Ever wanted to know the economics of the movie business? Then The Hollywood Economist is for you.
I really enjoyed the book, as Epstein goes into a lot of financial detail about various aspects of the movie business. He covers studios, theaters, actors, pay TV, and new over-the-top operators like Netflix.
I learned a heck of a lot about things I was already wondering, as well as things I hadn't thought to wonder about. For example, I now understand why nudity is so rare in American movies.
Another great book that covers this topic is The Curse of the Mogul. Curse doesn't go as deep into the movie business as does Hollywood Economist, but it covers more media topics like books and websites.
Consistent with what an investor might expect, the excess profits in the industry tend to go to the actors. These are the "brands" that consumers are willing to flock to. The Big 6 studios appear to compete away any excess profits (by paying big money to actors) with the exception of the franchises they own/develop, which can be very lucrative since they can draw customers regardless of the actors. (This last point makes clear why a distribution company like Netflix may have become a content creator, whereas conventional wisdom may suggest a focus solely on its distribution strength, but moats may be easier to build in franchise creation rather than distribution.) The theater owners are basically snack food retailers, who draw in customers by paying more for loud, bright entertainment than they take in as ticket receipts.
There also appears to be a lot of what I would call anti-trust behaviour in the industry. For example, studios will receive payments from hardware manufacturers to only allow distribution on certain types of devices (e.g. Blu-Ray vs HD, Beta vs VHS). They also slyly co-ordinate dates so that big blockbusters don't go head to head, without actually having to talk face to face.
The most angering part of the book is the studio tax scheming that legislators fall sucker to. Studios will do things like sell the movies (with an option to buy back of course) to citizens of countries where there are big tax breaks (Germany and Canada being examples), and then buying them back at a discount as the previous owners pocket the tax break. In some ridiculous cases, no filming need be done in the country offering the tax break, and so the added profit accrues at the taxpayer expense by mere paper shuffling. One day governments may treat all industries equally (excise taxes on externalities like carbon/pollution aside), resulting in a more productive labour force, but it seems unlikely to be in my lifetime.
I highly recommend The Hollywood Economist to anyone interested in these topics.