New York Times on Microsoft

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SUSUPPLY

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Mar 1, 1999, 3:00:00 AM3/1/99
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Emulating a stopped clock, this from today's Times editorial page:

<< Bill Gates, Microsoft's chairman and chief executive, argues that one of
these days his company is likely to get it wrong, ending its dominance.

Oh sure, you say.

Of course he says that. What would you expect from an antitrust defendant?

But Mr. Gates is probably right. Remember the decline of I.B.M., itself an
antitrust defendant a quarter-century ago. Dominant companies react slowly to
change and are reluctant to move away from the technology that made them rich.
Companies with no stake in the old order are more likely to create the new one.


Moreover, there is evidence that Mr. Gates is being honest about his beliefs.
It can be seen in the company's repurchases of its stock. Microsoft needs to
buy back a lot of stock to offset shares that are issued as employees cash in
stock options. But in recent years it has sometimes slowed or even halted its
purchases because the stock price looked high. For now, with the stock rising
ever higher, that caution seems foolish. But it was -- and is -- real.
Microsoft's latest financial statement shows another pullback in purchases.

There have been dominant companies in important industries before, but exact
parallels to Microsoft are hard to find.

It has made millionaires out of thousands of its employees through stock
options, and in the process distorted the Seattle-area housing market. Workers
at Boeing, the other major employer in the region, might not be as angry if
they did not see how rich the other guys were getting.

Whatever the courts decide, Microsoft's dominance is likely to continue.
Perhaps its competitive strategies will seem less piranha-like. Certainly
executives will use more discretion when writing internal E-mail messages.

But someday Microsoft's stock price will stop soaring and even fall for a few
years. There will be griping by newer employees who resent the wealth of
old-timers and demand to be paid more in cash and less in options that no
longer are sure things. >>

Matt Kennel

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Mar 4, 1999, 3:00:00 AM3/4/99
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On 1 Mar 1999 15:05:31 GMT, SUSUPPLY <susu...@aol.com> wrote:
:Emulating a stopped clock, this from today's Times editorial page:

:
:<< Bill Gates, Microsoft's chairman and chief executive, argues that one of
:these days his company is likely to get it wrong, ending its dominance.
:
: Oh sure, you say.
:
: Of course he says that. What would you expect from an antitrust defendant?
:
: But Mr. Gates is probably right. Remember the decline of I.B.M., itself an
:antitrust defendant a quarter-century ago.

Let's examine IBM, as it's always used as an example.

IBM declined because N/C-MOS hardware, primarily sold by its new
competitors, was fundamentally less expensive to manufacture than the
semiconductor technology IBM used in its profitable products.

Even a monopolist will not sell products below the marginal cost of
production, and thus competition, despite a strong barrier based on
software compatibility and monopolistic business practices, was
eventually able to thrive.

There is NO way that Microsoft can be similarly undercut, as the
variable cost of (re)-production is nearly zero, and thanks to all the
bundling agreements Microsoft incurs the lowest distribution costs in
the industry, because its customers (PC manufacturers) are forced to
incur the costs themselves!

:Dominant companies react slowly to


:change and are reluctant to move away from the technology that made them rich.

And react quickly to squash different technology by any means necessary.

And in any case, let's take IBM.

Eventually it did lose its overwhelmingly monopolistic position 'naturally'---
but was this the best result for society??

I suspect not. Had IBM's stranglehold been bated earlier, we would
have enjoyed greater progress and greater freedom. IBM's monopoly
needlessly destroyed wealth for decades.

We can see this by looking at the sophistication of non-IBM systems and
machines during that period.

And in any case, in the mainframe market it is as dominant and monopolistic
as it ever was, but other kinds of computers have been OK substitutes.

: There have been dominant companies in important industries before, but exact


:parallels to Microsoft are hard to find.

Precisely, because software has unique economic properties
historically unprecedented for any economically significant product,
having near zero marginal cost, very high initial production costs,
and with technical properties which hamper competitive substitution.
Combine this with a corporate ideology willing to employ any technical
or business means to further harm competitive substitution, and you
arrive at Microsoft.

Summary: yes, there really is something significant to worry about. I
don't think that we ought to just pretend it will eventually go away.

Notice that films share some of these properties (except the barrier
to competitive substitution) and during the expansion of film studios
during this century there were many monopolistic practices involving
the their control over the distribution networks.

--
* Matthew B. Kennel/Institute for Nonlinear Science, UCSD
*
* "do || !do; try: Command not found"
* /sbin/yoda --help

SUSUPPLY

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Mar 4, 1999, 3:00:00 AM3/4/99
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A Microsoft-phobe rouses himself (Matt Kennel) writes:

>IBM declined because N/C-MOS hardware, primarily sold by its new
>competitors, was fundamentally less expensive to manufacture than the
>semiconductor technology IBM used in its profitable products.

>Even a monopolist will not sell products below the marginal cost of
>production, and thus competition, despite a strong barrier based on
>software compatibility and monopolistic business practices, was
>eventually able to thrive.

>There is NO way that Microsoft can be similarly undercut, as the
>variable cost of (re)-production is nearly zero, and thanks to all the
>bundling agreements Microsoft incurs the lowest distribution costs in
>the industry, because its customers (PC manufacturers) are forced to
>incur the costs themselves!

In other words the NY Times editorial was right. What may look like an
unstoppable monopoly to a bunch of government lawyers will be undercut by
competitive forces. Because consumers will benefit.

Maybe Bill Gates is one of those "hedgehogs" who knows this one BIG thing.

>:Dominant companies react slowly to
>:change and are reluctant to move away from the technology that made them
>rich.
>
>And react quickly to squash different technology by any means necessary.

>And in any case, let's take IBM.

Yeah. That's what I was wondering. Why didn't IBM " react quickly to squash
different technology by any means necessary."?

>Eventually it did lose its overwhelmingly monopolistic position
>'naturally'---
>but was this the best result for society??

Answering the question as it is phrased, yes. That seems to be what "society"
wanted, as revealed by "society's" purchasing decisions.

>I suspect not. Had IBM's stranglehold been bated earlier, we would
>have enjoyed greater progress and greater freedom. IBM's monopoly
>needlessly destroyed wealth for decades.
>

An answer to a different question than the one you asked, is the above.
Putting that aside, how do you know this to be so?

>We can see this by looking at the sophistication of non-IBM systems and
>machines during that period.

Nope, a non-sequitur. Apple's computers and software were deemed to be more
sophisticated by computer snobs, but the consumers preferred MSDOS (for very
good reasons).

>And in any case, in the mainframe market it is as dominant and monopolistic
>as it ever was, but other kinds of computers have been OK substitutes.

The implications! The implications!

>Precisely, because software has unique economic properties
>historically unprecedented for any economically significant product,
>having near zero marginal cost, very high initial production costs,
>and with technical properties which hamper competitive substitution.

I knew network effects was going to eventually sneak in to this. Note that
these "unique economic properties" will apply to competitors too. Once a
superior product is developed, it too will have " near zero marginal cost".
Considering the amount of capital rushing into high tech stocks, the "very high
initial production costs", won't be much of a problem.

>Combine this with a corporate ideology willing to employ any technical
>or business means to further harm competitive substitution, and you
>arrive at Microsoft.
>
>Summary: yes, there really is something significant to worry about.

Glad to see there are things to keep you awake at night.

>I don't think that we ought to just pretend it will eventually go away.

What? We should pretend that economic history doesn't exist?

>Notice that films share some of these properties (except the barrier
>to competitive substitution) and during the expansion of film studios
>during this century there were many monopolistic practices involving
>the their control over the distribution networks.

"Monopolistic"? Once again, only in the minds of anti-trust lawyers.

The period you speak of is sometimes known as the Golden Age of the Movies.
Over 100 million tickets were sold in many weeks.

The anti-trust actions against the major studies after WWII are instructive.
But not the instruction you intended (I'll bet).

There are far fewer movies produced each year today than during WWII. And,
I'll go out on a limb here, fewer theatres (per capita) to show them. In the
neighborhood I grew up in, in the 50's and 60's, there were two theatres within
walking distance of my home.

Anyone favoring the recent re-invigoration of anti-trust policy, ought to pass
over the results of prior actions against Hollywood, and hope the public
doesn't remember.

James V. DeLong, in this month's Reason Magazine, talks about what actually
goes on at "anti-trust conferences" (in the corridors and after the formalities
are completed):

<< There you hear jokes like this one: "What is the government's theory in the
Microsoft case? That the state of California has more computer companies than
the state of Washington, and a hell of a lot more electoral votes." Or this
one, about "Gore-Techs," the high-tech entrepreneurs who confer with Vice
President Al Gore: "What is Gore-Techs? A new fabric made by combining silicon
and money, used for wrapping up politicians." >>

Patrick

dav...@my-dejanews.com

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Mar 5, 1999, 3:00:00 AM3/5/99
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In article <19990304134913...@ng01.aol.com>,

susu...@aol.com (SUSUPPLY) wrote:
> The period you speak of is sometimes known as the Golden Age of the Movies.
> Over 100 million tickets were sold in many weeks.
>
> The anti-trust actions against the major studies after WWII are instructive.
> But not the instruction you intended (I'll bet).
>
> There are far fewer movies produced each year today than during WWII. And,
> I'll go out on a limb here, fewer theatres (per capita) to show them. In the
> neighborhood I grew up in, in the 50's and 60's, there were two theatres
> within walking distance of my home.
>
> Anyone favoring the recent re-invigoration of anti-trust policy, ought to pass
> over the results of prior actions against Hollywood, and hope the public
> doesn't remember.

One word: television. Care to share any evidence that the fall in movie
ticket sales is not largely accounted for by the spread of TVs?

--Dave
dav...@my-dejanews.com

-----------== Posted via Deja News, The Discussion Network ==----------
http://www.dejanews.com/ Search, Read, Discuss, or Start Your Own

mas...@ix.netcom.com

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Mar 5, 1999, 3:00:00 AM3/5/99
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On Fri, 05 Mar 1999 06:29:06 GMT, dav...@my-dejanews.com wrote:

>In article <19990304134913...@ng01.aol.com>,
> susu...@aol.com (SUSUPPLY) wrote:

>> The period you speak of is sometimes known as the Golden Age of the Movies.
>> Over 100 million tickets were sold in many weeks.
>>
>> The anti-trust actions against the major studies after WWII are instructive.
>> But not the instruction you intended (I'll bet).
>>
>> There are far fewer movies produced each year today than during WWII. And,
>> I'll go out on a limb here, fewer theatres (per capita) to show them. In the
>> neighborhood I grew up in, in the 50's and 60's, there were two theatres
>> within walking distance of my home.
>>
>> Anyone favoring the recent re-invigoration of anti-trust policy, ought to pass
>> over the results of prior actions against Hollywood, and hope the public
>> doesn't remember.
>

>One word: television. Care to share any evidence that the fall in movie
>ticket sales is not largely accounted for by the spread of TVs?

And VCR's. And we don't walk any more. There are many more movies
within easy driving distance.

The actions against Hollywood were against their system of closed
distribution that locked out independents. Not unlike some of Microsoft's
anti-competitive behavior.
------------------------------------------------
Mason A. Clark mas...@ix.netcom.com
http://www.netcom.com/~masonc
http://www.geocities.com/CapitolHill/3210
Political, Social, Psychological Economics
Ronald Reagan's amazing insight in economics
The Healing Wisdom of Dr.P.P.Quimby (book)
-------------------------------------------------
I am not a Republican

SUSUPPLY

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Mar 5, 1999, 3:00:00 AM3/5/99
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dav...@my-dejanews.com writes:

>One word: television. Care to share any evidence that the fall in movie
>ticket sales is not largely accounted for by the spread of TVs?
>

Care to share any evidence it is?

SUSUPPLY

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Mar 5, 1999, 3:00:00 AM3/5/99
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Mason attempts to climb on the bandwagon:

>>> I'll go out on a limb here, fewer theatres (per capita) to show them. In
>the
>>> neighborhood I grew up in, in the 50's and 60's, there were two theatres
>>> within walking distance of my home.
>>>
>>> Anyone favoring the recent re-invigoration of anti-trust policy, ought to
>pass
>>> over the results of prior actions against Hollywood, and hope the public
>>> doesn't remember.
>>

>>One word: television. Care to share any evidence that the fall in movie
>>ticket sales is not largely accounted for by the spread of TVs?
>

> And VCR's. And we don't walk any more. There are many more movies
> within easy driving distance.

VCR's in the 50's and 60's? And how many 12 year olds have driver's licenses?

Conspicuous by its absence is any refutation of my claim, which was, " fewer
theatres (per capita)" today (and unarguably, there are fewer movies being
filmed).

> The actions against Hollywood were against their system of closed
> distribution that locked out independents. Not unlike some of Microsoft's
> anti-competitive behavior.

Which is exactly the point I was making. Since we're talking about movies,
I'll say it's like "Groundhog's Day". We're reliving the same thing over and
over. The same stupid theories.

If the government prevails against Microsoft, it will in all probability be to
the detriment of consumers.

dav...@my-dejanews.com

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Mar 7, 1999, 3:00:00 AM3/7/99
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I originally wrote:
> > One word: television. Care to share any evidence that the fall in movie
> > ticket sales is not largely accounted for by the spread of TVs?

susu...@aol.com (SUSUPPLY) replied:
> Care to share any evidence it is?

"Soon after the distribution-exhibition split had been effected, studios
realized it was no longer necessary to supply a new picture every week, and
they proceeded to substantially reduce production schedules... And by that
time, television had begun to wean audiences away from big-screen
entertainment; the number of movie admissions had begun a steep downward
slide. The 1948 degree thus triggered and also hastened the arrival of a
major structural change that would have eventually happened anyway."
Source: Vogel, _Entertainment Industry Economics_, p. 37-38 (1998)

My encyclopedia also names 1946 as the year television begins to boom.
(It's the World Book 1983 or 1984 edition, if that matters.) This happens
to be the same year that ticket sales in the U.S. peak (Vogel 40); the
contraction in ticket sales began _before_ the Supreme Court's ruling.

I Love Lucy came on the air in 1951. Many other popular appointment
programs made it onto the air in the 1950s and 1960s. My encyclopedia
notes that, on the nights these programs were on, people without a
television would head to the homes of friends who owned a television.
Is it surprising that movie ticket sales fell in this era? I wish I could
present data on the hours of television watched in this period, but I
didn't see any in the sources I checked.

Now, I'll ask again. "Care to share any evidence that the fall in movie


ticket sales is not largely accounted for by the spread of TVs?"

In another article, susu...@aol.com (SUSUPPLY) wrote:
> > I'll go out on a limb here, fewer theatres (per capita) to show them.
> > In the neighborhood I grew up in, in the 50's and 60's, there were two
> > theatres within walking distance of my home.
> > Anyone favoring the recent re-invigoration of anti-trust policy, ought
> > to pass over the results of prior actions against Hollywood, and hope
> > the public doesn't remember.

And then in reply to another post, susu...@aol.com (SUSUPPLY) wrote:
> Conspicuous by its absence is any refutation of my claim, which was, " fewer
> theatres (per capita)" today (and unarguably, there are fewer movies being
> filmed).

Using data from Vogel (48-49, 418), and pulling populations and the 1992
number of theaters from www.census.gov:

Movie Theater Total Number Number of
Establishments Per mil pop of Screens Per mil pop Screens/Theater
1963 - 12,040 63.6 1965 - 12,825 66.0 1.07 (1965/1963)
1967 - 11,478 57.8 1967 - 13,000 65.4 1.13
1972 - 11,670 55.6 1972 - 14,428 68.7 1.24
1977 - 10,696 48.6 1977 - 16,041 72.8 1.50
1982 - 10,020 43.2 1982 - 18,020 77.8 1.80
1987 - 7,776 32.1 1987 - 23,555 97.2 3.03
1992 - 6,892 27.0 1992 - 25,105 98.5 3.64
1996 - 29,690 112.0

There are fewer theaters per capita, and in fact, fewer theaters in absolute
numbers. But there are far more screens per capita. And the data suggest
that the average size of a theater has risen. I am a little leery of the
early figures suggesting that almost all 1960s theaters had one screen only,
but I wasn't alive at the time -- is that accurate? Even if it's not,
whatever problems the data have, I think the trend they indicate is correct:
(1) there are fewer theaters, particularly independent ones, and (2) the
survivors and new entrants have more screens than those theaters that exit.

Certainly while there are fewer theaters, there are a lot more screens
that exhibit movies. There are more potential viewings per day at fewer
locations. It's not clear to me that consumers were hurt by the reduction
in the number of exhibition locations given the increase in the number of
screens. What attracts your focus on the number of theaters per capita?
I think this is a mistake, especially given the growth of suburbs and the
rise of malls.

As for the number of MPAA movies per year, Vogel (48-49) reports:
1965 - 210 1967 - 199 1972 - 193 1977 - 110
1982 - 173 1987 - 129 1992 - 150 1996 - 240

There is a monotonic decline in the number of movies released from
1972 to 1977, and a monotonic increase from 1977 to 1983. If you're
looking to make a point about the number of movies made in this era,
it's worth noting that ticket sales hit a trough at the same time real
ticket prices hit their maximum, 1971 (Vogel 40,42). I'm not surprised
to see fewer films released in the years immediately following. If
your point was that fewer films were made immediately following the
Court's decision, I don't have data on that, but the quotation I took
from Vogel suggests that is the case. However, it also concludes that
such a change would have happened if divestiture had not been forced.

What conclusions you draw from these data are up to you, of course. I
don't read them to conclude that antitrust killed the Golden Age of the
Movies, but that's up to you. The data are of course over a decade and
a half after the decision, and it's not clear to me that any effects from
the decision would take that long to appear in the data. I place the
most weight on the Vogel quotation at the start of my post.

> Since we're talking about movies, I'll say it's like "Groundhog's Day".
> We're reliving the same thing over and over. The same stupid theories.
> If the government prevails against Microsoft, it will in all probability
> be to the detriment of consumers.

The Microsoft case is different than the case of movies, from what I know,
in one particular detail: there were many integrated producers-distributors-
exhibitors: Warner Brothers, RKO, Twentieth Century Fox, Paramount, and MGM.
In the Microsoft case, there's only one firm producing Windows. I can see
vertical integration of IE into Windows driving Netscape out of the
browser business, transforming what is currently a duopoly into another
monopoly. Did vertical integration have nearly the same effect in
the production of movies? I doubt it. Universal, Columbia, and United
Artists all survived the Great Depression despite lacking integration into
the exhibition business. There were many vertically integrated firms in the
case of movies; there is only one vertically integrated firm in the Microsoft
case.

To conclude, I don't think the lessons you suggest we draw from the
Paramount case are correct, though I welcome evidence to the contrary.
(There's the possibility that the decision was bad but it did not have the
effects you described.) I do not think the movie exhibition and browser
markets are so similar as to cast doubts on the Microsoft case if history
reveals the Paramount case was flawed. Of course, given market
differences, it is also worth mentioning that the best remedy may well
be very different too. I've heard some talk of splitting Microsoft into
three vertically integrated baby Microsofts all selling and developing
Windows, which is, in my opinion, apt to be worse than the status quo
by far.

Gary Forbis

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Mar 8, 1999, 3:00:00 AM3/8/99
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Matt Kennel wrote in message ...

>Let's examine IBM, as it's always used as an example.
>

>IBM declined because N/C-MOS hardware, primarily sold by its new
>competitors, was fundamentally less expensive to manufacture than the
>semiconductor technology IBM used in its profitable products.

>
>Even a monopolist will not sell products below the marginal cost of
>production, and thus competition, despite a strong barrier based on
>software compatibility and monopolistic business practices, was
>eventually able to thrive.


You know, there are antidumping laws in the US. Other nations are
not allowed to sell goods into the US below cost. I assume such
a law exists because some nations do this.

These laws are really quite strange, since retail outlets are allowed
to sell below cost. Such things are called "lost leaders" under some
conditions and "Close out items" under other conditions. Close outs
don't present a problem since they are not based upon current production
but rather prior production. Lost leaders are bought specifically to sell
below cost.

Now these don't really apply to Microsoft's case with I.E. being
given away since I.E. isn't a lost leader in the normal sense. When
one buys the operating system one gets the browser. Both Visual C
and Visual Basic require I.E. in order to install even though other
browsers would work just as well. I.E. represents a strategic move
to protect the operating system within the internet environment. It
does this by killing the profitability (as it relates to windows) of
browsers that have been implemented on multiple operating systems,
such as Netscape.

One wonders how Microsoft can give away its browser since doing so
certainly represents a sale below costs. Microsoft claims it isn't giving
it away any more than it is giving away Wordpad, but Wordpad isn't
a full feature text editor and thus doesn't kill competition, even
Microsoft's products, (Works and Word.)

SUSUPPLY

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Mar 8, 1999, 3:00:00 AM3/8/99
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dav...@my-dejanews.com, writes:

>I originally wrote:
>> > One word: television. Care to share any evidence that the fall in movie
>> > ticket sales is not largely accounted for by the spread of TVs?
>
>susu...@aol.com (SUSUPPLY) replied:
>> Care to share any evidence it is?
>
>"Soon after the distribution-exhibition split had been effected, studios
>realized it was no longer necessary to supply a new picture every week, and
>they proceeded to substantially reduce production schedules... And by that
>time, television had begun to wean audiences away from big-screen
>entertainment; the number of movie admissions had begun a steep downward
>slide. The 1948 degree thus triggered and also hastened the arrival of a
>major structural change that would have eventually happened anyway."
>Source: Vogel, _Entertainment Industry Economics_, p. 37-38 (1998)

Just as I thought, not evidence but theory.

First, a brief history of the movie industry: Originally made up of numerous
independent entities in three functional areas. Production of the films,
distribution channels, and finally the actual showing of the movies in
theatres. Just as Coase would have it, these independents were merged into
larger firms because of the costs of transacting with each other.

By the 1920’s there were 5 major firms: Paramount, RKO, MGM, Fox, and Warner
Bros., producing over 80% of American films. These 5 also owned about 50% of
America’s movie theatres--mostly in large cities. And what theatres they were!
Often called Movie Palaces, they had sumptuous lobbies, often with huge
chandeliers--that are today collected, selling for $100,000’s. I am old enough
to have been in several, the Paramount still exists in Seattle, as a concert
venue.

This was the "studio system", employing thousands (as actors, writers,
directors, musicians, composers, cameramen, make-up and wardrobe, sound
technicians, electricians etc), and owning huge amounts of real estate, and
sets. In addition to the big 5, there were 3 others, Columbia, Universal, and
United Artists.

The bulk of the studio profits came at the theatre level. There was little or
no profit--due to the enormous costs--in actually making the movies. And it
was done, as the old joke has it, on volume. In order to sell 100 million
tickets per week, in a country of about 140 million, suffering (in the 30’s)
the worst Depression in our history, prices had to be low.

The decline of the studio system--hardly monopolistic with 8 players competing
with each other--came late in the 40’s when the Federal government, through
several anti-trust suits, had the theatres broken off from the studios. What
would happen to any industry that had to divest itself from 50% of its
profitable activities?

What happened to Hollywood was that the studios then started making fewer
movies, but bigger movies. Large-scale Westerns and Musicals, Ben Hur, The Ten
Commandments, The Sound of Music, Cleopatra...Star Wars, Independence Day,
Saving Private Ryan. The forced break-up begat the Blockbuster epic.

>My encyclopedia also names 1946 as the year television begins to boom.
>(It's the World Book 1983 or 1984 edition, if that matters.)

Fuggeddabout it. TV was just getting started in the 40’s, my family got our
first set in 1954. And the quality was lousy, small screens, fuzzy pictures
(black and white only), limited programming. TV was a substitute for radio
(and homework). In fact some of the early TV shows were first radio dramas,
such as the Lone Ranger.

Not to mention that movies were used as babysitters by parents. They were a
safe, cheap way to get the kids out of the house for a few hours, so Mom and
Dad could have some time alone. Getting that first TV didn’t put a stop to our
movie going, but it did to our radio listening.

>This happens
>to be the same year that ticket sales in the U.S. peak (Vogel 40); the
>contraction in ticket sales began _before_ the Supreme Court's ruling.

The logic is pretty shaky there. 1946 was a very unusual year, soldiers home
from the War, getting married and starting families, buying houses and cars
(not manufactured during the war), going to college on the GI bill.

>I Love Lucy came on the air in 1951. Many other popular appointment
>programs made it onto the air in the 1950s and 1960s. My encyclopedia
>notes that, on the nights these programs were on, people without a
>television would head to the homes of friends who owned a television.
>Is it surprising that movie ticket sales fell in this era?

Sorry, people usually went to movies on week-ends. I Love Lucy was a week-day
program. By the way, if some families free-rode on their neighbor’s
television, then they didn’t even have budgetary reasons for curtailing their
movie-going.

Again, television really isn't a good substitute for movies. Even with today's
technology, how enjoyable would say, Star Wars, or Private Ryan, be on TV?
With 1940's television, much, much, much worse.

>I wish I could
>present data on the hours of television watched in this period, but I
>didn't see any in the sources I checked.

I doubt such data even exists, and if it does, is accurate.

>Now, I'll ask again. "Care to share any evidence that the fall in movie
>ticket sales is not largely accounted for by the spread of TVs?"

I just did. And so did you.

>
>In another article, susu...@aol.com (SUSUPPLY) wrote:
>> > I'll go out on a limb here, fewer theatres (per capita) to show them.
>> > In the neighborhood I grew up in, in the 50's and 60's, there were two
>> > theatres within walking distance of my home.
>> > Anyone favoring the recent re-invigoration of anti-trust policy, ought
>> > to pass over the results of prior actions against Hollywood, and hope
>> > the public doesn't remember.
>
>And then in reply to another post, susu...@aol.com (SUSUPPLY) wrote:
>> Conspicuous by its absence is any refutation of my claim, which was, "
>fewer
>> theatres (per capita)" today (and unarguably, there are fewer movies being
>> filmed).
>
>Using data from Vogel (48-49, 418), and pulling populations and the 1992
>number of theaters from www.census.gov:

[snip some data that doesn’t help us, because the earliest figures are
mid-60’s--way too late]

Though this is interesting:

>There is a monotonic decline in the number of movies released from
>1972 to 1977, and a monotonic increase from 1977 to 1983. If you're
>looking to make a point about the number of movies made in this era,
>it's worth noting that ticket sales hit a trough at the same time real
>ticket prices hit their maximum, 1971 (Vogel 40,42).

Uh huh. The industry isn’t as efficient as it once was. Thanks to the Federal
Government.

>I'm not surprised
>to see fewer films released in the years immediately following. If
>your point was that fewer films were made immediately following the
>Court's decision, I don't have data on that, but the quotation I took
>from Vogel suggests that is the case.

The suggestion is correct. There were lots of movies made during WWII and
earlier.

>However, it also concludes that
>such a change would have happened if divestiture had not been forced.

A conclusion based on what evidence?

>What conclusions you draw from these data are up to you, of course. I
>don't read them to conclude that antitrust killed the Golden Age of the
>Movies, but that's up to you. The data are of course over a decade and
>a half after the decision, and it's not clear to me that any effects from
>the decision would take that long to appear in the data.

Right, having to give up over 50% of your profits would have immediate effects.

> I place the
>most weight on the Vogel quotation at the start of my post.

And again, the quotation is a theory. However, even your quotation supports my
argument, "The 1948 degree thus triggered and also hastened the arrival of a
major structural change....". Whether it, "would have eventually happened
anyway.", is unsupported. And we can never know, can we?

>> Since we're talking about movies, I'll say it's like "Groundhog's Day".
>> We're reliving the same thing over and over. The same stupid theories.
>> If the government prevails against Microsoft, it will in all probability
>> be to the detriment of consumers.
>
>The Microsoft case is different than the case of movies, from what I know,
>in one particular detail: there were many integrated producers-distributors-
>exhibitors: Warner Brothers, RKO, Twentieth Century Fox, Paramount, and MGM.
>In the Microsoft case, there's only one firm producing Windows.

Windows is not the only operating system.

>I can see
>vertical integration of IE into Windows driving Netscape out of the
>browser business, transforming what is currently a duopoly into another
>monopoly. Did vertical integration have nearly the same effect in
>the production of movies? I doubt it. Universal, Columbia, and United
>Artists all survived the Great Depression despite lacking integration into
>the exhibition business.

Right, the anti-trust case against Hollywood was a joke.

>There were many vertically integrated firms in the
>case of movies; there is only one vertically integrated firm in the Microsoft
>case.

No, there is Apple--which, ironically, wanted to be a monopolist, selling both
hardware and software. Which, as I have said before, I find very amusing.
Let’s not forget there is also IBM, not a small corporation, and Linux coming
on strong. Plus, the AOL, Sun, Netscape merger.

What is very similar in the current case, and in the movie case, is the concern
of the government for competitors at the (probable) expense of consumers.

>To conclude, I don't think the lessons you suggest we draw from the
>Paramount case are correct, though I welcome evidence to the contrary.
>(There's the possibility that the decision was bad but it did not have the
>effects you described.)

Again, I point out that your selected quotation from Vogel says it did.

> I do not think the movie exhibition and browser
>markets are so similar as to cast doubts on the Microsoft case if history
>reveals the Paramount case was flawed. Of course, given market
>differences, it is also worth mentioning that the best remedy may well
>be very different too. I've heard some talk of splitting Microsoft into
>three vertically integrated baby Microsofts all selling and developing
>Windows, which is, in my opinion, apt to be worse than the status quo
>by far.

Well, I didn’t make the original comparison, Matt Kennel (Microsoft-phobe, par
excellence) brought it up with:

>Notice that films share some of these properties (except the barrier
>to competitive substitution) and during the expansion of film studios
>during this century there were many monopolistic practices involving
>the their control over the distribution networks.

I was just commenting on his remarks.

Patrick


SUSUPPLY

unread,
Mar 8, 1999, 3:00:00 AM3/8/99
to
I’ve stumbled across a website

(http://www.entertainmentscene.com/theater_facts/html)

which does present movie attendance by year all the way back to 1909. However,
there are some obvious errors in the tables. For instance the figure (in
millions of tickets sold) of 4,420 is given for 7 separate years, though the
box office (again in millions of $) totals range from $ 676 to $1,341 for those
years.

With that in mind, I’m afraid that it looks very much like the 1948 Supreme
Court decision mandating separation of studio, distribution and theatre
devastated Hollywood.

For instance, attendance first goes over 4,000 million in 1936 and stays above
4,400
million until 1950. When it abruptly drops to 3,120! It’s all downhill from
then on (in 1996 it’s 1,339 million).

As for number of screens, the data is quite volatile, but my instincts seem to
have been correct. The number of screens topped 20,000 in 1927. Dropped as
low as 15,000 in 1935 (during the Great Depression). Was back over 20,000 for
the war years, then slowly declined to 12,000 by 1963. It’s 1984 before there
are 20,000 screens again. Reaganomics!

Patrick


dav...@my-dejanews.com

unread,
Mar 9, 1999, 3:00:00 AM3/9/99
to
In article <19990308140927...@ng09.aol.com>,

susu...@aol.com (SUSUPPLY) wrote:
> Sorry, people usually went to movies on week-ends. I Love Lucy was a week-day
> program. By the way, if some families free-rode on their neighbor’s
> television, then they didn’t even have budgetary reasons for curtailing their
> movie-going.

I have a time budget as well as a monetary budget. (Jay Hanson should
love this point.) Do you dispute that it is possible that people switched
some of the time they spent on entertainment at the movies to television
viewing instead? That someone who watches more TV, might all else things
equal, watch fewer movies in the theater?

Here's another source providing the same argument:
"The motion picture industry initially ridiculed the early television
programming of its new rival, comparing it with the B films of the 1940
era. Nevertheless, as TV penetration increased and Americans stayed at
home rather than going to movie theaters, the industry soon understood
the enormity of the situation. Its initial strategy was to boycott
television by refusing to permit its creative personnel (primarily actors)
to appear on television programs, produce television series, or license
films for television exhibition. It also sought to counter the inroads of
television by introducing a number of product innovations, including
Cinerama, three-dimension movies, and big-budget films with lavish production
values."
Source: Litman, "Motion Picture Entertainment", in _The Structure of
American Industry_, Brock and Adams eds. (200)

Though Litman doesn't provide much of a timeframe for these effects,
Cinerama debuted in 1952. I don't know when the first 3D movie was
released.

> Again, television really isn't a good substitute for movies. Even with
> today's technology, how enjoyable would say, Star Wars, or Private Ryan,
> be on TV?

That's true. TV isn't as good a substitute for the movie experience as the
movie experience itself. TV has one major advantage movies don't have: if
you own a set, it's free. Interestingly, the Litman quote argues that
television itself was a major factor spurring the motion picture industry
to differentiate its products from those of television!

> With 1940's television, much, much, much worse.

No doubt true. Notice that the price of a television show (ad interruptions)
is (for most people) substantially less than the price of a movie, however.

> >Now, I'll ask again. "Care to share any evidence that the fall in movie
> >ticket sales is not largely accounted for by the spread of TVs?"
>
> I just did. And so did you.

You dismiss Vogel's opinion as theory instead of evidence, then expect me
to accept your anecdotes and opinions as evidence? LOL. I'm willing to
consider the possibility that the decision did have pernicious effects, but
all I've seen is an implicit claim that movies and television can't possibly
be substitute goods, and the invention of the latter can't possibly have
reduced the demand for the former. You place _all_ the blame for the decline
of cinema on antitrust policy, and none on the advent of television.

> >In another article, susu...@aol.com (SUSUPPLY) wrote:
> > > > I'll go out on a limb here, fewer theatres (per capita) to show them.
> > > > In the neighborhood I grew up in, in the 50's and 60's, there were two
> > > > theatres within walking distance of my home.

> > Using data from Vogel (48-49, 418), and pulling populations and the 1992
> > number of theaters from www.census.gov:
>
> [snip some data that doesn’t help us, because the earliest figures are
> mid-60’s--way too late]

Yet it is you yourself who referenced the 1950s and 1960s. Then evidence
appears, and you reject it. ??

> Though this is interesting:
>
> >There is a monotonic decline in the number of movies released from
> >1972 to 1977, and a monotonic increase from 1977 to 1983. If you're
> >looking to make a point about the number of movies made in this era,
> >it's worth noting that ticket sales hit a trough at the same time real
> >ticket prices hit their maximum, 1971 (Vogel 40,42).
>
> Uh huh. The industry isn’t as efficient as it once was. Thanks to the
> Federal Government.

Earlier you claim the 1950s and 1960s data is irrelevant, since it came "way
too late." Now you argue that 1970s data is evidence of effects from an
antitrust action in the 1940s. ??

> >I'm not surprised
> >to see fewer films released in the years immediately following. If
> >your point was that fewer films were made immediately following the
> >Court's decision, I don't have data on that, but the quotation I took
> >from Vogel suggests that is the case.

> >What conclusions you draw from these data are up to you, of course. I


> >don't read them to conclude that antitrust killed the Golden Age of the
> >Movies, but that's up to you. The data are of course over a decade and
> >a half after the decision, and it's not clear to me that any effects from
> >the decision would take that long to appear in the data.
>
> Right, having to give up over 50% of your profits would have immediate
> effects.

First, economic or accounting profits? Second, do you care to put forth
your own explanation as to what causes these profits and why they
disappeared with disintegration? Your post suggests these profits were
used to subsidize the movie-making business. Is this an accurate
characterization of your opinion?

> >To conclude, I don't think the lessons you suggest we draw from the
> >Paramount case are correct, though I welcome evidence to the contrary.
> >(There's the possibility that the decision was bad but it did not have the
> >effects you described.)
>
> Again, I point out that your selected quotation from Vogel says it did.

Your interpretation is to blame the messenger for the message, or the
catalyst for the reaction. "The 1948 decree thus triggered and also


hastened the arrival of a major structural change that would have

eventually happened anyway." You can highlight "triggered" all you want
but that doesn't change what Vogel is saying: _the changes were coming
anyway_.

My original question was a simple one: don't you think TV played a
significant role in the end of the Golden Age? Your original answer was
to ask me, the questioner, to support my conjecture. I've now provided
two sources that do so. Your reply consists of one main point: television
is an extremely poor substitute for movies. This is an empirical question,
and I've provided two sources that suggest TV is in part responsible for
changes in the movie business. To be blunt, you can tilt your arms in
the wind all you want and provide as many anecdotes about your own personal
viewing habits you like, but that doesn't provide convince me you are right
when every source I've looked at has asserted that television caused or,
at a minimum, encouraged the changes you bemoan in the movie business,
because it lead to changes on the demand side of the business.

The data at http://www.entertainmentscene.com/theater_facts.html are
quite interesting, and they do suggest the industry had a substantial
decline in attendance. What they don't reveal is _why_ the attendance fell,
and it certainly doesn't show that television didn't play a role. If the
changes are really on the supply instead of the demand side, what does
divestiture do that causes the quantity of tickets demanded to fall? The
most telling feature of the data, in my opinion, is not the decline in
ticket sales, but the steepness of it ... I'm inclined to think it's
partially an artifact, since box office doesn't fall nearly as much in 1950;
the decline in box office totals from 1946 to 1953 is much more gradual
(by my eye, incorporating the fact that average ticket price changed.)

Supposing the ticket sales actually did decline so rapidly, how do you
interpret the data on the number of releases. The number of releases
increases monotonically from 1948 to 1951, while the audience size
decreases monotonically! Fewer people choose to go to the movies, but
more get made? Why? Were the movies of the late 40s and early 50s quite
bad? The increase in movie releases might have something to do with the
lag between production and release if the decline in ticket sales was
truly unanticipated. Also, ticket prices might also be a cause. I don't
have any idea, just these (weak) conjectures.

SUSUPPLY

unread,
Mar 9, 1999, 3:00:00 AM3/9/99
to
dav...@my-dejanews.com engages in some creative editing:

>In article <19990308140927...@ng09.aol.com>,
> susu...@aol.com (SUSUPPLY) wrote:
>> Sorry, people usually went to movies on week-ends. I Love Lucy was a
>week-day
>> program. By the way, if some families free-rode on their neighbor’s
>> television, then they didn’t even have budgetary reasons for curtailing
>their
>> movie-going.
>
>I have a time budget as well as a monetary budget. (Jay Hanson should
>love this point.) Do you dispute that it is possible that people switched
>some of the time they spent on entertainment at the movies to television
>viewing instead? That someone who watches more TV, might all else things
>equal, watch fewer movies in the theater?

Maybe Jay will tell us television is an energy sink.

Nothing is impossible, as you know. However this is a major shift in your
argument, which originally was:

>> > One word: television. Care to share any evidence that the fall in movie


>> > ticket sales is not largely accounted for by the spread of TVs?

Note the phrases, "One word: television.", and "largely accounted for by the
spread of TV’s". Now you’re arguing for "SOME OF THE TIME [my emphasis] they
spent on entertainment at the movies to television". That’s actually a
concession of almost the whole debate.

Also, as I said, the most likely substitution of "time" was TV for radio (to
which we can add, listening to phonograph records, reading magazines, playing
musical instruments, and talking to each other). That’s what it was in my
family.

>Here's another source providing the same argument:
>"The motion picture industry initially ridiculed the early television
>programming of its new rival, comparing it with the B films of the 1940
>era. Nevertheless, as TV penetration increased and Americans stayed at
>home rather than going to movie theaters, the industry soon understood
>the enormity of the situation. Its initial strategy was to boycott
>television by refusing to permit its creative personnel (primarily actors)
>to appear on television programs, produce television series, or license
>films for television exhibition. It also sought to counter the inroads of
>television by introducing a number of product innovations, including
>Cinerama, three-dimension movies, and big-budget films with lavish production
>values."
>Source: Litman, "Motion Picture Entertainment", in _The Structure of
>American Industry_, Brock and Adams eds. (200)
>
>Though Litman doesn't provide much of a timeframe for these effects,
>Cinerama debuted in 1952. I don't know when the first 3D movie was
>released.

Again, those are conclusions for which we are proffered neither evidence nor
analysis. For instance, how do we know that, "Americans stayed at home rather
than going to movie theaters"? Are those the only choices? How about the
fledgling NBA, and football and baseball (returned to normal with all
able-bodied young men no longer in the military). What about long drives in
the country in America’s new cars?

Further, even if it was staying at home, how does that preclude the cause being
the decisions in the anti-trust suits? Your Vogel quote says the 1948 break-up
did cause the studios to reduce their production schedules. Hence, there WERE
fewer movies to attend.

>> Again, television really isn't a good substitute for movies. Even with
>> today's technology, how enjoyable would say, Star Wars, or Private Ryan,
>> be on TV?
>
>That's true. TV isn't as good a substitute for the movie experience as the
>movie experience itself. TV has one major advantage movies don't have: if
>you own a set, it's free.

[Which brings us back to my point that there is then no budgetary reason to
forego movies.]

>Interestingly, the Litman quote argues that
>television itself was a major factor spurring the motion picture industry
>to differentiate its products from those of television!

While ignoring the changed economics of the movie industry. Now that the
revenues from the theatres are unavailable, the films had to bring in more
money. Thus the epics. And also, the studios did eventually rent out space
and equipment to television production, and sold their old movies to TV. When
life gives you lemons….

>> With 1940's television, much, much, much worse.
>
>No doubt true. Notice that the price of a television show (ad interruptions)
>is (for most people) substantially less than the price of a movie, however.

Not back in the 40’s and 50’s. It was low price, high volume. Until I turned
12 (and had to pay adult prices of $ .75), the neighborhood theatres charged
$.25 per ticket. A dime got you a big bag of popcorn or a box of candy.

This is the point I was making to Kennel. How did the government’s actions
help consumers? Obviously not at all. You’re merely arguing the anti-trust
actions didn’t make things any worse than they would have been anyway. Hardly
a justification for the costs of the lawsuits, even if true.

[snip old stuff]]

>You dismiss Vogel's opinion as theory instead of evidence, then expect me
>to accept your anecdotes and opinions as evidence? LOL. I'm willing to
>consider the possibility that the decision did have pernicious effects, but
>all I've seen is an implicit claim that movies and television can't possibly
>be substitute goods, and the invention of the latter can't possibly have
>reduced the demand for the former. You place _all_ the blame for the decline
>of cinema on antitrust policy, and none on the advent of television.

Another major shift in your argument. In fact, you are the one who placed,
"_all_ the blame for the decline of cinema….", on television. Remember, "One
word: television"?
I’ve never made such absolute statements as you have just imputed to me.

As for my anecdotes, think of it as eyewitness testimony. I’m just trying to
help you out, since you weren’t alive at the time. Also, you have agreed with
me that television is not a good substitute for film.

[snip more old stuff]

>> [snip some data that doesn’t help us, because the earliest figures are
>> mid-60’s--way too late]
>
>Yet it is you yourself who referenced the 1950s and 1960s. Then evidence
>appears, and you reject it. ??

Evidence that has nothing to do with the 50’s, or early 60’s. Yes, as I said,
it doesn’t help us. The Supreme Court decisions were mostly 1948, you,
yourself, admitted your data is a decade and a half too late. So we’re in
agreement. Also there was a slight recovery in attendance starting about 1960.

>> Though this is interesting:
>>
>> >There is a monotonic decline in the number of movies released from
>> >1972 to 1977, and a monotonic increase from 1977 to 1983. If you're
>> >looking to make a point about the number of movies made in this era,
>> >it's worth noting that ticket sales hit a trough at the same time real
>> >ticket prices hit their maximum, 1971 (Vogel 40,42).
>>
>> Uh huh. The industry isn’t as efficient as it once was. Thanks to the
>> Federal Government.
>
>Earlier you claim the 1950s and 1960s data is irrelevant, since it came "way
>too late." Now you argue that 1970s data is evidence of effects from an
>antitrust action in the 1940s. ??

Please. YOU are the one who brought up this data. Not I. Once you do that,
you have to expect it to be fair game. Your data on movie theatre screens from
the mid-60’s on, didn’t give us anything to compare it to that was relevant to
the point I had made.

[snip some old stuff]

>> >The data are of course over a decade and
>> >a half after the decision, and it's not clear to me that any effects from
>> >the decision would take that long to appear in the data.
>>
>> Right, having to give up over 50% of your profits would have immediate
>> effects.
>
>First, economic or accounting profits? Second, do you care to put forth
>your own explanation as to what causes these profits and why they
>disappeared with disintegration? Your post suggests these profits were
>used to subsidize the movie-making business. Is this an accurate
>characterization of your opinion?

I’ve already alluded to it, in my "short history". It’s Coase’s Theory of the
Firm. Grinch can (and probably will) correct me if I oversimplify, but it’s
like this: Market forces drove the small, independent entities that were
producing, distributing and showing the films, into about 8 large firms by the
late 1920’s. The 8, pace Coase, could avoid the transaction costs of all the
independents dealing with one another (and achieve economies of scale with such
things as using warehoused stock footage). Thus, efficiency.

Then the government steps in and unscrambles the omelet, and we’re back to
something like the original (less efficient) situation. Costs are higher, the
public suffers. (Grinch, I plead for mercy. I’m trying to be brief).

Something like 40% of a theatre’s profit came from sales of snacks
pre-divestiture. Probably more now. The revenues from the popcorn have to be
drawn indirectly now by the studios through higher rental prices.

>> >To conclude, I don't think the lessons you suggest we draw from the
>> >Paramount case are correct, though I welcome evidence to the contrary.
>> >(There's the possibility that the decision was bad but it did not have the
>> >effects you described.)
>>
>> Again, I point out that your selected quotation from Vogel says it did.
>
>Your interpretation is to blame the messenger for the message, or the
>catalyst for the reaction.

[I have to admit, that sentence completely baffles me]

>"The 1948 decree thus triggered and also
>hastened the arrival of a major structural change that would have
>eventually happened anyway." You can highlight "triggered" all you want
>but that doesn't change what Vogel is saying: _the changes were coming
>anyway_.

Sorry, it is quite simple. Read the above and note that Vogel is stating a
fact, and then offering an "opinion" (your word earlier).

The "fact" is that the decree of the Supreme Court caused "a major structural
change". He then speculates it "would have eventually happened anyway". There
is no way for us to know if that is so.

>My original question was a simple one: don't you think TV played a
>significant role in the end of the Golden Age? Your original answer was
>to ask me, the questioner, to support my conjecture. I've now provided
>two sources that do so.

Not at all accurate. Your original position was that television was THE cause
of the decline of the movie industry. Your two quotes are merely others’
opinions—which you are correct, is the consensus of almost everyone who writes
about this subject. However, I’ve yet to see anything like a convincing
argument that it is so.

>Your reply consists of one main point: television
>is an extremely poor substitute for movies.

Again, inaccurate. AND, you agreed it is a poor substitute. I agree with
Vogel on the factual assertion: The Court's decision caused the big change.

>This is an empirical question,
>and I've provided two sources that suggest TV is in part responsible for
>changes in the movie business.

[Which, as I have said before, is a change in your argument]

>To be blunt, you can tilt your arms in
>the wind all you want and provide as many anecdotes about your own personal
>viewing habits you like, but that doesn't provide convince me you are right
>when every source I've looked at has asserted that television caused or,
>at a minimum, encouraged the changes you bemoan in the movie business,
>because it lead to changes on the demand side of the business.

Perhaps here is a good time to remind you of what I actually said in response
to Matt Kennel’s:

>Notice that films share some of these properties (except the barrier
>to competitive substitution) and during the expansion of film studios
>during this century there were many monopolistic practices involving
>the their control over the distribution networks.

To that I said, it would be better for advocates of vigorous anti-trust
enforcement to pass over in silence what actually ensued in the movie industry.
Because what Kennel is calling "monopolistic practices", seems, in retrospect,
to have served the public pretty well.

>The data at http://www.entertainmentscene.com/theater_facts.html are
>quite interesting, and they do suggest the industry had a substantial
>decline in attendance. What they don't reveal is _why_ the attendance fell,
>and it certainly doesn't show that television didn't play a role.

[Again, a big difference from your original claim.]

>If the
>changes are really on the supply instead of the demand side, what does
>divestiture do that causes the quantity of tickets demanded to fall?

[See the Coasian analysis above]

>The most telling feature of the data, in my opinion, is not the decline in
>ticket sales, but the steepness of it ... I'm inclined to think it's
>partially an artifact, since box office doesn't fall nearly as much in 1950;

[Right, as I said there are problems with the chart. 1949 tickets sold: 4,550
million. 1950: 3,120. A drop of about 30%. 1950 was the first year since
1935 in which attendance was under 4,000 million. Revenue only dropped 5%.
(Keeping in mind that there are a lot of obvious errors in the chart)]

>the decline in box office totals from 1946 to 1953 is much more gradual
>(by my eye, incorporating the fact that average ticket price changed.)

[1953 tickets sold: 2,392 million. A decline of 47% from 1946. By dollars,
30%]

>Supposing the ticket sales actually did decline so rapidly, how do you
>interpret the data on the number of releases. The number of releases
>increases monotonically from 1948 to 1951, while the audience size
>decreases monotonically! Fewer people choose to go to the movies, but
>more get made? Why?

I think those must be erroneous numbers. They don’t make sense as you point
out. And they conflict with other sources, such as Encyclopedia Brittanica
which puts the decline in U.S. production at 28% between 1946 and 1957 (with
attendance down 50% during the same period). Maybe, since the column is headed
"releases" it includes foreign films (though I think it is too early for the
explosion of foreign films).

>Were the movies of the late 40s and early 50s quite
>bad? The increase in movie releases might have something to do with the
>lag between production and release if the decline in ticket sales was
>truly unanticipated. Also, ticket prices might also be a cause. I don't
>have any idea, just these (weak) conjectures.

Nor do I. We need better data I believe.

Patrick


dav...@my-dejanews.com

unread,
Mar 10, 1999, 3:00:00 AM3/10/99
to
In article <19990309173348...@ng37.aol.com>,

susu...@aol.com (SUSUPPLY) wrote:
> dav...@my-dejanews.com engages in some creative editing:

I won't engage in a flame war, but I don't think that's an accurate
characterization of my response. Below, I've responded only to the major
points since I concluded below that we disagree over what Vogel means,
and it accounts for much of the verbiage in prior posts.

Before you take the time to pick this post apart, please read the questions
I ask at the end of the post. I'd much rather see a response to them than
a response to the other things I say in between here and the questions I
ask at the end. What follows is based on a desire to encourage future
debate on the questions and issues in which I am most interested rather
than the nitty-gritty of he-said, she-said.

> Note the phrases, "One word: television.", and "largely accounted for by the
> spread of TV’s". Now you’re arguing for "SOME OF THE TIME [my emphasis] they
> spent on entertainment at the movies to television". That’s actually a
> concession of almost the whole debate.

I don't know what you mean by this. Suppose I spent 4 hours a week at the
movies in 1947 and 3 hours a week in 1949. I could be spending that hour
difference watching television. This would be "SOME" of the time I spent
at the movies (in 1947) being switched to television (in 1949). If it were
ALL 4 hours, I would be suggesting movie attendance fell to zero.

All I meant to say was that if someone spent x hours before television
at the movies, isn't it possible that the introduction of television leads
them to spend x - y at the movies and y on television? (0 < y < x)

> >Here's another source providing the same argument:
> >"The motion picture industry initially ridiculed the early television
> >programming of its new rival, comparing it with the B films of the 1940
> >era. Nevertheless, as TV penetration increased and Americans stayed at
> >home rather than going to movie theaters, the industry soon understood
> >the enormity of the situation. Its initial strategy was to boycott
> >television by refusing to permit its creative personnel (primarily actors)
> >to appear on television programs, produce television series, or license
> >films for television exhibition. It also sought to counter the inroads of
> >television by introducing a number of product innovations, including
> >Cinerama, three-dimension movies, and big-budget films with lavish production
> >values."
> >Source: Litman, "Motion Picture Entertainment", in _The Structure of
> >American Industry_, Brock and Adams eds. (200)
> >
> >Though Litman doesn't provide much of a timeframe for these effects,
> >Cinerama debuted in 1952. I don't know when the first 3D movie was
> >released.
>
> Again, those are conclusions for which we are proffered neither evidence nor
> analysis. For instance, how do we know that, "Americans stayed at home rather
> than going to movie theaters"? Are those the only choices? How about the
> fledgling NBA, and football and baseball (returned to normal with all
> able-bodied young men no longer in the military). What about long drives in
> the country in America’s new cars?

All of these are alternative explanations OTHER than antitrust actions.
However, I'm not quite sure why these would cause a decline in attendance
starting in the late 40s instead of the mid 40s.

As for interpretive issues, I read Litman to suggest a causal link between
TV penetration and the decision to stay at home. Maybe that's wrong, and
it was the baby boom that kept more people at home. That's still not an
explanation based on antitrust. Which, as I'll say below, was what I was
(and am) really interested in. To convince me that antitrust made a
significant difference, it's necessary to deflate other possible explanations
(which may be akin to cutting the Gordian knot) or at least show more direct
evidence (which is the jist of the questions I'll ask at the end).

> While ignoring the changed economics of the movie industry. Now that the
> revenues from the theatres are unavailable, the films had to bring in more
> money. Thus the epics. And also, the studios did eventually rent out space
> and equipment to television production, and sold their old movies to TV. When
> life gives you lemons….

Just one note: under a Coasian argument in favor of vertical integration,
it's not the revenues that matter, it's the higher transaction costs. These
reduce the profitability of production, and formerly marginal pictures won't
be produced. The theater profits on food are irrelevant, I think. (You
use revenue where I think you should be using profit.) As for why, see
below:

> Something like 40% of a theatre’s profit came from sales of snacks
> pre-divestiture. Probably more now. The revenues from the popcorn have to be
> drawn indirectly now by the studios through higher rental prices.

This is a problem because ... ?

Vogel notes that competition "for the best pictures out of a diminished
supply then raised prices beyond what many owners of small theaters could
afford" (37). Even if all the profits couldn't be extracted after
divestiture, why didn't the sale price of the theaters reflect these
discounted future profits? (There may be a reason - I don't know the
institutional detail of the actual divestiture.)

I really think the story is strongest when you stick to transaction costs
and, if relevant - you haven't mentioned them yet - economies of scope.

> This is the point I was making to Kennel. How did the government’s actions
> help consumers? Obviously not at all. You’re merely arguing the anti-trust
> actions didn’t make things any worse than they would have been anyway. Hardly
> a justification for the costs of the lawsuits, even if true.

Well, if it is true that the actions didn't help consumers, then you're
correct that the case was ill-justified. Certainly the decline in
attendance and the rise in price suggest that, if demand didn't shift,
supply shifted in/up. Worth noting: I'm not going to argue that demand
shifted out, so to get a price increase, it should take some inward/upward
movement in supply in any event. (I'm not sure how well, if at all, the
standard supply and demand graph fits into this industry, but it's certainly
a decent place to start!)

> Another major shift in your argument. In fact, you are the one who placed,
> "_all_ the blame for the decline of cinema….", on television. Remember, "One
> word: television"?
> I’ve never made such absolute statements as you have just imputed to me.

"One word: television. Care to share any evidence that the fall in movie


ticket sales is not largely accounted for by the spread of TVs?"

^^^^^^^

I didn't say entirely. If I've ever given the impression I felt otherwise,
I apologize. I'm really after the issue of how strong the antitrust
explanation is relative to others, such as television. Above you mentioned
others like sports.

Your original statement was "Anyone favoring the recent re-invigoration of


anti-trust policy, ought to pass over the results of prior actions against

Hollywood, and hope the public doesn't remember." Now you've suggested
the effects of the antitrust policy are not the actual things that have
been measured and listed, but a subset or portion of those. Granted, it
would be hard to quantify, but then it's worth noting there are other
forces at work, no?

> As for my anecdotes, think of it as eyewitness testimony. I’m just trying to
> help you out, since you weren’t alive at the time. Also, you have agreed with
> me that television is not a good substitute for film.

I appreciate it, but I am not going to decide that what you admit below
is a consensus opinion is wrong based solely on your experience and
wisdom. I think that's fair, don't you? I don't mean to slight you, but
at the same time, I'm not going to assume the opinions of experts are
wrong without some compelling evidence.

I haven't been noting where I snipped for brevity's sake, but it's worth
noting that (to the best of my understanding of Coase) your summary of
his argument was good.

> >Your interpretation is to blame the messenger for the message, or the
> >catalyst for the reaction.
>
> [I have to admit, that sentence completely baffles me]

I'm not a chemist, but my recollection is that a catalyst is a substance
that speeds a reaction that would occur in the absense of the catalyst,
just at a lower rate.

> Sorry, it is quite simple. Read the above and note that Vogel is stating a
> fact, and then offering an "opinion" (your word earlier).
>
> The "fact" is that the decree of the Supreme Court caused "a major structural
> change". He then speculates it "would have eventually happened anyway".
> There is no way for us to know if that is so.

Aha. That sentence concludes an entire paragraph describing the decline of
independent theaters, the fall in movie production, the rise in the rental
price for theaters, and the reduction in moviegoing. I read all of these to
be his "structural change"; otherwise the "thus" doesn't make any sense
(IMHO). Vogel has certainly presented no evidence, to the best of my
understanding, that the firms would have disintegrated anyway later. You
interpret his sentence differently, and short of asking the author, I doubt
there is anyone to determine which interpretation is the one intended by
Vogel (if either are!). I can quote that entire section if it would be
valuable.

> >My original question was a simple one: don't you think TV played a
> >significant role in the end of the Golden Age? Your original answer was
> >to ask me, the questioner, to support my conjecture. I've now provided
> >two sources that do so.
>
> Not at all accurate. Your original position was that television was THE cause
> of the decline of the movie industry. Your two quotes are merely others’
> opinions—which you are correct, is the consensus of almost everyone who writes
> about this subject. However, I’ve yet to see anything like a convincing
> argument that it is so.

Okay, (mostly) fair enough. I said "largely", but my intent wasn't to argue
that position proactively as much as it was to ask if there really weren't a
other explanations that might make a whole lot more sense than divestiture.
Had I asked the question that way, or had your reply to my query been that
the consensus opinion was yes, I imagine this thread would have died quickly.

It is correct that television was, and remains, the "obvious" other
explanation that leaped into my mind. My original post was a question that
you forced me to flesh out before answering. I would have preferred to hear
the answer instead of having to study the question myself, form an opinion,
take the time to write it up, watch you poke at it, and only later say
happens to be "the consensus of almost everyone who writes about this
subject". I'm willing to entertain the notion that the consensus is wrong,
but it at least would have spared me the effort to read enough to figure out
what consensus opinion actually is... At this point I do have some questions
I'd like to ask.

> [Which, as I have said before, is a change in your argument]

I suppose it could be interpreted in that way, though that's not my intent.

The questions I want to ask about a Coasian explanation of the effects of
vertical disintegration are:
(1) is there any direct evidence of the transaction costs that were
avoided by vertical integration? (such as what were they
after the divestiture?)
(1a) in the absense of direct measurement of these costs, what would a
reasonable estimate of these costs be per feature film? (it may
take a rule of thumb calculation such as {w screens * 1 man / x screens
* y $wages / man / year} / {z feature films / year))
(2) how large are these transaction costs relative to the cost of a
feature file pre- and post-divestiture?
(3) how large would the (arc) elasticity of feature film demand have to
be to justify the decline in attendance, and is it a reasonable value?

I'd love to see you deflate the conventional wisdom; I'd find that quite
exciting. I'm aware you've also mentioned economies of scale (something
about stock footage?) in passing, and I would enjoy seeing an exposition
of possible economies of scale and/or scope. Obviously (1a) may presume
more interest on your part than is fair, but I think the jist of the
questions is clear.

SUSUPPLY

unread,
Mar 10, 1999, 3:00:00 AM3/10/99
to
dav...@my-dejanews.com asks:

>Before you take the time to pick this post apart, please read the questions
>I ask at the end of the post. I'd much rather see a response to them than
>a response to the other things I say in between here and the questions I
>ask at the end. What follows is based on a desire to encourage future
>debate on the questions and issues in which I am most interested rather
>than the nitty-gritty of he-said, she-said.

Okay, since it’s getting unmanageable, I’ll only respond to things that look
like new arguments.

>Just one note: under a Coasian argument in favor of vertical integration,
>it's not the revenues that matter, it's the higher transaction costs. These
>reduce the profitability of production, and formerly marginal pictures won't
>be produced.

[That's what I was getting at]

> The theater profits on food are irrelevant, I think. (You
>use revenue where I think you should be using profit.)

[no, profits result from revenues]

As for why, see
>below:
>
>> Something like 40% of a theatre’s profit came from sales of snacks
>> pre-divestiture. Probably more now. The revenues from the popcorn have to
>be
>> drawn indirectly now by the studios through higher rental prices.
>
>This is a problem because ... ?

Higher transaction costs, which reduce profits to both theatre owner and film
producer.

>Vogel notes that competition "for the best pictures out of a diminished
>supply then raised prices beyond what many owners of small theaters could
>afford" (37).

Right, the anti-trust suits didn’t help the independent owners either. As
usual it was the lawyers who profitted.

>Even if all the profits couldn't be extracted after
>divestiture, why didn't the sale price of the theaters reflect these
>discounted future profits? (There may be a reason - I don't know the
>institutional detail of the actual divestiture.)

The market participants hadn’t read Coase? Don't forget, the studios HAD to
sell.

>I really think the story is strongest when you stick to transaction costs
>and, if relevant - you haven't mentioned them yet - economies of scope.

Actually I did, see below.

>> This is the point I was making to Kennel. How did the government’s actions
>> help consumers? Obviously not at all. You’re merely arguing the
>anti-trust
>> actions didn’t make things any worse than they would have been anyway.
>Hardly
>> a justification for the costs of the lawsuits, even if true.
>
>Well, if it is true that the actions didn't help consumers, then you're
>correct that the case was ill-justified.

I see no evidence of any gain for consumers.

>Certainly the decline in
>attendance and the rise in price suggest that, if demand didn't shift,
>supply shifted in/up. Worth noting: I'm not going to argue that demand
>shifted out, so to get a price increase, it should take some inward/upward
>movement in supply in any event. (I'm not sure how well, if at all, the
>standard supply and demand graph fits into this industry, but it's certainly
>a decent place to start!)

Absolutely.

>I didn't say entirely. If I've ever given the impression I felt otherwise,
>I apologize. I'm really after the issue of how strong the antitrust
>explanation is relative to others, such as television. Above you mentioned
>others like sports.

The problem with that is that "others, such as television" are intertwined with
the anti-trust decisions. It may well be that the divestiture led to studios
laying off actors, cameramen, set designers, etc. Who, then would quite
logically look for work in television. Which combined with radio performers
such as Jack Benny, and Burns and Allen, would constitute a talent pool
attractive to potential TV viewers. With fewer movies being produced you have
your Gordian Knot of cause and effect.

>Your original statement was "Anyone favoring the recent re-invigoration of
>anti-trust policy, ought to pass over the results of prior actions against
>Hollywood, and hope the public doesn't remember." Now you've suggested
>the effects of the antitrust policy are not the actual things that have
>been measured and listed, but a subset or portion of those.

I was just pointing out the flaws in the movie-stay at home dichotomy.

Granted, it
>would be hard to quantify, but then it's worth noting there are other
>forces at work, no?

Right, as I said in my above paragraph. So my original statement still stands.

Really, the question is whether the anti-trust decision had a positive impact
for consumers, or not.

>> As for my anecdotes, think of it as eyewitness testimony. I’m just trying
>to
>> help you out, since you weren’t alive at the time. Also, you have agreed
>with
>> me that television is not a good substitute for film.
>
>I appreciate it, but I am not going to decide that what you admit below
>is a consensus opinion is wrong based solely on your experience and
>wisdom. I think that's fair, don't you? I don't mean to slight you, but
>at the same time, I'm not going to assume the opinions of experts are
>wrong without some compelling evidence.

Is that any more fair than assuming the others’ opinions are correct when they
don’t offer evidence or analysis? Especially since we know that radio
performers did move very quickly into early television. My (admittedly
limited) reading on this subject finds only the "television did it" idea
accepted as if it were self-evident.

>I haven't been noting where I snipped for brevity's sake, but it's worth
>noting that (to the best of my understanding of Coase) your summary of
>his argument was good.

Thank you.

>> >Your interpretation is to blame the messenger for the message, or the
>> >catalyst for the reaction.
>>
>> [I have to admit, that sentence completely baffles me]
>
>I'm not a chemist, but my recollection is that a catalyst is a substance
>that speeds a reaction that would occur in the absense of the catalyst,
>just at a lower rate.

You’re right about how catalysts work, but I still don’t see how that applies
to what I posted.

>> Sorry, it is quite simple. Read the above and note that Vogel is stating a
>> fact, and then offering an "opinion" (your word earlier).
>>
>> The "fact" is that the decree of the Supreme Court caused "a major
>structural
>> change". He then speculates it "would have eventually happened anyway".
>> There is no way for us to know if that is so.
>
>Aha. That sentence concludes an entire paragraph describing the decline of
>independent theaters, the fall in movie production, the rise in the rental
>price for theaters, and the reduction in moviegoing. I read all of these to
>be his "structural change"; otherwise the "thus" doesn't make any sense
>(IMHO).

No, the structural change was the divestiture, clearly (that was the whole idea
of the Court; mandated structural change). The things you mention followed
from the structural change, they weren't ordered by the Court--and I hope they
were horrified when it happened..

Here’s a thought experiment, suppose there were no anti-trust laws. What would
have happened? Might not the movie studios also have produced television
programs? Perhaps creating their own networks? Would profits from television
helped keep theatre ticket prices low? As I said, we can never know.

>Vogel has certainly presented no evidence, to the best of my
>understanding, that the firms would have disintegrated anyway later.

[Nor does anyone else, to the best of my knowledge]

>You
>interpret his sentence differently, and short of asking the author, I doubt
>there is anyone to determine which interpretation is the one intended by
>Vogel (if either are!). I can quote that entire section if it would be
>valuable.

Go ahead, but it seems like a simple enough sentence to me.

>It is correct that television was, and remains, the "obvious" other
>explanation that leaped into my mind.

From someone who wasn’t alive at the time, that is probably not surprising. My
experience was that TV was a substitute for radio.

>My original post was a question that
>you forced me to flesh out before answering. I would have preferred to hear
>the answer instead of having to study the question myself, form an opinion,
>take the time to write it up, watch you poke at it, and only later say
>happens to be "the consensus of almost everyone who writes about this
>subject". I'm willing to entertain the notion that the consensus is wrong,
>but it at least would have spared me the effort to read enough to figure out
>what consensus opinion actually is... At this point I do have some questions
>I'd like to ask.

No pain. No gain.

>The questions I want to ask about a Coasian explanation of the effects of
>vertical disintegration are:
>(1) is there any direct evidence of the transaction costs that were
> avoided by vertical integration? (such as what were they
> after the divestiture?)

Not that I know of, it’s just the logic of Coase’s monograph as I understand it
(but Grinch is the expert on Coase).

>(1a) in the absense of direct measurement of these costs, what would a
> reasonable estimate of these costs be per feature film? (it may
> take a rule of thumb calculation such as {w screens * 1 man / x screens
> * y $wages / man / year} / {z feature films / year))
>(2) how large are these transaction costs relative to the cost of a
> feature file pre- and post-divestiture?
>(3) how large would the (arc) elasticity of feature film demand have to
> be to justify the decline in attendance, and is it a reasonable value?

I don’t have any idea, and haven’t the time nor the expertise to figure it out.
However, I can say that my experience in business tells me that transaction
costs often are prohibitively high.

>I'd love to see you deflate the conventional wisdom; I'd find that quite
>exciting. I'm aware you've also mentioned economies of scale (something
>about stock footage?) in passing, and I would enjoy seeing an exposition
>of possible economies of scale and/or scope. Obviously (1a) may presume
>more interest on your part than is fair, but I think the jist of the
>questions is clear.

Stock footage was warehoused and used in film after film. If you produce ten
movies with car crashes, it is better to destroy one car than ten. Same
principle for Indians on horses charging wagon trains, bombing of military
targets, submarines sneaking up on freighters.
You can see it for yourself on American Movie Classics. There is one well
known scene of a flaming jeep, driverless, motoring down an airfield runway on
only two wheels, that is in several WWII movies.

Other examples are sets used over and over (western ghost towns, saloons,
ranches, Main Streets). Mechanical crocodiles in Tarzan movies. Basic
assembly line production, just keep using the facilities and spread the
overhead over a large volume.

Of course, if you have your own theatres you can not only avoid some
negotiating and transaction costs, you will be assured of screens on which to
show your films. Less risk.

You might even have been able to buy popcorn and candy in bulk for several
theatres, and get lower prices, but I don’t know for sure.

Before I go:

An e-mail correspondent directs me to Slate magazine where I find this from
James Surowiecki:

"It's ironic that on the same day Intel announced it was settling the Federal
Trade Commission's lawsuit against it, Advanced Micro Devices--Intel's chief
competitor--announced it was going to report "significant" losses in its first
quarter because of a major design flaw in its key microprocessor.

"What the AMD announcement underscored was the flimsiness of the central pillar
of the FTC's case against Intel, which is that the chipmaker has monopoly power
in the microprocessor market. Intel's dominance is not monopolistic dominance
in any sense that matters. Its dominance is the product of its own
manufacturing and design excellence and of the manufacturing and design
incompetence of its competitors. In settling the suit before it went to trial,
Intel may have made the right move from a business standpoint. But from an
intellectual and legal standpoint, it conceded more than it needed to."

Which nicely sums up the reason why we keep reliving "Groundhog's Day". The
incentives which face the actors, not benefits to consumers.

Patrick


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