!!!"#$"%&'()*"#+*))+,"-!

+.
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/'0"123)&)0"4'?2+@"=A'2'BCA">)D)&'EB)2+"4'*E'*F+C'2"

!
"#$!$%&'&()%!)(*+)%,")&'-!!
&.!+&/0%&-"!121!3$'",+-!

















Gregorv lreeman
(hristine (ooper. Ph.D.




No·ember 30. 2009




í.íDC Cov.vttivg Practice


! !



!
! ",4+$!&.!%&'"$'"-!




! !
$5$%6")2$!-6((,37! i!
!
)'"3&16%")&'! 1!
!
3$2$'6$!)(*,%"! !
Rental Re·enue Impact 3!
Retail Re·enue Impact 6!
Rental and Retail Market Summarv 8!
!
$%&'&()%!)(*+)%,")&'-! !
Lconomic Impact oí Production Loss 10!
(ontext 12!
!
,**$'1)5! !
Incremental Lconomic Impact A-1!
Implications íor Union Pension lunds A-3!
Lconomic Impact Methodologv A-5!
Description oí Industrv Sectors A-6!

! !



! !

í.íDC Cov.vttivg Practice i
!
!! $5$%6")2$!-6((,37!




In this report. the (onsulting Practice oí the Los Angeles Lconomic De·elopment
(orporation LALD(, examines the economic implications oí the widespread introduction
oí low-cost new release DVD rentals. such as those that are expected to be oííered bv
Redbox kiosks in retail and restaurant locations. Our íindings indicate the íollowing:


" Low-cost new release DVD rental options will mean a loss of revenues

In the e·ent that new releases are a·ailable in Redbox kiosks at street date. there will be
erosion oí retail re·enues. Additionallv. to the extent that consumers substitute awav írom
higher-priced rentals to lower-cost rentals. there will be erosion oí rental re·enues. \hile the
magnitude oí the re·enue loss is diííicult to disentangle írom the mvriad íactors threatening
this re·enue stream. we estimate o·erall industrv re·enues oí >1 billion or more will be
íoregone.


" Foregone revenues in the industry will lead to a loss of motion picture production

lor each >1 billion oí re·enue in the domestic home ·ideo industrv. the motion picture
industrv earns >520 million. Using the motion picture industrv in Southern (aliíornia as
representati·e oí o·erall industrv acti·itv. an extra >520 million in industrv re·enue would
translate into direct. indirect and induced economic acti·itv. including:

! At least 89:;<=!>?@@?AB ?B!CDABA>?D!AEFGEF as measured bv business re·enues,

! At least <:HIJ KALM with NBBEN@!CNOB?BPM!AQ!N@>AMF 8=<R!>?@@?AB. oí which at least
2.290 would be in motion picture and sound recording industries with earnings oí at
least >109 million

! Up to 8=RS;! >?@@?AB ?B! DABFO?LEF?ABM! FA! TCN@FT! NBU! VC@QNOC! QEBUM íor guild and
union members. the majoritv oí which would occur in union plans íor below-the-line
emplovees

! O·er 8=J!>?@@?AB AQ!FNW!OCXCBECM at state. countv and local le·els.


" The industry is undergoing transformational change

loregone re·enues írom low-cost new release DVD rentals mav be hard to distinguish írom
other transíormational shiíts in the industrv. such as:
)be ícovovic ívpticatiov. ot íor·Co.t D1D Revtat. ! !


í.íDC Cov.vttivg Practice ii

! 1he current recession has ad·erselv aííected consumer purchases oí discretionarv
items.

! 1echnologv is enabling the digital deli·erv oí content through internet pro·iders.
broadcast and cable pro·iders. and telecom pro·iders.

! louseholds are opting íor other íorms oí entertainments. such as gaming and social
networking.

Ne·ertheless. SNL Kagan projects an increase in distributor re·enues írom all sources
worldwide írom >51.3 billion in 2008 to >6¯.6 billion in 201¯. \hile the composition oí
these re·enues will clearlv change. distributors will continue to experience re·enue growth
into the next decade. Still. anv loss oí re·enues due to the widespread a·ailabilitv oí low-cost
rentals. particularlv ií new releases are a·ailable íor rent on the street date. can be
characterized as an opportunitv íoregone. since o·erall re·enues oí the industrv rovta be
bigber ií these rentals were not a·ailable.


" Economic impact of the spread of low-cost new release DVD rentals is uncertain

Projections regarding the impact oí low-cost new release DVD rentals are uncertain. lor
example. we cannot predict the outcome oí studio agreements such as Paramount`s
agreement with Redbox, that allow cancellation ií the results are unía·orable to the studio. It
is also too earlv to predict how litigation among the ·arious parties will be resol·ed.

lowe·er. the decline in the home ·ideo market represents the ongoing loss oí an existing
signiíicant re·enue stream. 1he projected oíísetting gains in re·enue írom digital deli·erv are
more uncertain. both in their scale and in the timing. L·en ií the gains írom digital deli·erv
compensate íor losses írom phvsical deli·erv. íilm production will decline relati·e to what it
would otherwise ha·e been.


! !

í.íDC Cov.vttivg Practice 1
!
!!! )'"3&16%")&'!!




Redbox Automated Retail Redbox, and its low-cost rental DVD kiosks are challenging the
traditional distribution and release strategv in the industrv. 1he industrv model is built upon
timed. sequential release into diííerentiated market segments through a ·arietv oí channels to
permit re·enue-maximization. Redbox is threatening this model bv pledging to purchase
DVDs at retail or wholesale prices on the street date and populating its kiosks with these
new releases. creating a channel conílict as its >1-per-night DVD rentals compete with DVD
sales in the same release window.

Redbox gained momentum íollowing its 2005 acquisition bv (oinstar. a companv with an
existing relationship with a wide network oí grocerv stores. which allowed the expansion oí
its selí-ser·ice DVD rental kiosks írom 140 McDonald`s restaurants to thousands oí grocerv
stores and other retail locations nationwide. 1he kiosks. which currentlv ha·e a 19 percent
share in the DVD rental market. oííer a small selection oí discs at a rental rate oí >1 per
night. 1he low price is oííset bv the lean selection a·ailable at each kiosk.

1he Redbox business model raises íour challenges:

lirst. allowing rentals at >1 per night on the dav and date that projects are released into the
retail market will cannibalize retail sales oí DVDs. 1his is essentiallv a channel conílict that
creates competition íor the same product at signiíicantlv diííerent prices and threatens the
retail re·enue stream oí distributors.

Second. reducing the market price íor new release rentals to >1 per night as opposed to a
more commonlv-oííered >4.99 per multiple-night rental, could also induce customers to
demand a lower rental price írom all outlets. 1his in turn will threaten the rental re·enue
stream oí distributors.

1hird. reducing the market price íor rentals to >1 per night could negati·elv impact the
percei·ed ·alue oí purchasing DVDs. harming the retail segment oí the market. lor
example. ií consumers are accustomed to a 3:1 ratio between the sales price and the rental
rate. a lower rental rate could lead them to expect a commensuratelv lower retail price. 1his
would negati·elv impact both retail re·enues and rental re·enues oí distributors.

lourth. Redbox sells used discs into the market. a practice which competes with retail sales
eííorts. 1his is in contrast to other rental íirms which ha·e agreements with studios
restricting their sales oí used discs.

All íour issues ha·e merit. Low-priced rental products a·ailable on the street date will draw
some consumers awav írom purchases. and later írom higher-priced rentals. Lower rental
prices o·erall mav change consumers` perceptions oí the ·alue oí rentals and oí retail
)be ícovovic ívpticatiov. ot íor·Co.t D1D Revtat. ! !


í.íDC Cov.vttivg Practice 2
purchases and thereíore reduce higher-margin retail sales. And the addition oí unrestricted
used discs into the marketplace will dilute current oííerings and lead to a lower market price.

At the same time. it is likelv that Redbox is drawing in new business. attracting customers
who would not normallv ha·e rented at a higher price point. and catching impulse buvers
who would not ha·e made the trip to a speciíic rental outlet. Video rentals and purchases are
highlv discretionarv and thus probablv price-sensiti·e. making it likelv that lower prices will
induce more customers to transact.

In this report. the (onsulting Practice oí the Los Angeles Lconomic De·elopment
(orporation LALD(, discusses the economic implications oí the widespread a·ailabilitv oí
low-cost new release DVD rentals. 1o írame this discussion. we relied on data írom SNL
Kagan. an industrv analvst and íorecaster.

Our analvsis is organized as íollows. \e begin with a discussion oí the potential impact oí
Redbox on the retail and rental re·enue stream. suggesting an estimate oí the magnitude oí
the lost or íoregone, re·enues.

1his is íollowed bv our estimate oí the economic impact oí íoregone production due to
home ·ideo market re·enues that are lower than thev might otherwise ha·e been.

\e conclude with a discussion oí the implications íor contributions to health and welíare
íunds held bv guilds and unions. and describe some oí the larger trends shaping the
en·ironment within which this issue rests.





! !

í.íDC Cov.vttivg Practice 3
!
!!! 3$2$'6$!)(*,%"!!




No one pro·ides a íorecast oí the likelv impact oí low-cost DVD rentals. and in particular oí
the impact that the a·ailabilitv oí low-cost rentals oí new releases on the street date would
ha·e. 1he reasons íor this lack oí prediction are clear. It is exceedinglv diííicult to
disaggregate indi·idual. single-direction eííects holding all else equal`, when an e·ent
causes multi-directional and interrelated impacts. low will the introduction oí low-cost
DVD rentals aííect the rental market· low will the existing market be redistributed· \ill
the entrant draw market share írom incumbents. or will it draw in new customers and
expand the size oí the market or a combination oí both,· low will incumbent market
plavers respond· Ií the entrant prices its products below the pre·ailing market price. will
incumbents price-match· (ompletelv· low are related markets aííected· Speciíicallv. how
does the entrv oí low-cost new release rentals impact the retail market·

(learlv all these íactors are interrelated. and a change in one ·ariable will change manv
others. Lxpected growth in worldwide re·enue írom all sources masks an expected decline
in domestic rental and retail re·enues due to changing consumer preíerences. technologv
ad·ancements. and possiblv the widespread introduction oí low-cost DVD rentals. In this
section we take a closer look at both the rental market and the retail market. In the rental
market. we use íirst a back-oí-the en·elope approach to measuring the potential impact oí
low-cost DVD rentals. íollowed bv an approach using current and expected market shares oí
the industrv plavers. 1hereaíter. we turn to the retail market.


3$'",+!3$2$'6$!)(*,%"!

Redbox touts >1-per-night rentals out oí its kiosks. 1he current market price íor rentals
írom bricks-and-mortar outlets such as Blockbuster is commonlv >4.99 íor a multiple-night
rental. Netílix is a subscription ser·ice oííering a ·arietv oí plans. SNL Kagan estimates a
total rental re·enue stream oí >8.03 billion in 2009. and rental turns oí 1.¯4 billion. In a
back-oí-the-en·elope calculation. thev suggest that ií these rental turns were all immediatelv
priced at >1. the industrv would see re·enues íall írom >8.03 billion to >1.¯4 billion. implving
a market loss oí >6.3 billion.

1his is a useíul thought experiment. but it is problematic íor se·eral reasons. lirst. Redbox
itselí reports that its a·erage rental rate per turn is not >1 but >2. with its customers keeping
discs íor more than a single night. Second. in spite oí íacing this competition. other outlets
will not match the >1 per night rate íor all products. Kiosks are space-constrained and carrv
limited in·entorv. while bricks-and-mortar outlets and Netílix in particular can stock a íull-
range oí titles and do not need to compete on price íor all products. Likewise. the latest
releases and popular titles will be subject to peak demand íor short runs and kiosks mav be
unable to íulíill all requests. lea·ing a market opportunitv íor other outlets who can promise
)be ícovovic ívpticatiov. ot íor·Co.t D1D Revtat. ! !


í.íDC Cov.vttivg Practice 4
in·entorv a·ailabilitv at a premium price. 1hird. the analvsis omits anv consideration oí new
customers drawn to lower-cost rentals. and does not take into account substitution awav
írom purchases into Redbox rentals. which could be signiíicant ií Redbox oííers street date
a·ailabilitv.

1hus. the >6.3 billion estimate oí re·enue shortíall is implausible. lowe·er. we can address
our objections one at a time to reíine the estimate. lor example. ií all rental turns were
immediatelv priced at >2 rather than >1. then total re·enues on 1.¯4 billion turns would be
>3.48 billion. implving a market loss oí >4.55 billion.

Moreo·er. not att rentals would be priced at >2 gi·en premium products. peak demand. and
so on. In the current rental market. the NPD Group reports that Redbox holds 19 percent
oí the rental market. or 330 million turns. Suppose that the incumbent market participants.
with the remaining 81 percent oí the market. were to lower their prices on a·erage bv 25
percent. Redbox would retain its >2 per turn rate. 1his combination would produce total
re·enues oí >6.19 billion on 1.¯4 billion turns. implving a market loss oí >1.84 billion.

lurther. according to economic theorv. lower prices will draw additional rental transactions.
1he combination oí lowered prices and increased turns can lead to a loss oí o·erall re·enue
or an increase. depending upon the sensiti·itv oí consumers` demand to price changes.

1he table below shows how industrv re·enues would be aííected. depending on the
consumer response to lower priced rentals. gi·en the SNL Kagan íorecast íor 2009. Lach
entrv in the table shows the o·erall change in industrv re·enues gi·en a combination oí a íall
in the rental rates that incumbents charge and the increase in their rental turns. 1hroughout
the table. we are assuming that Redbox has a market share oí 19 percent and its rental rate
a·erages >2 per turn.


"#$%&!'!
()#*+&!,*!-*./0123!4&5&*/&0!,*!678&01,9!4&*1#%!:#2;&1!!!
<=!8,%%,7*0>!
)BDE>LCBFM!OCUEDC!
ONFCM!LYZ!
)BDE>LCBFM[!OCBFN@!FEOBM!?BDOCNMC!LYZ!
J\! 9J\! HJ\! =J\!
9J\! ¯40, ¯0, 590 1.250
HJ\! 1.4¯0, 880, 290, 290
=J\! 2.210, 1.690, 1.180, 660,
Source: LALD(

1he íirst column shows the eííect on total re·enues oí a gi·en percent change in rates ií
there is no response bv consumers renting more DVDs. lor example. ií incumbents reduce
their rates bv 20 percent on a·erage. total rental re·enues would decline bv >1.4¯0 million.
All else equal. each 10 percent drop in incumbent rental rates results in >¯40 million in lost
re·enues. unless there is a corresponding and oíísetting increase in the number oí rental
turns spurred bv the price drop.
)be ícovovic ívpticatiov. ot íor·Co.t D1D Revtat. ! !


í.íDC Cov.vttivg Practice 5
Lach column to the right shows how total re·enues would change ií consumers respond to
rate reductions bv increasing their rentals. lor example. ií incumbents drop their rental rates
bv 20 percent in response to Redbox`s challenge. and consumers consequentlv increase their
rental transactions bv 10 percent. the loss oí total re·enues íalls írom >1.4¯0 million to >880
million. Ií consumers increase their rental transactions bv 20 percent. the re·enue loss íalls
to >290 million. In the unlikelv e·ent that that a 20 percent íall in rental rates produces a 30
percent increase in turns. industrv re·enues would ivcrea.e bv >290 million.

lowe·er. the home ·ideo rental market is mature and highlv competiti·e. Ií incumbents
could proíitablv increase o·erall re·enue bv reducing their rental rates. thev would alreadv
ha·e done so. particularlv in response to more con·enient options a·ailable to consumers.
such as Netílix and ·ideo-on-demand. 1hereíore. the likelv outcome is somewhere in the
lower leít-hand quadrant oí the table: i.e.. an industrv re·enue loss.

1he question is: which combination is most likelv since manv oí the potential outcomes
in·ol·e losses in excess oí >1 billion· 1o narrow this range. we trv a second approach using
the estimates oí re·enue streams. rental turns and market shares prepared bv SNL Kagan
and the NPD Group. Recall that SNL Kagan estimates total rental re·enues oí >8.03 billion
in 2009. and rental turns oí 1.¯4 billion. Looking íorward. SNL Kagan estimates an increase
to 1.83 turns in 2010 as consumers respond to the challenging economic en·ironment bv
substituting out oí purchases. with re·enues oí >8.49 billion.

1hese estimates include re·enues earned bv Redbox. which in 2009. according to the NPD
Group. held a market share oí 19 percent. NPD íorecasts Redbox to expand to 30 percent
in 2010.

Using these data. and assuming that Redbox continues to earn an a·erage oí >2 per rental
turn. we compute the 2009 rental re·enue oí Redbox to be >660 million in 2009 and >1.10
billion in 2010. Similarlv. we compute the rental re·enue oí incumbents to be >¯.3¯ billion in
2009 and >¯.39 billion in 2010. 1hese data are shown in the table below.


"#$%&!?!
@27A&91&.!4&*1#%!4&5&*/&0!$3!-*./0123!@#21,9,B#*10!?CCD!#*.!?C'C!
)BUEMFOY!
GNOF?D?GNBF!
(NO]CF!
MTNOC!
3CBFN@!FEOBM!
^>?@@?ABM_!
,XCONPC!
ONFC!GCO!FEOB!
"AFN@!OCXCBEC!
^8!>?@@?ABM_!
HJJ<
"AFN@! ! 9:`=IS9! ! 8!!I:JHaS`!
Incumbents 81 1.40¯.8 5.23 ¯.366.3
Redbox 19 330.2 2.00 660.5
HJ9J
"AFN@! ! 9:I==SJ! ! 8!!I:;<HS`!
Incumbents ¯0 1.283.1 5.¯6 ¯.392.9
Redbox 30 550.0 2.00 1.099.8
Sources: SNL Kagan: NPD Group: LALD(

)be ícovovic ívpticatiov. ot íor·Co.t D1D Revtat. ! !


í.íDC Cov.vttivg Practice 6
lrom this iníormation. we can calculate the a·erage rental re·enue earned per turn bv
incumbents. Note that using the iníormation pro·ided bv the NPD Group and SNL Kagan.
incumbents` rental turns are expected to decline bv 125 million turns. while Redbox turns
will increase bv 220 million. lowe·er. o·erall rental re·enues oí incumbents will increase
marginallv, gi·en the increased a·erage rental rate. 1his increase is expected due to the
transition to Blu-rav.

Using this iníormation. we estimate what total rental re·enues would be in 2010 ií Redbox
were to not gain market share. 1hat is. we applv their 2009 market share to the íorecast oí
rental turns in 2010. 1his is shown in the table below.


"#$%&!E!
@27A&91&.!4&*1#%!4&5&*/&0!,*!?C'C!/0,*+!?CCD!:#2;&1!F)#2&0!
)BUEMFOY!
GNOF?D?GNBF!
(NO]CF!
MTNOC!
3CBFN@!FEOBM!
^>?@@?ABM_!
,XCONPC!
ONFC!GCO!FEOB!
"AFN@!OCXCBEC!
^8!>?@@?ABM_!
"AFN@! ! 9:I==SJ! ! 8!!<:H;IS`!
Incumbents 81 1.484.¯ 5.¯6 8.552.1
Redbox 19 348.3 2.00 696.6
+AMM!AQ!OCBFN@!OCXCBEC!UEC!FA!3CULAW!?BDOCNMCU!>NO]CF!MTNOCZ!!! 8!!!!!`RaSJ!
Sources: SNL Kagan: NPD Group: LALD(

Gi·en a total number oí 1.83 billion turns. Redbox would capture 348 million ií thev
remained at a 19 percent market share. Ií their a·erage rental rate remains at >2.00 per turn.
their total re·enue would be >69¯ million. 1he remaining 1.48 billion turns would be
captured bv the incumbents. \e assume that thev maintain their a·erage rental rate oí >5.¯6
per turn. vielding total re·enue oí >8.53 billion.

1ogether. ií Redbox does not expand its market presence. ava tearivg att otber a..vvptiov.
vvcbavgea. total industrv re·enues would be >9.25 billion. 1his implies that the growth oí
Redbox írom 2009 to 2010 would lea·e the industrv with unrealized re·enues oí >¯56
million. all else equal.


3$",)+!3$2$'6$!)(*,%"!

1he widespread introduction oí low-cost DVD rentals will also ha·e an impact on the retail
market as some consumers substitute awav írom purchasing DVDs into rentals. particularlv
ií new releases are a·ailable íor rent on the street date.

Again. it is diííicult to íorecast the extent oí the consumer`s response in the retail market.
SNL Kagan íorecasts that in 2009. 912.2 million DVDs will be sold at an a·erage price oí
>14.09 per unit. Ií consumers substitute awav írom purchases. o·erall industrv re·enues will
íall. 1he table below shows the loss oí industrv re·enues íor a gi·en percentage íall in the
number oí units sold at the pre·ailing market price.

)be ícovovic ívpticatiov. ot íor·Co.t D1D Revtat. ! !


í.íDC Cov.vttivg Practice ¯

"#$%&!G!
()#*+&!,*!-*./0123!4&5&*/&0!,*!678&01,9!6H6!4&1#,%!:#2;&1!!
I,5&*!#!6&9%,*&!,*!J*,1!F#%&0!
<=!8,%%,7*0>!
6B?F!OCFN?@!MN@CM!UCDOCNMC!LYZ!
J\! R\! 9J\! 9R\! HJ\! HR\! =J\!
- 643, 1.286, 1.928, 2.5¯1, 3.214, 3.85¯,
Source: LALD(

lor e·erv íi·e percent íall in unit sales. o·erall industrv re·enues will decline bv >643 million.

At the same time. retailers will respond to the incipient loss oí consumer purchases bv
reducing sales prices. A lower sales price could retain existing consumers and attract
additional consumers that would not normallv ha·e purchased DVDs. As with the rental
market. the combination oí reduced prices and increased transactions mav vield an o·erall
loss oí retail re·enues or it mav bring an o·erall increase in total re·enues. 1he net impact is
dependent on the consumer`s price sensiti·itv.

1he table below shows how industrv re·enues would be aííected. depending on the
consumer response to lower priced discs. gi·en the SNL Kagan íorecast íor 2009. Lach
entrv in the table shows the o·erall change in industrv re·enues gi·en a combination oí a íall
in the sales price that retailers charge and the increase in their unit sales.


"#$%&!K!
()#*+&!,*!-*./0123!4&5&*/&0!,*!678&01,9!4&1#,%!:#2;&1!!!
<=!8,%%,7*0>!
3CFN?@!GO?DCM!QN@@!
LYZ!
6B?F!OCFN?@!MN@CM!?BDOCNMC!LYZ!
J\! 9J\! HJ\! =J\!
9J\! 1.290, 130, 1.030 2.190
HJ\! 2.5¯0, 1.540, 510, 510
=J\! 3.860, 2.960, 2.060, 1.160,
Source: LALD(

1he íirst column shows the eííect on total re·enues oí a gi·en percent change in prices ií
there is no response bv consumers purchasing more DVDs. lor example. ií retailers reduce
their prices bv 20 percent on a·erage. total retail re·enues would decline bv >2.5¯0 million.
Lach column to the right shows how total re·enues would change ií consumers respond to
price reductions bv increasing their purchases. lor example. ií retailers drop their prices bv
20 percent in response to Redbox`s challenge. and consumers consequentlv increase their
purchases bv 20 percent. total re·enues will íall bv >510 million.

)be ícovovic ívpticatiov. ot íor·Co.t D1D Revtat. ! !


í.íDC Cov.vttivg Practice 8
Notice that ií retailers reduce their prices bv 20 percent on a·erage and consumers increase
their purchases bv 30 percent. total re·enues in the retail market would ivcrea.e bv >510
million.

lowe·er. we again assume. gi·en the competiti·e nature oí the retail industrv and its
maturitv. that retailers would ha·e reduced prices alreadv ií o·erall re·enue could be
proíitablv increased. and deduce thereíore that the likelv outcome in the retail market would
be a price reduction impact lving in the lower leít-hand quadrant oí the table: i.e.. an industrv
re·enue loss.

Unlike in the rental market. we lack suííicient data to narrow the range. 1he dvnamic
íeedback between these two markets makes estimation especiallv diííicult. lor example.
suppose producers expect a 10 percent decline in unit sales. 1he entries in 1able 4 show
that. all else equal. thev could expect a decline in industrv re·enues oí >1.286 million. 1o
íorestall this loss. thev mav preempti·elv reduce their retail sales price. Depending on
consumer price-sensiti·itv. a reduction in the retail price oí 10 percent could lead to an
increase in unit sales. Ií this increase was 10 percent. then the re·enue loss due to the price
drop would be >130 million seen in 1able 5,. 1he outcome oí the expected to.. oí sales as
consumers substitute into rentals and the ivcrea.ea sales in response to lower prices is
unknown.


3$'",+!,'1!3$",)+!(,3b$"!-6((,37!

1o summarize. we expect there to be a short-term decline in annual retail re·enues as
consumers respond to a poor economic en·ironment and to the a·ailabilitv oí low-cost
DVD rentals. 1his mav be exacerbated bv substitution awav írom higher-priced rentals and
bv a deterioration oí the pre·ailing market price. 1o some extent. these declines in re·enues
will be oííset bv the growth oí newer re·enue streams associated with the digital deli·erv oí
content. Indeed. SNL Kagan projects an increase in distributor re·enues írom all sources
worldwide írom >51.3 billion in 2008 to >6¯.6 billion in 201¯. Ne·ertheless. o·erall industrv
re·enues would be still higher ií Redbox low-cost DVD rentals were not a·ailable on the
street date.

1he estimation oí the loss oí re·enues is problematic gi·en the multiple interdependent
impacts. Our back-oí-the-en·elope approach in the rental market suggests a wide range oí
potential losses. írom >200 million to >2.2 billion. with a high probabilitv oí losses in excess
oí >1 billion. Our comparati·e market share approach suggests that losses are >¯56 million.
1he impact on retail sales re·enues is also likelv to be negati·e. but our estimate oí the
magnitude oí losses is more uncertain.

Allowing íor the loss on the lower end oí se·eral hundred million in the retail market. plus
>¯56 million in the rental market. we conclude that re·enues losses in the domestic rental
and retail market will be >1 billion. but perhaps much more.

! !

í.íDC Cov.vttivg Practice 9
!
!! $%&'&()%!)(*+)%,")&'-!




Based on our estimates írom the prior section. we belie·e that the o·erall domestic home
·ideo market mav lose >1 billion or more in re·enues due to the introduction oí low-cost
DVD rentals.

1his loss oí re·enues in the market is shared among plavers along the distribution chain.
including producers. distributors. wholesalers. retailers and rental outlets. \e íocus here on
how a loss oí industrv re·enue aííects the production oí íilm and tele·ision projects and the
related job retention and creation.

Data reported bv SNL Kagan írom 1999 to 2008 show that on a·erage. approximatelv 52
percent oí industrv re·enues írom rentals and retail sales are earned bv distributors. lence.
we that assume a loss oí domestic home ·ideo industrv re·enues oí >1 billion translates into
a loss oí >520 million íor distributors.

\e estimate the impact on the economic acti·itv in the íi·e-countv region oí Southern
(aliíornia which includes the counties oí Los Angeles. Orange. Ri·erside. San Bernardino
and Ventura,. the entertainment capital oí the world. 1he di·erse economic base oí the
region supports all aspects oí motion picture and entertainment production. írom set
construction to writers and directors to íilm de·eloping and post-production acti·ities-
unlike production taking place in Michigan and other states where manv components mav be
imported such as the creati·e talent, or absent entirelv such as post-production expertise,.
1hus. basing our estimates on acti·itv in Southern (aliíornia allows us to estimate the total
economic acti·itv associated with re·enues in the industrv. bearing in mind that the impact.
like manv productions. could be spread across multiple states.

lor our estimates. we examine the impact oí íoregone rerevve to the industrv rather than the
impact oí a decrease in titv proavctiov. \e select this approach because we belie·e that one
íirm`s strategv íor responding to a sudden re·enue loss mav be quite diííerent írom another.
lor example. it is possible that a project íacing lowered re·enue expectations would not be
íunded. and thereíore the studio would ha·e a smaller íilm slate. It is also possible that cost
structures could be trimmed-perhaps bv shooting íewer scenes or emploving lesser
talent-such that the íilm slate would be maintained but at an o·erall lower le·el oí qualitv.
1he actual response is diííicult to predict. although we note that studios íacing shortíalls will
ne·ertheless need to maintain adequate proíit margins to ensure continued access to capital:
thereíore. lower re·enues o·erall will ine·itablv translate into less production.




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í.íDC Cov.vttivg Practice 10
$%&'&()%!)(*,%"!&.!*3&16%")&'!+&--!

\e estimate the loss oí economic acti·itv in the íi·e-countv Southern (aliíornia region
attributable to a loss oí >1 billion in industrv re·enues. 1he results are shown in the table
below. Since there is a signiíicant potential íor larger losses. we pro·ide an accounting oí the
incremental impact oí e·erv additional >100 million in lost re·enues to distributors in the
Appendix.


"#$%&!L!
M97*78,9!-8B#91!7N!='!$,%%,7*!,*!-*./0123!4&5&*/&0!
3CXCBEC!+AMM!
Rental and retail industrv re·enue loss > 1.000
Re·enue loss borne bv distributors 520
$DABA>?D!)>GNDF
Output > millions, > 1.493
Lmplovment jobs, 9.280
Larnings > millions, > 395
.?MDN@!)>GNDF!
1ax re·enues > 30
Source: LALD(
2008 dollars


A loss oí >1 billion in domestic rental and retail re·enues will cause a re·enue loss oí >520
million in the motion picture industrv. 1his >520 million in re·enues in the motion picture
industrv would ha·e produced >1.5 billion in economic output measured bv business
re·enues, in íirms throughout Southern (aliíornia. including 9.280 jobs with total earnings
oí >395 million.

1he earnings circulate throughout the regional economv. generating taxable purchases and
thus tax re·enue. Additionallv. the state will collect income tax re·enue. and unemplovment
and disabilitv taxes will be paid. 1he tax re·enue at the local. countv and state le·el is more
than >30 million. 1his is an underestimate since we do not account íor corporate income
taxes and business gross receipts taxes. nor anv permits or íees that are íoregone.

1he loss oí re·enues. jobs and earnings will íall most signiíicantlv in the motion picture
industrv itselí. but manv other industries will be aííected as indirect and induced eííects
ripple through the economv. 1he impacts bv industrv sector are shown in the table on the
íollowing page. 1he ·alues in the table should be interpreted as illustrati·e oí the industrv
eííects rather than precise. gi·en model and data limitations.

Oí the 9.280 jobs. almost halí will occur in the Iníormation sector. In addition to motion
picture and sound recording industries. this sector includes: publishing industries: radio and
tele·ision broadcasting: telecommunications industries: and internet ser·ice pro·iders.


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í.íDC Cov.vttivg Practice 11

"#$%&!O!
-*./0123!P2&#;.7Q*!7N!='!$,%%,7*!,*!-*./0123!4&5&*/&0!
)BUEMFOY!
&EFGEF!
^8!>?@@?ABM_!
cALM!
$NOB?BPM!
^8!!>?@@?ABM_!
Agriculture > 3.6 32 > 0.8
Mining 1.8 2 0.4
Utilities 21.3 31 3.¯
(onstruction 5.8 4¯ 2.3
Manuíacturing 121.1 411 21.4
\holesale trade 33.0 163 10.6
Retail trade 46.4 624 15.2
1ransportation and warehousing 28.1 199 9.8
Iníormation 818.5 4.400 201.3
linance and insurance 64.1 243 1¯.2
Real estate 105.0 255 ¯.5
Proíessional. scientiíic and technical ser·ices 56.9 398 23.¯
Management oí companies 19.8 108 10.3
Administrati·e and waste management 29.0 448 12.9
Lducation ser·ices 8.6 132 3.9
lealth care and social assistance 4¯.3 496 23.0
Arts. entertainment and recreation 2¯.2 383 10.6
Accommodations and íood ser·ices 28.3 5¯6 10.9
Other ser·ices 2¯.0 2¯0 8.8
louseholds n´a 65 0.¯
"AFN@!
d
!!! 8!9:;<=! <:HIJ! 8!=<R!
Mav not sum due to rounding
Source: LALD(
2008 dollars


In 2008. approximatelv 52 percent oí the emplovment and 54 percent oí the earnings, in the
Iníormation sector was in motion picture and sound recording industries. implving that oí
the 4.400 jobs. at tea.t 2.290 will be in motion picture and sound recording industries.

Similarlv. >201.3 million is earned in the Iníormation sector. oí which at tea.t >109 million is
earned bv workers in motion picture and sound recording industries.

Other industrv sectors with signiíicant impact include retail trade 624 jobs,. accommodation
and íood ser·ices 5¯6 jobs,. and health care and social assistance almost 500 jobs,.




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í.íDC Cov.vttivg Practice 12
%&'"$5"!
!!!
1he potential loss oí >1 billion or more in ·ideo sales and rental re·enue due to low-cost
new release DVD rentals is just one element oí the uphea·al gripping the home ·ideo
market. 1he recession has leít consumers with less enthusiasm to spend hard-earned dollars
on discretionarv items: new entertainment options ha·e brought competition to old
standbvs: and technological change underpins a seismic shiít in the deli·erv oí content.

1he current recession has aííected consumer purchases oí discretionarv items. probablv
inducing substitution awav írom purchases to more aííordable renting. and encouraging e·en
lower cost rentals through Redbox or Netílix. 1his mav be short-li·ed until economic
conditions impro·e. but other trends will persist. Manv households mav opt íor other íorms
oí entertainment as increased competition íor budgets and leisure time írom other acti·ities
such as gaming and social networking, put pressure on the traditional home entertainment
model. Most important oí all. the shiít írom phvsical to digital deli·erv oí media content
threatens to upend the home ·ideo market.

1echnologv is enabling the digital deli·erv oí content through internet pro·iders. broadcast
and cable pro·iders. and telecom pro·iders. 1he a·ailabilitv oí instant content is growing.
and the trip to anv rental outlet. be it a bricks-and-mortar store or a kiosk. will decline and
perhaps disappear entirelv. lurther. some content is escaping re·enue models entirelv as
content is deli·ered íree to subscribers. challenging traditional re·enue models which depend
on per unit ·iewing charges.

1he SNL Kagan íorecast íor home entertainment market re·enues reílects these trends.
íalling írom >20.9 billion in 2009 to >13.2 billion in 2018. \hile sell-through units will grow
slowlv through this period. sales re·enues will íall írom >12.9 billion to >9.9 billion. Rental
re·enues will decline írom >8.0 billion to >3.3 billion as rental turns crash írom 1.¯ billion in
2009 to 500 million in 2018.

Low-cost DVD rental options will contribute to the decline in re·enue írom rentals and
sales. particularlv ií titles are a·ailable íor rent at >1 per night on the street date. but the
impact will likelv be o·ershadowed bv larger trends.

1he decline in re·enues írom the home ·ideo market matters írom an industrv perspecti·e
because the sales and rental re·enues help compensate íor the abundant risk in íilm
de·elopment. lickle consumers and íast-changing preíerences. amid unexpected political or
natural e·ents. can doom the most promising project to the cutting room íloor or catapult a
small-budget independent íilm into the stratosphere. Such inherent uncertaintv at the outset
necessitates a project de·elopment strategv that di·ersiíies production across a ·arietv oí
genres and budgets. lilm slates are designed to maximize o·erall success. such that one or
two blockbuster hits can compensate íor losses suííered on other projects.

1he íinancial success oí a project and its distributor, depends on a multi-phased distribution
strategv. Although box oííice numbers are headlined in industrv and popular press. re·enues
írom this income stream account íor less than twentv-íi·e percent oí the total re·enues
earned bv distributors. Most mo·ies are not immediate monev makers and companies relv
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í.íDC Cov.vttivg Practice 13
on sequential sales. such as in the home entertainment market. to recoup their production
and marketing in·estment.

1he shiít to digital deli·erv will pro·ide new re·enue streams íor the industrv and new
opportunities such as 3D theatrical releases and potentiallv home releases also,. and
rovalties and licensing íees írom new deli·erv methods. Increased a·ailabilitv oí all tvpes oí
digital content and media ha·e changed liíestvles and will continue to contribute to demand
íor ·ideo products. Indeed. SNL Kagan íorecasts continuing growth in o·erall industrv
re·enues as alternati·e streams compensate íor this loss oí re·enue. In total. SNL Kagan
projects an increase in distributor re·enues írom all sources worldwide írom >51.3 billion in
2008 to >6¯.6 billion in 201¯. \hile the composition oí these re·enues will clearlv change.
distributors will continue to experience re·enue growth into the next decade.

1his suggests two important concluding thoughts.

lirst. the shiít in re·enue will create uphea·al. 1he decline in DVD re·enues represents an
ongoing loss oí an existing signiíicant re·enue stream. while the oíísetting gains in re·enue
írom digital deli·erv seem to us to be more uncertain. both in scale and in timing. and
subject to wider margins oí error. 1he composition oí distributors` re·enues is expected to
change signiíicantlv o·er the next ten vears as the popularitv oí online and on-demand
ser·ices grows. lowe·er. the re·enue streams írom these new business lines are uncertain
gi·en their continuing inno·ation and e·olution.

Second. anv loss oí jobs due to low-cost new release DVD rentals upsetting the existing
home ·ideo re·enues will not be easilv ·isible gi·en the larger trends in the industrv. 1hus
these losses are best characterized as an opportunitv íoregone. since o·erall re·enues oí the
industrv rovta be bigber ií Redbox low-cost DVD rentals were not a·ailable on the street date.


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í.íDC Cov.vttivg Practice 14
! !

í.íDC Cov.vttivg Practice A-1
!
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)'%3$($'",+!$%&'&()%!)(*,%"!

\e estimate the loss oí economic acti·itv in the íi·e-countv Southern (aliíornia region oí
each incremental >100 million loss oí re·enues in the motion picture and sound recording
industries. 1he results are shown in the table below.


"#$%&!RS'!
M97*78,9!-8B#91!7N!='CC!8,%%,7*!T700!7N!-*./0123!4&5&*/&0!
3CXCBEC!+AMM!
Re·enue loss borne bv distributors > 100
$DABA>?D!)>GNDF
Output > millions, > 28¯
Lmplovment jobs, 1.¯80
Larnings > millions, > ¯6
.?MDN@!)>GNDF!
1ax re·enues > 6
Source: LALD(
2008 dollars


1he loss oí >100 million in re·enues in the motion picture industrv would result in a total
loss oí >28¯ million in economic output as measured bv business re·enues, in íirms
throughout Southern (aliíornia. More than 1.¯80 jobs with total earnings oí almost >¯6
million will be lost íor e·erv >100 million in re·enue loss íor the industrv.

1he lost earnings will mean less monev circulates throughout the regional economv.
generating íewer taxable purchases and thus less tax re·enue. Additionallv. the state will
collect less income tax re·enue. and less unemplovment and disabilitv taxes will be paid. 1he
loss oí tax re·enue at the local. countv and state le·el will be almost >6 million. 1his is an
underestimate since we do not account íor the loss oí corporate income taxes and business
gross receipts taxes. nor anv permits or íees that are íoregone on production losses.

1he loss oí re·enues. jobs and earnings will íall most signiíicantlv in the motion picture
industrv itselí. but manv other industries will be aííected as indirect and induced eííects
ripple through the economv. 1he impacts bv industrv sector are shown in the table on the
íollowing page. 1he ·alues in the table should be interpreted as illustrati·e oí the industrv
eííects rather than precise gi·en model and data limitations.

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í.íDC Cov.vttivg Practice A-2
Oí the 1.¯80 jobs lost íor e·erv >100 million in íoregone re·enues. almost halí will occur in
the Iníormation sector. In addition to motion picture and sound recording industries. this
sector includes: publishing industries: radio and tele·ision broadcasting: telecommunications
industries: and internet ser·ice pro·iders.

In 2008. approximatelv 52 percent oí the emplovment and 54 percent oí the earnings, in the
Iníormation sector was in motion picture and sound recording industries. implving that oí
the 846 jobs that are lost. at tea.t 450 will be lost in motion picture and sound recording
industries íor e·erv >100 million in lost re·enues.


"#$%&!RS?!
-*./0123!P2&#;.7Q*!7N!='CC!8,%%,7*!T700!7N!-*./0123!4&5&*/&0!
)BUEMFOY!
&EFGEF!
^8!>?@@?ABM_!
cALM!
$NOB?BPM!
^8!!>?@@?ABM_!
Agriculture > 0.¯ 6 > 0.1
Mining 0.4 0 0.1
Utilities 4.1 6 0.¯
(onstruction 1.1 9 0.4
Manuíacturing 23.3 ¯9 4.1
\holesale trade 6.3 31 2.0
Retail trade 8.9 120 2.9
1ransportation and warehousing 5.4 38 1.9
Iníormation 15¯.4 846 38.¯
linance and insurance 12.3 4¯ 3.3
Real estate 20.2 49 1.4
Proíessional. scientiíic and technical ser·ices 10.9 ¯6 4.6
Management oí companies 3.8 21 2.0
Administrati·e and waste management 5.6 86 2.5
Lducation ser·ices 1.¯ 25 0.8
lealth care and social assistance 9.1 95 4.4
Arts. entertainment and recreation 5.2 ¯4 2.0
Accommodations and íood ser·ices 5.4 111 2.1
Other ser·ices 5.2 52 1.¯
louseholds n´a 12 0.1
"AFN@!
d
!!! 8!HI`! 9:`IJ! 8!`a!
Mav not sum due to rounding
Source: LALD(
2008 dollars

Similarlv. >38.¯ million will be lost in earnings in the Iníormation sector íor e·erv loss oí
>100 million in industrv re·enues. oí which at tea.t >21 million will be lost bv workers in
motion picture and sound recording industries.

Ne·ertheless. other industrv sectors will also be negati·elv impacted. including retail trade.
which will lose 120 jobs. and accommodation and íood ser·ices. which will lose 111 jobs.
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í.íDC Cov.vttivg Practice A-3
)(*+)%,")&'-!.&3!6')&'!*$'-)&'!.6'1-!
!!!
1he motion picture industrv is populated with manv small businesses and independent
agents. talent and contractors. as well as part-time workers and íreelance workers. 1hese
íirms and workers pro·ide a íull range oí ser·ices. such as costume design. set construction.
equipment rental. lighting. special eííects. and creati·e talent. 1he nature oí íilm production
means that emplovment íor manv workers is short term and´or part-time. íor manv diííerent
emplovers. and possiblv íor se·eral diííerent projects at the same time.

1he nature oí emplovment in the motion picture industrv has heightened the importance oí
union membership. which pro·ides collecti·e bargaining power to a ·erv large. di·erse and
scattered labor pool íacing a small and concentrated hiring market. Most production
companies ha·e emplovment agreements with unions representing directors. actors. and
writers called guilds,. such as the Screen Actors Guild SAG,. the Directors Guild oí
America DGA,. the \riters Guild oí America \GA, and the American lederation oí
1ele·ision and Radio Artists Al1RA,. Other occupations are represented bv the
International Alliance oí 1heatrical Stage Lmplovees. Mo·ing Picture 1echnicians. Artist
and Allied (raíts IA1SL,. the International Brotherhood oí 1eamsters IB1, and the
United Scenic Artists.

Unions also pro·ide health and welíare beneíits to their members. which are paid out oí
íunds established through contributions írom emplovers based on emplovee wages and. in
some cases. on residual pavments earned bv members on projects as thev continue through
their indi·idual release windows. 1he amount paid ·aries bv the labor agreements entered
into bv the ·arious unions. lor example. contributions towards health and welíare íunds bv
emplovers oí SAG members are equal to 15 percent oí all wages paid. while íor the DGA it
is 14.5 percent. lor IA1SL workers. the amount is calculated as a combination oí a íixed
dollar-per-hour rate and a percentage oí the minimum. or as a ílat. per-dav sum. resulting in
contributions in the range oí 15 percent oí earnings. Additional contributions to the health
and welíare íunds oí IA1SL unions are made írom residuals earned bv union members.
Residuals íor guild members mav be paid directlv to members. with perhaps onlv a
percentage di·erted to health and welíare íunds.,

(ontributions to health and welíare íunds would be aííected bv a loss oí re·enue in the
motion picture industrv in two wavs: lirst. to the extent that a loss oí re·enue translates into
reduced production. there would be íewer earnings paid to union members and less
concomitant pavments into the íunds bv emplovers. Second. to the extent that residual
pavments to union members and their health and welíare íunds are dependent on DVD
sales and rental re·enues. then a decline in this re·enue stream would translate into reduced
contributions.

\e estimate the potential losses írom both sources oí contributions to health and welíare
íunds íor the loss oí >520 million in re·enues in the motion picture industrv as íollows:

In the prior section. we estimated that a re·enue loss oí >520 million in the industrv would
result in a loss oí >109 million in earnings oí workers in the industrv. At the current
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í.íDC Cov.vttivg Practice A-4
contribution rate. this implies a loss oí contributions to health and beneíit íunds oí
approximatelv >16.3 million per vear.

In addition to this. there is a loss oí residual pavments to íunds held bv IA1SL unions. 1o
estimate the contributions made írom residuals. we relv on our earlier work conducted on
íilm production budgets. In that work. we estimated that oí all wages paid on a tvpical
project. approximatelv 45 percent are paid to below-the-line emplovees. A report prepared
bv U(LA states that residuals account íor approximatelv 30 percent oí income íor guild
members íabor Retatiov. ava Re.iavat Covpev.atiov iv tbe Morie ava )eteri.iov ívav.try. bv Archie
Kleingartner and Alan Paul oí the U(LA Institute oí Industrial Relations. 1992,. \e use this
as an upper-bound. recognizing that other industrv occupations mav be entitled to lower
residual pavments than directors. actors and writers.

1aking these two estimates together. oí >109 million earned in the industrv. 45 percent or
>49 million, would ha·e been paid in wages to and thereíore. in this case. lost bv, below-
the-line emplovees. Since these wages represent approximatelv ¯0 percent oí total income.
thereíore an additional >19.1 million would ha·e been recei·ed as residuals and directed into
the health and welíare íunds íor union members.

In summarv. gi·en a re·enue loss oí >520 million in the motion picture industrv. we estimate
that up to >35.4 million is lost in contributions to health and welíare íunds íor guild and
union members. 1he majoritv oí this loss will occur in union plans íor below-the-line
emplovees because residuals paid to such emplovees are di·erted into health and welíare
íunds.


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í.íDC Cov.vttivg Practice A-5
$%&'&()%!)(*,%"!($"#&1&+&e7!

1he total estimated economic impact includes direct. indirect and induced eííects. 1?OCDF!
NDF?X?FY includes the loss oí material purchases and the loss oí jobs pro·ided bv the motion
picture industrv and its contractors due to the loss oí production. )BU?OCDF!CQQCDFM are those
which stem írom the emplovment and business re·enues lost bv the materials not purchased
bv the motion picture industrv and its contractors. lor example. indirect jobs are lost when
the suppliers oí the oííice íurniture and insurance policies to the motion picture industrv are
no longer needed. )BUEDCU! CQQCDFM are those lost due to the íoregone spending oí
emplovees whose wages are no longer sustained due to the loss oí both direct and indirect
spending.

\ithout actual estimates oí the loss oí re·enues. we measure the impacts per loss oí >100
million in industrv re·enues. without regard to the source or reason. 1otal eííects are
estimated using multipliers írom the Regional Input-Output Modeling Svstem RIMS II,
de·eloped bv the Bureau oí Lconomic Analvsis at the U.S. Department oí (ommerce. Our
estimates íor earnings and output are expressed in constant 2008, dollars.

1he estimated economic impacts are based on the loss oí re·enues within the íi·e-countv
Southern (aliíornia region that includes the counties oí Los Angeles. Orange. Ri·erside. San
Bernardino and Ventura. Data limitations pre·ent us írom estimating how much oí the
o·erall loss oí re·enues will take place outside oí the region: íor example. materials or
íurniture and equipment might ha·e been pvrcba.ea locallv but be manuíactured elsewhere. In
some instances. the loss oí spending mav occur in neighboring counties and thus generate
aaaitiovat negati·e economic impact that spills o·er írom those neighboring counties. 1his
spillo·er is not captured bv our íi·e-countv analvsis.

Job loss or earnings, estimates are based on national a·erage relationships between output
and emplovment or earnings,. \here such relationships at the regional le·el diííer írom the
national relationships. the impacts mav be understated or o·erstated. Job loss estimates are
measured on a job-count basis íor both wage-and-salarv workers and proprietors regardless
oí the number oí hours worked.





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í.íDC Cov.vttivg Practice A-6
1$-%3)*")&'!&.!)'16-"37!-$%"&3-!


1he industrv sectors used in this report are established bv the North American Industrv
(lassiíication Svstem NAI(S,. NAI(S di·ides the economv into twentv sectors. and groups
industries within these sectors according to production criteria. Listed below is a short
description oí each sector as taken írom the sourcebook. ^ortb .vericav ívav.try Cta..iticatiov
´y.tev. published bv the U.S. Oííice oí Management and Budget 200¯,.

.gricvttvre. íore.try. íi.bivg ava ívvtivg: Acti·ities oí this sector are growing crops. raising
animals. har·esting timber. and har·esting íish and other animals írom íarms. ranches. or the
animals` natural habitats.

Mivivg: Acti·ities oí this sector are extracting naturallv-occurring mineral solids. such as coal
and ore: liquid minerals. such as crude petroleum: and gases. such as natural gas: and
beneíiciating e.g.. crushing. screening. washing and ílotation, and other preparation at the
mine site. or as part oí mining acti·itv.

|tititie.: Acti·ities oí this sector are generating. transmitting. and´or distributing electricitv.
gas. steam. and water and remo·ing sewage through a permanent inírastructure oí lines.
mains. and pipes.

Cov.trvctiov: Acti·ities oí this sector are erecting buildings and other structures including
additions,: hea·v construction other than buildings: and alterations. reconstruction.
installation. and maintenance and repairs.

Mavvtactvrivg: Acti·ities oí this sector are the mechanical. phvsical. or chemical
transíormation oí material. substances. or components into new products.

!bote.ate )raae: Acti·ities oí this sector are selling or arranging íor the purchase or sale oí
goods íor resale: capital or durable non-consumer goods: and raw and intermediate materials
and supplies used in production. and pro·iding ser·ices incidental to the sale oí the
merchandise.

Retait )raae: Acti·ities oí this sector are retailing merchandise generallv in small quantities to
the general public and pro·iding ser·ices incidental to the sale oí the merchandise.

)rav.portatiov ava !arebov.ivg: Acti·ities oí this sector are pro·iding transportation oí
passengers and cargo. warehousing and storing goods. scenic and sightseeing transportation.
and supporting these acti·ities.

ívtorvatiov: Acti·ities oí this sector are distributing iníormation and cultural products.
pro·iding the means to transmit or distribute these products as data or communications. and
processing data.

íivavce ava ív.vravce: Acti·ities oí this sector in·ol·e the creation. liquidation. or change oí
ownership oí íinancial assets íinancial transactions, and´or íacilitating íinancial transactions.
)be ícovovic ívpticatiov. ot íor·Co.t D1D Revtat. ! !


í.íDC Cov.vttivg Practice A-¯

Reat í.tate ava Revtat ava íea.ivg: Acti·ities oí this sector are renting. leasing. or otherwise
allowing the use oí tangible or intangible assets except copvrighted works,. and pro·iding
related ser·ices.

Prote..iovat. ´cievtitic. ava )ecbvicat ´errice.: Acti·ities oí this sector are períorming proíessional.
scientiíic. and technical ser·ices íor the operations oí other organizations.

Mavagevevt ot Covpavie. ava ívterpri.e.: Acti·ities oí this sector are the holding oí securities oí
companies and enterprises. íor the purpose oí owning controlling interest or iníluencing
their management decision. or administering. o·erseeing. and managing other establishments
oí the same companv or enterprise and normallv undertaking the strategic or organizational
planning and decision-making oí the companv or enterprise.

.avivi.tratire ava ´vpport ava !a.te Mavagevevt ava Reveaiatiov ´errice.: Acti·ities oí this sector
are períorming routine support acti·ities íor the dav-to-dav operations oí other
organizations. such as: oííice administration. hiring and placing oí personnel. document
preparation and similar clerical ser·ices. solicitation. collection. securitv and sur·eillance
ser·ices. cleaning. and waste disposal ser·ices.
!
íavcatiovat ´errice.: Acti·ities oí this sector are pro·iding instruction and training in a wide
·arietv oí subjects. Lducational ser·ices are usuallv deli·ered bv teachers or instructors that
explain. tell. demonstrate. super·ise. and direct learning. Instruction is imparted in di·erse
settings. such as educational institutions. the workplace. or the home through
correspondence. tele·ision. or other means.
!
íeattb Care ava ´ociat ...i.tavce: Acti·ities oí this sector are operating or pro·iding health care
and social assistance íor indi·iduals.

.rt.. ívtertaivvevt ava Recreatiov: Acti·ities oí this sector are operating íacilities or pro·iding
ser·ices to meet ·aried cultural. entertainment. and recreational interests oí their patrons.
such as: 1, producing. promoting. or participating in li·e períormances. e·ents. or exhibits
intended íor public ·iewing: 2, preser·ing and exhibiting objects and sites oí historical.
cultural. or educational interest: and 3, operating íacilities or pro·iding ser·ices that enable
patrons to participate in recreational acti·ities or pursue amusement. hobbv. and leisure-time
interests.

.ccovvoaatiov ava íooa ´errice.: Acti·ities oí this sector are pro·iding customers with lodging
and´or preparing meals. snacks. and be·erages íor immediate consumption.
!
Otber ´errice. te·cept Pvbtic .avivi.tratiov): Acti·ities oí this sector are pro·iding ser·ices not
speciíicallv pro·ided íor elsewhere in the classiíication svstem. Lstablishments in this sector
are primarilv engaged in acti·ities. such as equipment and machinerv repairing. promoting or
administering religious acti·ities. grant-making. ad·ocacv. and pro·iding drv-cleaning and
laundrv ser·ices. personal care ser·ices. death care ser·ices. pet care ser·ices. photoíinishing
ser·ices. temporarv parking ser·ices. and dating ser·ices.

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