Non-Kannada movie ban – An Economic Analysis

The topic chosen for the project is an interesting one, because it is related to something which all of us enjoy – Movies. Lately a lot has been written and said about the 7 week ban that has been imposed on the non Kannada movies in Karnataka. But not much has been done in terms of analyzing the ban from an economic perspective, this is exactly what we have tried to do during the course of the project and thus we can define the aim of our project as the economic analysis of the non Kannada movie ban in Karnataka.

Studying the economic implications of the ban was not an ordinary task and to make things worse there wasn’t enough quantitative data to help us in our analysis. Information has been gathered from newspapers and the internet, but it turned out to be insufficient and thus interviews were conducted with the audience and the theater owners which proved to be great help in our analysis. The entire framework of the analysis was based on certain assumptions that we made to make things a little less complex.

The concepts that have been used to analyze this issue are absolutely critical to any economic analysis and as it turned out; they helped us in greater understanding of the subject and also made the learning process enjoyable. The analysis of the issue has been explained in great depth in the report.

These concepts are related to the topic and gave us the perfect picture of the issue we are handling.

* Demand and supply curves for non-kannada movies before and after the ban

* Utility curves

* Price discrimination by the pirated CD shop owners

* Market externalities

In conclusion, we’ve tried to identify key areas that need to be looked at which are affected because of this ban. The most important being the unintended boost to the piracy industry and the revenue lost to it. Another important perspective was the societal perspective; such type of ban will create positive and negative externalities in the society. It is now with the policy makers to decide the impact of such a policy on the society. All the issues should be taken into consideration before imposing such a thing.

Last but not the least, everyone in or country has right to watch any movie they want (unless until it doesn’t harm anyone). Government should not try to take this right from them in order satisfy a particular group of people. The larger picture should be taken into consideration.

Introduction

Problem definition:

“To do an economic analysis on the 7 week ban on non-kannada movies in Karnataka.”

The moratorium, which was passed by the Karnataka state government to ban non-kannada movies in the state, left lots of people high and dry. The moratorium was presented by KFCC- Karnataka Film Chamber of Commerce and passed by Karnataka government. According to the moratorium, no non-kannada movie will be released in the state for 7 weeks after their national release. After 7 weeks only 4 prints of the movie will be released in the state.

This ban had great impact on the movie going public, theater owners and movie industry in general. The Indian movie industry is one of the largest movies producing industry in the world, followed by Hollywood. Indian movie industry produces around 900 movies in a year. Indian films command a huge domestic market and are popular abroad, particularly in Asia, Africa and West Asia. The major productions of Indian movie centers are Mumbai, Chennai and Kolkata. Apart from popular entertainment through commercial cinema, art cinema deals with serious themes particularly relevant to Indian society.

Apart from the economic issues involved in this ban, there are various other issues also involved like social, political etc.

Rationale for selection of the topic

We have mainly three reasons for choosing this topic. These reasons are given below.

Real life event: As the students of microeconomic course, we thought that the best type of project is the project where we can apply the economic fundamentals in an event which is affecting us directly and indirectly. This event was the best choice because it was affecting our lives (our choice and utility for leisure).

Multiple issues involved: As mentioned before, there is more than one issue involved in this event. The ban is affecting wide variety of people and groups; right from actors to normal public. This issue is even talked about and discussed in foreign countries like USA. (For more details read, “US journal carries film row report” Times Of India date: 30 August 2004). There is also and issue of freedom and equality which his one of our fundamental rights. But the entire event is all because of power and politics. So, all these issues make this ban a really interesting topic for students like us to study.

Politics affecting economics of a state: this is also a case of politics affecting the economics. Sometimes politics have favorable effect on the economics and sometimes it’s unfavorable. This project was an effort to identify this aspect of the moratorium. We know that KFCC and Karnataka government had good intentions for Kannada movie industry and that is the reason why this ban was imposed. But our question is: Are the benefits more then the payoffs or its vise versa?

In this project we won’t be able to solve all the issues. But we have tried our level best to identify the economic repercussions of the same.

Methodology

The concepts used in the project:

We have tried to use following concepts in our report. These concepts are related to the topic and can give us the perfect picture of the issue we are handling.

* Demand and supply curves for non-kannada movies before and after the ban

* Utility curves

* Price discrimination by the pirated CD shop owners

* Market externalities

Demand and supply curves:

These curves are based on certain assumptions which we have taken during the course of our study. Due to time constraints, we could not get the exact data for the demand and supply curves. We got qualitative information about the elasticity and movements from various secondary sources. (Newspapers, internet and interviews with some audience and cinema theater owners). We have also tried to show the possible loss to the producers of the movies and where this loss will go.

Utility curves:

For every type of product or good, consumers have different utility levels and hence different curves. Here we have tried to show the effect of the ban on the utility of the audience who wants to watch non-kannada movies but they are unable to do so because of the ban.

Price discrimination:

Cinema industry has many types of price discriminations. These are generally by the theaters. Here we have tried to show inter-temporal price discrimination by the pirated CD shop owners (or pirated CD wholesale dealers). This fact is present in the market but is in the crude form. We are assuming that the costs of producing a pirated CD are not changing in the short run.

Market externalities:

Every coin has two sides. Same way we have tried to find out the pros and cons of the ban from the point of view of public and society. So we have tried to show positive and negative externalities due to the ban.

Formulation of the problem and data sources:

The problem was formulated after reading the issue in the newspapers. That’s where we got the first idea about the project. Then we asked ourselves, that whether we can apply the economics here in the issue. After some brain storming sessions, we were convinced that this will be a perfect topic for study.

The next step was to collect all the information we could get on the issue. Here we took help of newspapers and internet to get as much data as possible.

Finally, we started applying the fundamentals after cross checking the effects with exhaustive interviews with audience and theater owners. So, most of our data was secondary and qualitative in nature.

Analysis

The economic analysis of the ban has been made with a few assumptions, so as to give a clear perspective of the ban. The assumptions are as listed below:

1. The product that we are discussing here is a movie show not a movie

2. The producers are directly selling the product to customers.

3. The movies being considered are only commercial movies.

In fact the topic can be viewed in different aspects like the social and the political aspects, but here we are concerned only with the economic analysis.

Demand and Supply:

The demand curve consists of people who watch only Kannada movies, only non-kannada movies and people who watch both types of movies. The elasticity of the demand is slightly inelastic because the increase in the price will not affect the demanded quantity by much as people will be willing to watch movies even at a higher cost. The supply curve gives the movie shows that producers are willing to give at a given price, when the price increases they cant supply a lot more because the number of movies released is limited. The supply consists of both Kannada and non-kannada movies. The equilibrium price in the figure above is P and the quantity is Q.

Now because of the ban the supply of non-kannada movies will decrease, hence the total supply curve shifts left from S to S’. The decrease in supply pushes the price up to P’ and the quantity at the equilibrium falls to Q’. There is a reduction in the supply of the movies, the supply of Kannada movies increases. There is a reduction in the demand of movie shows, because lots of people prefer to watch non-kannada movies and when there is no non-kannada to watch the demand naturally falls for the. The demand curve shifts to D to D’ in the figure. Hence the price falls back to the point P and the equilibrium quantity however falls to Q”.

Now basically since the people do want to watch non-kannada movies, they will like to see these movies from somewhere else. Basically assuming the entire loss is transferred to the pirated video libraries. The loss to the producers because of the ban is the gain to piracy. This is given in the figure by the rectangle XQQ”Y, which is the loss of the producers to piracy.

This is basically demand and supply analysis of the implications of the ban on the screening of non-kannada movies that leads to a loss for the society and the producers of these movies. Hence, People will watch movies on pirated CDs, which will lead to the increase in the demand for pirated CDs. Since the CDs are substitutes for movies, the demand for movies declines further

Utility curves

The utility of the Kannada and non-kannada movies are as shown in the picture below. Basically non-kannada movies are valued more than Kannada movies i.e. more amount of kannada movies will be given up for a unit of non-kannada movie.

The utility curve is initially at U, now because of the ban the utility for the movies decreases to U’. The reason being that people always valued non-kannada movies more than a kannada movies, but now since that because of the ban, non-kannada movies cannot be screened. Therefore, people derive a much lesser utility from only Kannada movies and from non-kannada movies being released late. This explains the shift of utility curve from U to U’.

Price discrimination:

As far as the CD shop owners are considered they will start making money by even by price discrimination, by splitting the revenue from people who want to movie as soon as it is released and those who want to watch the movie later. Hence the CD shop owners can increase the profit. We can see this phenomenon in the following diagram.

Market externalities

The ban will lead to externalities both positive and negative as a consequence. The negative externalities are that now because of ban the VCD piracy will increase causing a loss to the producers and society and gain to the VCD library owners. Also, there will be losses to the small businesses operating around the theaters, whose income depends on the theaters movie screening.

As far as the positive externalities are concerned, the main thing is that the pubs and clubs will have an increase in their business activity. This is as people will spend the time now by going for other forms of entertainment.

Conclusion

Following are the main concluding remarks after studying the project from the economic perspective.

* The ban was intended to boost the local Kannada movie industry, which is doing badly. But this ban was at the expense of many other groups. The government should try to identify all the pay offs and benefits of such a policy before making any decision.

* The Karnataka government is indirectly boosting the movie piracy by imposing such a moratorium. The costs involved in this outweigh the benefits they will get after imposing the ban.

* The utility of the consumers will decrease drastically from a higher level to a lower level. Consumers now will try to compensate for this utility by engaging in different mode of leisure activities or a separate bundle all together.

* Such type of ban will create positive and negative externalities in the society. It is now with the policy makers to decide the impact of such a policy on the society. All the issues should be taken into consideration before imposing such a thing.

* Last but not the least, everyone in or country has right to watch any movie they want (unless until it doesn’t harm anyone). Government should not try to take this right from them in order satisfy a particular group of people. The larger picture should be taken into consideration.

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