TEMCI Wk 1-3 Notes PDF

# Cultural Industries: Product-market characteristics - **Produce experience goods with significant creative elements, targeted at consumers through mass distribution.** - Con: It excludes high-end art (like fine art) due to the focus on mass distribution. - High art doesn't always reach ma...

# Cultural Industries: Product-market characteristics - **Produce experience goods with significant creative elements, targeted at consumers through mass distribution.** - Con: It excludes high-end art (like fine art) due to the focus on mass distribution. - High art doesn't always reach mass audiences. - **The value of cultural goods is often more symbolic, aesthetic, or socially meaningful than utilitarian (practical) value.** ## Selectors and gatekeepers - **Upstream selectors:** firms that select artists or creative projects to bring to the market (e.g., publishers, movie producers etc). - **Downstream selectors:** individuals or organizations who select artists or creative goods that have relatively high value (e.g., reviewers, award juries etc). - Facilitators in reading 1.3 are upstream selectors. - Selectors in reading 1.4 are mainly downstream selectors, who evaluate producers & products. ## Business Models in Creative Industries ### Revenue Sources - Selling the creative product (e.g., music, film, art) - Advertising: Selling ads based on audience size (e.g., TV commercials). - Subsidies: Gaining government or institutional support based on audience interest or social value. - Grants/Sponsorship: Support from foundations, corporate sponsors, or loyalty programs. - Ancillary services: Revenue from additional offerings like gift shops or restaurants (e.g., free museum entry but income from other services). ### Challenges - Finding sustainable revenue streams at minimal cost. - Maintaining competitive advantages and preventing imitation by competitors. # Pay as you go: Museum pricing proposal ## Museum Objectives- Why Price? 1. To help to fulfill its basic museum responsibilities, namely protect the collection. - Too many visitors put the collection at risk and diminish the quality of the visit. 2. To achieve economic goals - Generate revenue. - Differentiate the museum from others through unique offerings at various levels of access. 3. To achieve other social/political goals - Getting the support of broader groups or stakeholders, e.g., by educating children). ## Exit Prices as an Innovative Pricing Model for Museums - **Exit Prices:** based on time spent or exhibitions visited, providing flexibility. - Aim: balance museum objectives + address inefficiencies of traditional pricing. - It can be: fixed, voluntary, or obligatory but variable. - This is not based on subjective value of visitor experience but on a quantifiable "objectified" experience, such as time or content. - **Traditional Pricing Models:** can be free entry, fixed entry fees, voluntary donations (at entrance or exit), and membership clubs. - Fails to consider distributional fairness (i.e., varying financial abilities of visitors). - Factors to Voluntary Contributions: the visitor's connection to the museum, peer pressure, and whether the contribution signals quality to others. ## Key Findings 1. **Advantages Of Exit Prices** - More Choice & Satisfaction: Visitors can make a tailored visitor experience, based on time and willingness to pay. - Fairness: Visitors pay based on usage, making this pricing model more socially equitable. - Efficiency: Can help balance museum objectives by being more flexible. - More revenue generation for visitors who prefer shorter, more flexible visits. - Creates Donor Appeal: balance of financial sustainability with inclusivity. 2. **Disadvantages of Exit Prices** - Visitor Behavior. Exit prices could prompt visitors to rush through exhibits to minimize costs. - External Barriers: Factors like limited museum hours or high travel costs still restrict access. - Does not account for potential overcrowding, which can harm the visitor experience & art. # Contracts between art and commerce ## Key Terms - **Creative Inputs**: Artists or creators contributing original content. - **Humdrum Inputs**: Commercial entities that handle the logistical, marketing, and production aspects of bringing creative work to market. - **Vertical Differentiation**: The process of enhancing a creative product's quality by increasing fixed costs, such as adding special effects, to elevate its perceived value. - **Horizontal Differentiation**: Offering creative products that vary in style or genre to cater to different tastes, without a clear ranking of quality. ## Core Characteristics of Cultural Production 1. **Nobody Knows**: The success of creative products is unpredictable, leading to overproduction and an oversupply of talent. 2. **Art for Art's Sake vs. Show Me the Money**: Artists often prioritize creative fulfillment over financial gain. As they achieve > market power their focus shifts toward profitability. - **Psychological Income**: The non-monetary satisfaction an artist derives from creating art. 3. **Motley Crew Problem**: the collective of specialized contributors (e.g., in film or TV) working together to produce a cultural good, where the risk and rewards are unevenly distributed. - **Low Residual Value**: Failed creative projects have little value, making them riskier than standardized goods. ## Key Findings - **Unequal Contracts**: Oversupply of artists and "nobody knows" uncertainty give facilitators power to offer less favorable deals to artists. - **Direct Sales Prohibition**: Contracts often prevent artists from bypassing intermediaries like galleries or agents. - **Risk Management**: Complex contracts, including revenue-sharing and real option contracts, are used to balance risk and incentives in creative production. - **Revenue Sharing**: Artists often engage in 50/50 revenue-sharing deals, though specific terms vary by industry. # The Transformation of the Seleciton System in Modern Arts ## Evaluation Systems in the Creative Industries - **The Selected**: Artists or creators whose work is evaluated. - **The Selectors**: Evaluators who determine the value of creative work. - **Selection System**: The process of evaluation: - **Market Selection**: Consumers decide value. - **Peer Selection**: Other creators evaluate the work. - **Expert Selection**: Critics or curators judge value based on expertise. ## Key Findings - The rise of Impressionism marked a shift from peer to expert evaluation in art. - **Public Validation**: Success in creative industries depends on engaging with evaluators (market, peer, or expert) to gain recognition. - Creative industries **adapt** by appealing to the most relevant selectors in evolving business models for success. - **Market Influence**: Despite expert dominance, market preferences can still shift outcomes. # Creativity and Innovation - Creativity and innovation are not the same thing - **Innovation**: the output; new products, new ways of doing things; the end process - **Creativity**: mainly used for the inputs - In theory these two concepts can be separated; however, in reality, if we want to measure them, they become very much merged - It's hard to measure creativity without talking about innovation - Why are some innovations more important than others? - How much creativity is incorporated in this particular innovation ## Innovations & Categories - Radical innovations create new categories. - Recombining categories is an important source of innovations, especially in the creative industries (cross-overs). - Innovative products/producers are difficult to categorize. - There is no absolute standard for innovation → you must compare to something that was there before. # Slack resources and product innovation ## Organizational Slack - Unusued/surplus resources available to organizations. When there is too much slack (stress) there is inefficient resource management that is costly and can lead to inertia in decision-making. - Creativity vs. Stress: Slack can either... - Facilitate creativity under moderate stress. - Impede creativity if stress is too high (lack of time or overwhelming pressure). ## Innovative Strategies of Organizational Slack (defined by organizational actors) 1. **Product Exploration**: Introducing radical innovations or new competencies (pushing the organization beyond existing limits). 2. **Product Exploitation**: Refining or improving existing products (capitalizing on current competencies). 3. **Ambidexterity**: The ability to pursue both exploration and exploitation simultaneously. - Requires organizational adjustment or resource flexibility. ## Types of Organizational Slack | Resource | Rare | Resource Absorption | |---|---|---| | **Resource** | **Rare** | **Absorbed**- tied to ongoing operations | **Unabsorbed**- easily allocated resources | | **Rarity** | **Generic** | **Human Resource Slack** # of full-time employees Total # of employees | **Customer-Relational Slack** Subscription level p/y The total # of employees | | | | **Operational Slack** Unutilized facility capacity (e.g., unused seats in a theatre). | **Financial Slack** Cash reserve of an organization at the end of the year. | ## Environmental Threat: - Perceived pressure or uncertainty from external forces, affecting how organizations utilize slack resources for exploration or exploitation. - High Threat: unabsored resources (financial & c-r slack) increase exploration and lower exploitation. - The riskier the situation, the riskier the actions. ## Main Results 1. **Unabsorbed Slack**: more exploration under high environmental threat but reduces exploitation. 2. **Absorbed Slack**: Favors exploitation over exploration, as resources are tied to ongoing operations. 3. **Customer Relational Slack**: - Inhibits exploration, especially under low environmental threat. - Promotes exploitation (utilizing customer relationships for stability). # Determinants Of Artistic Innovation 1. **Defining Artistic Innovation** - Artisit innovation is the introduction of works that are new relative to a specific referent, which can be the artist's past work, local competition, or the broader global field. 2. **Dimensions Of Innovation** - **Content Innovation**: Introducing new or contemporary works. - **Form Innovation**: Novel ways of presenting or interacting with audiences, such as multidisciplinary approaches or enhanced interactivity. 3. **Is There An Artistic Deficit?** - An artistic deficit refers to the idea that there is less artistic innovation than is possible or desired. Despite concerns about commercialization and uniformity, substantial variation in artistic programming still exists. ## Determinants Of Artistic Innovation ### Macro-environmental Perspective: Country Level 1. **Local Resource Availability**: Population size positively affects programming diversity, but average income and education level do not. 2. **Market Forces**: - **Demand-side factors** (e.g. audience education level) do not affect programming. - **Supply-side factors** (e.g. market structure and competition) play a role, but are overlooked in the literature. 3. **Legal and Institutional Factors**: Intellectual property rights protection and the general market structure of the country can shape the landscape for artistic innovation. ### Meso Perspective: The Funding Hypothesis – Industry Level - Diversity of funding sources is positively related to artistic innovation: - **Public Sponsors**: Support for innovation often aligns with their political views. - **Corporate Sponsors**: depends on industry membership, corporate identity, & strategy. ### Limitations: - Assuming homogeneous preferences across funders of the same type. - Focusing on the U.S. context where corporate sponsorship is more prevalent. - Viewing funders as completely determining organizational behavior. ### Micro Perspective: Organizational Level - Motivation to innovate: when their performance falls short of their aspirations. This gap between actual and expected performance prompts artistic risk-taking. - Organizations only engage in artistic innovation when there is a negative gap between their performance and aspiration level. - Aspiration levels are influenced by ownership and funding mix. - Funding sources impact artistic decisions more if they are represented on the governing body. - External funding resources allow for more independent decision-making. - **Organizational slack**: (unused resources) is positively related to artistic innovation. - **Organizational Size**: The impact of an organization's size on innovation is mixed; a larger organization can offer > resources, but maybe also › inertia and resistance to change. - **Power distribution within the organization**: Managers without an artistic background are < likely to pursue artistic innovation → prioritize efficiency & financial concerns over creative value. # Creativity Through Artistic Interaction ## Galenson's Distinction: - **Conceptualists** (having one bid idea) vs. **Experimentalists** (contrinual trial & error) - **Creativity peak**: the moment in career when creativity is at its highest. - **Dawn peak**: early-bloomers, often linked to artistic movements. E.g., Picasso → conceptual execution. - **Twilight peak**: late-bloomers, generally through individual experiemental processes. E.g., Cezzanne → expermental innovation. - Galenson's mesurements: out-put centered - Prices at auctions - # of illustrations from different periods in art histories - # of works from different periods in solo exhibitions. - **Drop in Peak Creativity Age**: a result of the art world's increasing demand for rapid innovation, which favors conceptual innovators who produce early breakthroughs, while experimental innovators, who develop more slowly, have become less prominent. - **Critique of Galenson's Model**: Galenson reduces creativity to a single point and overlooking the influence of artistic movements on creativity. Conceptual and experimental innovators are not easily distinguished, as artists like those in cubism mix both approaches → Picasso. ## Accominotti's Argument - **Creativity from Interaction**: individual creativity is strongly influenced by interactions between artists, especially within artistic movements. - **Benefits of an Artistic Movement**: - **Access to Information**: new gain knowledge from their peersnew innovations. - **Competitive Environment**: Movements create pressure to outperform peers, pushing for creative breakthroughs. - **More participation in group activities increases collaboration**: - **Group Reputation**: Artists benefit from the collective recognition of their movement. - **Drive of creativity** (in individuals & history): Common membership in an artistic movement (e.g., collaborationns) + competition/borrowing between movements. **Accominotti on Galenson**: - **Conceptualist/ Early-bloomers linked to (start of) a movement → may face pressure to be consistent to their movement, limiting creative freedom later on.** - **Experimentalist/ Late-bloomers are not associated with a movement, tend to work independently.** - **Drop In Peak Creativity Age**: related to the higher frequency of movements → > early bloomers. - **Shift to expert selection → > competition to identify radical innovations → creation of new categories = movements → Higher turnover of movements** # Innovation in Recorded Jazz ## Key Terms - **Incumbents**: Dominant firms responsible for introducing major innovations to the market. - At first they make these innovations seem much less innovative. - **New entrants**: bring radical innovation. - They either become dominant incumbets, or previous incumbets beat them to the punch. - **Competence of the Innovator /producer**: measured as the number of "takes" (i.e., attempts) required to record a song successfully. - Greater chances of successful first take = > firm competence. - **Innovation Legitimacy**: The value of an innovation, regardless of its competence, depends on recognition by key gatekeepers or selectors. This presents a challenge when the innovation's novelty or competence undermines its legitimacy in the eyes of these decision-makers. ## Challenges with Jazz in the 1920s - **Cultural Barriers**: Jazz was associated with African-American musicians and improvisation, which conflicted with the predominantly white, structured music industry. - **Racial Bias**: Incumbents avoided recording African-American groups, preferring all-white bands or symphonic jazz orchestras to make the genre more acceptable to elite audiences. ## Hypotheses: 1. Incumbents < record African-American groups in their first take. 2. Incumbents > record jazz orchestras in the first take. ## Evolution of Jazz 1. Initial Commercial success but also considerable backlash due to pressures to conform to highbrow cultural standards. 2. Incumbents stepped back from jazz. - **Legitimacy Issues**: Radical innovations can undermine an incumbent's legitimacy, who do not want to loose their status, so they step back from new products, like jazz. 3. Jazz remained a smaller & less reputable operations → lowbrow and tied to black culture. 4. 20th Century: Jazz as a Highbrow Genre: Jazz transitioned from a marginalized genre to one embraced by elites, becoming "whiter" and more structured as it gained cultural legitimacy. # Economics of a Good Party ## Social Construction of Value 1. **Gatekeepers** = subjective evaluation of value. 2. **Scenes** = taste determined by social networks. 3. **Buzz** = consumers influence each other's behaviour. - Cultural value creation is not just economic but part of a social process of valorisation and legitimization. ## Cultural Products - Market demand driven by taste (rather than performance). - Value determined by form (rather than function). ## Tiers of Cultural Value Creation - **Tier 1: Gatekeepers**: Include art dealers, fashion editors, and film critics who are crucial for the symbolic valorization of goods. - **Tier 2: Intermediaries**: Involve film distributors and buyers for retail stores, who influenced by gatekeepers, transform symbolic value into economic value. ## Formal Events vs. Informal Scenes: - **Formal events**: platforms where industry figures give legitimaciy and credibility, and who valorize cultural works. - **Informal Scenes**: deal making and networking happens behind the curtain. ## Valuing Events & Scenes 1. **Emergence of Taste**: communities reinforce notions of "good" art, facilitating discussions among artists and fostering the transition of subcultures into mainstream culture (e.g., hip-hop). 2. **Weak Ties**: indirect relationships (not close friends) with gatekeepers/tastemakers can build legitimacy & personal networks, crucial for career advancement in the cultural sector. 3. **Professional Networks**: Access to both professional (i.e., critics) and informal (i.e., bloggers) tastemakers, as well as peers, plays a significant role in shaping public perceptions. - Weak ties among individuals help build legitimacy and personal networks, crucial for career advancement in the cultural sector. 4. **Cross-Fertilization**: Cultural producers in one sector act as gatekeepers in another (e.g., the red carpet designers for celebrities attending film awards), indicating the transferability of skills and influences across industries. # Seeding strategies for viral marketing - Seeding strategies targeting well-connected people (hubs) are the most successful due to their likelihood of participation and broader reach. - **Misconception of Influence**: Despite their connectivity, hubs do not necessarily exert more influence over peers compared to less-connected individuals. ## Seeding Strategies & Centrality - Consist of nodes (individuals/people) and clusters (groups/networks). - **Degree of centrality** = number of direct ties a node has. - **Hubs**: Well-connected individuals in a network who can disseminate information rapidly. - High degree centrality. - **Fringes**: Individuals on the periphery of a network who are more open to adopting new ideas or products. - Low degree centrality. - **Bridges**: Individuals who connect different parts of a network, facilitating the spread of information across clusters. - Betweenness centrality = share of shortest paths of nodes. - Bridges have a high betweenes centrality, or a high share of short paths. ## Elements of Seeding Strategy 1. **Effect of Social Position on Early Adoption** - **Hubs**: They are better informed and so they are exposed to innovations early on as a result to multiple social ties, leading to normative status pressures. - **Fringes**: more susceptible to adopting new products as they are less conservative and have less information overload than hubs. 2. **Effect of Social Position on Network Relevance** - **Hubs**: enhance rapid diffusion, akin to disease spread in epidemiology. - While attractive to spread a message within a cluster, it is unclear wether hubs deliberately use their reach. - **Bridges**: help messages break through network clusters, extending reach of viral campaigns. - More effective than hubs in achieving further reach. 3. **Effect of Social Position on Conversion Rates** - **Hubs**: drive higher conversion rates when acting on their own recommendations. - Success rate diminishes as the number of recommendations increases. - High degree centrality (many connections) + high betweenness centrality (bridging connections) yield similar effectiveness in conversion. ## Optimal Seeding Strategy - Marketers should prioritize seeding strategies targeting hubs or bridges, as they are significantly more effective than random or fringe seeds: - Hubs and bridges are 52% more effective than random seeds and 8 times more successful than fringe seeds. - Hubs excel in creating awareness and spreading messages quickly but are not necessarily better at persuasion. # Impact of online reviews on product sales - This study examines the effect of eWOM in the form of online reviews on new product sales comparing search products with experience products. ## Electronic Word of Mouth (eWOM) - Online reviews as a significant source of consumer information, influencing product sales. - **WOM vs. eWOM** - **WOM beats other media** (e.g., advertising) → credibility, trustworthness. - **eWOM beats regular WOM** → speed, convenience, reach, absence of peer pressure. ## eWOM Impact in Product Types: - **Search Goods**: Products whose value can be determined prior to consumption (e.g., electronics). - Valence of online ratings (= quality evaluation) plays a more significant role. - In films, predictor of subsequent box office success. - **Experience Goods**: Products whose value is assessed only after consumption (e.g., video games). - Volume of ratings (= awareness) plays a more significant role. - In films, predictor of opening box office success. - *Credence Goods*: Products that are difficult to evaluate even after consumption (e.g., medical treatments). ## eWOM Impact in Product Life Cycles - **eWOM is Critical for Product Launch**: Effective online marketing and managing online reviews (positive & negative) are essential for successful product introductions. 1. **Shortens Product Life Cycles**: eWOM accelerates consumer awareness (i.e., strengthened information cascades) and decision-making, shrinking duration of stages in product lifes 2. **Sharpens Product Takeoff**: Positive eWOM boosts early sales momentum, especially for experience goods, where review volume is key. 3. **Exaggerated Product Growth Phase**: eWOM amplifies both positive & negative feedback, with negativity bias speeding up decline if negative reviews dominate. - **Negativity Bias**: The phenomenon where negative information carries more weight in evaluations, making negative reviews more impactful than positive ones. 4. **Declining Influence Over Time**: the impact of eWOM is strongest early in the product's life cycle, diminishing as the product matures and consumers have direct experience with it. ## Practical Implications 1. **Consumer Feedback**: Collect feedback prior to product launch to understand consumer sentiment and target marketing strategies effectively. 2. **Review Management**: Actively manage the generation of positive reviews during the launch phase by engaging likely fans. 3. **Monitoring eWOM**: Implement counter-strategies to address negative feedback promptly to mitigate its impact. # Adaptive personalization using social networks - Utilization of Big Data: The vast amounts of data available (big data) can greatly improve product personalization, especially through insights gained from social network interactions. ## Shift from Traditional Marketing: - Traditional marketing methods (like “spray and pay”) must evolve to focus on continuous engagement and learning from consumer interactions. ## Adaptive Personalization Systems 1. Done automatically using algorithms. 2. Requires no proactive effort by customer. 3. Improves as they learn from user behavior / interactions + utilize social network information. - Outperform self-customization by consumers and popularity-based approaches. ## Peer Social Influence (Induction): - Has a huge influence on performance in the creative industries. - **Peer Influence is stronger**: - For taste-based products than functional ones. - When users' preferences are ambiguous and therefore uncertain. - **Induction > Hoomophily** - **Homophily**: Similarity in preferences between users. ## Impact of Adaptive Personalization Sytems - Personalization that automatically uses social network data from peers and their tastes/preferences, can: 1. Enhance Serendipity | chance by avoiding overly narrow personalization early on. 2. Mitigates the cold start problem when nothing is known about the preferences of a new customer. 3. Can account for changes in taste (possibly through peer social influence). - Social ## Implications - The study supports the trend towards **Closed Loop Marketing (CLM):**:: - Customer info is continuously and automatically collected. - Advanced analytics are used to predict customer behavior. - Products/services (and marketing efforts) are redesigned and personalized. - In very short cycles; e.g., Shein.