new possibilities for movie theaters

Movie theaters potentially can feature profitably more independent works in coming years.  U.S. major-studio films had an average negative cost (cost to production of final master) of $71 million per film in 2007. U.S. major-studio affiliates and subsidiaries creating narrower-market films had average negative cost of $48 million per film.[1]  New digital tools allow independent producers to make high-quality video productions much more cheaply.  The reduction in production costs will make a wider variety of high-quality work available for movie theater exhibition.

Promotion of films is shifting away from expenditure in traditional media.  From 2001 to 2007, U.S. major-studio promotional budgets shifted from 55%  to 46% of expenditure placed in traditional media (newspaper and television ads).  For narrower-market major-studio affiliates and subsidiaries, the corresponding shift was from 65% to 43%.[2] By 2009, the shift is almost surely larger, and it is also likely to be larger for independent producers not affiliated with major studios. An amateur wedding-party video that was posted on YouTube attracted more than 10 million views in less than a week and provided a major boost to professional content used (without explicit license) in the amateur video. Competition for attention is intensifying.  Average promotional expenses are likely to rise, not fall.  But producers skilled or lucky in new-media promotion can attract a large number of persons to their works.

The shift to digital cinema can make movie theaters more accessible to independent producers.  From year-end 2004 to year-end 2008, the number of digital cinema screens world-wide has grown from 334 to 8614. Recent signed deals will raise within the next three to five years the share of digital cinema screens in the U.S. to about 50% of total U.S. screens.[3] The total cost of printing and distributing analog feature films to U.S. theaters in 2007 was about a billion dollars.[4]  Digital cinema can make the incremental cost of distributing audio-visual works to exhibition theaters very small. With a good industry structure, high-value independent films should be able to get distributed to movie theaters at a cost that provides incremental revenue to all parties in the digital distribution chain.[5]

Movie theaters historically have been slow to change their business model.  They will lose an important opportunity if they are slow to recognize the possibilities for independent content.

*  *  *  *  *

Data: Movie industry economic data online spreadsheet (Excel version).


[1] Data from MPAA, Entertainment Industry Market Statistics, 2007.

[2] Id.  For the re-organized and analyzed data, see movie industry economic data spreadsheet.  The 2008 MPAA report omitted data on production costs and promotional expenses.  The likely direction of these statistics doesn’t require much insight.

[3] For the data through year-end 2008, see MPAA, Theatrical Market Statistics, 2008.  Recently Sony signed a deal to equip all 4,628 AMC theater screens (nearly all in the U.S. and Canada) with 4k digital cinema systems by 2012, and another deal to equip all 6,763 Regal Entertainment Group’s screens (all in the U.S.) with 4k digital cinema systems within the next three to five years. Texas Instruments also recently signed a deal to equip all Cinemark screens (3,814 screens in the U.S. and 1,032 in Latin America) with digital cinema equipment.  For U.S. screen data and share calculation, see movie industry economic data spreadsheet.

[4] See calculation of the estimate in the movie industry economic data spreadsheet.

[5] Digital cinema also enables other new content opportunities, such showing of live events and better-targeted on-screen advertising.  About two-thirds of U.S. movie screens already show some on-screen ads.

economic outlines of FCC price-cap regulation

The U.S. Federal Communications Commission (FCC) has since 1991 used price caps to regulate jurisdictionally interstate rates of large, incumbent telephone local-exchange companies (ILECs). Since 1994, the amount of revenue subject to this price-cap regulation has fallen an estimated 19%. Reductions in per-minute rates associated with originating and terminating interstate traffic have decreased price-cap revenue.  The falling number of ILEC switched access lines since the early 2000’s also has reduced price-cap revenue.  In addition,  grants of petitions to remove revenue from price caps have lessened price-cap regulated revenue.

Major trends under FCC price-cap regulation have been a reduction in per-minute telephone access rates and an increase in flat rates. An broad aggregate of per-minute access rates has fallen 90% since 1994.  End-user common line charges (EUCLs), also called subscriber line charges (SLCs), are FCC-regulated flat monthly fees on local telephone bills.  A large share of EUCLs for primary residential and single-line business lines show an an aggregate increase of  66% since 1994. Most costs of telephone service are not traffic-sensitive.  Hence a shift in revenue weight from per-minute rates to flat rates makes economic sense.

FCC price-cap regulation is quite intricate. While EUCLs are set at specific levels through the regulatory process, they are also included in price caps.  EUCL revenue has risen from 30% of total price cap revenue in 1994 to 50% in 2009. Thus the FCC retains direct control over prices accounting for about 50% of the revenue subject to price caps.  FCC price caps also include some complicated rate-of-return provisions known as revenue sharing and low-end adjustments.  Academic models of price caps provide little insight into FCC price caps in actual operation.

To foster better understanding of FCC price caps in actual operation and of local U.S. telephone access rates, I’ve put together a large dataset of price-cap telephone companies’ demand, rates, and revenues.  An archive of all Tariff Review Plans for all price-cap telephone companies, 1992-2009, is also publicly available.  Please analyze, extend, and improve these data, and share the results of your work publicly.

Note:  Here are the online summary data of U.S. interstate voice access revenue, rates, and demand (Excel version).

COB-37: bureaucratic graces

Bureaucrats typically make whatever is done or said appear to result from tremendous effort and hours of discussion and deliberation.  This appearance of ponderousness, stiffness, toil, and seriousness is not an end in itself.  Merely subtracting from the attractiveness of life isn’t rational.  Bureaucrats, who highly honor rationality, actually cultivate bureaucratic impressions in order to serve better their organizations’ leaders.  The basic organizational problem was clearly recognized nearly a half-millennium ago:

they [organizational leaders] have the greatest lack of what they would most need in abundance — I mean, someone to tell them the truth and make them mindful of what is right: because their enemies are not moved by love to perform these offices, but are well pleased to have them live wickedly and never correct themselves; and, on the other hand, their enemies do not dare to speak ill of them in public for fear of being punished.  Then among their friends there are few who have free access to them, and those few are wary of reprehending them for their faults as freely as they would private persons, and, in order to win grace and favor, often think of nothing save how to suggest things that can delight and please their fancy, although these things be evil and dishonorable; thus, from friends these men become flatterers, and, to gain profit from their close association, always speak and act in order to please, and for the most part make their way by dint of lies that beget ignorance in [the organizational leader’s] mind….[1]

A bureaucrat use the apparent weight of his work and the size of his task forces and project teams to make palatable a better relationship with an organizational leader:

the aim of the perfect [bureaucrat]…is to win for herself, by means of the accomplishments ascribed to her…the favor and mind of the [organizational leader] whom she serves so that she may be able to tell her, and always will tell her, the truth about everything she needs to know, without fear or risk of displeasing her; and that when she sees the mind of her [organizational leader] inclined to a wrong action, she may dare to oppose her and in a gentle manner avail herself of the favor acquired by her good accomplishments, so as … she sees to it that her [organizational leader] is deceived by no one, listens to no flatterers or slanderers or liars, and distinguishes good from evil….[2]

So the next time you condemn superficial impressions of superfluous bureaucracy, pause and strive to recognize the virtues of natural bureaucratic graces.

Other bureaucratic matters in the docket for this month:

Martin Westlake notes the beauty of a well-prepared meeting room.  You should, too.

The Traveling Chemist complains that a car rental employee followed regulations in requiring an insurance certificate for the rental car.  If more persons scrupulously observed regulations, the global financial markets would not have melted down.

Mark Carlton at An Honest Debate had a similar experience with a bureaucratic Treasurer in Kansas.  He concludes:

please understand my frustration and anger was not the Treasurer’s fault. She was just doing her job. Unfortunately for me, she insisted on do it right.

You can count on bureaucrats to do the job right.

Jolaides at Jordan Journals recently described a bureaucratic procedure at the Jordanian Ministry of Finance. Jolaides explains:

We get there and go from one counter to another and finally arrive at a point where a gentleman in front of a computer looked up the number and told us to go to the next desk. They said ok you have to wait for ten minutes so that the file can be brought up. The computer seems to be redundant! We wait for awhile, the file arrives. Then the guy looks at me and says we have to have a paper to prove you are alive!!! What????? I said here is my id and here I am, what more do you want?

Documentation. There must be a transfer of documents.

Ethan Zuckerman reports on Tim O’Reilly talking about government 2.0.  Mr O’Reilly highlighted the need to appreciate government failure:

The government tends to treat projects like the Apollo 11 rocket launch: “Failure is not an option.” It should be. We fail all the time, and we need to learn from it.

Government bureaucrats have very high performance standards, and almost all government bureaucrats receive an “above average” performance rating. Failure just isn’t very frequent. I know of no failures that occurred last year when leading governments upgraded from government 2.0 to government 2.1.

Bex at Listening to Africa, on a two-year bike ride through Africa, describes getting a visa at the Mauritanian border:

The passport came back with a three day stamp in it. “You must extend the visa in Nouakchott [Mauritania’s capital, in the south of the country] in the next three days.” But we need five days to cycle to Nouakchott – is there another possibility? “It is too hot to cycle in Mauritania. You must get the bus. It is better.”

This last sentence he said in the special tone taught at Bureaucrat Schools around the globe, where any words at all can be spoken and the meaning is always, unequivocally: “You will never win against the might of the bureaucratic machine, which, by the way, your country did so much to export to the world. If you insist on trying, your spirit will be crushed, your will will be broken and you will die a wretched death. And I will still be here, holding the stamp and the official looking bits of paper. Now go away.” So we went away.

Sadly, many bureaucrats never get the opportunity to attend Bureaucrat School.  More financial support for education would help to raise bureaucrats’ status.  But at least bureaucrats can find inspiration every month right here at the Carnival of Bureaucrats.

That’s all for this month’s Carnival of Bureaucrats. Nominations of posts to be considered for inclusion in next month’s carnival should be submitted using Form 376: Application for Bureaucratic Recognition.


[1] Castiglione, Baldassare (1528) The Book of the Courtier [Il Cortegiano] trans. Charles S. Singleton (Garden City, NY: Doubleday, 1959) Bk 4.6 (pp. 290-1).  In 1524, Castiglione began serving as a high bureaucratic official for the Vatican (Apostolic Nuncio to Spain).  The Book of the Courtier was an early modern best-seller.  From the original Italian, it was rapidly translated into Spanish, German, French, and English.  Between 1528 and 1616, 108 editions were published and its early-modern readership has been estimated as 300,000.  See Burke, Peter (1996) The Fortunes of the Courtier: the European reception of Castiglione’s Cortegiano. Penn State series in the history of the book (University Park: Pennsylvania State University Press) p. 153.

[2] Castigione (1528 [1959]) Bk 4.5 (pp. 289-90).  I have changed pronouns’ gender in the quoted passage to make it more inclusively relate to modern bureaucracy.