Market Concentration and Hollywood

Thought-provoking piece on how market-power is changing what gets produced in Hollywood. I really wanted to like the piece. I'd feel more creditable if I take the anti-monopoly side on issues more often. I don't like most new movies. And in general I'm sympathetic to the idea that markets work better when there are many small producers. Mitigating against that predilection is the fact that the blog by definition always says market power is a problem. Still the piece is thought-provoking and talking about old films is fun.

But what I have trouble understanding is why the input Hollywood would cheap out on is 'creativity' not 'money.' Stoller discusses the supposed decline in quirky comedies like 'Back to the Future' once theater market power got concentrated into megaplexes. But megaplexes should jump at the chance of grabbing up a 'Mad Max' or 'Blair Witch Project' at a fraction of the price of a Star Wars CXXIV. Creativity is much cheaper than starpower. Maybe you could argue that the reduction in supply means there's no chance to screen more risky movies. But I think megaplexes and the increase in market concentration has increased the supply of run times not decreased. Hollywood is probably delivering exactly the sterile fare that moviegoers crave.

In Stoller's Netflix example Stoller tries to thread the needle and claim that Netflix is both restricting the supply of new content and oversupplying new content. The evidence is ambiguous. But before going into that I kind of reject the premise. Netflix invested heavily in creating a new business - its resulting market power is a result of the resulting audience, recommendation systems, and streaming reliability it built. And if Netflix is cheap and undersupplies content you can rest easy knowing that you can always spend $70 on cable or DirecTV if you so desire.

His evidence for oversupply is that Netflix is losing money. Its a confusing claim because I think Netflix is making a profit. But even if it were losing money the value proposition of Netflix is content doesn't go stale as fast as on a physical TV channel. So the monetary losses today have to be measured against the value of the film library which is hard to estimate as the medium is new. I also suspect Netflix is more undercharging than oversupplying which is problematic for different reasons.

On the undersupply side his evidence is that Netflix cancels shows in their second season. Market power is probably part of the story here. But the bigger issue seems to be the market microstructure having perverse incentives (don't pay based on usage just subscription levels).

The claim about market concentration encouraging more market concentration seems much more compelling to me