Free content challenges movie biz

Olin business students study the economics of entertainment

The battle between the entertainment industry and free content on the Internet could provide a good plot for an action-packed, disaster-laden thriller with a title like “Webzilla Eats Hollywood for Lunch.” But entertainment executives would prefer a happy ending.

At least that’s what they’ve been telling students in “The Economics of Entertainment” course at the Olin Business School at Washington University in St. Louis.

The popular class, taught by Glenn MacDonald, PhD, the John M. Olin Distinguished Professor of Economics & Strategy, covers the institutions, data, economics and management challenges of the entertainment industry, with emphasis on the music and movie industries.

Industry leaders are invited to visit the undergraduate course to share their insights and experiences in the entertainment industry. Among these include Andrew Karpen, president of Focus Features and Focus Features International and an Olin alum; Barry Weiss, chairman of RCA/Jive Label Group; and Jon Feltheimer, chief executive officer of Lions Gate Entertainment.


Karpen told the students free content was a big concern of the entertainment industry. “Movies cost a lot to make and a lot to market,” Karpen said. “Determining how that distribution pattern works and what you pay when, and how you get that content, is continuing to evolve.”

A downturn in the DVD market combined with the consolidation of electronic methods of delivery such as pay-per-view, video-on-demand and Internet streaming is requiring the film industry to reassess its traditional marketing and distribution models, according to Karpen.

“What is the right pricing model?” Karpen said. “Is it a subscription-based model? Is it a rental-based model?

“How that plays out is really going to affect us in the near future,” Karpen said.

MacDonald believes the movie industry ultimately will follow the music industry’s lead on the free content issue.

“Music tells us a lot about where movies are going to go,” MacDonald says. “It’s accepted now that music is basically free. The cost of producing an extra file is zero. They don’t like it, but they’ve accepted it. They’re going to have to make money in a different way.”

Karpen’s advice to the students in “The Economics of Entertainment” class was simple: “Find a business you are passionate about.”

He said he didn’t realize until after he graduated from Olin and later pursued an MBA and a brief career on Wall Street that he could combine his lifelong love for movies and his business acumen in the film industry.

He told students that all industries need management and finance expertise, and they can apply their skills in many nontraditional fields.

MacDonald echoed Karpen’s encouragement of students to pursue their passions. He also is counting on his students to solve some of the problems facing the entertainment business.

“In every industry, young people see the new path,” MacDonald said. “They’re great with technology, so I think they are going to play a very important role. I hope some of them will follow in Andrew’s (Karpen) steps.”