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Copyright © 2014 by Sports Career Consulting, LLC Lesson 3.3 – The Financial Structure of Entertainment Business.

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Presentation on theme: "Copyright © 2014 by Sports Career Consulting, LLC Lesson 3.3 – The Financial Structure of Entertainment Business."— Presentation transcript:

1 Copyright © 2014 by Sports Career Consulting, LLC Lesson 3.3 – The Financial Structure of Entertainment Business

2 Entertainment Business Revenue Streams Similar to sports products in that both products can be developed into merchandise, used for promotion, and create profit through sales of ancillary products, licensing, and royalties Copyright © 2014 by Sports Career Consulting, LLC LESSON 3.3 Intro to Basic SEM Principles

3 Ancillary products are products related to or created from the core product Copyright © 2014 by Sports Career Consulting, LLC LESSON 3.3 Intro to Basic SEM Principles Entertainment Business Financial Structure

4 Entertainment Business Revenue Streams Because there are so many different types of entertainment products, the revenue generated by the marketing of those products is very diverse Copyright © 2014 by Sports Career Consulting, LLC LESSON 3.3 Intro to Basic SEM Principles

5 LESSON 3.3 Intro to Basic SEM Principles Entertainment Business Financial Structure A single blockbuster Hollywood film can generate a number of ancillary products:  Videos, DVDs, Electronic games  Cable TV and Pay-Per-View Rights  Licensed Merchandise  Film can be the basis for a video game, TV series, book, or apparel (toys, games, apparel, etc) The sale of those ancillary products makes a profit for the film creators in the form of sales, royalties and licensing fees Copyright © 2014 by Sports Career Consulting, LLC

6 LESSON 3.3 Intro to Basic SEM Principles Consider the Star Wars franchise of films Copyright © 2014 by Sports Career Consulting, LLC Videos, DVDs, CDs & Video Games

7 LESSON 3.3 Intro to Basic SEM Principles Consider the Star Wars franchise of films Copyright © 2014 by Sports Career Consulting, LLC Licensed Merchandise and Apparel

8 LESSON 3.3 Intro to Basic SEM Principles Consider the Star Wars franchise of films Copyright © 2014 by Sports Career Consulting, LLC Licensed Merchandise and Apparel

9 LESSON 3.3 Intro to Basic SEM Principles Consider the Star Wars franchise of films Copyright © 2014 by Sports Career Consulting, LLC Licensed Merchandise and Apparel

10 Royalties are payments made to the owner of copyrighted work for use of their material Copyright © 2014 by Sports Career Consulting, LLC LESSON 3.3 Intro to Basic SEM Principles Entertainment Business Financial Structure

11 Songwriters like Bob Dylan and Paul McCartney receive compensation when other artists “cover” (record or perform their own version) of the original song Copyright © 2014 by Sports Career Consulting, LLC LESSON 3.3 Intro to Basic SEM Principles

12 LESSON 3.3 Intro to Basic SEM Principles Entertainment Business Financial Structure Copyright © 2014 by Sports Career Consulting, LLC Rolling Stone magazine reported in that the show Glee pays an average of $15,000 to $30,000 per song in licensing fees, with the biggest names getting more For example, a Billy Squier tune called “The Stroke”, originally released in 1981, was heavily sampled in Eminem’s 2013 hit “Berzerk”, featured on his hit album Marshall Mathers 2. Eminem’s success (the album debuted at number one on the US Billboard 200, had the second highest album sales in 2013, and the album has sold 2,155,247 as of July of 2014) will be shared long term with Billy Squier in the form of royalties.

13 LESSON 3.3 Intro to Basic SEM Principles Entertainment Business Financial Structure As reported by the New York Times, former reggaetón artist Hector Delgado and the rapper Jayson Musson were both told by friends, after the fact, that their voices appeared on the 2013 breakout hit, “Harlem Shake.” Both artists are featured prominently in the song but said their work was sampled without permission, and both negotiated to get a cut of the payday from the song’s overwhelming viral success. Copyright © 2014 by Sports Career Consulting, LLC

14 LESSON 3.3 Intro to Basic SEM Principles Entertainment Business Financial Structure Also according to a New York Times report, Pandora and Sirius XM paid out nearly $656 million in performance royalties last year Copyright © 2014 by Sports Career Consulting, LLC

15 Entertainment Business Revenue Streams A typical hollywood marketing strategy includes planning the merchandising and product tie-ins before planning the casting and film production schedule Copyright © 2014 by Sports Career Consulting, LLC LESSON 3.3 Intro to Basic SEM Principles

16 Copyright © 2014 by Sports Career Consulting, LLC LESSON 3.3 Intro to Basic SEM Principles Product Placement Hollywood Marketing Strategy Increasingly, studios plan the merchandising, products, DVD and electronic games and toys they will tie in with their proposed film before the actors and other technical staff are determined Movies seen as revenue generators, artistic statement is secondary

17 Copyright © 2014 by Sports Career Consulting, LLC LESSON 3.3 Intro to Basic SEM Principles Product Placement Hollywood Marketing Strategy If a film can be developed into a franchise (a series of films which will tie together), it will be!

18 Copyright © 2014 by Sports Career Consulting, LLC LESSON 3.3 Intro to Basic SEM Principles Product Placement Hollywood Marketing Strategy In 2011, Harry Potter edged out Star Wars to become the top-grossing franchise of all time. By the summer of 2013, the eight Potter movies have accumulated $7.7 billion in worldwide box office sales. The top five film franchises in movie history include Harry Potter, James Bond, Marvel’s Cinematic Universe, Star Wars and The Lord of Rings series.

19 Copyright © 2014 by Sports Career Consulting, LLC LESSON 3.3 Intro to Basic SEM Principles Product Placement Hollywood Marketing Strategy Film producers plan original merchandise tied to the film and also product placement of existing products within the film.

20 Product placement is an advertising approach in which commercial products and services are used within the contest of certain media where the presence of a particular brand is the result of an economic exchange Copyright © 2014 by Sports Career Consulting, LLC LESSON 3.3 Intro to Basic SEM Principles Entertainment Business Financial Structure

21 Copyright © 2014 by Sports Career Consulting, LLC LESSON 3.3 Intro to Basic SEM Principles Product Placement Commonly referred to as product “tie-ins” or product integration When the featured product does not pay for the exposure, it is referred to as a product plug

22 LESSON 3.3 Intro to Basic SEM Principles Entertainment Business Financial Structure Copyright © 2014 by Sports Career Consulting, LLC Not all product appearances are PAID

23 LESSON 3.3 Intro to Basic SEM Principles Entertainment Business Financial Structure Copyright © 2014 by Sports Career Consulting, LLC Of the 40 top box-office films in the US Box Office in 2011, nearly 43 percent featured Apple product placements, including iPads, MacBooks, and iMacs despite the fact that Apple allegedly never pays for product placement.

24 LESSON 3.3 Intro to Basic SEM Principles Entertainment Business Financial Structure Copyright © 2014 by Sports Career Consulting, LLC However, Brandchannel found that for the first nine months of 2012, Apple only appeared in 17% of top- grossing films, compared to 43% in That also represented Apple’s lowest appearance rate since 2004, when the brand’s products showed up in just 11% of top films.

25 LESSON 3.3 Intro to Basic SEM Principles Entertainment Business Financial Structure Copyright © 2014 by Sports Career Consulting, LLC World Wrestling Entertainment (WWE) World Heavyweight Champion, Phillip Jack Brooks (a.k.a. CM Punk) has a Pepsi logo tattooed on his left shoulder and is reportedly not a paid endorser of Pepsi products

26 LESSON 3.3 Intro to Basic SEM Principles Entertainment Business Financial Structure Copyright © 2014 by Sports Career Consulting, LLC Hit AMC series Mad Men featured Koss brand headphones in a 2013 episode even though the company had no idea it was written into the script. Koss executives revealed they had no input into the storyline, and only found out after watching the show along with the other 3.4 million Americans who tuned in to watch that particular episode.

27 LESSON 3.3 Intro to Basic SEM Principles Entertainment Business Financial Structure Product placement is one of the fastest growing advertising mediums in the entertainment industry Copyright © 2014 by Sports Career Consulting, LLC

28 LESSON 3.3 Intro to Basic SEM Principles Entertainment Business Financial Structure Global product placement spending increased 11.7% to $8.25 billion in 2012, as marketers upped their investments in branded entertainment for the third consecutive year, according to PQ Media Copyright © 2014 by Sports Career Consulting, LLC Burger King in a video game

29 LESSON 3.3 Intro to Basic SEM Principles Entertainment Business Financial Structure In-game product placements generated $77.7 million globally in 2006 and are expected to top $1 billion in worldwide in-game advertising spending by 2014 Copyright © 2014 by Sports Career Consulting, LLC Worldwide In-Game Advertising Expenditures (in Millions of US Dollars) 1, Bil

30 LESSON 3.3 Intro to Basic SEM Principles Entertainment Business Financial Structure Microsoft partnered with Chevrolet as the first ad partner attached to its Kinect Xbox 360 gaming interface when Chevy's Volt electric car will appear as a product placement in "Kinect Joy Ride," one of the first games designed for the popular console Copyright © 2014 by Sports Career Consulting, LLC

31 LESSON 3.3 Intro to Basic SEM Principles Entertainment Business Financial Structure Xbox One, the new gaming console from Microsoft, has been optimized for advertising within its dashboard Copyright © 2014 by Sports Career Consulting, LLC

32 LESSON 3.3 Intro to Basic SEM Principles Entertainment Business Financial Structure After the commercial success of his hit “Gangnam Style”, PSY was reportedly paid $1 million for a three second spot in his follow up video for the song, “Gentleman”, by a video game developer. Several other brands are also featured in the video. Copyright © 2014 by Sports Career Consulting, LLC

33 LESSON 3.3 Intro to Basic SEM Principles Entertainment Business Financial Structure “Man of Steel,” the highly anticipated reboot of the Superman franchise, earned $160-million from product placements from more than 100 brands, shattering the record held by “James Bond Skyfall” which generated a then-record $45 million in endorsements in Copyright © 2014 by Sports Career Consulting, LLC

34 LESSON 3.3 Intro to Basic SEM Principles Entertainment Business Financial Structure The concept has become so prominent that one filmmaker (Morgan Spurlock from Super Size Me) chose to create an entire film based on the idea of product placement in which the documentary (called The Greatest Movie Ever Sold) follows his efforts to fund the entire movie through corporate product placement deals Copyright © 2014 by Sports Career Consulting, LLC

35 LESSON 3.3 Intro to Basic SEM Principles Entertainment Business Financial Structure Copyright © 2014 by Sports Career Consulting, LLC Product placement is presenting itself in new, more aggressive forms “Brands are tripling their revenue (just) because of a mention in a Jay-Z song, so we go after the companies and partner them with the demographic. If you hear an artist talking about his new Fila sneakers, you’re going to think about it when you go shopping.”

36 LESSON 3.3 Intro to Basic SEM Principles Entertainment Business Financial Structure Copyright © 2014 by Sports Career Consulting, LLC The selfie 2014 Oscars host Ellen DeGeneres took during the show with a Samsung mobile device sparked a lot of conversation and it was later revealed that, as part of its sponsorship and ad pact for the Oscars with ABC, Samsung previously negotiated to have its Galaxy smartphone integrated into the show

37 LESSON 3.3 Intro to Basic SEM Principles Entertainment Business Financial Structure Copyright © 2014 by Sports Career Consulting, LLC

38 LESSON 3.3 Intro to Basic SEM Principles Entertainment Business Financial Structure Copyright © 2014 by Sports Career Consulting, LLC In celebration of the 25th anniversary of the Discovery Channel’s wildly successful “Shark Week” program, Volkswagen created a "Volkswagen Beetle Shark Observation Cage" to replace the standard shark cage used in prior airings of the show

39 LESSON 3.3 Intro to Basic SEM Principles Copyright © 2014 by Sports Career Consulting, LLC More and more record labels are looking for ways to recoup lost revenue through declining CD sales and product placement provides a new avenue for generating revenue. According to a report published in Rolling Stone, Britney Spears made a half million dollars from the product placement in her music video for "Hold It Against Me,” which featured products such as a Sony television, Make Up Forever eye shadow and dating website Plenty of Fish Entertainment Business Financial Structure

40 LESSON 3.3 Intro to Basic SEM Principles Entertainment Business Financial Structure Copyright © 2014 by Sports Career Consulting, LLC The 9.5 minute music video for Lady Gaga’s hit song “telephone” featured product placement for 10 different brands, including Virgin Mobile, Miracle Whip, Diet Coke, HP and Wonderbread (among others) Not all artists are advocates of product placement as pop star M.I.A. had this to say about Gaga’s “telephone” video: “Lady Gaga plugs 15 things in her new video. Dude, she even plugs a burger! That’s probably how [record labels] are making money right now—buying up the burger joint, putting the burger in a music video and making loads of burger money.”

41 LESSON 3.3 Intro to Basic SEM Principles Entertainment Business Financial Structure Copyright © 2014 by Sports Career Consulting, LLC

42 LESSON 3.3 Intro to Basic SEM Principles Copyright © 2014 by Sports Career Consulting, LLC “We Can’t Stop,” the first single from Miley Cyrus’ 2013 album release, topped the iTunes singles charts in 24 countries within 10 hours of its release, no doubt giving a boost to the many brands that appeared in the video Entertainment Business Financial Structure

43 LESSON 3.3 Intro to Basic SEM Principles Copyright © 2014 by Sports Career Consulting, LLC Even authors and publishing companies engage in product placement. For example, auto brands make heavy appearances in the Twilight books (Volvo is mentioned 16 times in the original book and six times in Eclipse). Entertainment Business Financial Structure

44 LESSON 3.3 Intro to Basic SEM Principles Copyright © 2014 by Sports Career Consulting, LLC Gordon Hodge, who follows the comic books business for Thomas Weisel Partners, told the Wall Street Journal that the product placement in comic books “market is worth about $400 million to $450 million, with Marvel controlling about 37% and DC capturing around 33%.” Marvel Entertainment has placed the Nike swoosh onto a character’s T-shirt and on a car door in several of its popular comic books (including “New X-Men”) Entertainment Business Financial Structure

45 LESSON 3.3 Intro to Basic SEM Principles Copyright © 2014 by Sports Career Consulting, LLC Entertainment Business Financial Structure

46 LESSON 3.3 Intro to Basic SEM Principles Does Product Placement Work? The decision to feature Reese's Pieces in ET catapulted the product- placement craft into the Hollywood mainstream. Sales of the candy subsequently increased 80%. Copyright © 2014 by Sports Career Consulting, LLC

47 LESSON 3.3 Intro to Basic SEM Principles Does Product Placement Work? Etch A Sketch, Mr. Potato Head and Slinky were toys in the popular animated movie. Etch A Sketch sales increased 4,500 percent; Mr. Potato Head sales increased 800 percent; Slinky, out of business for 10 years, made a comeback after getting deluged with 20,000 orders! Copyright © 2014 by Sports Career Consulting, LLC

48 LESSON 3.3 Intro to Basic SEM Principles Does Product Placement Work? A Billabong brand jacket featured in the second Twilight film ignited a buying frenzy. The brand quickly sold out of the jacket and it could later be found on eBay going for many times its retail price. Copyright © 2014 by Sports Career Consulting, LLC

49 LESSON 3.3 Intro to Basic SEM Principles Does Product Placement Work? USA Today reported that, when Jaguar automobiles figured prominently in the story line of a 2012 episode of “Mad Men”, the brand experienced a 96.27% lift in "content consumption" (how often people were talking about the brand on digital devices), despite the fact that the brand wasn’t portrayed in a positive light. Copyright © 2014 by Sports Career Consulting, LLC

50 LESSON 3.3 Intro to Basic SEM Principles Does Product Placement Work? That’s not to say product placement isn’t a risky endeavor for both the brand and the film producer. Copyright © 2014 by Sports Career Consulting, LLC

51 LESSON 3.3 Intro to Basic SEM Principles Does Product Placement Work? Gitesh Pandya, editor of BoxOfficeGuru.com, told Investors Business Daily that product placement activity "has been going on for so long that most consumers are used to it. The big concern is if they overdo it with too many brand partners." In the case of "Iron Man 3," the product placement for Verizon FiOS is so obvious that it comes off as crass, he says. "Their plug in the film is just shameless," Pandya said." It's just blatant promotion for the brand and it really has nothing to do with the story." Copyright © 2014 by Sports Career Consulting, LLC

52 LESSON 3.3 Intro to Basic SEM Principles Does Product Placement Work? Copyright © 2014 by Sports Career Consulting, LLC U.S. consumers who saw the fourth installment of the Transformers franchise this summer, Age of Extinction complained the product placements were awkward, summed up when a viewer wrote on one movie review site after seeing the film, “It’s disgusting to see so many ads in one movie.”

53 LESSON 3.3 Intro to Basic SEM Principles Does Product Placement Work? Copyright © 2014 by Sports Career Consulting, LLC Chinese companies who paid hundreds of thousands of dollars to have their brands featured in the film complained about the limited exposure their brands received as a result of their placement agreement. At the time this text was released, at least one was taking Paramount Pictures, the studio behind the film, to court.

54 Copyright © 2014 by Sports Career Consulting, LLC LESSON 3.3 Intro to Basic SEM Principles Product Placement Reverse Product Placement Reverse product placement occurs when real life products are developed that match products featured in a fictional context

55 LESSON 3.3 Intro to Basic SEM Principles Copyright © 2014 by Sports Career Consulting, LLC Reverse Product Placement In 2012, Staples (an office supply chain store) begain selling “Dunder Mifflin” branded copy paper products after entering a licensing agreement with NBC for the rights to use the name and images from the popular sitcom

56 LESSON 3.3 Intro to Basic SEM Principles Copyright © 2014 by Sports Career Consulting, LLC Reverse Product Placement Later in 2012, Staples began to carry more Dunder Mifflin branded products while a statement from the company suggested revenue generated by sales of the original Dunder Mifflin copy paper was “two times what we expected.”

57 LESSON 3.3 Intro to Basic SEM Principles Copyright © 2014 by Sports Career Consulting, LLC Reverse Product Placement Brandchannel.com named Willy Wonka the “greatest example of reverse product placement of all time” in commemoration of the film’s 40th anniversary (today, under the Nestlé umbrella, the Wonka candy company still produces a range of candy, from SweeTarts to Nerds, Gobstoppers to Laffy Taffy and still makes extensive use of the "golden ticket" for marketing opportunities)

58 LESSON 3.3 Intro to Basic SEM Principles Copyright © 2014 by Sports Career Consulting, LLC Reverse Product Placement To build hype for the premiere of the third season of TNT’s “Dallas”, the Ewing family unveiled its first “Ewing Energies” gas station, offering gas at deeply discounted rates in a reverse product placement that lasted just one day

59 LESSON 3.3 Intro to Basic SEM Principles Copyright © 2014 by Sports Career Consulting, LLC Reverse Product Placement A deal was announced between Frito-Lay and Wal- Mart in which 1.5 million packages of “Cheesy Poofs”, the snack made famous in Comedy Central’s cartoon show South Park, would be available exclusively at Wal- Mart stores to celebrate the show’s 15th season

60 LESSON 3.3 Intro to Basic SEM Principles Blank Slide Available for Teacher Edits Copyright © 2014 by Sports Career Consulting, LLC

61 Intro to SEM Business Principles LESSON 3.3 REVIEW (ANSWERS) 1)Recognize how entertainment companies generate revenue Copyright © 2014 by Sports Career Consulting, LLC Entertainment products are similar to sports products in that both products can be developed into merchandise, used for promotion, and create profit through sales of ancillary products, licensing, and royalties. The sale of those ancillary products makes a profit for proprietors in the form of sales, royalties and licensing fees in addition to revenues generated by the original product or service.

62 Intro to SEM Business Principles LESSON 3.3 REVIEW (ANSWERS) Copyright © 2014 by Sports Career Consulting, LLC 2) Define ancillary products and explain why they are important to the sports and entertainment industry Ancillary products are products related to or created from the core product 3) Define product placement An advertising approach in which commercial products and services are used within the contest of certain media where the presence of a particular brand is the result of an economic exchange


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