Tag Archives: Creative industries

Creative Industries : Contracts between Art and Commerce – Richard Caves (2000)

Reference: Creative Industries : Contracts between Art and Commerce – Richard Caves (Harvard University Press, 2000)

Introduction: Economic Properties of Creative Activities

  • Basic Economic Properties of Creative Activities
    • Demand is Uncertain : “nobody knows”
    • Creative workers care about their product: “art for art’s sake”
    • Some creative products require diverse skills: “motley crew”
    • Differentiated Products: “infinite variety”
      • A is better than product B, what an economist calls vertically differentiated
      • Two songs or… may be quite similar in the character and quality that consumers see in them, but they are not identical. In economic terms they are horizontally differentiated – p6
    • Vertically differentiated skills: “A list / B list”
    • Time is of the essence: “time flies”
      • Along the motley crew property, temporal coordination implies a hold-up problem: an indispensable input demanding better terms ion the threat of withholding its services at the last moment. – p8
    • Durable products and durable rents: “ars longa”
      • The legal duration of the copyright
  • Theory of contracts
  • Complete contract, bounded rationality, incentive contracts, reputation, implicit contract, switching costs, asymmetrical information, decision rights, nexus of contracts,

Part I: Supplying Simple Creative Goods

  1. Artists as Apprentices

  • Schooling and artist’ tasks and values
    • Visual arts students
      • This problem-solving process is both task and reward of the artist. Student asked why they make art invariably invoke “rewards not from the work but in the work, rewards derived not from the product but obtained in the process of production” –p22
      • Overall, success rides on the ability “to relate conscious tasks to deeply felt subconscious issues in novel ways” –p23
    • Music students
    • Creativity and craft
  • Apprentice stage and the selection process
    • Sometimes agglomeration economies stem from the complex production process that requires coordination of many creative and humdrum inputs… IN other cases agglomeration arises in order to facilitate artists’ training and development processes and gatekeepers’ filtering activities. – p26
    • Getting one’s work known
      • The logic of agglomeration comes clear from the nature of the apprentice’s task and search procedure.
      • The artist spends time looking at the work of other artist …. Continuous dialogue takes place to establish what are the major issues and new ideas…. Plugged into the latest ideas about what is valid and important, even before this dialogue is embodied in new worlds of art on viewed in the galleries and glossy magazines – p26
      • Contacts with dealers, visibility, public exposure
      • I.e. Warhol
    • Apprentices’ economics choices


  • The logics of art centers
    • Creative work and centripetal pull
    • Art centers’ built-in turnover
    • Location among cities


  • Apprenticeship and gatekeeping in other art worlds
    • Writers, agents and publishers
    • Popular musicians, managers, and record companies
    • Classical musicians and the contest circuit


2. Artists, Dealers, and Deals

  • Relationship between artist and dealer
    • Promoting the artist’s career
    • Ideal and attainable contracts
    • Cooperation in practice
  • The ecology of art galleries
    • Dealers’ Qualifications
    • Hazard and strategies
    • Vertical differentiation
    • Dealer-artist links and turnover

3. Artist and Gatekeeper: Trade Books, Popular Records, and Classical Music

  • Author, agent, and publisher
    • Agents as intermediary
    • Author and publisher
    • Editor and publisher
  • Dealings between artist and record company
    • Terms of recording contracts
    • Implications for incentives
    • Governance of contracts
  • Agents and job-Matching
    • Whose side are you on?
    • How many agents?
    • Agents in classical music

4. Artists, Starving and Well-Fed

  • Artists’ success : superstardom
    • Stars and emerging artists
    • Scope for superstars
    • Superstars in history
    • Stardom and talent
  • Artists’ incomes and their distribution
    • Artists’ labor supply
    • Evidence: level and composition
    • Dispersion of artists’ earnings and employment

Part II: Supplying Complex Creative Goods

5. The Hollywood Studios Disintegrate

  • The studio system’s heyday
    • The studio system and talent contracts
    • The studios’ assembly lines
  • Transition to spot production
  • Flexible specialization
  • Evidence of flexible specialization
  1. Production outside of studios
  2. More specialized service firms
  3. Smaller specialist firms
  4. Agglomeration economies
  5. Part-time work
  6. Craft union roster
  7. Increased deal-making entrepreneurship
  8. Sources of studios’ profitability
  9. Repeat business
  10. Training and film schools
  11. Festivals as film markets


6. Contracts for Creative Products: Films and Plays

  • The feature-film deal and its contract structure
    • Contract structures: the screenplay
    • Assembling the creative team
    • Contingent compensation in film deals
    • Finance and distribution contracts
    • Strategic accounting
    • Finance and efficient incentives
  • Assembling Broadway plays
    • Sticky terms unstuck
    • Complex task, uncertain product

7. Guilds, Unions, and Faulty Contracts

  • Origins of creative guilds
    • Actor’s equity
    • American federation of musicians
    • Hollywood talent unions
  • Creative talents and A list / B list rankings
  • Still ranked inputs in complex creative projects
    • Talent pools and diversity
    • Vertical differentiation and staffing creative projects
  • Talent guilds and craft unions: the ongoing deal
    • Hold ups
    • Talent guilds and pay differentials


8. The Nurture of Ten-Ton Turkeys

  • Role of the option contract
  • Failed Motion pictures
    • The bonfire of the vanities
    • Heaven’s gate
    • Sources of disasters
  • Mammoth first printings, giant returns


9. Creative Products Go to Market: Books and Records

  • Informing potential buyers
    • Methods of sales promotion
    • Return privileges and resale price maintenance
    • Promoting blockbusters
  • Best-seller lists and top 40 hits
  • Physical distribution of books
    • Decline of independent bookstores
    • Litigation over quantity discounts
  • Promotion, distribution, and concentration of producers
  • Distribution transformed?

10. Creative Products Go to Market: Films

  • Film distribution and deals with exhibitors
    • Exhibition contracts
    • Bidding, blind selling, and block booking
  • Promotion of films and ongoing distributor-exhibitor dealings
    • Distributors’ options for promotion and exhibition
    • Governance of distributor-exhibitor relationships
  • Arm’s-length deals and vertical integration


Part III: Demand for Creative Goods

11. Buffs, Buzz, and Educated Tastes

  • Creative consumption as rational addiction
  • Creative consumption in its social context
    • Herd behavior and information
    • Information in social discourse
  1. Word-of-mouth is far more powerful transmitter of information on creative goods than on goods that lack their cachet as a social catalyst –p181
  2. Herd behavior has a motive unrelated to eliciting information before a purchase.
  3. The superstar effect is intensified
  4. The value of less popular (more specialized) creative goods will depend on how easily persons with shared interests make contact with one another. –p181
  • Fashion. An application
  • Fame and fads: an application
  • Buffs and casual consumers
  • Pop culture and high culture

12. Consumers, Critics, and Certifiers

  • The market for critical opinion
    • Objectivity and interest
    • Critics and dealings in the art market
  • Prizes and awards
    • Academy awards
    • Ecology of prizes
  • Sellers who certify: book clubs

13. Innovation, Fads, and Fashions

  • Innovation: character and consequences
    • Innovation and creativity
      • Innovation is the visible tip of the iceberg of everyday creativity – those creative efforts that strike the market as unusually distinctive, satisfying, and /or productive in opening new ground. – p202
    • Sources and consequences of innovation
  • Innovation and organization in popular music
    • Sources of innovation
    • Turnover among record companies
    • Country music goes to town
  • Innovation in toys and games
    • Innovation and turnover
    • Innovation and toymakers concentration
    • Video games
  • Innovation in the visual arts
    • Abstract expressionism
    • The armory show


Part IV: Cost Conundrums

14. Covering High Fixed Costs

  • Fixed costs in creative activities
  • Nonprofit organizations and the fixed-cost problem
    • Contract failures and nonprofit organizations
    • Contract failures with creative inputs
    • The “cost disease”
      • Because productivity advances art uneven rates in different industries, this process alters the relative process of goods, cheapening those with the greater opportunities for productivity advance. The performing arts, goes the argument, are the losers in this game, as the labor hours required to perform Beethoven string quartet remain exactly what they were when Beethoven wrote it. – p229
      • This analysis has been put forth as an argument for public subsidy to the performing arts. –p229
      • Some art producers and consumers, the ones not favored by new technologies, are worse off. –p229
  • Nonprofit organization in the performing arts
    • Incidence of nonprofit firms
    • Nonprofit ‘ policies and motives


15. Donor-Supported Nonprofit Organizations in the Performing Arts

  • Organization of music performance
    • The American scene
    • The entrepreneurial nonprofit organization
    • European patterns
    • Fixed costs and upgraded quality
  • Creating and sustaining nonprofit organizations
    • Motives of potential donors
    • Donations in social context: nineteenth-century Boston
    • Charity and implicit contracts
    • Corporate charitable contributions


16. Cost Disease and Its Analgesics

  • Effects on real costs and quantities of creative product
  • Broadway and regional theater
  • Substitute creative products
  • Other adjustments on Broadway
  • Cost squeeze In the theatre
    • Regional and noncommercial theatres
    • Off- and –off-off-Broadway
  • Cost squeeze and the symphony orchestra


Part V: The Test of Time

17. Durable Creative Goods: Rents Pursued through Time and Space

  • Durability of creative goods and its implications
    • Physical preservation
    • Taste value of durability
    • Trade in durable creative goods
    • Durability and creative inspiration
  • Spatial markets for creative goods: the trip through the galaxy
    • Explaining the sequence
    • Licensing spin-offs
    • Rights to visual artists’ works
    • International movement of creative goods

18. Payola

Payola is a bribe paid in order to influence a gatekeeper’s choice among competing creative products. … it does have a special affinity for creative goods. That is because infinite variety tends to ensure a large number of creative goods clamoring at the gate, nobody knows which the ultimate consumer will prefer, and the creative good’s cost is mostly fixed and sunk.– p286

  • Logic of Payola
  • Payola and the Sound of Music
  • Music Publishing
  • Payola and Radio Airplay
  • Consequences of Payola and Its Regulation
  • Payola in Other Settings
  • Vertical Corporate Mergers: Capitalized Payola

19. Organizing to Collect Rents: Music Copyrights

  • Intellectual Property Rights in Creative Activities
  • Songwriters and Royalty Sources
    • Mechanical Royalties
    • Performance Royalties
    • Other Sources
  • Copyright collectives
    • Assembling the Coalition
    • Negotiating Royalty Payment
    • New Music-Distribution Technologies
    • Structure of ASCAP’s Charges and Disbursements
    • ASCAP faces competition
    • Ongoing Negotiation and Rivalry
    • Songwriters’ and Publishers’ 50-50 Split
  • Creative Work without Copyright: British Novelists in Nineteenth-Century America
  • Copyright in Perspective

20. Entertainment Conglomerates and the Quest for Rents

This chapter explores how the distinct properties of creative industries interact with the activities of conglomerates – p314

  • Creativity and Bureaucracy
  • Rents, Auctions, and Media Conglomerates
    • Conglomerates versus Arm’s-Length auctions
    • Conglomerates’ Role in Practice
      • Predominance of auction values
      • Competition among publishers
      • Conglomerates’ publishing operations
      • Conglomerates’ Longevity
  • Vertical integration: Rent-Seeking or Trap-Avoiding
    • Merging with a  Gatekeeper
    • Vertical Mergers in Media Industries

21. Filtering and Storing Durable Creative Goods: Visual Arts

  • Collectors as Gatekeepers
    • Behavior Patterns of Collectors
    • Corporate collections
  • Intermediaries: Auctions and Secondary Dealers
    • Charges to sellers and Buyers
    • Rivalry for major collections
    • Auctions and Secondary dealers
  • Museums and their policies
    • Museums as donor-supported nonprofit organizations
    • Museums’ Choice of policies
    • Competition among museums

22. New versus Old Art: Boulez Meets Beethoven

  • Stocks and Flows of Visual Artworks: Some Relationships
    • Art Stocks, Fashion, and Relative Prices
    • Art Market and Boundaries of Collecting
    • Museusm, old Art, and New art
    • Museums as absorbers of art
    • Plunder
  • Musical Masterpieces and the Hardening Repertory
    • Entry to the Music Repertory
    • Composer’s plight


  • Ecological forces in themarket determine the organizationof gatekeepers themselves – p363
  • The many would-be creative workers who suffer reejctino either toil in dedicated poverty or settle for humdfrum work, while thopise who experience creative success reap adulation and wealth in what tend to be winner-take-all contests – p363
  • Unfairness for the artist…. The artist can demand decision rights over subsequent stages, but at great cost in what the next-stage fabricator will pay for her work. – p364
  • The prevalence of nonprofit arts organizations is  well explained by the pressure of high fixed costs , whose effect is amplified by the cost-disease problem.- p365
  • Although both high and popular culture serves both buffs and casual consumers, the scale of investment in cultural consumption capital is on average much higher than for high culture. Regular customers are les numerous… and the fixed costs more pressing.








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