Saturday, September 26, 2009

Recorded Programming Has Not Significantly Altered TV Viewing Habits. Will it ever?

Today's Hollywood Reporter carries an article on the impact of digital video recorders (DVR's) on television viewing habits. The article tracks a study on the topic, and makes a couple of interesting points.

First, although many homes (36%) now have DVR's as a part of the home entertainment system, over 90% of TV viewing is still done in the traditional linear sense. The programs recorded on the DVR are generally treated as alternative programming to be viewed when nothing better is currently available. In other words, viewers still ask "What's on?" and when the answer is "Nothing," then they turn to their DVR.

I'm thinking about what might drive that behavior. Perhaps it is the social aspect of knowing that when you are watching a program at its scheduled time, you're seeing it "first" -- at the earliest possible moment, along with millions of other viewers. It is an experience shared by the fans of that program - each in their own home, but watching together.

When you watch a recording of the same show at a later time, psychologically you know that those millions of other people already know what happened. You are no longer part of the "club;" you don't feel like a true fan of the show. True fans like to be on the cutting edge of the developments in our favorite episodic programs. The DVR takes us out of that club.

When other people are talking about the program at the office the next day, we don't want to be left out of that conversation. In fact, we will probably exclude ourselves from the discussion so we don't hear a "spoiler;" finding out what happened before we get a chance to see it for ourselves. We actually lose a real social touchstone by not having watched the program along with the other fans.

The other point which I found interesting was that even though many programs are available on Hulu or other services, 99% of programming is still watched on the television screen, and not on a computer screen. This doesn't surprise me as truly seamless integration of Internet-based programming into home entertainment systems is just emerging. (I had lunch with Jonathan Handel this week and he told me about a spectacular deal he got on a 1080p with integrated web access. With prices dropping so fast, that technology will surely spread very quickly.)

But when Hulu is just another channel on your television, will the true fans still have a desire to see their favorite programs at the earliest possible moment? Honestly, it's a phenomenon I had not considered before now. I have been assuming that digital technology would eventually eliminate the traditional TV model all together -- that programming would eventually just be produced and released for viewing at each consumers' individual leisure -- one giant YouTube of media. I had actually envisioned traditional broadcasting as a dying medium. In reaching that conclusion, I had completely discounted and ignored the social aspect of broadcast television.

Now, I remember sitting with tens of millions of viewers watching the final episode of MASH, knowing that I was likely part of the largest viewing audience ever. I remember the feeling of knowing that most of the country was simultaneously watching those images and experiencing emotions similar to my own. It was very powerful -- perhaps more powerful than the program itself. Yet, in the face of digital technology, I have been assuming that this "social event" quality of popular programs would be inevitably and easily sacrificed to personal convenience.

Sitting all alone at my computer, in a quiet house in the middle of the night, I am now forced to reconsider. Our actions are motivated first and foremost by our emotions, and perhaps there is an emotional component to broadcast television programming that cannot be recorded on the hard drive of a DVR or computer.

Saturday, September 19, 2009

Negotiation: Eloquence Does Not Equal Effectiveness

Most often, I like to write about developments in the entertainment business and the likely implications for members of that industry. But every once in a while, I feel compelled to share something I've learned in the course of my work day. Usually the lessons are not new, but have only been forgotten. I figure sometimes all of us can use a reminder.

Recently, I have been reminded that effective communication is really not a function of vocabulary, or even intelligence. In order to find the right words to bring the other side around to your way of thinking, you need to really understand the person on the other side. There is only one good way to do that -- by listening closely to what's being said.

My fresh perspective on this important insight has come to me in a book I am currently reading -- Just Listen by my friend and mentor, Dr. Mark Goulston. Those of you who have had the pleasure of spending any time with Mark know that he has a stunning ability to condense complex information to its simplest and most powerful form. He redefines the concept of getting to the "heart of the matter."

Mark's most recent work is no exception. In his concise, direct manner, he reminds us that we can't get what we want unless we truly understand the person who has the power to give it to us. It is not a matter of knowing a lot of large, impressive words to say, but instead choosing the right words for each situation. And the only way to find those words is by listening closely to the person you need to convince.

Sometimes it seems that lawyers think they are getting paid by the word. Many of my colleagues have developed the habit of using hundreds of words where perhaps a dozen well-chosen words would have had more impact and yielded better results. Thankfully, Mark has reminded me not to fall into that habit. I get paid to communicate on my clients' behalf and get consistently great results. That's my job. And I can only be good at my job if I pay close attention to what the other side is telling me.

This is a lesson for all of us, in every aspect of our lives. Listen first, talk second. If you can't find the right words, then listen some more. A brilliant solution generally comes to us not from thought and analysis, but from truly understanding the problem. There's only one way to do that -- get more information. Listen.

Thursday, September 17, 2009

Blockbuster's Dilemma

This week Blockbuster announced it will likely be closing almost 1,000 of its stores in the near future. Of course, this is no surprise. It has been clear to everyone who watches this industry that the retail video store is dying a not-so-slow death. And the success of the Redbox kiosk business is speeding that process.

So, Blockbuster is now going to spend up to $60 million in shutting down over 20% of its stores in order to save about $30 million a year in operating costs. That means it will take about 2 years for this move to even begin to save money. In the meantime, they are going to spend a bunch of money installing about 10,000 kiosks in an effort to challenge Redbox.

So, two years from now, Blockbuster's best case scenario is that it is perhaps effectively competing with Redbox in the kiosk business, but probably still not making a profit. And they will have announced another round of store closings by then, which will probably cost them more money.

And the real problem is that, in two years, both Redbox and Blockbuster will be that much closer to total obsolescence, because everyone knows that the actual end game is digital distribution. Even Blu-Ray is recognizing that its disc business has a limited lifespan, and is already pushing connectivity with its BD-Live initiative.

So, it would seem that Blockbuster is looking at a few more years of trying to stop the bleeding, while Netflix, Vudu and others get further ahead in the digital delivery business. If Blockbuster wants to ever be a winner again, it needs to also put some significant resources into that arena now. And that means even bigger short term losses.

But the problem is that Blockbuster has a bunch of contracts to distribute DVD's. It can't just stop that business. Not only would that leave it with no revenue and no business model, but it would kill its relationships with studios and distributors. And the Blu-Ray disc business appears to have a few years of life in it as Blu-Ray players come down in price and Christmas is approaching and the economy is slowly improving. Blockbuster can't afford to miss that opportunity, as limited as it might be.

In other words, Blockbuster is actually doing the only thing that it can do under the circumstances. It needs to take a circuitous route to its new long-term strategy, otherwise it will have no future at all. Very tough situation. The only way this could have been avoided would have been much better planning starting at least 5 or 10 years ago.

In the early days of MP3 and Napster, it was immediately clear that discs of all sorts had a limited lifespan. Blockbuster could have started making a new plan way back then. But they were still making tons of money and they wanted to think that they were somehow immune to the inevitable. Obviously, that was a big mistake, and a big lesson to be learned by all.

Your cheese is going to move, so you might as well be the one to move it. (If you don't get that reference, you really need to read more. Check out the Spencer Johnson book here.)

Friday, September 11, 2009

Digital Cinema Funding Comes Out Of A Coma

This week's big news on the business side of the film industry has to be JP Morgan's announcement of its return to the digital cinema funding business. The Wall Street survivor announced a $525M fund that is targeted to roll out about 500 new digital screens per month, almost doubling the North American penetration by the end of 2010 to as many as 13,000 screens. The fund will ultimately underwrite up to 15,000 conversions, and will also support 3D equipment in many of the new locations.

If you have followed this story for the past few years, you know that there was over a billion dollars of funding headed for the digital and 3D theater markets when the economy collapsed last year. A lot of studios had already launched their 3D plans in anticipation of the new screens, but then the funding evaporated (with the rest of the lending market). This slowed the D-Cinema roll out to a crawl and left the studios fighting for domestic screens on which to release the 3D projects they already had in production.

This announcement by JP Morgan is good news on many levels. First, it means that the theaters will not be hamstrung in their quest to offer the ultimate 3D experience in a theatrical environment. With Sony and other consumer electronics makers rushing the development of 3D home theaters, it is critical for theater chains to go as fast as possible to capitalize on that market before it gets diluted.

Second, this means that studios will be able to keep their 3D films in theaters longer, thus making more money. That means that development of additional 3D productions should pick up.

Third, the development of more digital screens means that the ultimate cost of theatrical distribution should trend downward. (With the payment of virtual print fees, this won't be immediately apparent, but it will still happen.) That means that more films will theoretically have the financial strength to reach big screens. Of course, a lot of other factors have an impact on small film distribution, but independent distributors (such as the new venture from Rich Wolff and Richard Ross) should benefit.

Finally, participants in the 3D business such as In-Three and, most obviously, Real D, will enjoy the benefits of a market that will expand much faster than it has to date.

This is good news all the way around. And perhaps most important, for the entertainment industry, this is a strong sign that the economic climate is indeed moving in a more positive direction.

Wednesday, September 9, 2009

Cross-Platform Synergy Isn't Just an Advertising Strategy

A day doesn't go by without some media executive talking about "promoting a brand across all of our platforms." In normal person speak, this means, "I think we're finally figuring out how to make the Internet work for us."

Initially, I think traditional entertainment companies viewed the Internet as a threat (of course) and then as another place to advertise their films and programs. Now they are recognizing that digital media is not only a powerful tool to educate and attract an audience, but it has the potential to drive new revenue, as well.

The key is interactivity. This has always been the magic of the Internet. It is the only medium that allows instant, individualized feedback and action. You see something you like and - click - you're on it. This dynamic interactivity has given a tremendous boost to research departments. The instant feedback allows creative and media approaches to be adjusted almost on the fly in order to maximize impact and efficiency.

But even more important, digital media brings the impulse buy into the living room. Take a couple beats to think about that. When the programming on your TV screen is being served from the Internet, you have the capacity to see it and buy it, without leaving your chair. That is a development with enormous impact.

That was the holy grail that was envisioned a decade or more ago when the first "BUY" button was put on a remote control. As it turned out, those buttons never did anything. But now that vision is finally becoming reality. We have the infrastructure and the technology that has turned TV advertising into point-of-sale advertising. That's huge and it will be the norm, probably within a couple years.

Whether it's Tivo or the new Netgear box or the Netflix Roku box or one of the Vudu joint ventures with TV makers, or any other similar device. As long as it has an input from the Internet and an HD output to your TV, it is part of the revolution.

So, while the media producers are crossing their platforms, the guys upstairs are getting ready to sell stuff. When you can point your remote at the sweater on a Desperate Housewife, and it shows up at your door the next day, the decreased value of content won't sting the entertainment companies nearly as much.

Tuesday, September 8, 2009

An Honest Take on The Current State of Indy Film

The recent coverage by the Hollywood Reporter of the independent film business included an article by by Steve Zeitchik on the current state of the industry. While Steve starts with a lot of doom and gloom, implying that the entire industry may be on the brink of collapse, he ultimately paints a fair picture that I found somewhat positive.

His ultimate conclusion is that producers need to keep their budgets tight and focus on "commercial" films in order to succeed. In other words, make movies that people want to see at a price that distributors can pay and still make a profit. Honestly, that just sounds like good business to me.

Just like the Internet companies of the '90's ultimately learned that revenue does matter, perhaps the independent film business is learning that profit matters. If you want to stay in the business, the people who finance your films need to make a profit on their investment. This is nothing to lament. Perhaps more than anything, this indicates that the independent film industry is maturing into a real business instead of a glamour investment or a vehicle for benefactors to underwrite their favorite flavor of creativity.

An industry that operates on the basis of profit will be more stable and predictable, and allow solid careers to be built over time instead of riding a roller coaster of popularity based on fortuitous circumstances. I have always counseled my clients, whether producers or investors, that the film business is an excellent investment when you make the right picture at the right price. There is nothing wrong with that.

While many filmmakers may disagree with me, I don't think that making money and making art are antithetical pursuits. If you make a film that lots of people will pay money to see, your art has likely impacted the society to a significant degree. If an artist's only goal is to craft a strong message from his or her heart, but that tree ultimately falls in the forest where very few hear it, then this pursuit is arguably not a part of the "business" of film -- at least not in my mind.

Those of us who pursue film as a career know that we must find an audience for each project, not just a benefactor. If that philosophy is becoming more pervasive, I have no problem with that. And that's why I find Steve Zeitchik's observations to be encouraging. He paints a picture of a business environment in which many film professionals will feel comfortable and will ultimately succeed.

I welcome and encourage other points of view. I know there is a valid discussion to be had here, and I know my perspective is not the whole picture. Please feel free to disagree with me.