Lesson 3.3 The Financial Structure of Entertainment Business 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 Intro to Basic SEM Principles Ancillary products are products related to or created from the core product Intro to Basic SEM Principles Entertainment Business Financial Structure 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 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 Intro to Basic SEM Principles Consider the Star Wars franchise of films Videos, DVDs, CDs & Video Games Intro to Basic SEM Principles Consider the Star Wars franchise of films Licensed Merchandise and Apparel Intro to Basic SEM Principles Consider the Star Wars franchise of films Licensed Merchandise and Apparel Intro to Basic SEM Principles Consider the Star Wars franchise of films Licensed Merchandise and Apparel Royalties are payments made to the owner of copyrighted work for use of their material Intro to Basic SEM Principles Entertainment Business Financial Structure Songwriters like Bob Dylan and Paul McCartney receive compensation when other artists cover (record or perform their own version) of the original song Intro to Basic SEM Principles Entertainment Business Financial Structure Adeles recording of Lovesong featured on her smash album 21 was originally recorded by The Cure (which hit #2 on the Billboard chart in 1989). Adeles success will be shared long term with The Cure in the form of royalties. 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 Intro to Basic SEM Principles Entertainment Business Financial Structure As reported by the New York Times, former reggaetn 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 songs overwhelming viral success. Intro to Basic SEM Principles Entertainment Business Financial Structure An ongoing debate exists on whether streaming online service provider Pandora is fairly compensating artists in the form of royalties, despite the fact that they paid out $258.7 in royalties in 2012 (according to a story published on businessweek.com). By comparison, Pandora paid $1.48 per user in royalties where Sirius XM paid an average of $11.33 in royalties per subscriber last year. 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 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 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! 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, Marvels Cinematic Universe, Star Wars and The Lord of Rings series. 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. 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 Intro to Basic SEM Principles Entertainment Business Financial Structure 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 Intro to Basic SEM Principles Entertainment Business Financial Structure Not all product appearances are PAID Intro to Basic SEM Principles Entertainment Business Financial Structure 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. Intro to Basic SEM Principles Entertainment Business Financial Structure 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 Apples lowest appearance rate since 2004, when the brands products showed up in just 11% of top films. Intro to Basic SEM Principles Entertainment Business Financial Structure 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 Intro to Basic SEM Principles Entertainment Business Financial Structure 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. 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 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 Burger King in a video game 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 Worldwide In-Game Advertising Expenditures (in Millions of US Dollars) 1, Bil 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 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 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. 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 2012.Man of Steel 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 Intro to Basic SEM Principles Entertainment Business Financial Structure 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, youre going to think about it when you go shopping. Intro to Basic SEM Principles Entertainment Business Financial Structure During the NBAs All-Star weekend, several brands made unmistakable cameos. Rather than competing in a traditional game of horse, three top NBA players engaged in a shooting competition, spelling out G-E-I-C-O rather than H-O-R-S-E. Throughout the weekends All-Star coverage, television analyst (and former NBA star player) Reggie Miller playfully showed off his new BlackBerry cell phone on the air, asking fans to text questions to Reggies Mailbag. Intro to Basic SEM Principles Entertainment Business Financial Structure Intro to Basic SEM Principles Entertainment Business Financial Structure In celebration of the 25th anniversary of the Discovery Channels 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 Intro to Basic SEM Principles 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 Intro to Basic SEM Principles Entertainment Business Financial Structure The 9.5 minute music video for Lady Gagas 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 Gagas telephone video: Lady Gaga plugs 15 things in her new video. Dude, she even plugs a burger! Thats probably how [record labels] are making money right nowbuying up the burger joint, putting the burger in a music video and making loads of burger money. Intro to Basic SEM Principles Entertainment Business Financial Structure Intro to Basic SEM Principles We Cant 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 Intro to Basic SEM Principles 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 Intro to Basic SEM Principles 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 characters T-shirt and on a car door in several of its popular comic books (including New X-Men) Entertainment Business Financial Structure Intro to Basic SEM Principles Entertainment Business Financial Structure 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%. 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! 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. 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 wasnt portrayed in a positive light. Intro to Basic SEM Principles Does Product Placement Work? Thats not to say product placement isnt a risky endeavor for both the brand and the film producer. 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." 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 Intro to Basic SEM Principles 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 LESSON 3.3 Intro to Basic SEM Principles Copyright 2013 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. LESSON 3.3 Intro to Basic SEM Principles Reverse Product Placement Brandchannel.com named Willy Wonka the greatest example of reverse product placement of all time in commemoration of the films 40th anniversary (today, under the Nestl 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) LESSON 3.3 Intro to Basic SEM Principles Reverse Product Placement For the Twilight films, reverse product placement occurs with the Infinite Jewelry Co.'s "Bella Engagement Ring." After Edward proposed to Bella in the last film, Infinite created a line of replica engagement rings in different price ranges, from $35 to $1,999. President Shelli Ashton said Infinite worked directly with Twilight author Stephenie Meyer to create both the ring and "Bella' Bracelet. The result? According to Ashton, the company sold "tens of thousands of bracelets and rings all over the world including Russia, Japan, Brazil, Germany and Australia." LESSON 3.3 Intro to Basic SEM Principles 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 Centrals cartoon show South Park, would be available exclusively at Wal- Mart stores to celebrate the shows 15th season