The Consequences of Overturning the Paramount Consent Decrees

by

By Casey Fraser

In November, the Department of Justice announced their intent to end or significantly alter the Paramount consent decrees, which stemmed from the pivotal U.S. v. Paramount Pictures case in 1948. The Department of Justice’s decision to pursue the removal of this statute has the potential to eliminate smaller theater chains. In an industry where competition is increasingly daunting, the reversal of the U.S. v. Paramount Pictures case does not serve those who require it the most. Rather than supporting independent distributors and exhibitors, the overturning of the Paramount consent decrees will further consolidate the entertainment industry and have a ripple effect on the industry’s economic landscape.

Photo Courtesy of Time Out

The Paramount consent decrees drastically changed the manner in which the entertainment industry functions. In the 1930s and 1940s, major film studios maintained a near-monopoly on the United States entertainment industry, according to A&E Television Networks History website. Film studios owned most theaters and were able to control their distribution and exhibition with minimal outside influence. The theaters that studios didn’t own were often subjected to “block booking,” a process in which studios require independent theater owners to show films as a unit, rather than booking individual films. For example, if Metro-Goldwyn-Mayer wanted to show their low-budget film at a theater in the 1930s, they could sell it as a package with the 1939 blockbuster Gone With the Wind. This flawed system allowed major studios to coordinate with one another and squash innovation in the industry.

The 1948 case was preceded by a lawsuit in 1928 filed by the Federal Trade Commission against ten major film studios for similar antitrust violations. The court ruled that the ten studios were guilty of antitrust violations in 1930 according to the Hollywood Renegades Archive. Despite this ruling, the studios were allowed to resume normal business operations due to extenuating circumstances that stemmed from the Great Depression and subsequent National Industry Recovery Act according to A&E Television Networks History website.    

Eight years later, the issue of studio monopolies became a topic of discussion once again. In 1938, the government filed an antitrust lawsuit against Paramount Pictures, Inc., Universal Corporation, Loew’s Incorporated (later renamed Metro-Goldwyn-Mayer), Twentieth Century-Fox Corporation, Warner Brothers Pictures, Columbia Pictures Corporation, United Artists, and Radio-Keith-Orpheum Pictures (which was dissolved in 1959), according to the United States Department of Justice website. The government accused the plaintiffs of controlling all movie distribution and exhibition, a direct violation of the Sherman Antitrust Act. In their initial filing, the government called for studios to sell their direct distribution channels (mainly theaters) and stop block booking all together.

The case was quickly dismissed in favor of an out-of-courtroom settlement. Frustrated with the results of the settlement (which allowed studios to maintain their theater ownership and better regulate block booking), the newly formed Society of Independent Motion Picture Producers lobbied for further restrictions on the studio system according to A&E Television Networks History website. Their efforts pushed the matter back into court and this time, the studios were not so lucky. The New York District Court ruled against the studios in 1946. Both sides were unhappy with the ruling and appealed. The U.S. Supreme Court issued a decision in 1948, once again ruling against the studios according to the National Constitution Center.


Photo Courtesy of Unsplash

As a result of the U.S. v. Paramount Pictures case, the plaintiffs agreed to a settlement termed the Paramount consent decrees. Studios were required to sell their theaters, separating film distribution and film exhibition. The studios were also prohibited from block bidding and other monopolistic practices such as circuit dealing, resale price maintenance, and granting overboard clearances, according to the United States Department of Justice website. Lastly, studios were banned from owning theaters without first receiving court approval.

The implementation of the Paramount consent decrees split up the major studios and reshaped the way that entertainment businesses operate. Studios took a “theater-by theater, picture-by-picture” mindset according to Deadline. No longer able to use their blockbuster films to leverage the sale of their smaller productions, studios began to rely on more nuanced marketing and sales techniques. This policy is still used today by major studios. The dissolvement of vertical integration in entertainment also allowed newer studios such as Disney to succeed in the marketplace.

Last month, Assistant Attorney General Makan Delrahim addressed the Department of Justice’s decision to pursue eliminating the Paramount consent decrees during his address at the American Bar Association’s Antitrust Fall Forum. In his speech, Delrahim pronounced the decrees outdated and overly restrictive. “We [the Department of Justice] have determined that the decrees, as they are, no longer serve the public interest, because the horizontal conspiracy – the original violation animating the decrees – has been stopped,” said Delrahim. “Changes over the course of more than half a century also have made it unlikely that the remaining defendants can reinstate their cartel.”

The Department of Justice is correct to assume that sections of the Paramount consent decrees are dated. In contemporary times, the entertainment industry looks vastly different than when the decrees were first decided upon. In the 1930s and 1940s, urban areas traditionally had one movie theater with “one screen that showed a single movie at a time,” according to Delrahim. Today, theaters are more numerous with more screens in each establishment. This allows theaters to play multiple movies from different distributors at the same time. In the city of Los Angeles, there are currently 62 open movie theaters according to Cinema Treasures. The largest of these theaters, Cinemark 18 and XD Los Angeles, has a total of 18 screens.

Photo Courtesy of Cinema Treasures

The idea of studios controlling the marketplace through theater ownership is also a concern of the past. The streaming industry has revolutionized film distribution and exhibition. Rather than watching movies in theaters, consumers have a multitude of options for in-home entertainment. Netflix, Hulu, Amazon Prime, and Apple TV+ are amongst the well-known brands that offer subscription video on demand services. Unlike the major studios, these streaming companies are not bound by stringent distribution and exhibition regulations. Eliminating the Paramount consent decrees could help studios remain competitive with streaming companies by removing regulations that limit a studio’s scope.

The unintended consequence of the Department of Justice’s announcement is the potential impact on smaller, independent theater chains. Without the Paramount consent decrees, small theater chains will likely have to compete with studio-owned theaters. The department’s decision also reopens the door to block booking practices. Theoretically, if a company like Disney wanted to attach a niche Fox Searchlight film to their upcoming live-action remake of The Little Mermaid, they be able to do so with no negative consequences. Larger multiplexes and theater chains such as AMC, Regal, and Cinemark have the scale to withstand this change but independent theater chains will suffer the financial consequences.

For theaters that can only house two to six movies at a time, the return of block booking poses a serious dilemma. Independent theaters are already struggling to keep up with increasing demand for a luxury theatrical experience. If small theaters are required to house a slate of studio films in order to obtain in-demand blockbuster movies, they will no longer be able to curate their programming to maximize profits. Adding undue stress to an already frail ecosystem could have potentially disastrous consequences. Amongst other small theater chains, Box Tie Cinemas voiced their distress regarding the impending changes. During the sixty-day public comment period about the decrees, a representative from the theater chain spoke out in opposition to the proposed change. “Chains of Bow Tie’s size (and smaller) would be disproportionately affected by the removal of block booking prohibitions, as we do not have as many screens to potentially spread out the major studio films we would be required to book in order to have access to the films our customers desire,” the representative said, according to Indie Wire. “The prohibition on block booking is necessary…to prevent theater chains such as Bow Tie from becoming de facto exclusive exhibitors of a particular studio’s content.” The National Association of Theatre Owners echoed these concerns to the Department of Justice. “If distributors are permitted to block book, they could demand exhibitors book an entire slate on multiple screens, leaving little room for the independent and smaller distributors to finance and distribute films that consumers demand,” the association commented according to Deadline.

The National Association of Theatre Owners also expressed concern that removing the Paramount consent decrees will halt conversations about modernization in the theater industry according to Deadline. One innovation currently being discussed in the industry is dynamic pricing, a model that prices films based on their desirability rather than setting a standard price for all movies. AMC has recently been experimenting with this model and plans to roll it out in four major cities. The purpose of dynamic pricing is to revitalize the theatrical experience and draw more audiences to theaters. Advancements such as this could be discontinued if studios take control of exhibition channels such as theaters.

Photo Courtesy of Celebrity Access

Overturning the U.S. v. Paramount Pictures case has the capacity to cause a ripple effect throughout the entertainment industry. If studios control theatrical releases, there is limited room for independent movies to succeed. As the barrier to entry increases for filmmakers and financiers, the number of jobs in film will decrease. In this environment of limited competition, it is the consumer who pays the ultimate price. Ironically, stifling innovation is exactly what the Department of Justice aims to avoid by overturning the Paramount consent decrees.

Some entertainment experts believe that eliminating the Paramount consent decrees will not significantly alter the industry. Established entertainment companies are stretched thin due to recent acquisitions and expansions. For example, Disney acquired Twenty-First Century Fox in March and launched their new streaming service Disney+ in November. If torn between investing their remaining capital in theater acquisitions or streaming content, it is practical to assume that companies will choose the latter. This hypothesis may hold true in the short-term but as time passes, studios will likely take advantage of the decrees reversal. Entertainment companies are always looking for ways to expand their businesses and please investors. Owning theaters gives the studios an opportunity to further promote their content and control pricing, in addition to providing an additional revenue stream. Even with the Paramount consent decrees in place, several studios skirted the rules and branched into owning theaters. For example, Disney currently owns the El Capitan theater in Los Angeles. The larger issue stems from the potential for block bidding, which costs studios no additional capital and could cause significant damage to the revenue of smaller theaters.

In anticipation of the challenges associated with repealing the Paramount consent decrees, Delrahim noted the Department of Justice intends to implement a two-year “sunset period” to give studios and theaters time to adjust to the removal of the consent decrees. During this time period, the entertainment business will be able to examine “any licensing proposals that seek to change the theater-by-theater and film-by-film licensing structure currently mandated by the decrees,” according to Delrahim’s speech. Delrahim also noted that the elimination of the Paramount consent decrees does not mean that studios are exempt from government regulation. “Terminating the Paramount decrees does not mean that the practices addressed in them are now considered per se lawful under the antitrust laws,” Delrahim said. “Consistent with modern antitrust law…if credible evidence shows a practice harms consumer welfare, antitrust enforcers remain ready to act.”

By eliminating the Paramount consent decrees, the Department of Justice aspires to “clear the way for consumer-friendly innovation,” according to Delrahim’s speech. Unfortunately, creating a landscape conducive to innovation is not as simple as repealing old legislation. The Department of Justice’s comments show that they do not fully understand the entertainment landscape and the potential consequences of repealing the Paramount consent decrees. By disregarding the findings of the U.S. v. Paramount Pictures case, the Department of Justice is further encouraging a monopolistic economy. Instead of studios being the sole contributor to this noncompetitive environment, both streaming services and studios are at fault. The potential overturning of the Paramount consent decrees illustrates a wide-reaching conundrum currently facing the entertainment industry. As established entertainment companies continue to merge, expand, and acquire, there is limited room for smaller companies in the marketplace. In this era of fast-paced consolidation, the industry must figure out how to regulate itself and avoid the type of problems that sparked the Paramount consent decrees over 70 years ago.

Sources:

Forbes

Deadline

Deadline (2)

History.com

Cobbles.com

Cobbles.com (2)

Constitution Center

Justice Department

Justice Department (2)

Cinema Treasures

Wall Street Journal

Indie Wire

Variety

The Hollywood Reporter

Duke Law School

The Coffee Cup Crisis: Starbucks Needs a Greener Solution

by

People get used to grabbing a cup of Starbucks coffee before starting their day. But, would you mind spending more on your single-use coffee cup? Apparently, no one would do that. While since 2020, customers will be charged an extra 25 cents if you drink in a disposable cup at any shop in Berkeley, California. It sounds like a great way to cut down on disposable coffee cups, but for chains like Starbucks, which goes through about 6 billion cups a year, this represents no less than an existential dilemma, and Starbucks needs a greener solution to handle its cup problem.

Litter Reduction Ordinance, the policy passed by Berkeley’s City Council in January 2019, is designed to reduce single-use food ware from entering the landfills and 25 cents paper cup fee is part of it. By far, it is the first and the hardest line drawn to-date against single-use cup waste by any U.S. municipality. Although it is not the first worldwide policy to combat the use of disposable coffee cups, its emergence marks that the nation started to say ‘no’ to those environmentally-friendly single-use paper cups.

“Most people don’t know this, but Starbucks paper cups are not recyclable in most cities across the U.S. because the cups are lined with plastic. In today’s world, a paper cup is no longer just a paper cup. It’s plastic pollution,” said Ross Hammond, the former U.S. Campaigns Director for Stand.earth.

As Hammond said, the majority of customers reasonably think that Starbucks single-use paper cups are environmentally friendly and can be completely recycled. Starbucks, the most successful worldwide coffee chain, operates over 28,000 stores across the globe. People assume these cups with the green mermaid logo will get recycled and turned into new products after throwing them in the recycle bin. However, Starbucks disposable cups cannot actually be 100 percent recycled.

Why single-use cups are hard to recycle

While drinking a Grande size cup of Americano in the morning, look out for the statement at the bottom that reads “This cup is made with 10 percent post-customer recycled fiber. Do not microwave.” The main reason why Starbucks does not recommend the cups be put in the microwave is because each one is lined with a thin layer of 100 percent oil-based polyethylene plastic, a waterproof material to hold liquids safely.

According to research from Creative Mechanisms, a Pennsylvania-based engineering company that specializes in plastics, polyethylene is an incredibly useful commodity plastic. Because of the diversity of polyethylene variants, it is incorporated into a wide range of applications. It is always being used to make containers, plastic bags and wraps.

Although the polyethylene could be recycled the same way as paper, the current technology is not widespread across the country. This is what makes the polyethylene such a large pollution problem. According to the data from Stand.earth, a non-profit environmental organization also located in Seattle along with Starbucks, is one of the organizations and activists that is pushing Starbucks to pay more attention to environmental issues, only 18 of the largest 100 U.S. cities provide residential pick-up of paper cups for recycling. Most recycled paper mills are not able to separate the polyethylene from the paper cups due to the lack of the recycling capacity of polyethylene.

Credit to Jiajun Chen

Other research from the Carton Council shows that only three paper recycling mills in the U.S. can process plastic-coated paper. These mills make up less than 1percent of the over 450 pulp and paper mills in the U.S.

In the end, most cups end up in a landfill.

In addition to the landfill, those paper cups and other kinds of trash such as paper box, are wrapped and exported to China. Jim Ace, the senior campaigner for Stand.earth, explained that compared with landfills, China could process much of the waste and turned it into new products, and the price of shipping commodities to China is very cheap. China was the biggest garbage-importing country across the world, disposing of over half the world’s garbage in the past two decades. However, this changed after the Chinese government announced a ban on imported trash at the end of 2017.

Ace also pointed out that, as the fastest-growing market for Starbucks, China doesn’t want to receive more trash from North America. He says this is because China already has to dispose of large amounts of garbage from their local market. China’s restrictions on the import of waste will indirectly lead Starbucks and other companies to increase trash in landfills across the U.S.

‘To be charged rather than get discounts’

Besides the policy introduced by Berkeley, the current incentive plan in the U.S. launched by Starbucks allows customers to receive 10 cent discounts if they enjoy Starbucks drinks using their mugs or cups, but only 1.4 percent of Starbucks’ beverages were sold in reusable cups as of spring 2017. However, Todd Paglia, the executive director of Stand.earth, thinks that this is not enough of a discount to encourage customers to bring their own cups when they normally pay $4 or $5 to purchase a cup of coffee. He also suggested the discount should be increased at least 50 cents or even $1 per cup.

Ace held similar perspectives to Paglia’s. He thinks changing the current incentive plan from a positive to a negative thing would have more of an impact on customers’ behavior. “If people want to use single-use paper cups, they have to be charged rather than get discounts when they bring their own cups,” Ace said.

The government plays a crucial role in reducing the use of disposable coffee cups. As an iconic brand, Starbucks does not want to revise their current market plan due to the fierce market competition and customer loyalty. However, Ace says that the government can push companies to change through establishing policies or drafting documents.

“They’re smart. They know that. If they don’t take action, it actually is worse for them,” Ace said. “I understand why they do it, but I think the example of the UK shows us that, as soon as either a city or a state government starts to take action on it, the private sector gets very active, very quickly. It’s an interesting dynamic.”

In July 2018, all Starbucks stores in the U.K. were required to add 5 pence, about 25 cents, to each single-use cup due to the introduction of ‘Latte Levy’ by the U.K. Parliament. This was to encourage people to reduce using disposable cups and cut down the enormous quantity of paper cups that could not be entirely recycled in the U.K. According to a report from the U.K. Parliament, more than 2.5 billion disposable coffee cups are used in the U.K. each year, but only less than 1 in 400 cups (0.25%) is properly recycled. Thanks to the rapid growth of coffee shops in the U.K. over the past 20 years, disposable coffee cups consumption will approximately reach 3.75 billion per year by 2025 without any regulation.

The trial worked. Six weeks after the ‘Latte Levy’ was introduced, the use of reusable cups in 35 selected Starbucks shops across parts of central and west London increased by about 150 percent, according to a preliminary assessment by Starbucks. Although the proportion of customers bringing in their own mugs was still modest – only 5.9 percent compared to 2.2 percent, the ‘Latte Levy’ was still seen as a long-term and effective way to control the use of disposable coffee cups in the U.K, according to a report by Independent.

“We are encouraged by the initial results of our trial that show that by charging 5p and increasing communication on this issue, we can help to reduce paper cup use,” said Jason Dunlop, the chief operating officer of Starbucks in the U.K.

In response to growing environmental problems, other European countries followed Britain’s lead in reducing the use of disposable coffee cups. Up to 200 million disposable coffee cups are thrown away every year in Ireland, according to MyWaste, an Irish government-funded organization. In November 2019, Ireland imposed ‘Latte Levy’ to cut down on single-use coffee cups. Customers would pay an additional 10 pence to the price of a takeaway coffee cup.

Besides, Germany introduced the ‘FreiburgCup’ scheme in 2016. The project aims to encourage people to use recycled cups in coffee shops. It is very simple for customers to participate. Customers only need to pay a deposit of one euro when ordering coffee to use the reusable coffee cups. After drinking the coffee, they can return the cups to any coffee stores and get the deposit back. For the convenience of the customers, around 60-70% of local coffee shops participated in the project in Germany.

South Korea, another leading country in coffee consumption, announced a campaign to curb the use of single-use at coffee shops in August 2018. Shop owners could be fined up to 2 million won ($1,780) if they are found to offer disposable cups to consumers frequently. In order to promote the implementation of the campaign, the government also provided financial support for recycling firms by 1.7 billion won ($1.5 million).

The cup of the future

Caption: Starbucks is experimenting with coffee cups in an attempt to reduce slowly decomposing waste. (Credit to Daniel Acker of Bloomberg)

Starbucks is taking action in the face of growing policy opposition.

In March 2018, Starbucks announced its new environmental plan regarding disposable paper cups. To create an innovative sustainable cup in the future, Starbucks and McDonalds pledged a fund of $10 million for the Closed Loop Partners, an investment platform that funds sustainable consumer goods, recycling and the development of the circular economy. As an essential part of investments, the NextGen Cup Challenge, an innovation challenge to redesign the fiber to-go cup, was created by the Closed Loop Partners.

The NextGen Cup Challenge attracted 480 entries, ranging from amateurs to industrial design firms. All 12 of the winning entries at the first stage came up with greener alternatives to the plastic lining, such as water-based coatings. Up to six of 12 winners will enter a business accelerator, where their innovations could be tested whether they can scale or not.

Caption: winning works of NextGen Cup Challenge. (Credit to NextGen)

“The level of interest we saw in the Challenge demonstrates a real appetite for long-lasting, sustainable packaging solutions,” said Kate Daly, Executive Director of the Center for the Circular Economy at Closed Loop Partners. “This level of industry collaboration in support of the NextGen Cup Challenge is really exciting, and we look forward to building on this momentum to encourage more innovative solutions. Fully recoverable fiber to-go cups are just the beginning.”

However, Starbucks was forced to make a promise to the public to quell the anger of people in 2008 that their paper cups would be 100 percent recyclable by 2015. Starbucks also promised that they would establish an incentive plan, which would encourage approximately one-quarter of their customers to bring their own coffee cups to the store. To achieve this goal for the environment, Starbucks also had a partnership with the Massachusetts Institute of Technology, aimed to develop new disposable paper cups.

But Starbucks failed to fulfill their commitments, saying that they were unable to find an available plan to execute after attempting for two years. Therefore, the company adjusted its promise for the number of customers they hoped would bring their own cups to the store from 25 percent to 5 percent.

Although Starbucks had failed to follow its commitments before, Paglia maintained a relatively optimistic attitude to this new environmental plan in response to the public pressure.

“There are more and more big Industry players working together to solve this problem, so I think that looks pretty promising,” Paglia said. “I would say that none of this would be happening if the public and if Stand.earth didn’t pressure Starbucks to live up to its original promise. I think that they are now going to do that.”

LABron

by

Los Angeles is many things, but in recent years, one thing it is not is the hub for NBA teams to prosper. People love the Hollywood glamour that is associated with LA, making it a must-see tourist location. For a long time, one thing it lacked was proof to a claim as a basketball city. The Lakers haven’t won a championship in the past decade while the Clippers have never even won a league or conference title. The rivalry between the two teams was just not exciting enough to coin Los Angeles a basketball city. This was true until July 2018, when LeBron James officially signed a 4-year $154 million deal to become a Los Angeles Laker. This contract is much more than a shift in NBA power rankings. LeBron’s decision transformed the perception of Los Angeles all while redefining the image of the modern superstar.

LeBron James is not just a basketball player. He is not just a four-time NBA MVP, three-time NBA finals MVP, fourteen-time NBA All-Star, and two-time Olympic gold medalist. LeBron is an icon in industries that far transcend the talents required to qualify as one of the best basketball players of all time. He is more than an athlete. Today, it is almost foolish to think of LeBron as an athlete and not as a businessman. His athletic capabilities are just a lever to propel his many other ventures.

At the start of his career, it was not unreasonable to view LeBron as just a great athlete, but the moment he signed his first contract with Nike, the sense people gained of his true brand and character shifted. LeBron was drafted first overall in the 2003 NBA Draft straight from high school. Shoe companies were vying for his loyalty and he strategically signed with Nike, giving up the extra $28 million Reebok offered. This monetary sacrifice early on in his career proved his loyalty to brands he believed in. The dream of wearing the iconic swoosh overpowered the monetary gain of signing with Reebok. 2003 LeBron could not have even predicted the eventual outcome of this decision. In December 2015, LeBron signed a lifetime contract worth over $1 billion with Nike. This deal is the largest single athlete guarantee in the sports apparel company’s history. Young LeBron’s sweet and naïve faith in Nike showed his true character and proved to have a huge payoff in the end. Now, there is no end to the team of LeBron and Nike. LeBron’s athleticism led him to peak success in the apparel and shoe industry. He dominates this market that falls in the realm of basketball as Nike sells the shoes he wears on the court, but apparel and shoes are not the expertise LeBron trained for throughout his life. LeBron expands his market by expanding his fan base. Although his fans fall all over the nation, coming to Los Angeles strengthens and grows a huge market of potential Nike customers. Why wouldn’t he go to a city with a population of over 4 million? That’s a lot of potential new customers. The Lakers offered him the opportunity to be in one of the largest markets by population in the United States.

In 2012, this businessman again deliberately leveraged his talent in basketball to branch out of the NBA. Fast food brands have traditionally endorsed athletes for decades but LeBron discovered he’s better off owning a chain instead of just taking on endorsements. He rejected a $15 million commitment to McDonald’s to invest in the pizza start-up Blaze Pizza. He bought into the company at a highly discounted rate in exchange for his influence. The initial investment amount is unknown, but per contract, he received two franchise locations. He now owns 21 Blaze Pizza franchise locations. Just like his faith in Nike, this early investment in the chain pays off huge for LeBron financially. Blaze Pizza is the fastest-growing restaurant chain of all time. As of 2017, James’ investment in Blaze Pizza was reportedly worth at least $40 million. As LeBron simply puts it, “Who doesn’t like pizza?” The tactical decision to branch out of the norm, in this case extending far past just signing an endorsement deal, proves LeBron is not the traditional athlete. Although these decisions are backed by a team of strategists, LeBron is the ultimate decision-maker and therefore the one to claim the credit. This start-up, based in Southern California, utilizes his fame and influence to develop campaigns around LeBron’s friendly and personable character. His presence in Los Angeles allows the company to utilize his persona more strategically because he is now regularly present in the company’s city of operations. When needed for a commercial shoot, it is now likelier LeBron will already be in Los Angeles. A new challenge Blaze Pizza faces in LeBron’s schedule is that because he is now in the central city of entertainment, it is inevitable his superstar image branches from just NBA All-Star and strategic businessman to Hollywood actor.

LeBron’s move to Los Angeles changes the trajectory of his career in the spotlight. Even though he may one day out-age professional basketball, he will never be too old to act. We will see LeBron James on our TV screens far beyond his NBA career. On July 16, 2021, we’ll see LeBron James and the Looney Tunes defeating a team of Monstars on the big screen. LeBron is set to play the starring role in the upcoming live action/animation movie “Space Jam 2.” The film is shooting in Los Angeles soon. What a convenient coincidence for LeBron. The talks of this movie began in 2015, so it is safe to assume LeBron knew moving to Los Angeles would make a lead role in a movie a more doable task if he was already playing in the city the movie is shot in. LeBron’s talent in basketball allowed him to trust that he would receive an offer from the Lakers to pursue a career path very different but in tandem to his current one. Now familiar with his smart and risk-taking business decisions, it seems reasonable that he would choose to leave his hometown team for the potential of Hollywood stardom. “Space Jam 2” will not be the first time we see LeBron’s untrained acting skills. He played himself in the movie “Trainwreck,” starring Bill Hader and Amy Schumer. This movie was released in 2015 before he decided to join the Lakers. Maybe it was a test run for LeBron. Maybe he was gauging whether Hollywood is a reasonable pursuit for his skills. If that’s the case, he clearly saw the potential benefits. LeBron can now indisputably claim he is an actor, but he has entered the entertainment industry in more ways than just one.

“I am more than an athlete” is a phrase he and Maverick Carter, LeBron’s longtime friend and business partner, coined and have implemented into a content-led athlete empowerment brand and media group called Uninterrupted. The group produces documentaries, podcasts and a multitude of short series to expose the real lives of athletes. An iconic moment that Uninterrupted documented was Mayor Gavin Newsom, the California mayor, signed a first-in-the-nation bill that allows college athletes to sign endorsement deals. This finally allows college athletes to see a monetary return for their talents. Uninterrupted has taken over a previously non-infiltrated industry. A media group that exclusively works to show the truest identity of athletes we know and love succeeds because LeBron and Mav Carter’s reputation encourages the development of historic moments on their platform. It is transforming the world of sports by working with athletes to tell unique stories, ultimately humanizing people we perceive as heroes. Uninterrupted is a name many young LeBron fans are familiar with because it has strategically garnered huge success via social media. Uninterrupted offices, as well as production, are conveniently located in Los Angeles, allowing LeBron to be more present in the content-led platform. He is no longer just the hidden figure behind it, but now an active member in the content. LeBron’s name attached to the brand is enough to produce success, but his regular appearances will just allow it to dominate even more in the very niche portion of the entertainment industry Uninterrupted has entered.

This is just the start of LeBron’s long-lasting presence and career. It is impossible to determine where these ambitious ventures will take him one day. All that is a guarantee is that no one will forget his name anytime soon. It is seemingly a consensus that if LeBron wants to surpass Michael Jordan as the greatest player of all time, James needs to win more rings. His judgment in choosing an NBA team based on business or personal motives, and not championship capabilities, proves he prioritizes the development of his career outside of the NBA and not the title of the greatest player of all time. We must redefine the word player to encompass LeBron’s plays in industries outside of basketball. Even without the additional championship rings, LeBron is undeniably one of the greatest athletes of all time because he is a dominant player in every industry he has entered. Even though the decision to move to LA was made for his selfish desire to succeed in a variety of industries, LeBron fans all over the country reap the benefits. LeBron is continuing to prove he is a superstar and of course, sees huge monetary benefits. He persistently builds his hero persona. He not only defines what a great basketball player looks like but also establishes the variety of talents that determine the image of a name not worth forgetting. LeBron prevails in all industries he penetrates and has given LA a valid claim to a title as a basketball city. Los Angeles is LeBron James’ city, and I just feel lucky enough to be living in it.

Sources:

https://www.nbcsports.com/washington/wizards/lebron-james-signs-4-year-deal-los-angeles-lakers

https://www.marketwatch.com/story/when-lebron-james-chose-nike-in-2003-he-gave-up-28-million-it-could-end-up-making-him-1-billion-2019-08-29

https://www.si.com/nba/2016/05/17/lebron-james-nike-deal-contract-one-billion

‘Space Jam 2’ Gets Summer 2021 Release Date

The Economics of Hype

by

Walking around Los Angeles, it is not uncommon to find Millennials sporting Supreme hoodies, Antisocial Social Club hats, and Air Jordan sneakers. Upscale streetwear brands are highly popular amongst athletes, celebrities, and “hypebeasts”—people that collect clothing, shoes, and accessories for the sole purpose of impressing others—all over town. Streetwear brands generally cater to skateboarding, hip hop, and youth cultures, which all have a strong presence in the L.A. area. 

Being a hypebeast is much more than purchasing a hoodie or a nice pair of shoes from Champs at the local mall. Behind the individuals wearing expensive streetwear items is an entire culture of hype across the internet, entrepreneurship, and product resale, all fueled by one common factor: the business of scarcity. 

Streetwear brands upended the traditional supply and demand model to become the success that they are. These companies ensure that there is not enough supply to meet demand, making their products exclusive, more desirable, and therefore, more expensive. 

But it goes a step further. After the release of a “hype” product, one may find it marked up 1000% or more on a resale website. And people actually buy the product for an insane price because of its exclusivity.

The brand that reigns supreme in the business of scarcity has to be, well, Supreme. 

Supreme, a streetwear brand founded in 1994 by James Jebbia, has exploited scarcity to the fullest extent. Every Thursday morning, the company “drops” a limited number of exclusive products on its website. Just about 30 seconds after the drop, online buyers have cleared the inventory. Products usually include shoes, clothing, and accessories and may be created in collaboration with another brand such as North Face, Nike, BAPE, and Off-White.

The hype around drops is generated over the internet before it happens; Supreme makes announcements about product launches via social media, and the message is shared and supercharged by celebrities, hypebeasts, and influencers alike.

Flagship stores in Los Angeles, New York City, London, Tokyo, and Osaka also release the products every Thursday, drawing hundreds of customers to line up outside of its doors.

Product purchasers can keep and wear their items, but more often than not, they take them to the resale market. Using online platforms like eBay, StockX, GOAT, and Stadium Goods, buyers have the potential to resell their merchandise for over ten times its original price, depending on the scarcity and original price of the product. 

For example: a Supreme brick (yes, an actual clay brick) is listed on Stadium Goods today for $220. An item that originally cost around 40 cents now costs hundreds of dollars because the Supreme brand was stamped on it.

Many have questioned the sustainability of Supreme’s business model. The company sells its products for much more than their intrinsic values because they are in demand, but consumers may not always hold an obsession for Supreme’s products. Streetwear brands must remain on the cutting edge of fashion and culture with the economics of hype in mind.  

SOURCES:

https://abcnews.go.com/Business/inside-supreme-economy-streetwear-phones-bots-side-hustles/story?id=59316142

https://www.bbc.com/worklife/article/20180205-the-hype-machine-streetwear-and-the-business-of-scarcity

https://www.uea.ac.uk/documents/953219/29343977/Motala%2C+Taahir+2019.pdf/96431214-038c-9191-eaa6-fdc456719e7b

https://medium.com/@adelaideeconomicsclub/hypebeast-economics-4e9d583c7ea5

https://hypebeast.com/2017/6/supreme-resell-economics-million-dollars

PROHIBITION – A 20TH CENTURY ECONOMIC EVIL

by

Prohibition officers raiding the lunch room of 922 Pa. Ave., Wash., D.C. ( Dewar’s Repeal / Flickr )

From 1920 to 1933, the Eighteenth Amendment of the United States constitution banned alcohol. The Eighteen Amendment, also known as Prohibition, has the honor of being the only constitutional amendment to be repealed with another constitutional amendment.

Although prohibiting alcohol is now seen as absolutely ridiculous, hindsight is 20/20 and Prohibition began with noble intentions. According to the Cato Institute, it was “undertaken to reduce crime and corruption, solve social problems, reduce the tax burden created by prisons and poorhouses, and improve health and hygiene in America.” 

Total Expenditure on Distilled Spirts as a Percentage of Total Alcohol Sales (1890-1960)
Source: Clark Warburton, The Economic Result of Prohibition (New York: Columbia University Press, 1932), pp. 114-15; and Licensed Beverage Industry, Facts about the Licensed Beverage Industry (New York: LBI, 1961), pp. 54-55.

Needless to say, that did not come to pass. Alcohol consumption dipped initially, it increased soon after, and led to the organization of crime. Demand continued, the legality of supply be damned. Prior to Prohibition, crime bosses such as Al Capone were relatively small-time menaces. The “noble experiment” made illegal alcohol a lush business opportunity. It also led to networking opportunities for these mafiosos, as the sourcing and distribution of alcohol often requiring crossing state lines. 

“Mobsters couldn’t work in isolation if they wanted to keep the liquor flowing and maximize profits,” said Dave Roos, a freelance journalist in History. 

 Per Capita Consumption of Alcoholic Beverages (Gallons of Pure Alcohol) 1910-1929
Source: Clark Warburton, The Economic Results of Prohibition (New York: Columbia University Press, 1932), pp. 23-26, 72.

A 2010 Congressional Research Service study found that organized crime in capable of weakening the economy with illegal activities because they can cause state and federal governments to lose tax revenue. Prohibition cost the United States government $11 billion in tax revenue. According to PBS, a long-term consequence of this was that multiple state governments, in addition to the federal government, would on income tax revenue to fund their budgets. 

Enforcing Prohibition also turned out to be a costly endeavor. In 1921, Prohibition enforcement began at $6.3 million. By 1930, it cost $13.4 million to enforce. 

During Prohibition, kingpins could make as much as $1.4 billion in 2018 currency. 

Meanwhile, other industries that were expected to rise as a result of Prohibition actually ended up struggling. Top industries with expected growth were clothing, chewing gum, grape juice, soft drink and theatre producers. Essentially, every non-booze industry that could provide a new way to entertain Americans expected an increase. According to PBS, theatre revenues declined and restaurants failed to turn a profit without legal liquor sales. 

Mug shot of Al Capone in Philadelphia, Pennsylvania, where he had been arrested and charged with carrying a concealed weapon. ( Pennsylvania Department of Corrections / FBI )

PBS found that “the closing of breweries, distillaries, and saloons led to the elimination of thousands of jobs, and in turn thousands more jobs were eliminated for barrel makers, truckers, waiters, and other related trades.

The repeal of Prohibition in 1933 ended gangster’s profitable bootlegging enterprises, and many returned to classic criminal operations like gambling and prostitution. The Great Depression, like Prohibition before it, provided mobsters with a golden opportunity: loan sharking. 

Unlike many Americans during the Great Depression, the gangs had cash in an economy that wanted in. Like with alcohol, the people had the demand and the gangsters had the supply. 

According to Howard Abadinsky, a criminal justice professor at St. John’s University, it became clear to many that if people wanted to do something that required cash, they needed to get in cahoots with the likes of Al Capone, Bugsy Segal and “Lucky” Luciano. The law of the land was irrelevant in many ways, and money-laundering techniques were extremely powerful. 

“If you wanted to set up a legitimate business, [you] have to go to organized crime. Loan Sharking becomes a major industry,” Abadinsky said. 

Sources:

The Economic Impact of Mental Illness

by

But first, a quick laugh. A few years ago, a story about one Ohio State student’s honestly went viral. After going through an unexpected break-up halted her productivity, she sent her professor this email. 

When she posted a screenshot of the email on Twitter, it immediately got the attention of the public and received  over 2,000 retweets and 15,000 likes. While the humor is endearing, the attention this post received attests to something else: we’ve all been there. 

Sometimes, life just gets in the way of our responsibilities and unexpected emotional distress makes it feel impossible to focus on school or work. That debilitating feeling, however, is even more intense for those of us with mental health issues.

To put this issue into context, a recent study by the  American College Health Association found that nearly 1 in 4 U.S. college students reported being diagnosed with a mental illness. Additionally, almost 9 out of 10 undergraduate students reported feeling overwhelmed by all they had to do and nearly half of all college students have felt so depressed that it was difficult to function.

Okay Gigi, college students are stressed. What else is new. While these statistics may seem like a non-starter, it is crucial to realize that a degree is not a cure-all for mental health issues. In fact, almost half of U.S. adults will experience a mental illness over the course of their lifetime and depression is the leading cause of disability for adults around the world. These numbers make it clear that we are in the midst of a mental health epidemic and that same sentiment is echoed by the economic impact of these mental health issues.

A breakdown of mental illnesses facing adults in the U.S.

As it turns out, mental health is one of the costliest forms of sickness for the U.S. economy.  One analysis of data from 2008 to 2014 found that “a single extra poor mental health day in a month was associated with a 1.84 percent drop in the per capita real income growth rate, resulting in $53 billion less total income each year” (ScienceDaily.com). To reiterate, that’s $53 billion lost from adding a single poor mental health day to workers’ normal schedules. And these numbers are only expected to grow. Researchers also noted that “the global economic cost of mental illness is expected to be more than $16 trillion over the next 20 years, which is more than the cost of any other non-communicable disease” (ScienceDaily.com). 

The Human Capital Approach

A study published in Science & Society breaks down these economic figures further, outlining the different approaches in which the economic impact of mental health issues can be evaluated. The approach I will zero in on is the Human Capital approach, which combines the direct, “visible” costs of mental illness and the indirect, “invisible” costs. “Visible costs” are what comes to mind when we think about financing illness; this includes things like medication, therapist visits, and hospitalization costs. The indirect or “invisible” costs account for “income losses due to mortality, disability, and care seeking, including lost production due to work absence or early retirement” (National Center for Biotechnology Information). This study found that the direct and indirect costs of mental disorders were estimated to amount to $2.5 trillion, where “the indirect costs (US$1.7 trillion) are much higher than the direct costs (US$0.8 trillion)” unlike other leading diseases such as heart diseases and cancer, which the graphs below illustrate (National Center for Biotechnology Information). Additionally, both of these numbers are expected to double by 2030. 

How the Costs of Mental Disorders Compares to Other Diseases

The Human Capital approach is just one way of quantifying the economic impact of mental illness, but the message is clear: mental health issues are costing the economy billions and will only continue to do so if nothing is done. This should be motivation for workplaces to implement mental health protocols and resources. If companies discussed mental health issues freely and provided their employees with adequate mental health resources, employees would presumably be happier, more productive, and more engaged with their work. Investing in mental health is key to solving the current epidemic facing the world’s adult population, and as someone who wants to be a therapist in the coming years, I can only hope that others are as serious about making this investment as I am.

The Box Office in the Blockbuster Age

by

The economic story that the box office illustrates in a time when mega-blockbusters dominate ticket sales

In 2019, Avengers: Endgame, The Lion King, Toy Story 4, Captain Marvel, and Spider-Man: Far From Home have taken the top five spots for highest gross in the domestic box office (Box Office Mojo). 

What do these successful titles have in common, besides the fact that you could meet all of the films’ characters at a theme park somewhere? 

Well, it’s just that–all of the films are based on existing intellectual property (IP) with established fan bases. Studios are betting on these tentpole films in the box office, because they draw audiences into a theater and away from the social media, streaming services, and video games that have, in recent years, made it much more difficult to attract eyeballs to cinemas.

Beyond garnering attention, mega-blockbuster films bring in multiple sources of revenue for a studio, making its parent company look favorable to Wall Street investors. When a viewer gets hooked on Avengers and its cinematic universe (because how could one not?), that person is likely to be back for the next film, coming out in a year or so. Furthermore, being an Avengers fan will make a $129.00 Disneyland ticket seem much more attractive. Here, one can experience a superhero meet and greet, and soon, the Avengers Campus: a space at the park explicitly dedicated to the Marvel universe. Oh, and of course, you’ve got to buy your child an Iron Man costume for Halloween. 

From just the movie ticket, theme park pass, and merchandise purchases made by one family, Disney is making several hundred dollars in revenue. Conglomerates like Disney seem to be doing all the right things to adapt to the rapidly changing marketplace, taking advantage of revenue streams left and right. However, studios that do not control lucrative IP are being struck hard by the age of mega-blockbusters. 

This year, Warner Brothers has released seven small and mid-tier budgeted films that bombed at the box office, including The Good Liar, Motherless Brooklyn, and Blinded by the Light. About five to ten years ago, the studio could have deployed star power, marketing dollars, and a suitable opening weekend date to mitigate the risk of a box office flop. But nowadays, it is almost impossible to find a weekend not taken by something popular, such as the newest Pixar film, or to beat negative ratings on sites like Rotten Tomatoes before the film has even been released. If there is an excuse not to make the trek out to the theater, people will take it. If it’s not something from the Star Wars franchise or a beloved animated film, is it worth the time and money?

Despite having several of its films bomb at the box office, Warner Brothers is doing alright with the $1 billion in worldwide ticket sales made by The Joker. And moving forward, the studio is not ridding itself of mid-budget films. Instead of having a wide release in theaters, a film such as The Good Liar will likely be released on the WarnerMedia streaming service, HBO Max. 

Box office sales are indicating a shift in consumer habits surrounding entertainment; people are choosing to spend their own scarce resources—their money and attention—in places other than the box office. There is a plethora of content available to society right at home and for a low price via social media, video games, and online streaming platforms. People have always had to choose how to spend their money on entertainment, but now more than ever, it’s also about where consumers choose to spend their time. 

The box office illustrates a landscape where the stakes are much higher for studios; audiences are less likely to spend their time and money on a mid-budget film that may or not be good. They can watch an Oscar-nominated film at home on Netflix instead. 

To adapt to the entertainment landscape in 2019, studios are learning from the box office that it’s now a game of “go big or go home.”

China’s video game live streaming duopoly

by

China’s Douyu is one of China’s largest live-streaming sites that focuses on gaming and esports content. By out-fundraising rivals and poaching top streamers, it survived China’s live streaming war in 2016 to become an industry giant. 

Douyu is the second Twitch-like service backed by Tencent to go public in the United States. The other one is Huya, which signed a deal with Western competitive esports organization Team Liquid, one of the world’s most valuable esports teams according to Forbes.

But Douyu is more focused on the growth in its hometown. “As one of the first game-centric live streaming platforms to make the foray into eSports, we are strategically positioned to benefit from the proliferation of the eSports industry in China,” Douyu said on its corporate profile.

Huya and Douyu control over 60% of the Chinese game streaming industry. And this number is expected to grow even higher with further consolidation. Huya went public in May 2018, while Douyu recently IPO’ed in July 2019, both in the US. 

Huya is more than 80% larger than Douyu with a $4.9 billion valuation, and Douyu has a $2.7 billion valuation as of August 26. Moreover, compared to Douyu, Huya has a slightly higher tilt towards game streaming with over 50% revenue derived from gaming, compared to 45% for Douyu.

Last April, Douyu filed with the U.S. Securities and Exchange Commission as it prepares to raise up to $500 million on the NYSE less than a year after its archrival floated on the same stock market.

However, looking at Douyu’s quarterly financial results, it is noticeable that the company’s performance in the third quarter of 2019 is not as good as expected. “The Company expects its total net revenues to be in the range of RMB1,950 million to RMB2,000 million in the third quarter of 2019,” while the real total net revenue increased by 81.3% to RMB1,858.5 million (US$261.0 million) from RMB1,024.8 million in the same period of 2018. 

For the third quarter, Douyu’s net loss was RMB165.4 million (US$23.2 million) compared with RMB220.5 million in the same period of 2018, implying a net loss margin of 8.9% compared with 21.5% in the same period of 2018.

However, these streaming platforms also face other challenges like ethical guidelines and piracy concerns. When a gamer live-streamed on Douyu three days before a Nintendo Switch game’s release date,  viewers were quick to realize they were watching someone flagrantly play a pirated copy of an unreleased game. 

The streamer faced immediate backlash from Nintendo fans. Eventually, Nintendo also appeared to respond. A screenshot of a cease and desist letter said to be from the company started circulating online. The letter was said to be sent to a number of Chinese websites where users were sharing pirated copies of Switch games.

We were unable to verify the authenticity of the letter, but some Chinese websites were quick to respond. Some websites and forums known for hosting pirated games have now stopped allowing users to download Nintendo Switch ROMs.

Nintendo has a complicated relationship with China, which has long been a hotbed of game piracy. This isn’t even the first time a Chinese hacker has publicly flaunted a pirated Nintendo game ahead of its release.

With strong financial support and a large audience base, China is catching up with the world on its eSports and game live streaming services. With its unique duopoly model, each platform needs to find its distinctiveness and has to deal with other concerns along the way.

The Decreasing Clout of Black Friday

by

For many, the week surrounding Thanksgiving is filled with eating, drinking, treacherous travel and reconnecting with family. And for millions of Americans, waking up early and traveling far distances to score crazy Black Friday deals is the immediate objective following Turkey Day. While Americans are projected to spend even more money –$29 billion to be exact– on Black Friday this year, Black Friday retail sales are anticipated to take a hit this year. With the popularity of online shopping and Cyber Monday only increasing, consumers are less motivated to actually shop in-store. Now, consumers are browsing, comparing prices and hunting down deals from the comfort of their own home. 

In the past, large department stores like Macy’s, Kohl’s and JC Penney held the largest power when it came to retail in the 70’s and 80’s. Around this time, the allure of black friday and retail sales in general came to the foreground. Thus, when it came to Black Friday, these department stores relied on and drew in more dollars than any other retail companies. 

Nowadays, however, the reality of the retail industry couldn’t be more black and white. Due to the disruption of Cyber Monday and online shopping in general, large retail chains like Macy’s and Kohl’s are having a hard time drawing shoppers to malls. As a direct result, their sales are in a slump. The model of Black Friday is essentially crazy deals for a limited and short amount of time. However, as Coresight Research CEO Deborah Weinswig stated, “Black Friday no longer represents a narrow window of opportunity in which shoppers have to wait in the cold and sprint into stores to get unmissable deals.” Holiday shopping begins much earlier in the season and now, actually occupies most of the month of November. While Black Friday is still expected to be the busiest shopping day in respects to foot traffic, Cyber Monday is expected to surpass Black Friday sales this year. That being said, Macy’s shares are down 47% this year and Kohl’s shares are down 27%. 

Thanksgiving 2019 shopping projects. Source: CNBC

While the days of Americans trampling each other in a race to get a deal on a flat screen TV are decreasing, Cyber Monday and online holiday shopping sales, as previously stated, have lucrative projections. This year, online shoppers are expected to spend $143.7 billion in November and December combined, according to Adobe Analytics annual calculations. This is a 14% increase in comparison to last year’s holiday shopping period. 

This year, the holiday shopping period is 6 days shorter than normal, seeing as there’s only 22 days between Cyber Monday and Christmas. Alas, Adobe Analytics projects ecommerce sales will exceed $1 billion for for every day of November and December. This will be the first year ever that this is the case. Thanks to online shopping companies like Amazon Prime and “BOPIS” (buy online, pick up in-store) services, online shopping is just that much easier. This year, smartphone purchases are projected to account for 36% of online sales this holiday season. This statistic is up 20% from last year. 

With the ability to complete our holiday shopping needs from the 4 inch device that sits in our pockets, the odds continue to stack up against the power of Black Friday retail sales. While Black Friday has yet to occur, these statistics and projections prove that retail shopping finds itself in a very interesting cross road. As large department and retail chains are closing down nationwide, I personally am very interested to see where the future of in-person retail sales lies.