Asia Entertainment Economics 101?

Read the following news blurb regarding Warner Brother’s recent attempt to sell DVDs at “bargain prices” in China to compete against illegal DVDs. Even after the price concession, however, it would still result in prices that are at least 2X the price of pirated DVDs. Seems to me to be a step in the right direction though and I’m curious to see find out what the economic calculations behind the pricing were in order to make that happen.  The point here is not necessarily in matching the price of a pirated version but, rather, making the incremental additional price of a legal DVD less than its perceived incremental additional value.   The math is a bit fuzzy but the logic is there.

Reading the blurb got me thinking about the economics of entertainment in Korea, which then got me to thinking about a way studios / actors / artists can approach markets like China (and other parts of Asia) where piracy is a major issue.

First of all, a very rudimentary guide to the entertainment business in Korea, based on my observations while working there and having had some insight into parts of the entertainment industry.  The economics in Korea is such that entertainers generally don’t make much money at all through sales of their “art” – i.e. CDs, DVDs, etc.  Rather, they really make their money via sponsorships. For example, in the U.S., athletes (yes, they are entertainers) make approximately 40% of their take-home pay from marketing deals. However, for successful actors and artists, most make the vast majority from guaranteed contracts NOT from marketing / sponsorship deals.

The situation in Korea (and I believe in much of Asia) is quite unique in that, I would venture to guess that the vast majority of successful artists / entertainers get at least 75% or more from marketing / sponsorships.  In other words, the entertainment product is actually the MEANS to getting a sponsorship or marketing deal – that’s where the big money is – the entertainment product is NOT in and of itself a way to really make money. In other words, the entertainment product, is actually MARKETING, and the sponsorship / marketing deals end-up being the PRODUCT being sold.  The reason for this probably has to do with:

1) the small size of the market in Korea, particularly as it developed;

2) the difficulty of charging high prices for products due to the lower levels of discretionary income and competing alternatives (i.e. social drinking, karaokes, etc.); and

3) a focus on personalities as opposed to products.

 From what I can gather thus far, I believe much of Asia is very similar. As a result, it may be worthwhile to examine a way of doing business where:

1) the entertainment itself is marketing for the

2) ultimate product, which is the actor / entertainer / performer.

Therefore, the way for entertainers to make money in  Asia may  be to:

1) be as popular as possible via the marketing vehicle (the entertainment product); and

2) collect on the sponsorship / marketing deals.

No question that artists will always be able to make money on live performances, theatre releases, etc.  But focusing on derivative products like DVDs probably won’t work.  When in Asia, do as the Asians do…

An implication of the above is that all businesses must figure out a way to monetize their piece of the actor / entertainer / performer in a very direct way that places the actor / entertainer / performer at the center of the entertainment universe.

Would be interested in getting feedback / thoughts from others who have better visibility into the entertainment world in Asia than I… I believe there’s an intriguing potential here…

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