Freeman

ARTICLE

Should Star Trek Be Regulated as a Monopoly?

The Marketing of Star Trek Is Economically Rational

FEBRUARY 01, 1995 by GARY NORTH

Dr. North is president of The Institute for Christian Economics in Tyler, Texas.

The announcement in 1993 that Star Trek: The Next Generation would have only one more season of new shows was the equivalent of a photon torpedo blast into the lives of millions of fans. Well, maybe it was only a phaser set on “stun,” but the news was not well received. Even Jonathan Frakes, the actor who plays William Riker, the second in command on The Enterprise, complained in a televised interview that he did not understand why a successful series was being canceled.

The answer is clear: because it was not merely a successful series. It was the successful dramatic TV series of all time, a show possessing what has been described as a cult following—the largest entertainment cult on earth. For almost three decades, Star Trek fans have invested money, time, and imagination in a fantasy world created on-screen. The three-part entrepreneurial question that the show’s producers face is this: How much money? How much time? How large a screen?

The show was costing a million dollars per weekly broadcast to produce: the highest in television. But this investment paid off very well. Syndication is bringing in millions of dollars from earlier shows. This probably will not change soon, with or without new segments. Millions of fans watch every segment over and over. This has been true since the early 1970s. Nightly reruns still draw large audiences for both crews of The Enterprise. This stream of income appears to be as endless as the I Love Lucy reruns. The questions facing the producers were these: (1) How much additional net income can this product line generate if we produce two dozen new segments? (2) How much net income can it generate if we produce a major movie? The answer to the first question appeared to be “marginal.” The answer to the second question appeared to be “enormous.”

The early fans of the original Star Trek series were not numerous enough to sustain the show’s ratings. Star Trek became a huge success only after it was canceled: a rerun and local TV station syndication phenomenon. This made it unique in television history. Then came the 1977 movie. Its script was not noticeably superior to one of the original shows. In fact, it was suspiciously similar to one of those original shows: “Nomad.” But it made millions of dollars for the investors. Five more movies followed, stretching for over a decade. Toward the end of the movie releases, Star Trek: The Next Generation had become the most successful syndicated show on television. The original Star Trek series was also doing well in syndication. Like miners mining the mother lode, every time the producers started a new tunnel, they hit paydirt.

This experience sent a loud message to the producers: “A defunct series in syndication plus an occasional movie will make us even richer.” Gene Roddenbery, the show’s creator, was dead. He was no longer present to argue for keeping the TV series alive. So, the free market took over. That is to say, the desires of paying consumers took over, but not the desires of non-paying consumers. Therein lies the difference in marketing strategies.

The Message of the Market

The free market sends information to enterprising entrepreneurs whose task it is to forecast consumer demand in the unknown economic future. This information is sent in the form of price signals. These signals are evaluated in a very specific manner: profit and loss. Consumers register their decisions in the form of money. Sometimes this message is sent directly: “I’ll take one of those, please. Here is my money.” In non-pay TV, the message is sent indirectly by middlemen acting on behalf of consumers: “I’ll rent advertising time from you in the hope that consumers will buy something from me as a result.” But the consumer is finally sovereign. Either he spends money or he doesn’t.

I was a reliable consumer of Star Trek: The Next Generation, beginning several years after the show was launched into the airwaves. It was the only TV show I watched every week. (I now watch none on a weekly basis.) But I did not watch it directly. I had my teenage son record it for me on Saturday night, blipping out the commercials. Then my wife and I and the other children would watch the tape on some other night. I was, in the language of the economist, a free rider. I did not buy anything from a seller just because he advertised during the Star Trek hour. No commercial message ever got through to me, except when my son was not paying careful attention. He became very skilled at operating the pause button.

Did I attend the new Star Trek movie? Of course, and so did my family. The years of investments made by the producers, funded weekly by the advertisers, at long last paid off in my case. I was no longer a free rider. I paid for my 90-minute ride on The Enterprise.

The market sent a signal to the producers: there are a lot of people just like I am out there. They paid for the privilege of entering into the fantasy world of Star Trek. The pay was direct: “Ticket, please.”

After that, millions more of us will rent it in local video stores. There will also be income from cable TV and network TV and Ted Turner’s TBS TV. The producers saw the potential.

The fans no doubt feel cheated. They want their two dozen new segments a year. They sit there—millions of thumbs on millions of “pause” buttons—and say: “Take us for a ride on The Enterprise.” The producers finally figured out that the fans were taking them for a ride.

The producers believed that the market was ready to reward them for spending less than what it would cost to produce two dozen segments for TV. Instead of paying week by week, they spent a year’s budget on one extravaganza. They believed that we, the faithful consumers of Star Trek fantasies, would dig into our wallets and reward them for bringing one story to us on a large screen rather than dozens of stories on a small screen. They were correct.

We consumers say that we want two dozen segments a year rather than one extravaganza every other year or even less frequently. That is what we say. But talk is cheap. Are we willing to put our money where our mouths are? How much money? If we were all willing to pay, say, $2.50 per TV segment, and if there were some readily available way to make this transaction each week, the producers might consider keeping the show on the air (or cable, or whatever). But the delivery system does not exist. Star Trek is unique. There is no other TV show with a market of fans—as in fanatics—that would predictably respond in this way. There is even some question in my mind about whether I would actually pay my weekly $2.50. In any case, we are talking about $2.50 per household. But the movie got $6 out of me, my wife, and also three of my four children. For many fans, multiply $6 by two. Or three. We will also rent it when it comes out on tape.

So, the reality is this: what Star Trek fans say they want is not what they are both willing and able to pay for. We are all free riders or would-be free riders to some degree. The producers have issued an announcement: “No more free new rides.”

A Monopoly

One of the greatly feared and hated phenomena in modern life is the monopoly. The standard definition of monopoly is this: “A firm that restricts the output of goods or services in order to increase its revenues.” It is feared and hated because consumers seem to be thwarted. Consumers receive less of what they say they want. The seller brings in more money, net, at a higher price per sale than he would have brought in had he met all the demand at a lower price per sale. He is, in the language of Marxism and other socialist traditions, an exploiter.

If we take this definition seriously, then Star Trek is surely a monopoly. Rather than producing and then renting two dozen new segments per year to local TV stations, the owners of the rights to the Star Trek product line are now going to produce only one movie every two or three years, which they will rent to movie theaters. Then they will rent it to cable TV stations. Then they will sell copies of the videotape. They will get Star Trek fans to pay again and again to see that one movie. By restricting production, they will bring in far more money. But if the standard definition of monopoly is correct, it should be clear that this can be accomplished only through the willful exploitation of the public, and a highly vulnerable public at that: people who show many of the elements of serious psychological dependence.

A good Marxist would know what to call the owners of the rights to Star Trek: “capitalist exploiters.” Clearly, the state, as the legitimate voice of the proletariat, should confiscate these rights and begin to produce weekly broadcasts of Star Trek on a year-round basis.

This would be very expensive under present conditions. The main actors receive very high wages, since the show has been running for years. The featured actors’ salaries rise each year. Also, what about residual payments to them for the reruns? There would be no residuals under true socialism. After all, the Marxist says, labor is the sole source of all value, and these actors have already contributed whatever value the show possesses. Residuals? This is clearly exploitation by the actors, who have also become capitalist exploiters.

But what if the actors should quit? Here socialists disagree with each other. Some would favor laws making it illegal for anyone to quit his job without permission from the state. This would include actors. Other socialists, influenced by capitalist concepts of supply and demand, would say that new actors should be hired by the national government’s Department of Public Entertainment. Hire some minimum-wage, out-of-work English character actor to play Captain Picard. Just shave his head. Nobody will notice. Anyone can be dressed up as a Klingon. All the fans really care about is Lieutenant Worf’s turtle-shell forehead. A computer synthesizer can produce a match of Michael Dorn’s voice—after all, even he doesn’t sound like that in real life. As for Jordie LaForge, the whole appeal of the character is that woman’s hair gadget he wears over his eyes. Who needs LaVar Burton? The Star Trek characters are all stick figures anyway: the chocoholic, half-breed mind reader who never seems to know what the bad guys are really thinking; the twitching robot with the green contact lenses; the bearded first mate who seems to be an ulcer candidate; the bossy female physician who takes over every time anyone gets the sniffles. Who needs highly paid actors? Just hire new actors who can remember their lines. If they start demanding higher pay, replace them. The viewers don’t care. Don’t talk nonsense about the show’s “chemistry.” Television shows do not have chemistry. They have scripts, actors, and special effects. In the case of Star Trek, the proper order is special effects, scripts, and actors. What the show needs is scripts that conform to the theory of socialism. Actors are peripheral.

The question now arises: Should Star Trek fans set up a PAC (Political Action Committee) devoted to electing candidates who promise to compel the producers to deliver a minimum of two dozen shows per year? Such legislation is surely Constitutional. Perhaps it could be done under the interstate commerce clause, or maybe under “promote the general welfare.” These are mere details. The Supreme Court can sort it all out later. The point is, Star Trek: The Next Generation is an exploitative monopoly, and it must be stopped by law.

Something sounds wrong with this analysis. The question is: What?

Consumer’s Surplus

A seller who wants to sell many units of a particular item will price each unit at what he believes is the highest price consumers are willing to pay for all units he brings to market. The revenue-maximizing price is that price which empties the seller’s inventory but leaves no consumer standing in line ready to buy. This is called a market-clearing price.

No matter what price he establishes, there will be some buyers who would have paid more for the item. To maximize his total revenue, he sets the price lower than what he could have received from a small percentage of buyers. These buyers who would have paid more receive a benefit. Economists call this benefit a consumer’s surplus.

The producers of Star Trek: The Next Generation for many years have given millions of viewers a consumer’s surplus. These viewers would have paid more, but they were not asked to pay more. I am clearly one such viewer. I paid nothing except my time in viewing—leisure, a rare form of income which the government does not tax—and the price of a cheap videotape (two shows per tape). My teenage son’s time spent recording and blipping out commercials I receive at no additional marginal cost —one of the very few income streams I have generated so far from this particular investment in human capital (and now it has dried up): no more Star Trek segments.

The producers decided that they would no longer provide such an immense consumer’s surplus. They have created enormous demand for their product line by means of offering millions of consumers a consumer’s surplus for over two decades. We can best understand this as a form of advertising. Advertising expenses are not borne for their own sake. The goal of advertising is to sell more products. This is now what the producers of Star Trek intend to do.

Star Trek as Software

Star Trek: The Next Generation is properly described as a software product. The hardware is our TV sets. Software is what we run on our hardware. For example, when Sony bought CBS Music, financial journalists identified this as a move by Sony, a producer of hardware, to acquire a line of software. The big money is in software, not hardware, unless you are the Intel Corporation or Motorola.

In recent years, software products that are assumed to be capable of reaching a large market have been priced quite low: a hundred dollars for a program that in 1990 would have retailed for $495 ($235 through a mail-order firm). Software producers realize that the big money is made on the back end: money sent in by existing users who buy software upgrades. The marketing strategy is to gain the largest number of users, who hate to re-learn new software programs that perform similar tasks. The strategy is to create a huge market of users who do not want to switch. They become, as it were, psychologically dependent on the product. Very few software companies have achieved this.

Star Trek has accomplished this remarkable feat. The producers introduced their software at very low prices in 1968, but now the upgrades are going to be less frequent and more expensive than before: every other year instead of every week for half the year. Consumers received an enormous consumer’s surplus for decades, but now the producers know that their software’s “installed base of users”—software marketing terminology—is huge, that users are not going to switch, and that the weekly reruns will now serve as “shareware”: free or nearly free introductory software that creates a market for the big-screen “upgrades.”

The decision to produce Star Trek movies rather than weekly TV shows will probably turn out to be very profitable. The product line’s installed base is enormous. Having created this installed base through a quarter century of either brilliant or very lucky marketing, the owners of the product line have decided to maximize their revenue by spending more money on a few major upgrades rather than spending smaller amounts of money on more frequent but marginal upgrades. For most TV shows, this marketing strategy would produce a gigantic loss, once. But Star Trek: The Next Generation is not like most TV shows.

Conclusion

The marketing of Star Trek is rational from an economic point of view. While it would be possible to denounce as monopolistic the decision of the owners to move from TV production to movie production, such an analysis does not ring true. Nevertheless, the decision does seem to conform to the standard definition of monopoly pricing: “Restricting the output of goods or services in order to increase revenues.” But most people—even devoted fans—are unwilling to call the producers of Star Trek a bunch of exploiting monopolists. Why?

I suggest two reasons. First, when it comes to entertainment, we are all capitalists. Nobody suggests government-imposed wage controls for famous celebrities in the sports world or entertainment world. Apparently, we consumers do not care if celebrities get rich by exploiting us. When it comes to celebrities, we cheerfully endorse individualism. We accept the free market’s pricing principle: “high bid wins.”

Second, we may sense that there is something wrong with the standard definition of monopoly. When producers choose to restrict the output of some resource in order to maximize their revenue, isn’t this a form of conservation? Aren’t we all supposed to be in favor of conservation these days? Then why should we complain when suppliers of a product or service make more money for themselves when they become conservationists? There is something wrong with the textbook definition of monopoly.

Murray Rothbard has suggested a different definition. He argues that a monopoly is created solely by the state. The economic conditions for monopoly exist whenever the civil government threatens reprisals against competing firms that enter a market to supply a service that consumers are willing to pay for, but which the existing seller refuses to meet by lowering the price and increasing output.

If a firm can increase its revenues by restricting output, it should probably be called a conservation-minded firm. But if its ability to increase revenues by raising prices and restricting output exists only because the state has placed restrictions on its competitors, then it is a monopoly.

What is the most effective way to stamp out monopolies? Revoke the legislation or bureaucratic rules that have created them.

Star Trek has become a conservationist firm, not a monopoly. I am not pleased with this development, since I am a greedy, profligate, free-riding consumer who wants lots more rides on The Enterprise for the price of cheap videotapes. My motto in this case is simple: “Conservation? Who needs it?” But millions of trekkies will probably confirm the economic wisdom of the producers to move from “profligate” production to conservationism. Trekkies will not verbally applaud this form of conservation, but I think they are ready to pay for it. So do the producers. They are just doing their job. After all, what else should we expect from people in command of something called The Enterprise?


Filed Under : Free Market, Monopoly

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February 1995

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