Businessweek Archives

Welcome To The Entertainment Economy


Cover Story: SOME FUN

WELCOME TO THE ENTERTAINMENT ECONOMY

What's helping drive the U.S. economy? Check out Mortal Kombat. The bloodthirsty arcade and home video game has generated nearly $2 billion in revenues. On Aug. 18, a $35 million live-action movie will be released, followed by an animated video and a stage production. If the fad doesn't fade, an animated TV series may follow. "We've employed thousands of people doing all these Mortal Kombat things," says Larry Kasanoff, chairman of Santa Monica-based Threshold Entertainment Inc., which holds the media rights to the characters. And don't forget the merchandising rights, held by the Licensing Group in Los Angeles, which is doing deals for T-shirts, lunch boxes, and toys. By the year's end, the revenue generated by the one gory game and its spinoffs may approach that of the entire leather-goods industry.

As Mortal Kombat shows, the entertainment business is booming. Americans will spend nearly $400 billion, or about 8% of total consumption, on entertainment in 1995--everything from TVs and radios to cable fees, CDs, and gambling. Nearly 2.5 million people earn their living producing fun. In California, job creation in the entertainment economy has helped make up for devastating losses in aerospace. In foreign markets, entertainment has become a leading U.S. export. And by the end of the decade, according to the investment banking firm Veronis, Suhler & Associates, the media portion of the industry will be growing 6.8% a year, trailing only computers, travel, and telecommunications.

GREEN LIGHT. Most observers figure that the huge consolidations represented by Walt Disney Co.'s acquisition of Capital Cities/ABC Inc. and Westinghouse Electric Corp.'s purchase of CBS Inc. will accelerate the industry's long-term growth. The huge financial resources of these new enterprises, for instance, should increase capital spending for new technologies, says consultant David Wilkofsky, chairman of Wilkofsky Gruen Associates Inc.

Of course, the continuing consolidation of media businesses could result in some short-term slowing of job growth, but it won't stop the juggernaut. More laissez-faire federal laws will provide the telecommunications industry with vast new growth opportunities. Local TV stations will be handed enough extra airwave space to broadcast as many as six new channels. The media giants will be given a much freer hand to expand, resulting in greater economies of scale. Networks will be allowed to do their own production, and single companies will be permitted to reach as much as half the potential national audience.

If booming domestic demand isn't enough, exports will spark even greater growth. Already, U.S. makers of films, CDs, videos, and the like are earning about 40% of their revenues--or about $9 billion a year--overseas. That share should increase, especially in Asia and Latin America. "The need for more and more product is just going to grow," says Gene F. Jankowski, a managing director at Veronis Suhler.

In the long run, all this expansion will mean more jobs--not only at giants such as Disney but also at the thousands of small production houses, animation companies, and video-game makers. While links between software companies and film studios are still tenuous, they have already spawned a new moniker for the ties between Silicon Valley and Hollywood: Siliwood.

GUCCI GULF. How's the pay in the entertainment biz? The gap in pay from movie mogul to mail sorter is perhaps bigger than in any other industry. But overall, entertainment pay isn't too bad. According to the Business Forecasting Project at the University of California at Los Angeles, the movie and TV industries pay an average wage of $47,000. That's less than the $53,000 that aerospace workers get, but well over California's $32,000 average. Others in entertainment, such as amusement park workers, earn close to the state's average.

As long as the U.S. economy is solid, consumers will keep demanding more movies, video games, and theme parks. Mortal Kombat may not exactly be the auto industry, but the grisly game and products like it will become a bigger and bigger piece of the U.S. economy for years to come. And the current merger boom may only speed up the trend.By Howard Gleckman, with Mark Lewyn in Washington and Larry Armstrong in Los Angeles


China's Killer Profits
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus