’t have this function ■ Economies of scope

■ Helps achieve critical mass - ex. 10 million households that buy the PS3 because they want the game system, now there are that many homes

with Blu-ray players as well → movie production in Blu-ray → more stores selling Blu-ray

Network externalities: ​also called network effects

● Externality - when someone benefits from your decision

○ Signing up for phone service for your own reasons but benefits others because they can now call you

● When people are communicating with each other

● Network increase in value with it increases in size

● Existing users benefit with new user join

○ Who was the first person to buy a phone? → who was going to call them or who were they going to call if no one else has a phone yet?

● Gives largest network a competitive advantage (barrier to entry)

● Benefits of large networks

○ More connections, more choices, more support

○ p2p, fb, telephone

○ Social media apps do not interconnect with each other

■ You cannot message someone on facebook through snapchat

● Other apps the benefit from network externalities

○ Online dating apps and sites

○ Multiplayer video games

● Possible drawbacks

○ Network congestion, security, privacy

● Verizon commercial - verizon trying to recreate the benefit of network externalities ○ Whenever you talk to another verizon customer you don’t have extra fees but that changes when you talk to people from other phone carriers

Interconnection: ​the physical linking of a carrier's network with equipment or facilities not belonging to that network 

Vertical Integration:

Horizontal Integration: ​Owning multiple companies or competing in multiple markets at the SAME LEVEL of supply chain

○ Viacom: multiple cable networks, increasing total share of cable audience ○ Comcast owns cable systems in multiple markets

■ Both vertical and horizontal → they own production studios, networks and retail outlets, but also more than one production company, many networks and multiple cable systems

■ Multiple System Operator (MSO)

○ CBS owns local TV stations in multiple markets (across the country)

○ A company can also own multiple radio stations in a single market

● Advantages

○ Economies of scale and scope

■ More economies of scale than scope - same product to more people

■ Example: economies of scope = when one wire is used for tv, phone and internet, that cost is then spread across multiple networks

■ Example: economies of scope = when one wire is only used for tv but multiple homes use that wire

○ Increased market share = increased negotiating power

■ Market share - the portion of a market controlled by a particular company or product. 

■ Negotiating power - someone wants to buy airtime on radio station but that station is selling time for $100 an hour, a competitor is selling time for $10 an hour. Company has to keep prices low enough to get customers 


● Puts smaller companies out of business

● Customers forced to pay higher prices due to unavailability of similar products in the market

MSO: ​Multiple System Operator (MSO)

● CBS owns local TV stations in multiple markets (across the country)

● A company can also own multiple radio stations in a single market

Long tail:

● Dramatic increase in choice of content available

○ Key is Internet and low cost of storage and distribution

○ Limitless inventory, limitless customer base

○ But popular content still necessary to make a profit

● Online stores can carry much more content/selection

○ Cumulative sales of obscure content adds up

● Online stores have expanded the market

○ Can reach anyone in the country or the world

○ Larger market = more demand for niche content

● With limitless content, recommendations are crucial

○ Algorithms and user reviews to help customers find new content

● Issues

○ Tax , privacy, local laws, cultural sensitivities

Freemium model for games and apps and sources of revenue:

○ How can they afford to give away the product?

○ What are the revenue sources?

■ If it takes a million dollars to create the app itself, all digital copies of these are free and intangible

■ They can make as many copies as they want, not adding to their cost to do this but the question becomes how to make back that million dollars of making the app?

● Certain things within an app you have to pay for or advertisers

spend money to promote their brand, etc.


Product: ​the audience

Customer: ​the advertiser

Are all audiences equal? : NO

● Choose a target audience ​that advertisers want to reach

○ Value of audience varies by demand and difficulty in reaching

■ Advertisers mostly want to reach demographics like: age 18-49, age

25-54, age 18-34 males, age 18-34 women, college grads, hispanics, etc. ● Purchase or create content that attracts target audience

○ Exclusive content better but more expensive

● Deliver ads to audience in return for money from advertisers

○ Must pay to measure audience (Nielsen)

Impact of Internet:

● New competition for audience

● New competition for advertising

Readings and Videos 

Economy of Ideas:​ the dilemma with ideas not being protected legally like physical or copyrighted content is

● If our information is shared infinitely around the world without our control, how can we protect it?

● We create an economy or market of our ideas once they become tangible

Economic concepts reading:

Monopoly: ​one overwhelming dominant firm in particular market

Ex. Major TV network at the center, all around that company are smaller production houses, smaller firms, equipment manufacturers, etc.

Oligopoly: ​handful of dominant firms

Ex. about 5 major production companies who compete with each other and those smaller companies or firms surrounding them

Limited Competition:​ competition that falls short of the wide-open, completely free-market kind.

Economies of Scale: ​production goes up, lower the cost per units are

Ex. Making a movie costs $10 million, but making digital copies is essentially free Vertical Integration and Synergy:

● Synergy: bringing different products together under one roof so that they reinforce each other

● Vertical integration: synergy is large purpose of vertical integration, decreases uncertainty

Sprint and T-Mobile Merger:

○ Horizontal integration

○ What are concerns? →

■ if they merge, there is now only a choice of 3 companies

■ the prices might go up, quality of service might go down

■ Smaller independent companies using those devices will get locked out of the market

AT&T-Time Warner merger:

● AT&T - Time Warner Merger

○ Vertical - AT&T content distributor, Time Warner production company ○ Concerns: at&t will use ownership over time warner content to put direct TV’s competitors at disadvantage

Google antitrust: why was Google fined twice?

● Vertical integration

● Google: Android operating system/search engine/apps

○ Google owns android phones but LG/Samsung, etc all make Androids they just have to use google operating systems

○ Apple only makes iPhones, no one else does

○ Sued billions for forcing customers to buy apps

Long Tail reading:

What is long tail: ​(go to long tail ^)

Limits of physical stores: ​you can only physically fit so much in one store

● Stores have to decide what they want in their store to keep demand high and make enough money

● They can only make this decision based off of local population, where internet sometimes has world wide audience

Importance of recommendations:

● Internet algorithms work with people’s viewing and buying patterns

● When recommending a not-so-popular item to so many, it then becomes a popular item ○ Generates traffic

○ People writing good reviews

○ The more people are viewing and buying the item, the larger the audience it’ll reach with ad recommendations to other people

Advertising Edge of Apocalypse video:

Relationship between advertising and mass production:

● Consumption is at an expensive, fast rate, fast replacement rate

Advertising and consumption:

● Ads tap into our deepest fantasies and desires

Impact on the world:

● Non-renewable resources running out

● Global warming

● Military complications

○ More terrorist activity, etc. with global warming

● We’re on our 6th mass die-off

○ Biological enhilation

● American foreign policy has been ensuring access to oil for the past 70 years ● Neuromarketing

○ Instead of directly asking us what we think or feel when we look at ads, people are hooked up to electrodes that read brain patterns when you look at certain ads ● Trying to make a difference in the environment

● Exposing economic inequality

● Brandalism in the UK

○ Vandalising over brand ads

● Green advertising

○ Focusing on advertising green/ecological solutions

○ False green advertising: fiji water → “untouched by man”, except their using extreme amounts of plastic and leaving parts of fiji waterless with water collection

Advertising and happiness:

● Marketplace cannot provide happiness

● We have social wants:

○ Valued as people

○ Family relationships

○ Love

○ Good friendships

● Ads show these social wants with material things making it appealing ● Ad = propaganda of commodities

● Immense national credit card debt

Individual vs society:

● No one trusts anyone anymore

● Neoliberalism - everyone is alone and thinks and acts separately from everyone else ○ People do things because they want to and because it will benefit themselves and no one else

Barlow Reading:

● Non-rivalrists: we can share ideas and it doesn’t lessen what is in our own minds. It is actually good to share ideas and spread them across the world to improve human condition. (Barlow)

○ Ex. when you lend your friend your favorite book, you still remember the story ● Once you give information to someone else, it’s out of your control

● What did he mean by “ in other words, the bottle was protected, not the wine. “ ○ You can’t control the story in the book, but you can physically have control over the book itself

○ Take an idea, put it into a physical object, sell that object → you can control that item

○ Information is the wine, dvd or book is the container for that information ● Point about broadcasting

● Information is experienced, not possessed

○ Not going to know if you’ll like food on menu until you order it and eat it, too late if you don’t like it, you already have to pay for it

○ Same thing with movie you’ve never seen before, book, etc. = information is experienced good, don’t know if we want it until after we consume it

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