THE SECOND HOLLYWOOD REVOLUTION

I am quite interested in the movie industry and particularly its evolution with respects to technological changes. Yesterday, Netflix was officially launched in Canada. I thought it would be interesting to post something on the subject of online streaming.
Netflix is a pioneer in alternative movie rental schemes, starting off with an innovating no-late fees model, where customers can choose movies online and receive them by mail and keep them for an unlimited period for a monthly fee. Netflix also is making important inroads in the online streaming model, which is also offered in Canada as of yesterday.
The widespread use of DVDs and the increasing popularity of video clubs sparked off a rapid transformation of moviegoers. The watching of films became more about the small screen than the big screen. This was the first Hollywood revolution. In the words of Theodore Levitt, Hollywood had been suffering marketing myopia at the time since the sector of activity was too narrowly defined to “movies” as opposed to entertainment as movie moguls denied the inroads TV had been making.
Today, a new revolution is happening and the battling ground is not in your living room but in the virtual world. Hollywood has still not adequately answered to the increasing popularity of streaming videos online. Many models are out there, some legitimate and others that may be categorized as piracy. In order to have a better view of this revolution, let me lay out what is at stake and who are the players.

PLAYERS

In the recent news, the following five players have been involved in the movie streaming service or have indicated that they had plans to move into the field:

• Apple
Using its already much appreciated ITunes platform, it is possible to rent movies online and watch them from a computer. The movie is streamed and made available for 24h. Prices range from 3$ - 5$ depending on the age of the movies. Apple is also rumored to be developing an interface to tap in the ITunes application with the already existing set-top box, Apple TV, which would let viewers download movies and watch them on a television screen.
• Best Buy
Since this past May, Best Buy owns the right to run Cinema Now, an on-demand service that can be used through Blu-Rays and other home cinema systems. Best Buy plans to leverage their Blue Shirt and Geek Squad services with this new offering.
• Time Warner
With 9.2 m broadband subscribers, Time Warner has a massive customer base for online streaming. The cable company and Disney have been negotiating in the past month to establish an online channel with content provided by Disney. A deal has yet to be reached.
• Sony
Apparently the Japanese company is vying to get a share of the online streaming market by developing a streaming service that could be used with the PlayStation game consoles and other electronics with connectivity such as the Bravia TV set.
• Netflix
Netflix is the champion and pioneer of online streaming movies and is making important inroads by getting some of the big movie companies to hop in the online streaming boat. Nintendo and Netflix struck a deal to let Wii users watch movies using the device.



MODELS

Set-top or with devices
This model gives more control to the service provider because proprietary hardware is used to deliver the service, however it incurs upfront costs for customers who have to buy a machine. Apple TV, Sony and Nintendo use a box to deliver content, however in the case of Sony and Nintendo, game consoles also have other uses therefore the delivery of movies become an complementary offer. One important advantage here is that these devices can be hooked to a TV directly which allows a better viewing experience.

Through software
ITunes is the software that Apple uses to deliver the content, though similar to directly online streaming, software that manages many types of media also becomes a powerful option.

Directly over the internet
The most simple option technology wise is to stream content directly on a website, although this is limited to browser compatibility and hardware compatibility issues.

WHAT DOES IT TAKE TO MAKE IT?

• Substantial upfront investment – the hardware and infrastructure required to set-up a high-performance online streaming platform definitely represents a barrier to entry for potential entrants.
• Partnerships with content producers – without partnering with movie producers, there is no product to deliver. Only with the agreement of the producers will the company delivering the media be able to use the content. The same is true for the traditional brick-and-mortar video stores that rent out movies.
• Technology – the bandwidth available is essential to the success of the online streaming platform since low bandwidth will impede customers from enjoying a smooth viewing experience. A technology that is also secure and that can limit threats to privacy and fraud will also be a sine qua none condition for the online streaming platform to succeed.
• IP laws - strong intellectual property laws that are enforced, coupled with a social awareness of piracy and a social stigma attached to illegally downloading and copying movies are also necessary to convince businesses that online streaming is a profit-making opportunity.
• Social trends – the adoption rate of the internet and the relative trust that people have in purchasing over the net are important factors for the online streaming platform.
• Customer base – at this stage, I would also add a strong customer base as a prerequisite to succeed in the field.

First thoughts on Law School & Solemn Declaration

Excerpt from a message to my dear friend Ian:

Law school is grueling! I do not recommend it to anyone with a right mind.

The sheer volume of assigned readings is nothing but cruel and unusual punishment (US 8th amendment)

Although the professors' switching of language of instruction from Latin to English to French in the same sentence and sometimes in languages that seem foreign to this universe is definitely not a bona fide
occupational requirement, it is used profusely. (normes du travail)

The socrates method employed during class is certainly not done in good faith (art. 6 CCQ)

And the extremely bright and intelligent students that always find a way to phrase their questions in order to make the rest look dumb are, frankly, not abiding to their general obligations of care according to civil liability (art. 1457 CCQ)

As you can see, I am also already being indoctrinated (not to say brainwashed) in this mysterious, exclusive club up on the upper campus of an apparently 'top 20 in the world' institution, reading 18th century English constitutional texts, legal acts retelling the divisions, sub-divisions, reunifications and further divisions of this country and of course analyzing court cases... not knowing exactly why, how, where, when and what....

However, I am embracing it completely with a mindset apparent of that of a 2 year old that generally has a vocabulary of 50 words and can only make simple sentences. This means my legal vocabulary is rather limited at this point. Everything is novel, curious, challenging and, more importantly, interesting.

I am feeling that I am in for a treat. A gift of wisdom from my peers and professors who are all supremely clever and dedicated individual. I am receiving a gift that opens doors, procures certain powers and generates possible riches.

What am I in it for? Well a bit of everything, a bit of nothing. I am not sure a law student can answer this question honestly and adequately.

But I now know that I am at the right place.


So, with this, let me make a formal declaration:

I hereby declare, that no matter what happens from now on, I, Joel Kwan, will still be the same Joel Kwan when I become a lawyer. My friends will be friends, my family family and my heart will be at the same place (that is, the right place).

How much is your education worth?

THE NET PRESENT VALUE OF YOUR EDUCATION
Since this is back-to-school time, I thought it would be interesting to look into financial valuations of education programs. It might seem a cynical exercise to do so since such exercises strictly examine the economic benefits and costs, whereas sentimental values of studying in certain fields are omitted.
In introductory finances courses, business students learn various methods to evaluate the value of projects that require investments, have future cash flows and respective levels of financial costs. For instance, a typical valuation problem a business student would get is the implementation of an IT system. The most prevalent method at least in introductory finance courses is the net present value (NPV) method which, in simple terms estimates the value of future cash flows generated by a project and reduces them by a discount rate which is a measure of the cost of using the capital of the project. The amount of initial investment is then reduced by the initial investment. This end result is the NPV and represents an estimated value of the project. Naturally, the NPV must be positive in order to be worthwhile.
Now, a general model to calculate the NPV of an education requires lots of assuming and guessing, but for the purposes of the exercise here are the steps to calculating the net present value of your education. I will also set forth an example with an imaginary person.

#1 Estimate the opportunity cost of attending post-secondary education

Assuming one would at least complete high school education, estimate the kind of revenue you could have earned with only a high school degree from age 14 to age 65.

#2 Estimate the life time income received following higher education

Here you can assume you will work until 65.

#3 Estimate the total lifetime cost of your education

Here you can include everything directly related to school – tuition, books etc…

#4 Use the NPV formula to obtain result

C/d – (K)

C = lifetime value derived from higher education (step 2)

D = risk-free discount rate (suggested by US census bureau*) may be found
here
K= opportunity cost of attending post-secondary education (step 1)
The lifetime cost of your education


* Kantrowitz, Marc. “The Financial Value of a Higher Education” NAFSAA Journal of Student Financial Aid, Vol. 37, No. 1, 2007.

Table from Kantrowitz

Happy Labour Day

In Canada, we celebrate labour day by not working. Sounds contradictory? Well, if we trace back the origin of this celebration in the late 19th century, we find out that labour day originates from labour union mouvements that were demanding better work conditions.

Fast forward to today, labour unions are losing power in large part due to the changing nature of workers. Jobs are becoming more precarious, workers more mobile and temporary because of the important shift from primary and secondary sector jobs to the service sector, where unions have historically had more difficulty making in-roads.

Further, labour laws are still largely based on the typical full-time employment relationship that is becoming rarer and rarer.

The end effect is that workers are facing more precarious work and less legal protections.

Labour day in Canada was first celebrated with a march in support of the Toronto Typographical Union's strike. Perhaps we need to remember why we celebrate Labour day and give a new meaning to the holiday given the new reality of jobs today.

For more information on labour laws in Canada, please see my report on the subject.

Uh Oh - Canada

Today I post an exerpt of a paper I am working on. I was supposed to blog on the new IPAD, but unfortunately I am too busy to write supplementary material this week. Next week I should be back on schedule with a post on the Olympic Games, just in time for the opening of the Vancouver Olympics.

Introduction
Every year, the World Economic Forum produces a report called “The Global Competitiveness Report” to assess the competitiveness of 133 countries based on specific indicators separated in 12 different pillars (see exhibit 1). In 2009, Canada ranked 9th in the world, up from 10th placed in 2008. According to the World Economic Forum metrics, the Canadian economy particularly falls short in the following pillars: macroeconomic stability, innovation, goods market efficiency and business sophistication (see exhibit 2). In this paper I will attempt to identify underlying issues that may be responsible for a lack of performance on the problematic pillars and provide short and long term recommendations that may help the Canadian economy become more competitive globally.

Analyzing Deficient Pillars

Although Canada has weathered the recent economic downturn quite well compared to its closest neighbour, the United States, Canadian Budget Officer Kevin Page has warned that the government and Bank of Canada forecasts for economic recovery were too optimistic, and in the meantime, austerity measures would be difficult to sustain when large debt payments would come to term. Additionally, Page identifies aggravating factors such as an aging population and scheduled tax cuts . Canada’s macroeconomic stability ranks 31st (out of 133) and World Economic Forum analysts warn that macroeconomic stability would be crucial for sustainable competitiveness of the Canadian economy.
Second, the Canadian economy still largely relies on its natural resources for economic growth, which is problematic since global competition, exchange rate volatility, lagging productivity trends and shortage of labour is taking a toll on the primary and secondary sectors . By and large, the sectors in question have been protected through subsidies and tariffs which come at the opportunity cost of supporting more forward looking industries. For instance, Canada ranks 12th in innovation and could be losing out in strategic industries that require expertise, research and development and innovation (see exhibit 3).
Third, Canada places 16th in goods market efficiency, which reflects its burdensome tax structure for businesses and restrictive labour policies. In fact, a World Economic Forum survey demonstrates that tax rates and restrictive labour policies came in second and third place respectively in terms of problematic factors for doing business in Canada in 2009 (see exhibit 4). Marie-Ann Carignan, originally from the United States, noticed a significant difference in labour policies when she assumed the position of CEO of Purkinje in Canada: “I am forced to hire external consultants on a regular basis to fill full-time positions because it is so difficult to fire employees .”
Fourth, business sophistication is deficient as it places 12th in the World Economic Forum report. The National Director – Manufacturing of Business Development Bank of Canada, Carl Gravel believes that this is caused by Canadian entrepreneurs being generally risk-averse, complacent and over reliant on the United States market .

Recommendations

First, to tackling the macroeconomic problem is by no means a simple task. I believe that in the short-term, the government should focus on lowering consumption taxes to spur household spending in an attempt to raise more taxes. Also, on the monetary side, the Bank of Canada should coordinate in order to ensure that inflation does not go out of hand while the economy recovers. By keeping the interest rate relatively low, and slowly rising it as the economy picks up, incentives for domestic business growth would also remain on a short-term. Further, expansionary policies should help the Canadian dollar remain competitive to encourage exports which would also help reduce the deficit. However, once the economy fully recovers, the second phase would be to further reduce the barriers to foreign trade in order to foster healthy competition within the Canadian economy. According to the Institute for Competitiveness and Prosperity, adopting policies that will encourage FDI, foreign subsidiaries and headquarters in Canada would be critical in the reform of the Canadian Economy . Specifically, lowering corporate taxes, reducing strict controls on FDI and abolishing the government support of traditional “champion industries” would help the economy move to the next level.
Second, attracting world talent and fostering local genius would help constructing industries that are more knowledge based. Concurrently, ensuring that there are opportunities for those individuals to develop strategic technologies would also help build sustainable country advantages. Motivating youth to be more proficient in math and sciences, reducing the rate of high school drop out and attracting investment in strategic technologies such as solar power should be on the agenda of the Canadian government to attack this problem. Also, lifting strict policies on certification recognition from foreign countries would definitely make Canada more attractive to international talent.
Third, Canada should learn from its Scandinavian counterparts where the leading paradigm in terms of labour policy is flexicurity, which aims to protect the employability of citizens rather than protect the particular job or position of workers. This way, the labour would be more attuned to the changing reality of structural precariousness in industry, but also give much needed flexibility to employers.
Fourth, business sophistication could be increased by adopting programs to give tax incentives to companies that implement changes in business processes that make demonstrable increases in productivity. Also, there are a disproportionate number of managers with business degrees in the United States than in Canada, which may explain why there is a lower level of business sophistication (see exhibit 5). Mandatory business training for Canada’s managers that is funded both by the private and public sectors would then help increase business sophistication.

Conclusion

Canada is certainly improving on the global competitiveness front. However, certain weaknesses must be addressed in order to ensure sustainable growth in the future. Businesses and governments must be more forward looking and opportunity seeking since the United States market may become less attractive while emerging and developing markets are largely untouched by Canadian businesses. In this context, the role of the government is to first ensure macroeconomic stability and then help foster strong domestic businesses that will be able to seek the opportunities available outside Canada, since Canada on its own is just not a large enough market to be sufficient for continued growth.

Click to view exhibits

Endnotes

Canada’s chronic deficit ‘not sustainable’: federal budget office” The Vancouver Sun, January 13, 2010, http://www.vancouversun.com/sports/Canada+chronic+deficit+sustainable+federal+budget+officer/2437579/story.html, accessed February 2010.
Carl Gravel, “Helping Canadian SMEs Becoming Globally Competitive,” MBA class discussion, January 12 2010, Desautels Faculty of Management, McGill University, Montreal, Quebec.

“Global Competitiveness Report,” The World Economic Forum, 2009 P.110.
Marie-Ann Carignan, “Managing in Canada and the United States,” MBA class discussion, February 2 2010, Desautels Faculty of Management, McGill University, Montreal, Quebec.
Carl Gravel, “Helping Canadian SMEs Becoming Globally Competitive,” MBA class discussion, January 12 2010, Desautels Faculty of Management, McGill University, Montreal, Quebec.
“Flourishing in the Global Competitiveness Game,” The Institute for Competitiveness and Prosperity, September 11, 2008, P. 11.

What Happened to Canada's Sarbanes-Oxley Act?

Is Canada equipped to properly deal with corporate fraud? Based on the recent unravelling of the Norbourg and Earl Jones cases, it is easy to understand why many investors are complaining that the justice system does not properly handle such cases. Our neighbours down south did try to make some changes by enacting the Sarbanes-Oaxley Act (SOX).
SOX were introduced in the United States following a series of corporate fraud scandals that occurred in 2001. The main aim was to prevent intentional fraud by executives, to prevent conflict of interests between corporate governance entities and to incite whistleblowers to denounce fraud without being scared of retaliation.
Enron is the poster child of the corporate scandals that happened in 2001. Executives had relied on various creative accounting techniques to undervalue the amount of debt and expenses of the company and to overvalue earnings. Although in the United States, scandals involving important banks, auditing firms and corporations demonstrated that the control mechanisms in the system were fundamentally flawed, no such scandal happened in Canada at the time. Therefore, the government decided to make some superficial regulations, more as a means to equalize playing grounds with our greatest trade partner than to protect investors.
The Canadian government shied away from fundamental reform similar to SOX on the basis that SOX was not appropriate in the Canadian context. First, the disproportionate number of small and medium enterprises in Canada would be overburdened by increasing the requirements for reporting and would potentially discourage companies from listing on the stock exchange. Second, a great share of firms is cross-listed in the Canada and the US, so they most already comply with SOX. Third, there is no federal regulating authority for stock markets in Canada, which would make legislation similar to SOX impracticable. Fourth, the government argues that increasing regulation fosters a “find the loophole” mentality whereas the present principles based system is justifiable to give room to managers for judgment that is necessary for a successful business practice.
Although Canada did adopt parts of SOX, the regulations are not effective in preventing fraud. CEOs and CFOs are required to certify that reports do not contain material misstatements. It is argued that a signature on a financial statement cannot properly help realizing on time that fraud is brewing. The Canadian government also adopted the audit committee proposal which suggests that by creating an extra watchdog to raise flags when there is some misconduct. However, since the committee must rely on the Board of Directors to react, the committee may be futile if the Board is not willing to act. The third proposal is the creation of the Canadian Public Accountability Board which conducts tests among auditing firms to assure compliance of auditing standards. The RCMP’s Integrated Market Enforcement Team (IMET) was also created at the same time, but with results that are less than impressive. Between 2002 and 2007, the US Justice Department was able to convict 1200 individuals for white-collar crimes, while the IMET only managed two in four years.
Canada seems to be lacking political will to make significant changes. To add to the problem, every province has its own regulating body, which makes enforcing more difficult. The regulating bodies are under-funded and have little power when it comes to investigations.
In Quebec, l’Autorité des Marchés Financiers (AMF) is the regulatory body. Unfortunately, it is only responsible for investment professionals that choose to register with AMF. Recently, l’Autorité des Marchés Financiers pressed charges against Vincent Lacroix and collaborators in the Norbourg case. The outcome was 5 years of imprisonment (although Lacroix was released less than a year after the beginning of his prison term) compared to 150 years imprisonment for Bernie Madoff in the US. Instead of questioning the effectiveness of regulation in Quebec to protect investors, AMF believes that investors should be responsible for making good or bad decisions when choosing an investment professional. In its campaign “Investigate”, AMF proposes five steps that an investor should follow before making investment decisions.
Unfortunately, it seems that the government of Canada is not intent on making any fundamental changes to the regulatory environment of the financial system. Although the Conservative government has announced last year that it was planning to introduce minimum sentences (2 years) for economic crimes, a report on Global Economic Crime by PriceWaterhouseCoopers concludes that Canada is a top destination for white-collar crimes.


Related

Canada's handling of white-collar crime is a crime

A good country for crooks: Canada's losing war against white-collar crime

Harper soft on white collar crime

The Court of Appeal Reduces Vincent Lacroix’s “First” Sentence

Norbourg fraudster Vincent Lacroix sentenced to 13 years

Earl Jones pleads guilty in $50M fraud

Norbourg fraud trial ends after jurors fail to reach unanimous verdict

2009 Global Economic Crime Survey

PEETHREEPHOBIA, OR THE FEAR OF P3s (Public-Private Partnerships)

I remember attending a conference on the economic model of Quebec in 2004, where a UK government representative was advocating for P3s and their advantages. It seemed that England had found a way to make it work and that P3s were used extensively; success stories were plentiful.

However, there is much debate in Canada and especially in Quebec on the merits of P3s. Interest groups such as labour unions finance anti-P3 campaigns such as this one currently seen on TV nationwide:



Should P3 initiatives be terminated in order to protect Canadian citizen interests? After taking a look at both sides of the argument, here are my conclusions.

First off, what are P3s? The Canadian Council for Public-Private Partnerships defines P3 as: “a cooperative venture between the public and private sectors, built on expertise of each partner, that best meets clearly defined public needs through the appropriate allocation of resources, risks and rewards.”

Typically, P3s will tend to be long-term agreements where financing, design, construction and maintenance of facilities are shared between public and private organizations.

Although one of the first countries to use P3s was France in the 18th century(1), the UK and Australia are credit for its invention. The UK is by far the biggest purchaser of P3s, with as many as 400 projects commissioned in 2005(2). Here in Quebec, P3s were introduced by Monique Jérôme-Forget, then Minister of Public Administration and Government Services, at the turn of the century. Once the Quebec Public-Private Partnerships Agency (PPPA) was founded by Jérôme-Forget, the controversy began.

In Canada, the media has been much more responsive to failures than successes, possibly affecting public opinion on the matter (4). Despite a difficult start, there is a consensus that the media is starting to be more objective in its reporting of P3 projects and moreover, surveys show that public opinion has been more favourable to P3s recently (4).


The P3 debate plays along the following lines:

1. Are P3s less expensive than traditional public procurement schemes?

Although it is difficult to assess this in the case of Quebec because P3s are relatively recent here, data from the British Columbia Council on P3s show that 100% of projects were delivered on budget and on time or ahead of schedule (3). In the UK, this rate is 78%, but in the case of cost increases, the government agencies did not bear the difference (4).

Further, there are interesting mechanisms in the P3 framework such as honoraria and break-fees that encourage competition in the bidding process as well as more diligence in the drafting of project proposals. Honoraria are given to competing suppliers to encourage quality in their bid proposals. Break-fees are paid out when suppliers are committed, but the project is cancelled.

The bidding process is far from perfect in Canada and could be improved in terms of efficiency and effectiveness. Recently, it was found that the decision of the Government of Quebec to use a P3 for the construction of the CHUM is based on reports that are deliberately slanted towards the P3 case, with risks minimized for the partnership case and costs maximized for the traditional case (6). Evidently, there is room for improvement here.

2. Do P3s provide better services for citizens?

This question is difficult to evaluate because of the lack of data on this subject. The real test for this question will be seen 10 years from now, when the initial projects will go beyond the construction phases and into maintenance and operations.

However, if we take a look at Chile, that has invested in an important P3 infrastructure starting in 1996, the results seem favourable in terms of consumer satisfaction although if we look at projects collectively the results are mixed (5).

In this area, proponents of P3s believe that some projects are far too ambitious and lengthy in time for governments with little experience with the mechanism. It would be better than to start off with few little projects, than many big projects.

3. Are P3s creating monopolies?

Because the P3 industry in Canada is still in its infancy stage, domestic and international competition, especially in the construction industry is quite low, which can stifle innovation and competitive pricing. Again, with more time, I believe results will be more conclusive.

4. Are P3s affecting job conditions?

The argument that jobs become less secure in a P3 environment predominantly originates from labour unions. However there is little data to support his argument. According to the labour unions, P3 workers are mostly atypical workers that earn lower salaries and are subject to precarious job conditions that pose serious psychological and health hazards (1). If we take this argument further, this means that organizations that are awarded P3 contracts do not abide by federal, provincial and municipal laws on labour and work safety. Let us not forget that P3 consortia are formed of the same private companies that run business everyday in non-P3 matters, therefore work conditions cannot be alienated to the extent of making P3s harmful for workers.

5. Is the P3 bidding mechanism transparent?

There is a general trend towards non-disclosure of information because of participation of private organizations in the process (1). However, some provincial governments have made public detailed reports on P3 projects, but the market would be more confident if documents on bidding details were also made public.

6. Are P3s a “Trojan horse for privatization”(1)?

England has adopted P3s in a time where there were budget constraints on the government and major infrastructure projects had to be implemented. P3s was an alternative that was used in order to push the projects without overburdening the government with debt(2). I believe that P3’s make a good compromise between privatization and nationalization. If the public sector assures the quality and universal access for citizens and benefits from expertise from the private sector, then this compromise truly creates value. The government’s move towards P3’s does not mean that there is a desire to privatize.

Conclusion

There is more fear than harm in the case of P3s in Canada. Strong interest groups and slanted media has helped building a case against P3s, but there is plenty of evidence that show that there is a bright future for P3s.

However, there are important improvements to be made. P3s boil down to complex agreements between the public and private sectors. These agreements must find the right balance of accountability so as to find the perfect mix of risk between the public and private agencies. Failure to find the right balance mostly means failure of the project. For instance, higher bidding prices may be the result of too much risk placed on the side of the private sector. Also, more transparency must be applied in the bidding process in order to satisfy the market’s need for fair competition. Next, the government must not impose to many restraints in the bid offers since this could diminish innovations and lead to more expensive proposals. Lastly, the government must make sure that P3 initiatives continue on a regular basis in order to build much needed expertise in the matter, attract competition and build the market for P3s.

UPCOMING TOPIC: Corporate Governance in US and Canada... too much lax?


SOURCES


1. Roy, Louis. “Improving State-Building Capacity: The P3 Paradox” Confédération des Syndicats Nationaux. Presentation in Zurich Feb. 2008.
2. “Overview of Public Private Partnerships in the UK” Unison. June 2005.
3. “Public Private Partnerships” Partnerships BC. Jul. 23 2008.

The Economics of Hollywood Movies

I saw Avatar this past weekend. I have to admit that I have not seen a good action science-fiction movie like this for a long time. This outing at the movies inspired me to look into the blockbuster strategy in Hollywood. The blockbuster strategy started in 1975 with Jaws when the movie was released nation-wide with lots of emphasis on marketing (1). Jaws was the first movie to be advertised on national TV. More recently, a characteristic of blockbuster movies is hefty budgets. The trend has been that the average Hollywood movie cost is on the rise by nearly 7% a year (2). Avatar has set a new precedent: the New York Times estimated total costs of $500 million (3).

For the purposes of satisfying my curiosity, I did two simple regression analyses using the top 20 most expensive movies of all time adjusted in 2008 $US. I wanted to see if there was a correlation between the movie’s budget and the worldwide revenue in the first test, and in the second I wanted to see whether there was a correlation between the movie’s budget and viewer appreciation (estimated using the Internet Movie Database ratings -IMDB).

After running the tests, it seems that total movie budget is not a very good indicator of box office success. According to the first test, the movie budget accounts for a little less than 30% of the revenue stream. It is noteworthy that only 5 movies in the top 20 most expensive movies of all time end up in the top 20 most enjoyed movies of all time (4).

The second test is even less conclusive. The movie budgets accounted for only 20% of ratings by fans on IMBD. Again, out of the 20 top best rated movies on IMDB, none of the 20 top most expensive movies show up in the list.

These tests, although using small samples, show that there is not a very strong correlation between movie costs and revenues and between movie costs and viewer ratings.

Globalization Sensitizes World to Humanitarian Crises

Indeed, as Thomas Friedman proposes, the world is flat in the 21st century as economic barriers disappear, geographical limitations become less important and technology is making the concept of distance more trivial. Now, whether this is a good or a bad thing is a totally different debate that I do not go into today. I would rather spend a few moments to consider how the world as a global village is helping citizens worldwide become more aware and sympathetic to humanitarian crises.

For many observers, the 2004 Indian Ocean tsunami represents the first global natural disaster in modern times (1). The moment images of desolate landscapes with hundreds of injured and dead starting showing up in international media, aid on private and public fronts started organizing world-wide. There had never been such an intense and rapid international response. Some researchers even found that there was a strong correlation between extent of media exposure of humanitarian crises and amount of private donations (2). Suddenly, a natural disaster in New Orleans does not only concern the United States (a total of 854 million was offered from foreign countries (3)), and an earthquake in Sichuan, China sends ripples in the international community.

The current situation in Haiti is a case in point. According to USA Today, less than three days after the earthquake, private donations were already on its way to break all-time records.
Despite the world communities increased generosity and speed in responding to such dramatic events, many believe that this trend must be taken to a new level: humanitarian crises do not only happen in a one-time event due to natural disasters. There are humanitarian crises that are ongoing in poverty-struck countries that equally need international aid. Shortly after the 2004 Indian Ocean Tsunami, Tony Blair believed that foreign aid was detracted from important causes and that “there is the equivalent of a man-made preventable tsunami every week in Africa” (4).

I prepared a small table for this post:
Transfers of public donations for selected natural disasters

SOURCES

1. “The Globalized world responds to the tsunami disaster.” Global Envision. Retrieved Jan. 16 2010. http://www.globalenvision.org/library/8/758

2. Brown, Philip; Minty, Jessica. “Media Coverage & Charitable Giving After the 2004 Tsunami” The William Davidson Institute at the University of Michigan. Dec. 2006.

3. Solomon, John; Spencer S. Hsu (2007). ""Most Katrina Aid From Overseas Went Unclaimed"" (News Article). Washington Post. http://www.washingtonpost.com/wp-dyn/content/article/2007/04/28/AR2007042801113_pf.html. Retrieved 2010-01-16.

4. Grice, Andrew. “Blair: We must extend support to Africa” The Independent. http://www.independent.co.uk/news/world/politics/blair-we-must-extend-support-to-africa-495608.html. Retrieved 2010-01-17.

5. Saito, Masaki. “Japanese People Appreciate Concern Shown by Americans” The Seattle Times. http://community.seattletimes.nwsource.com/archive/?date=19950306&slug=2108533. Retrieved 2010-01-16.

6. Kambayashi, Takehiko. “Volunteering in Japan: A legacy of Kobe earthquake” World Volunteer Web. http://newsletter.worldvolunteerweb.org/e_article000365103.cfm?x=b11,0,w
Retrieved 2010-01-16.

7. “The Globalized world responds to the tsunami disaster.” Global Envision. Retrieved Jan. 16 2010. http://www.globalenvision.org/library/8/758


8. “The Globalized world responds to the tsunami disaster.” Global Envision. Retrieved Jan. 16 2010. http://www.globalenvision.org/library/8/758

9. St. Onge, Jeff; Epstein, Victor. "Ex-chief says FEMA readiness even worse." Boston.com. April 1, 2006. Retrieved on 2010-01-16

10. Keen, Judy. “Haiti donations on track to break records” USA Today. http://www.usatoday.com/news/sharing/2010-01-14-Haiti-donations_N.htm
Retrived 2010-01-15

11. “China Earthquake Could Cost US$20 billion” China Post. http://www.chinapost.com.tw/china/national%20news/2008/05/15/156467/China-earthquake.htm
Retrived 2010-01-16

12. McGinnis, Ariel et al. “The Sichuan Earthquake and the Changing Landscape of CSR in China” http://knowledge.wharton.upenn.edu/article.cfm?articleid=2213
Retrieved 2010-01-16

13. “Haiti Earthquake Damage Amounts to Estimated 15% of Country’s GDP” Associated Content. http://www.associatedcontent.com/article/2591657/haiti_earthquake_damage_amounts_to_pg2.html?cat=8
Retrieved 2010-01-16

2010 Wishes