Sunday, December 19, 2010

Real Time Failure and Success

As social media begins to dominate the Internet, it's more critical than ever that your first audience truly loves what you're doing.

Social media has been a part of the media landscape for about 5 years, and it's impact is already being felt in a big way.  As we approach the beginning of 2011, Facebook's Mark Zuckerberg and his team have built a cyber-city of over a half billion users.  There are probably around 200 million Twitter users and LinkedIn is close to 100 million.  These are big numbers in any medium.  But what's more important than the numbers is the trend that they represent.  People don't have ten times the number of friends that they did before 2005, but for many people the nature of communication within those relationships has changed a lot.  And the implications for business are enormous.

Consumers are now relying more heavily than ever on the opinions of their friends and other people whom they perceive as similar to themselves.  Communication within online communities -- groups of people with common interests or other similarities who interact through social networking -- now often has more impact on buying decisions than paid advertising or any other factor.  You can spend a lot of money to get your product noticed, but if the "buzz" is negative, that attention will not turn into sales.

This trend is expanding at an enormous rate as social media evolves, and it is extremely relevant to the entertainment business.  It used to be that a well-advertised film with a decent cast could expect some reasonable opening weekend numbers.  If audiences didn't like it, they might start telling their friends around the water cooler on Monday morning and a negative response would start to develop.  But the distributor might be able to adjust the advertising to try to find a different audience and maintain some momentum into the second weekend so that the numbers wouldn't fall too fast.

Now, if audience members don't like a film, they are telling their friends about it while they are still in the theater.  If the Friday night crowd hates it, the Saturday crowd never even shows up.  Films die in a matter of hours rather than weeks.  There's no time to adjust or respond.  The verdict is rendered and the sentence is carried out before the weekend box office numbers are even published.

By the same token, if audiences love something enough to tell their friends, it can create tremendous positive momentum.  If people are so excited by a film that they start tweeting or posting to Facebook, unexpected crowds of people will start showing up.  And those audiences will already be positively disposed towards the film and thus much more likely to enjoy it and tell their friends how good it is, and so on and so forth.

And the same trends are showing up in television and other media as well.  Content of all sorts is having its fate decided very quickly.  Success or failure can be decided by the time the first episode is over.  If a negative buzz develops, it may very well be too quick and too powerful to overcome.  But if a positive buzz develops, the rise in popularity can occur literally overnight.

Obviously, this means it's more important than ever, in this new social media environment, to make your films and programs great.  But the less obvious lesson is to be sure you are speaking to an audience that will respond passionately and positively.  From the moment you start your project, know for whom you are making it, and create and market the project with that audience in mind.

It is critical that the first audience for your work responds positively.  You might make a very good film or program, but if you end up with the wrong audience, and they tell their friends they didn't like it, your project may die a quick death.  There are not a lot of second chances in an environment dominated by real time reactions.

Saturday, December 4, 2010

Real Victories Are Won In The Marketplace, Not In The Courtroom

This may sound odd coming from a lawyer, but courtroom victories often have limited value.  In fact, winning legal battles can sometimes do more harm than good.

 In 1999, TiVo invented the DVR, and registered patents to protect its novel ideas.  Initially, TiVo was so successful in bringing its product to market, that the word "TiVo" actually became a verb (a good indicator of massive market acceptance).  If someone said, "I'm going to TiVo that program," you knew that they were digitally recording it so they could watch it later.  By January of 2007, TiVo had about 4.5 million subscribers -- millions of households that had TiVo boxes attached to their television sets, ready to receive all types of digital programming.

Now, only 4 years later, Apple and Sony and Google and Hulu and Roku and Netflix and several other companies are all fighting to be the leader in bringing digital programming to the world's TV's.  Certainly, TiVo is still in that race, but it is struggling to keep up.  TiVo was several years ahead of everyone else and now, when the stakes are becoming meaningful, TiVo is trying to remain relevant.  How did it lose such a huge head start?  

In its most recent quarter, TiVo's revenues are down to $41.3 million, with a net loss of $20.6 million.  It now has about 2.2 million subscribers -- less than half of what it had only 4 years ago and the number is still falling.  In the meantime, Netflix (which started around the same time as TiVo) has close to 17 million subscribers and continues to grow. What happened?

TiVo apparently decided early on that its patents were its most valuable asset - more valuable than a direct relationship with consumers.  This was a critical strategic decision that probably made perfect sense at the time.  TiVo recognized that cable and satellite companies were in the best position to sell or rent DVR's to consumers, so it began licensing its intellectual property to those companies.  But in 2001, Echostar decided it wasn't going to pay a royalty to TiVo.  In January of 2004, TiVo sued Echostar (and its now-former affiliate, Dish Network), and almost 7 years later, the litigation continues.  

And the most ironic (or perhaps saddest) part is that TiVo is winning!   TiVo has prevailed at virtually every stage of the litigation, but Echostar refuses to give up.  Instead, Echostar appeals and raises new issues and makes minor modifications and continues to fight, while all the while the clock is ticking on TiVo's patent rights.  (Echostar did pay TiVo about $100 million at one point in the litigation, but that money is being depleted by operating losses.  With that said, TiVo is not in financial trouble; it has plenty of cash for the time being.)

And while TiVo has enjoyed a lot of legal victories, the fights have not been easy or inexpensive.  In 2009, TiVo filed another patent infringement case against AT&T, and that lawsuit caused Microsoft to file its own infringement action against TiVo!  Then, earlier this year, a portion of the TiVo patents was potentially weakened by rulings in the U.S. Patent and Trademark Office.     

If you had a company that lost $20 million in its last quarter, would you want to be fighting simultaneous legal battles against Echostar and Dish Network and AT&T and Microsoft?  And what impact do you think that would have on your ability to compete effectively against Apple and Sony and Google and Netflix in bringing digital programming to the living rooms of the world?

Just to be clear, my purpose here is not to criticize Tom Rogers and his team.  I understand the importance of protecting intellectual property. (I counsel clients on that topic almost every day.)  Instead, I am pointing out the potential cost to a business when it focuses its resources on winning legal battles.  And I don't just mean its financial resources, but also its time, energy, human resources and the attention of senior management.

Echostar and Dish Network will probably be writing a big check to TiVo some day.  It might be as much as a billion dollars -- who knows?  And TiVo will then have a very healthy balance sheet and rightfully claim victory.   But where will its business be by that time?  If TiVo had viewed itself as a leader in consumer empowerment, and put more of its energy into further innovation of the consumer experience, it might still be leading Netflix, Apple and Google in the digital media business.  But that's not where it finds itself today.

A company's early strategic decisions are vitally important, and now more than ever, it is critical to focus on satisfying your customers.  Netflix decided early on that it was in the business of giving consumers the media experience that they want.  Apple is in the business of giving consumers experiences they don't even know they want until they get them!  Google is in the business of giving consumers access to all the information in the world.  

On the other hand, TiVo made that early decision (before Tom Rogers ever took over) to focus on the value of its intellectual property.  It now appears to be primarily in the business of protecting 10 year old technology that is becoming less relevant every day.  Given the choice, that's not a business I would choose to be in.  I don't think there is much of a future in it, no matter how many legal battles you win.


Wednesday, December 1, 2010

Netflix - Pushing The Red Envelope

There is a very good recent article in the NY Times discussing how Netflix gained its power, who is threatened by it and why.  On the one hand, the article feels a bit trite in that it looks at the recent offering of a streaming-only package as Netflix' "move onto the web."  However, in the body of the article, it becomes clear that digital distribution has been a part of the Netflix business for over a decade.

For me, the intriguing discussion is about how Netflix threatens the cable television business.  Again, this is a somewhat obvious point, but still worth making.  As online content migrates to the living room TV, it is clearly an alternative to cable.  That's not just Netflix, but Hulu and Vudu and Amazon and CinemaNow and Apple and GoogleTV and.....The point is that online media delivery to the television is making cable systems potentially obsolete, or at least less relevant.  (I covered this point in more detail a few weeks back in another post.)

Two points:  First, cable needs to change.  It needs to be as flexible as Netflix and find a fresh strategy that capitalizes on its unique qualities.  I'll give that some thought and perhaps comment on some possibilities in a future post.

The other interesting question is what Netflix can do to continue its cutting edge success.  Believe it or not, I think Netflix should be developing original short-form programming.  Netflix really is the next HBO, and HBO made its best move when it went beyond simply showing movies and developed its own cutting edge programming.  Netflix has an installed user base of 15 million households many of who actively use the online aspect of the service.  Neflix has a very good user interface and first-rate streaming technology.  It can best capitalize on all of these assets by offering some exclusive programs.

Reed Hastings has always viewed Netflix as a content distributor.  Well, every big distributor uses its distribution system to move some of its own content.  Netflix is a $10 billion company.  It is big enough to tackle that strategy and it should be doing that right now.  I renew my call for Netflix to re-enter the content business.  It is time to revive Red Envelope Entertainment and start making great episodic programs.

By the way, if you want to read a great discussion (and less optimistic view) of Netflix and the NYT article, check out this blog post from David Poland of Movie City News.  This guy really does his homework and makes some excellent observations.

Tuesday, November 23, 2010

Bricks, Mortar and Mobile: A New Paradigm This Holiday Season

It seems that online shopping and the in-store experience are coming together this holiday season, courtesy of the growth of the smartphone market.

Online holiday purchases have steadily increased each year for the past several Christmas seasons.  This year, it is a little different because many consumers now carry the internet with them in the form of a smartphone.  This means that they don't need to check prices online and then run to the store, or vice versa.  They can stand in front of a product in the mall and immediately check the pricing against online options.  A recent survey by IDC indicates that over 1/3 of smartphone owners intend to use that strategy this year.

Recognizing the trends, retailers aren't sitting on their hands.  Many retailers have developed custom smartphone apps to stay in front of connected consumers.  This not only gives them a seat at the comparative shopping table, but it also allows them to keep selling after they lock the doors at night.  Many consumers are shopping at all hours of the day or night, increasingly using their smartphone.  If they are looking at an app from Target or another retailer, there is still a possibility that they will go make the purchase at that store, or buy from the store's website.  And target is also making its website available through shopping kiosks placed throughout the store.

Amazon is working hard to lead the pack in the integration of in-store and mobile online shopping.  Consumers can scan an item's bar code in the store, take a picture of it or even say the name of the product into their phones, and Amazon's app will scan the Amazon inventory for pricing and availability.  If it looks good, consumers can buy it from Amazon on the spot.  (Of course, read further down in that article, and it points out that RedLaser already offers smartphone technology which will scan bar codes and compare prices on many different websites, not just Amazon.)

For a good discussion of the whole phenomenon, check out this article in the San Jose Mercury News.

So what does all of this have to do with the entertainment business?  As tablets will be one of the hot sellers this holiday season, and smartphone sales continue to grow, this trend towards mobile media and commerce will expand greatly.  There will be a huge demand for mobile content, as well as genuine opportunities for mobile brand integration strategies.  And the growth of mobile commerce means that many more advertisers willing to sponsor mobile content.

2011 will be the year that mobile devices break out as a separate category of entertainment, and a medium where creators will soon be able to make some serious money.  If you're developing content, think online and mobile first.  You can get it "on the air" quickly and build an audience while you chase a television deal.  Or just keep it in the digital realm and take advantage of the large move towards mobile commerce.

Saturday, November 6, 2010

One Is All You Need

It seems every day there is another news story describing shock at the decreasing number of cable subscribers.  Like yesterday’s story with the headline, “Cable Subscribers Fleeing, But No One Knows Where.”  What??  With all due respect to the Associated Press, this is about as hard to figure out as a bad murder mystery.  The butler did it, now move on.  

Here is the truth.  We have reached the point where we don’t need multiple wires to carry data in and out of our homes.  Our phone line, cable television and high speed Internet are all doing the same job.  They are three different wires carrying packets of digital data to and from the same place.  We are simply waking up to the fact that there is no longer a need to pay for all three.  

It is like carrying three different smartphones for email, texting and phone calls.  It would be redundant and unnecessary.  If someone did that, we would think they were being wasteful, and even rather stupid.  In a very short time, we’ll feel the same way about anyone who pays for cable television and a phone line and Internet access. 

A connection to the data grid doesn’t know whether it is carrying audio, video, pictures, text or something else.  And it doesn’t care if it’s uploading or downloading.  It is all just packets of digital information going back and forth.  And the speed and capacity of a typical connection is now large enough that it can carry as many packets as you can send, as fast as you can send them.  You can have a house full of people communicating through email, texts and phone calls while watching 4 different programs on 4 different televisions, and one wire can carry it all.

None of this is shocking to anyone who is looking forward instead of backward.  I could write a very long history book about the technical, legal and economic reasons that we all have three different wires carrying data in and out of our homes.  But it doesn’t matter.  Those reasons are no longer relevant.  History is not news.  

News stories about the decreasing numbers of cable subscribers are like news stories about the decreasing number of CD sales.  You might as well be writing about the decreasing number of horses on the roads since the invention of the automobile.  It’s all the same story – things change.  That’s happening every day.  The real news is not about where we were, but about where we’re going.
  
So why are people giving up their cable subscriptions?  Simple answer: because it costs over $100 a month and they don’t need it.  A lot of people are giving up their land line telephone too.  They don’t need that either – they can use Skype or their cell phone, or Skype on their cell phone.  You only need one wire, and in fact, some day you might not even need that.  Before you know it, we will probably all be connected to the cloud 24-7 through a 4G connection (which will probably be a 7G or 8G connection by then). 

There, mystery solved.  Let's not spend any more time pondering the obvious.  Instead, let's think about the opportunities that are available in a world where everyone is connected to everything all the time.   

Sunday, October 31, 2010

You Can Be The Next Entertainment Mogul, If You Act Now

We are about to experience the most profound metamorphosis the entertainment industry has seen since the commercialization of television.  It is a huge opportunity for anyone who is willing to jump in with both feet, but you need to start now.

Since the introduction of television into the living room around 1948, the broadcasting industry has been controlled by a virtual handful of people.  Even after commercial cable was deregulated in 1972, the number of companies that control your television has remained relatively small.  This paradigm is about to change in a big way. 

As we know, the Internet allows anyone to transmit content to millions of other homes and businesses around the world.  At first, the limited bandwidth made it suitable only for sending simple written communication.  But bandwidths and transmission speeds have steadily increased to allow for the quick transfer of larger and larger files.  We are now at the point where high definition broadcast-quality files can be transferred almost instantly. 

In this new environment, there are already several inexpensive choices for hardware that will stream high definition content from the Internet directly to a big screen television.  Apple TV, Google TV, Roku, Boxee and several other devices will already bring the Internet to your living room.  With some models priced under $100, a whole lot of those devices are going to be sold this Christmas.  Within a year, watching Internet content on a TV will be much more common than watching it on a computer.

But wait, that’s not all!  The success of the iPad has induced about 10 other major manufacturers, and at least as many minor manufacturers, to create their own version of the portable personal media device.  So, not only is Internet content migrating to TV’s, but it is about to also be in everyone’s hands – literally.  Hundreds of millions of media tablets will be sold in the next few years.  The consumer nirvana of watching whatever we want, whenever and wherever we happen to be, is about to become the societal norm.

The obvious opportunity is that anyone can now be in the broadcast business.  The barriers between content creators and consumers are gone.  We can sell premium content, individually or by subscription.  We can sell advertising and product placements.  We can create entire networks or distribute films, all with virtually no borders or limitations.  The door has been kicked wide open.

What strategies and business models will work?  All of them.  Anything that worked in the tightly controlled entertainment business can work in the new broadcasting democracy.  The scale might be smaller (as the multitude of choices creates a buyer’s market), but the opportunities are there. 

Here are the two keys to success which need to be accomplished as soon as possible.  First, establish strategic relationships with strong players.  In the early days, it will be much easier to get distribution through major platforms as they will still be expanding their offerings.  But as things fill up, this will become much more difficult and costly. 

Second, find your audience and start earning their loyalty.  Consumers will develop viewing habits and favorite outlets.  Establish your style and find the audience that responds to it most passionately.  Keep them happy, and they will tell their friends.

A whole new frontier is opening up right now.  Go stake your claim.  Big players like Tom Hanks, Ben Stiller, Michael Eisner and many, many others are already doing it.  You can do it too, but if you wait another year to get started, it could be too late.  Do it now.

Saturday, October 2, 2010

Is Netflix The Next HBO?

At a Liberty Media investor event yesterday, Liberty Chairman, John Malone, drew a comparison between Netflix and HBO.  He was discussing the relationship between his Starz unit and Netflix, and seemed to be acknowledging the amount of power that Netflix is gaining as home video moves online.

It's an interesting question - Is Netflix the next HBO?  What are the similarities, and does it make sense for Netflix to follow a similar strategy?

HBO was an early entrant into the pay cable segment -- a pioneer really.  It originally focused on sports programming, but gained power as one of a handful of premium cable movie channels.  However, HBO was positioned as more of a network than a cable system.  It created several channels with different themes, and made an early move to develop original programming.  The focus at HBO was always on content as its management recognized the value of owning intellectual property.

Arguably, the master stroke was developing dramatic series which took advantage of the commercial-free, less restrictive environment of pay cable.  First with OZ and then with The Sopranos, HBO was able to attract loyal audiences looking for edgier entertainment.  Its original series have allowed it to become a brand that stands for a certain type and quality of programming.

Today, Netflix is gaining substantial market share as an outlet for a wide variety of films.  It started as a more convenient way to get DVD's, with a huge selection and fast service, but Netflix management quickly saw the possibilities in  becoming a streaming service, looking to deliver films in overnight downloads as early as 2006.  It has since become a leader in streaming films directly to televisions, with its major competition right now being the PPV films offered by cable systems, but with many other formidable competitors on the horizon.

The question is whether Netflix will use its market reach to develop its own original programming and expand its brand, as HBO did in the 1990's.  Actually, in 2006, Netflix started the Red Envelope Entertainment division, first for providing distribution to original independent films, and then as a platform for developing its own programming.  However, that division was closed in 2008 -- ostensibly because Netflix did not want to compete with its studio partners.

My thought is that the vision was right on target, but perhaps just slightly premature.  Netflix currently has about 15 million subscribers.  HBO now has over 41 million.  So, Netflix still doesn't control nearly as many eyeballs as HBO, but it does command enough market share that it can't be ignored.  If the Netflix numbers continue to rise (in the face of stiff competition from Apple, Amazon, Walmart and others, including HBO), then studios won't be able to dictate the deal terms.  And if Netflix can use original programming to attract even more subscribers, then the studios will have to continue to supply films as the cost of not being available through Netflix would just be too great.

Eyeballs equal power in the media business.  It's always been true and nothing has changed in that regard.  If Netflix can dominate the streaming business and expand its market reach, then you can bet that it will be back in the original content business.  (Pete Putman at HDTV Magazine reached a similar conclusion in a recent article.)

I have always liked Netflix' prospects.  I think they do a lot of things very well, and make very few mistakes. Their primary risk at this point is that increased competition will put pressure on prices and their margins will suffer.  That would be bad in the short run, but if they can continue to expand their volume, the original programming opportunity will remain viable.

I'm interested to see what happens next.  These are very exciting times in the media business, my friends.  Stay tuned.

Monday, September 27, 2010

Letterman Clip: Not Fair Use Parody...Or Is It?

I've been having a terrific online banter with Brian Newman regarding the use of a David Letterman clip in a recent film.  Brian's last observation was extremely astute, and got me thinking.  The essential issue is whether the use of that clip constitutes a Fair Use under Section 107 of the Copyright Act and relevant case law.

In making his most recent argument, Brian relies pretty heavily on the Campbell case, which is the leading Supreme Court case on parody as a form of Fair Use.  I think this case both hurts and helps Brian's position.

On the negative side, Campbell pretty clearly follows the traditional view that in order to constitute a Fair Use, the new work must be a parody of the original material itself.  A parody is defined as a distorted imitation of the original work.   In other words, you can't copy one person's protected work in order to make fun of something else.  That's the traditional view.  In this case, the Phoenix/Affleck film is not a distorted imitation of Letterman's show, and so technically does not appear to be a parody that would fall within the Fair Use exception.

On the other side, the Campbell case places a lot of emphasis on the "transformative" nature of the new creation.  Brian is correct that little emphasis is placed on whether the new work is produced as a commercial venture.  (While this is technically a factor to be considered, it seems to be the least important of the four factors referenced in Section 107.)  What is more important is whether the new work is utilizing the older work for purposes of adding something truly fresh to the cultural landscape.

In this case, while the Phoenix/Affleck film does not directly parody Letterman, I think it does aggressively poke fun at the public's appetite for "juicy" stories about celebrities.  Letterman is clearly right at the center of that topic.  Being on Letterman (or Leno or Kimmel or Fallon or Ferguson, etc.) is a strong indicator of public interest in a person or topic.  It is a cultural marker.  I think it could be argued that the use of the Letterman clip in the context of the film's comment on public gullibility made the clip a parody of itself.  That context placed the clip in a totally different light, and that is a very real type of distortion.

Going further in my quest to challenge Mr. Newman's conclusions, I took a quick look at a number of Fair Use cases from the past couple decades to get a broader feel for the way courts rule on the issue.  My quick unscientific research seemed to indicate that courts look most closely at whether the new work is causing economic damage to the value of the older work (the fourth consideration specifically referenced in Section 107).

I don't think a court would find the Phoenix/Affleck film to be a real threat to the value of or market for that episode of the Letterman show.  In fact, I would argue that the promotional value of the inclusion of that clip probably exceeds any loss of revenue that may have resulted.

So, my bottom line at this point is that I think a court could go either way on the issue, but from a philosophical standpoint, a finding of Fair Use probably would be the better and more appropriate result.  Mr. Newman, I believe you have won me over.

As an aside, a couple other interesting topics arose in my review of the relevant materials.  First, Tom Quinn raises a great point in his comment on Brian's blog -- has the definition of "documentary" changed, and if it has, why and how?

Second, Letterman seemed to raise the issue of whether the use of his name and likeness in a context that added to the content of the film warranted separate compensation.   This is a different issue from copyright infringement.  This goes more to whether he became an unknowing collaborator or endorser of the film.  Another very interesting question which we'll save for another day.

Friday, September 24, 2010

Mockumentaries And Fair Use: Do Jaoquin & Casey Owe Dave Money?

At the suggestion of my online friend and fellow film pro, Sheri Candler, I read this very interesting blog post from Brian Newman (NY media consultant and immediate past CEO of Tribeca).  Brian's comments are very well thought out but, in my opinion, incorrect.  Of course, there is nothing better than a well-reasoned disagreement, so here goes.

The basic topic centers on a comment from Dave Letterman that Jaoquin Phoenix and Casey Affleck owe him money for using a clip from his show in their mockumentary film, I'm Still Here. In case you live under a rock and you are unaware of the film, it is a supposed documentary on Jaoquin's abandonment of acting in favor of a career as a rap artist.  Jaoquin and Casey (who directed the film) both now acknowledge that the career switch was a hoax, played out for purposes of making the film and amusing the public.

As a part of the hoax, Jaoquin appeared on Letterman's show as his "character" and a clip of that appearance is included as a part of the film.  In a follow up appearance by Jaoquin on Dave's show, a discussion ensued whether money was owed to Dave for the use of that clip in the film.

So, the legal question is whether the use of the Letterman clip constitutes "Fair Use" for purposes of copyright law (which would mean that no compensation is owed to Dave or his company, Worldwide Pants).  Brian Newman says that it is indeed a Fair Use; I disagree.

Without going all legal on you, the primary purpose of Fair Use is to allow journalists and educators to use small portions of copyrighted material in order to inform and educate the public.  That is why the law allows such (primarily non-commercial) uses to be undertaken without compensation to the copyright holder.

In this case, the primary purpose of this film is not to inform or educate the public.  It is a spoof documentary, in much the same way that Borat was a spoof.  It was done for amusement and commercial gain.  Therefore, any use of copyrighted material within the film would be in furtherance of those purposes.  That is inconsistent with the principles which underlie Fair Use.

The bottom line from my viewpoint is this:  Just like this film might appear to be a documentary, the use of the Letterman clip might appear to be Fair Use.  However, in both cases, the appearance is deceiving and both conclusions would be incorrect.

Tuesday, September 21, 2010

We Spend Half Our Lives Staring At Screens!

Briefly, take a look at this extremely important article which has emerged from the conference being presented this week by The Wrap.  The article makes many great points.

The main thrust is a summary of research showing a vast expansion in the amount of time people are spending interacting with electronic media.  No surprises here, but the numbers are very interesting to see.

Also, it goes deeper to discuss how media is now being used and some of the factors that have yet to have their full impact felt.  It points out that the line between media use and communication has completely blurred, if not disappeared.

Finally, it foreshadows the  impact of personal display devices such as the iPad.  I can't overemphasize how important I think this new class of devices will become.  It is the tipping point in digital media ultimately coming to dominate the entertainment business.

Take a look at the article.  It is really worth the read.

Sunday, September 19, 2010

"The Resistance" - Starz Tries A New Release Strategy For The Digital Age

Starz Media is blazing a bit of a new trail with its pending release of the sci-fi thriller, The Resistance.  I think their strategy on this release is an excellent vision for combining digital and traditional media platforms.  (Another really good article on the program and strategy is here.)  However, I'm not sure their particular approach is the best for maximizing revenues.

The program is essentially a one-hour piece (actually a little shorter) from Sam Raimi's Ghost House Pictures.  The Starz strategy is to initially release the entire program in a single showing on SyFy (including 9 minutes of extra footage that is not a part of the digital release).  Then, they will carve it into 5-minutes pieces available on Hulu (through an ad-based model) and for purchase on iTunes, Amazon and other platforms.

I applaud the cross-over use of media.  I think it is absolutely critical to have digital media be an integral part of every media strategy.  Most distributors of content now include social media promotion and online advertising as a part of their release strategy.  However, the real cutting edge is to utilize digital platforms as a part of the actual distribution scheme, as Starz is doing in this case.  The question is, "What is the best way to do this, from a business standpoint?"

I spend a lot of time advising my clients on these types of strategic issues.  My personal view is that it is important to capitalize on the primary strength of digital media as a  low-stress, efficient content delivery system.  This is a crucial part of the mechanism for building a buzz about your programming. (Of course, the "buzz" part still comes mostly from promotional efforts - access by itself does not create a buzz.)

I also believe that digital media will become a substantial source of revenue (especially as mobile media devices become more ubiquitous), but that's not the case today.  So, the production and distribution of The Resistance with an eye towards digital media platforms is right on target, but the value of the broadcast platform shouldn't be sacrificed in the process.

If it were my choice, I don't think I would show the entire program on SyFy prior to the digital release.  Instead, my strategy would be to release some of the content online, build a buzz and then schedule the broadcast release (with extra material) once an audience has already been assembled and primed.  The broadcast release would be an "event" at that point, and probably generate much greater viewership and revenue.

That's what I think today, but I'm sure that will change.  I seem to adjust my view almost daily as the landscape continues to shift.  The folks at Starz are very smart and this strategy could work out really well for them.  I'll be watching carefully, and more than ready to update my opinion based on the outcome.

Saturday, August 21, 2010

Do You Need Permission to Make a Movie About Real People? Ask Mark Zuckerberg and Joe Francis.

Clients often ask me about obtaining "life rights" in connection with films based on real events.  Most clients are under the impression that they can't make a film about real people without getting permission.  Not true.

Here's a great example -- the upcoming film, Social Network.  This article in The Hollywood Reporter describes apparent negotiations between producer Scott Rudin and executives at Facebook in connection with some of the depictions in the film.  The article makes clear that the film is not precisely accurate in its depiction of the story, nor is it intended to be.  Further, the last paragraph of the article specifically describes that life rights of Mark Zuckerberg and other key players were not obtained, and why it was not necessary.

While Rudin might be making a few minor accommodations, the truth is that film makers (and other creators of media) have the right to tell stories based on real people.  And they can even bend the facts a bit so long as they do it carefully, and clearly disclose that certain events did not actually occur.

Joe Francis
Contrast this with the story about Joe Francis threatening to sue Jerry O'Connell and the makers of Piranha 3D for disclosing Francis as the basis for the unsavory character played by O'Connell in the film. Clearly, Joe has no legal right or ability to stop the film.  However, the implication that the character is based on Joe when there is no underlying factual basis for that connection may indeed cross the line into defamation.  (It's probably not a strong case, but it certainly warranted the letter from Joe's attorney, Larry Stein.)  Thus, Jerry was clearly instructed to be more careful in how he used Joe's name in interviews about the film.

The bottom line is that the First Amendment does provide a lot of protection for film makers and creators of other media.  However, if you aren't getting permission from the people in your story, then you need to really understand the limits of that freedom and what actions cross the line into a lawsuit for defamation.

Don't give up on making your film or writing your book just because you can't get permission.  Be bold, be creative -- but also be smart and get some advice if you want to stay out of court.

Thursday, August 19, 2010

How China Will Change The Film Business

Reading this article in The Hollywood Reporter, I had a somewhat shocking realization.  As the market for film (and everything else) becomes truly global, there is no escaping the impact of other cultures on the content that is created in this country.

The article focuses on the Chinese government's resistance to creating a rating system for film.  The Chinese system is black and white -- either a film is appropriate for Chinese citizens or it is not going to be seen by anyone in China. Period.

Place this in the context of China having just surpassed Japan as the world's second largest economy, and China's #2 spot in revenues for the film, Avatar.  The implications are clear -- if you don't make a film that is going to pass muster with the Chinese government, then you are giving up your #2 market and a whole lot of potential revenue.

This may not matter to a lot of smaller films (although nobody wants to give up significant revenue potential), but on a more expensive film it can mean the difference between red ink and profits.  That means that studios and producers of larger pictures, whether they like it or not, need to look at a film through the eyes of Chinese censors.  They need to make a conscious decision whether they will forgo that market (and substantial revenue) in order to make controversial or edgy content.

So, while we have more freedom and choice than citizens of China, the views of the Chinese government are ultimately going to influence what we see and hear in our own country.  And as the Chinese market continues to grow, that influence will increase. Through the power of economics, their culture impacts our culture.

Interesting how that works, isn't it?

Saturday, August 7, 2010

Reports Of The Death of 3D Are Premature

There was a very good article a few days ago in The Wrap about the downward trend in 3D box office revenues. (By the way, The Wrap is a favorite publication of mine on the entertainment business.  If you don't read it, you should.)  While the author (Daniel Frankel) gives fair coverage to the topic, I think the article misses the big picture.

An underlying assumption seems to be that tracking 3D statistics independent of all other factors is meaningful.  I'm not sure that's true.

While 3D versions of films currently command a higher ticket price, it is not a separate genre of entertainment.  3D is a production technique, just like Dolby or DTS sound, IMAX, or any number of past innovations like 70mm film or Panavision lenses.  3D is certainly a more dramatic departure than many innovations, but it isn't anything separate and apart from the underlying film.

Films attract audiences because of a combination of good stories, good acting, good editing, and all of the other factors that go into making a captivating entertainment experience.  Put a bad film in 3D, and it is still bad (if not worse because the shortcomings are literally jumping off the screen at you).

The assumption that audiences will go see anything just because it's in 3D has never been true.  The current numbers are bearing that out.  Bad 3D films are performing badly, and good 3D films are performing well.  This is not a surprise to anyone.

3D is another wonderful tool in the bag of filmmakers.  When it is used well on a good film, it will enhance the quality of the film and probably produce increased revenues.  When it is used poorly and/or the underlying film is not well-made, then the use of 3D just means they spent more money to make a bad movie.  It won't do anything to increase the audience for the picture.

So the overall decrease in 3D revenues results not from a fading of the attractiveness of the technology, but from the broader use of the technology across a wide spectrum of films -- many of them being pretty bad films.  That pulls down the average, but it has nothing to do with 3D.

Friday, August 6, 2010

California Girls: The Beach Boys, Katy Perry and Copyright Law

According to a number of news accounts (like this one at Billboard.com), Rondor Music (a division of Universal), the publisher of the hit Beach Boys song, California Girls, has sent a demand to Katy Perry in connection with her current hit, California Gurls. Rondor is seeking compensation for an alleged copyright infringement. The gist of the claim stems not from the obviously similar title (titles of songs are generally not subject to copyright protection), but a similar lyric.

The main lyric of the Beach Boys' tune is "I wish they all could be California girls." At the end of the Katy Perry song, guest rapper Snoop Dogg improvises the line, "I really wish you all could be California girls."  So, the question is whether this similar lyric legally entitles Rondor to compensation.

I could obviously write a whole article on the legal concepts underlying copyright infringement and how they apply in this case. However, this is an informational blog, not a legal journal, so let me make it short. The essential idea is whether the Snoop Dogg lyric creates enough of a legal similarity between the two works to trigger liability. (There might be other relevant factors, such as whether it was actually "copied" for legal purposes, but I think the similarity issue is the most pertinent.)

There are actually several different tests of similarity that courts have applied in these cases. Again without belaboring the issue, the most obvious fact is that this is one line out an entire song, and it's not even identical to the original line from the Beach Boys' song. On the other hand, it is the most prominent lyric from the original song.

Another consideration is that the idea behind a creation cannot be protected; only the expression of that idea. So, the question arises whether Snoop Dogg was only capturing the same idea, or actually copying the expression of the idea.  And you could even argue that Snoop Dogg's rap is a parody of the original Beach Boys line; that would undermine Rondor's argument, as well.

All of these are good and legally relevant questions.  Personally, I could make an argument for either side of the case.  With that said, my opinion is that this does not rise to the level of an infringement.  However, I don't think it will ever get to court.  At this point, Rondor has not even filed an action, and I don't think they ever will.  Some money is likely to change hands and the issue will quietly go away.  Too bad really -- it would have made a very interesting lawsuit.

Tuesday, July 27, 2010

Personal Media Devices Are The Future of Entertainment

An article I saw last night discusses how major computer manufacturers are all chasing the iPad with similar tablet devices of their own.  You can read the article for the interesting details.  However, I wanted to quickly comment on the importance of this trend.

The iPad is truly a new class of hardware that has changed the media landscape.  It's a highly portable device optimized for obtaining and displaying robust media.  The screen is big enough and sharp enough to deliver a satisfying video experience, serve as an eBook and display the news, weather and sports.  It is connected, so you can have a constant stream of new content.  It is literally a window through which you can look at the entire world, 24-7.

Once there are a number of viable competitors, prices will come down.  India already says it can make a competitive device for as little as $10.00.  This means that the majority of consumers will eventually have the capability to grab whatever they feel like seeing on a real-time basis.  And each device will know who is using it  and where they are, and thus be able to deliver customized advertising content.  Just take one minute to think about the commercial implications of that. It is absolutely huge.

The iPad and its eventual competitors don't replace theaters or flat-screen TV's, but mobile media will quickly become an equally powerful (and eventually, the most powerful) segment of the media landscape.  If you are a content producer and you want to be ahead of the curve, start thinking about mobile media today.  That's the direction the money will flow for several years to come, and the trend has already started.

Thursday, July 22, 2010

As DVD's Die, How Will The Film Business Fare?

Here is a pretty good article that discusses the shifting trends in the in-home distribution of films.  Obviously, the trend is away from DVD's and moving towards direct delivery.  In fact, the shrinkage in the DVD numbers is pretty dramatic.  The DVD is going the way of the CD.

Blu-ray is making up some of those losses, but Blu-ray will eventually follow the same path.  Right now Blu-ray discs are popular because there is no real alternative for super-HD resolution.  But when a Blu-ray quality file can be easily and quickly downloaded right to your big screen TV, there will simply be no reason to mess around with a disc.

Discs are dead.  However, the download and video-on-demand markets are expanding pretty quickly.  None of this is news, but what does it really mean?

For disc manufacturers, it means they should already have shifted their focus to other businesses.

For distributors, the ability to warehouse and handle large amounts of physical product will not be useful much longer.  The distribution of content is still a very good business, but moving digital files is very different than moving discs. The good news for distributors is that the profit margins should increase dramatically as all of the costs of moving physical inventory evaporate.

Producers still need to produce great content.  Consumers will always want good stories that are told well.  However, production is both cheaper and trickier.  As more people use iPads, smartphones and similar devices to watch films, the productions will need to translate from very large screens with huge speakers (like IMAX) to the small screens of a smartphone with headphones.  That's challenging.

The real issue for those of us on the business side is whether the revenue from new sources such as download, streaming and mobile will replace the dwindling DVD market.  I believe the answer is "Yes" if you look at the profits.  The revenue might go down, but so will the costs of delivery.  That means that even if volume is lower,  the profits will be higher and hopefully make up the difference.

Direct delivery of content is a more efficient system than any physical media.  The benefit of those efficiencies should be apportioned in some manner among all of the stakeholders, from consumers up the chain to producers.  I think natural market forces will cause that to occur, and at the end of the day, the film business will be healthier than ever.  Higher profits means it's a better business model.

Monday, June 28, 2010

Movie Futures Market Approved, But It's An Empty Victory

The CFTC has approved Cantor Exchange to trade futures based on film box office performance.  Earlier in the month, the CFTC had approved a similar program to be operated by Media Derivatives.  All of this would appear to be a big "green light" for the trading of film futures. But...

Unfortunately for Cantor and MD, the House of Representatives included a ban on these trades as a part of the economic bill passed last Friday.  This ban is likely to remain a part of that law when it comes out of Congress, and the President has indicated he will sign it.  So, this is a hollow and temporary victory for Cantor and MD.

It may very well be that Wayne Friedman of MediaPost is right when he says it's about access to information. (I made a similar point in a post back in April.) The culture of Hollywood is all about spin, and that means tight controls on what information leaks into the public.  The culture of securities is supposed to be about access to information.  Investors are supposed to have as much information as insiders in order to make their trading decisions.

There's a big cultural clash between those two positions -- control vs. access.  It is actually a common theme in the media and entertainment business. (And technology too -- look how crazy Apple went when the iPhone 4 leaked.)  Hollywood seems to have won this round.  Congress trumps the CFTC, so there is unlikely to be any trading based on box office numbers.  Too bad.  I still think it would have been fun.

Cantor says that it is still committed to providing tools for the entertainment business to use in connection with financial transactions.  I will be interested to see what they come up with next (and what the studios do in response).

Thursday, June 17, 2010

3D Glasses - An Emerging Business Opportunity

There is an opportunity quickly emerging for consumer electronics companies.  Most of the new 3D televisions  (other than the Vizio TV that was just announced) use glasses with active electronics.  The television manufacturers are supplying one or two pairs of these glasses with each TV, and then selling extra pairs for about $200 each.

In reality, these glasses can probably be sold for under $100 a pair and still yield a healthy profit.  I guarantee that there will be several companies offering a full line of active-electronics 3D glasses at discount prices by next year's CES.  This is a product category that currently doesn't even exist and it will become significant within a year or less.

Things are moving fast, and that means new opportunities for entrepreneurs to make money. If you want to get rich, watch new developments and figure out what new products and services will become useful as a result.

Saturday, June 12, 2010

Anticipating Change - Another Lesson...This Time From Twitter

Today I was reading a very good article on Businessweek.com which addresses investment in startup businesses  built around Twitter.  The thrust of the article is that Twitter's acquisition of Tweetie, and its limitations on building ad-based businesses around the Twitter platform, is making it very hard for Twitter-based startups to attract investors.

Ok, I don't want to sound too sarcastic here, but....duh!  That's not a comment on the journalism in the article, but on the apparent surprise being experienced by these would-be entrepreneurs.  As we are seeing more and more, especially in the areas of media and technology, you can't build a business model that depends on someone else to keep doing what they are doing.  

Companies change; people change; the business environment changes -- this is happening every day.  Don't plan  your business expecting that anything will be the same by the time you implement the plan.  You need dynamic plans that can change faster than the surrounding circumstances.  You need plans that thrive in an unstable environment.  You need to be moving your cheese so fast that everyone is trying to keep up with you -- not the other way around.

Honestly, if you come up with a great way to make money from Twitter's platform, why would you expect that Twitter wouldn't do it themselves?  Why would they let you make money that they could be making?  They will only support your success if it ultimately brings them more success. It's a basic tenet of business.

Here's the lesson -- don't chase Twitter or Google or Relativity or Summit or anyone else.  Instead, be the next big thing.  If you don't have a truly innovative idea that doesn't depend on anyone else, then don't launch your company until you come up with one.

(As an aside, the author of the article, Om Malik of GigaOM  (@gigaom)- a super bright guy - definitely understands all of this.  But he also seems to reach the conclusion that it is in Twitter's self-interest to act more predictably.  I'm not sure if I agree, although it's a great issue to ponder.  Om implies that successful platforms have usually grown by supporting their developer base, and goes on to point out that the platform owners almost always reap the bulk of the benefits from those relationships. He draws  parallels between Twitter and Google, Intel, Apple, Microsoft, Sony and Facebook. All of this is what makes the article so good.  I recommend you spend five minutes and give it a read.)

Saturday, May 29, 2010

Hot Topic: Digital Media's Impact on Film & TV

There are interesting developments this week in the intersection between digital media and the more traditional media of film and television. These events raise the question once again of whether digital media will have a positive, negative or neutral impact on traditional media.

On the negative side, Voltage Pictures filed its lawsuit this week against all persons who have infringed its copyright by selling pirated copies of The Hurt Locker.  The lawsuit is the first step needed for Voltage to attempt to find the identities of the alleged pirates.  This will lead to settlements and perhaps a few trials, but the philosophy is certainly designed as much to deter piracy as to collect damages.  Clearly, the underlying assumption is that digital media facilitates piracy and that this is a dangerous trend that must be stopped at any cost.

It is much the same strategy the RIAA has used for years in the recorded music industry, with varying success.  There would be some argument as to whether the cost actually justifies the benefits.  There still seems to be plenty of unlawful sharing of music files going on.  And iTunes has probably done more to curtail that problem than the RIAA's legal actions.

On the other end of the spectrum, Time Warner chairman and CEO, Jeff Bewkes, this week told investors that he views digital media as a positive factor in the media business.  He emphasized that film, television and magazines are not the same as the music business, and are not impacted by piracy in the same way.

Of course, Bewkes' message needs to be considered in proper context.  He was talking to investors.  He is likely attempting to allay their concerns so that they will keep investing in TW stock.  However, I don't think there is anything misleading in what he is saying.  I believe Bewkes and his team view TW as a broadbased media company, and digital media is a part of that business.  He is making a point of not getting mired in any particular business model or medium and I applaud that approach.  This is a guy who is moving his cheese before someone else moves it for him.  (If you don't recognize that reference, look here.)

So, who is right?  As data pipelines expand and it becomes easy to move entire full-screen films between computers, do producers and distributors need to call in armies of lawyers to fight the pirates?  Or does film and television content have inherent value for which consumers are happy to pay?

I think it comes down to value and user interface.  iTunes moves a lot of music because it works well and the price is right (kind of -- they would sell a lot more at 25 cents than 99 cents, but that wouldn't satisfy all of the stakeholders in the content).  I think the same economic theory applies to film and TV content.  If consumers can get it easily at a price that doesn't inflict too much pain, the vast majority will continue to pay.  Netflix and its competitors might be the iTunes for the film business.  Actually, iTunes might be the iTunes for the film business if its interface with the living room television works well and penetrates the market.

Bottom line - the entertainment business continues to change and those of us who make our living in it must use the new tools to give consumers an experience that they value at a price that makes sense.  Quality plus Value equals Profit.  That's the only formula for success that always works.

Tuesday, May 18, 2010

Film Distribution and Home Entertainment in 2015

There have been some very interesting articles recently predicting how consumers will be entertaining themselves five years from now.  The implications are significant.  Let me give you some highlights, and then make some quick comments.

Displaybank, a consumer electronics research group predicts that sales of 3D televisions will grow by 91% this year, making up 3% of the world televisions by the end of the year.  The study projects there will be 83 million 3D displays in homes by the end of 2014.  That represents 31% of the world market.  Those are really huge numbers.

GigaOM Pro is predicting that by 2015, 60% of the TV's sold will have a direct internet connection.  This year, 3.7 million applications designed to be run on televisions will be downloaded.  However, by 2015, that number will grow to almost 1 billion!  That is an enormous number!

The Los Angeles Times reports that Google is about ready to launch its Smart TV software that will allow consumers to navigate between TV, streaming content, home videos and any other number of media formats and sources.

- Last week, Hollywood studios won a ruling from the FCC that clears the way for streaming first run movies directly to consumers on the same day that they are opening in theaters.  (Businessweek's coverage of the implications of that ruling is pretty good.)


You can see the trend here.  Conventional wisdom in 2010 says that within 5 years consumers will be fully connected and entertained without leaving their favorite chair.  The implications for our collective physical fitness are frightening.  But aside from that, what does it mean for the entertainment business?

Are theaters wasting money installing digital 3D systems and amazing sound?  Are consumers just going to buy a giant 3D TV and 7.1 surround system and watch everything at home?  Click the Domino's app in the corner of their screens and have their favorite pizza show up in 30 minutes or less -- for a fraction of the cost of popcorn and Coke at the cineplex?

Despite these projections, I don't believe that the theater business is dead -- but it is definitely facing some challenges.  On the one hand, I believe consumers experience a palpable excitement when watching a film in a dark room with a few hundred strangers, on a giant screen with seat-shaking sound.  And I think people will always want to get out of their house and "do something" other than watch TV.  Going to a movie is the primary way they fill that need.  But I also think that theaters have to work hard to continue to deliver a high-quality experience at the right price.


The problem is that the distributors who already take the bulk of the ticket price from the theaters may soon become direct competitors.  If the distributors make more money piping the film directly to consumers' living rooms, then they have no incentive to help theater owners fill their seats.  That makes it very hard for theater owners to deliver a superior product at a reasonable price.

For the next few years. there will be a real wrestling match between theater owners and distributors and consumer electronics companies.  I think  Sony wins either way as it will continue to sell TV's and distribute films.  But Regal and AMC are facing a much bigger challenge that might even result in another round of downsizing for those major chains.

I welcome some comments and other points of view.

Saturday, April 17, 2010

Hollywood Futures Market A Good Idea?

My good friend, Tammy Hunt (talent manager and entertainment professional extraordinaire!), shot me an email yesterday asking if I thought the approval of the futures exchange for trading on film performance is a good idea. I had been following the progress of that story, but I hadn't really stopped to consider the implications.

This afternoon, I responded to Tammy, and I actually was pleased with my answer.  So, I decided to repost it here.

I would love to know what anyone else thinks on this topic. Please comment or tweet with your thoughts.  I'm curious to know how other film professionals view this.

My response to Tammy:

Tammy - 


That's a really tough question.  On the one hand, it sounds kind of fun to be able to bet on box office outcomes, and make some money if you're good at it.  But the stated rationale behind these models is to allow studios a vehicle to protect their risk.  In other words, they can bet on a certain level of performance that will give them some of their money back if the movie doesn't perform well.  That means they are betting against their success.


So, you have people who have some control over the product's performance betting that it will perform badly.  That's like letting a basketball player or referee bet on the game, right?  Obviously a bad idea.  Or maybe not.


The counter argument is that while the studio might make money from underperformance (as a result of its futures contract), it makes more money if the film performs well.  The futures bet is only a hedge that theoretically allows the company to take a larger risk on the success of the picture, which actually means it's good for the business.  If the studios can give the films a bigger push because they will get some of their money back if it doesn't work, that is actually good for the film industry.  


The larger risk is if individual executives play the futures market.  They could theoreticlaly sabotage a film, causing the studio to lose money while they cash in individually.  But that can be (and should be) monitored and punished severely.  I don't think many film executives would be stupid enough to try that, but it could certainly happen.


Going through that analysis, I believe it should be a net positive for the business.   There could be some abuse, but in reality it doesn’t severly undermine the motivation to succeed and it could be a very useful tool for the film industry.  And beyond that, I think a lot of smaller, unaffiliated investors will have a good time trying to guess which films will perform well.

Friday, April 9, 2010

Why Hollywood is Afraid of a Futures Market - The Truth

There is a lot of resistance in Hollywood to the futures market being finalized by Wall Street brokerage, Cantor Fitzgerald.  In short, CF is seeking final approval to operate an exchange that will allow investors to place bets on the future box office performance of Hollywood films.  Sounds like fun.  So why is there such aggressive resistance in Hollywood?

A quick story that will illustrate my point.  A few years ago, one of the big tech companies (it might have been Apple or Microsoft - I can't remember) started an office pool among its employees on which products would sell the most.  Interestingly, they found that the pool was a much better predictor of success than their product development process.  In other words, when a group of people are placing bets, it tends to accurately mirror the ultimate results.  The larger the group of people, the more accuracy.  And I suspect when they are betting serious dollars, it might sharpen the focus even more.

Hollywood, and specifically the marketing of motion pictures, is very much built on creating and controlling the perception of reality.  If you have a bad movie, you still might make money if you can convince enough people to see it before the word gets out that it's not very good.  In the age of instant word of mouth via social networks, it has already become difficult enough for marketers to control the message.  Now Cantor Fitzgerald wants to create a financial exchange that is likely to become an accurate predictor of the truth.  The truth -- often the enemy of people facing the task of selling a mediocre product.

Cantor Fitzgerald says that the film futures exchange will give the industry a legitimate way to hedge their investments -- a level of protection against a film performing badly.  I think the executives would rather maintain control of their own version of reality and hope they can get enough people to the theater to lessen the losses.

Actually, I see both sides.  I'd rather try to salvage success than bet on failure.  On the other hand, I'm always in favor of anything that brings more light and truth to a situation.  I'm betting Cantor Fitzgerald will ultimately prevail.

Thoughts anyone?

Tuesday, March 16, 2010

Tom Tom iPhone App - An Example for Today's Business

I saw an article this morning about improvements in the iPhone navigation/traffic application from Tom Tom.  It struck me that this provides a great example for a lot of companies of how to manage strategy in a dynamic environment.

Tom Tom was chasing Garmin in the navigation hardware business.  However, as car manufacturers quickly adopted built-in navigation systems, and the number of iPhones exploded, prices for free-standing navigation devices plummeted as the market for that hardware virtually collapsed.

A lot of companies in that situation evaporate into the annals of business history.  Tom Tom aggressively moved to capitalize on its momentum under the new rules and become a leader in navigation software for iPhones and other devices.

This is a great example of moving your cheese before someone else does.  In an industry where technology is driving change at a dizzying speed, you need to re-envision and reinvent on an almost constant basis.  This seems to apply in almost every business.

Every Monday morning you should ask yourself, "What business are we in?" and take the broadest possible view in answering the question.  Embrace change.  It's a winning strategy.

Sunday, March 14, 2010

Technology Fuels Cultural Growth

That's right - you read that title correctly.  I believe that the technology revolution of the past couple decades is perhaps the biggest boon to our collective culture in the entire history of mankind.  Many of you probably disagree with that statement -- at least I hope so.  It is the perception of a conflict between technology and culture that I seek to dispel. 

First, I view "culture" for these purposes as our expression, access and exposure to the unique and creative elements that make us all human.  Of course, this is in large part the art and entertainment that we choose to experience, and the creative expressions which provide those choices.  But it is also the ideas, philosophies, debates, rants and everything else that each of us absorbs as a part of our ongoing mental and personal development - our growth, if you will.

Obviously, the digitizing of content has facilitated access to a larger volume of cultural elements for each of us, with the Internet as the obvious vehicle fueling that access.  But my point goes behind the pure quantity of images, ideas and stimuli upon which we can lay our eyes, ears and hands at any given moment.  I am speaking more of technology as a catalyst to the actual creation and expansion of these ideas and expressions.

When the mass distribution of music was controlled by a handful of companies, the game for composers and musical artists was to create music that would help those gatekeepers to earn more money.  That was the only way that your music would be included in the "pipeline," and that pipeline was the only way to get heard by an audience of any significant size. 

However, today anyone can make their music available to an audience of hundreds of millions of people.  They won't all hear it or even find it, but all of those people will have access to it and so the potential for mass impact is there.  Knowing that a real audience exists, creators are free to create from their heart in an expansive way that they would not have considered before.  They aren't trying to catch the ear of a record industry executive; they are adding their voice to the collective culture hoping that other people who dance to the beat of a similar drum will find and enjoy their creations.  The potential to be heard provides a reason to speak up - it gives voice to millions who would never have uttered a word in the absence of that vehicle.. 

The same is happening in all areas of creative expression -- not just music.  For example, would I bother to write these words if the Internet didn't exist?  What would I do with them?  Put them on a piece of paper and nail it to a wall?  And if I didn't have a reason to write, would I have spent the last hour considering and expanding my beliefs on the topic?  My ability to blog inspires me to think.  I don't know that anyone will ever read this, but the fact that they might is enough to cause me to consider and develop my ideas and to add my voice to our collective culture.  It is personally enriching for me, even if no one reads it or responds.  But it is also a process that will inspire many people to think and express ideas that will change the world in amazing ways.  Without the distribution vehicle created by technology, would these historic ideas (and resulting changes) come into existence?  Certainly, not all of them.

Because technology is giving us ways to move even more content at a higher speed, this same process is now expanding to films and other audio-visual expressions.  And in that arena the development of digital technology has not only created new channels of distribution, but it has also made the creative process much less expensive and thus available to millions instead of a chosen few.  We will see films and expressions that simply would not have been created in the absence of the capabilities afforded through technological advancement.

I think if asked about technology's impact on the quality of our culture, many people would initially respond that that it has been a negative.  It's simply not true.  Perhaps we don't get exercise or enjoy nature as much as we would if we didn't spend so much time looking at digital displays.  But each of us has more opportunity than ever before to impact our world, and that is inspiring us to think and dream and create and challenge and consider and respond and participate.  If culture is the collective expression of mankind, technology has fueled a cultural renaissance of truly epic proportion.

Monday, February 15, 2010

Film Business Remains Strong -- But Different

It's Monday morning -- a holiday in the U.S. celebrating our Presidents.  For those of us in the film business, that means one more day for folks to see another film before heading back to another week of work.  This weekend's box office was topped by a star-packed film that critics hated.  "Valentine's Day" made almost $67 million in its first three days of release.  That is a huge number for a light romantic comedy that opened to a pretty negative buzz.  The lesson here is that apparently some stars still matter.  You can argue about whether folks were more interested in seeing Julia Roberts or Taylor & Taylor (or Jessica or Ashton or Bradley or George -- or because they know that Garry Marshall is a great director), but the crowds definitely came out for the stars.

This is actually good news.  From the standpoint of my business representing producers, my initial reaction is to flinch at anything that gives bargaining power to the talent.  But the truth is that we are all in this business together and I want the audience to love actors. I want writers to write great scripts, directors to make stunningly beautiful and poignant films, and actors to deliver performances that stir the hearts of millions.  That is the essence of what makes the film business so wonderful, and such a great business.

And it is apparently working.  Even the number 10 film in this week's box office derby did over $4 million at the box office.  The overall box office numbers were huge.  I was at the multiplex with my family yesterday and there were several films that were selling out shows in the middle of the day.  The film business is doing great.

So why is it still a little (actually, more than a little) difficult to get films into production?  Why is film finance money so tight?  Tax incentives are still lucrative and plentiful. The talent is still willing to work for reasonable guarantees (compared to past years).  Technology allows us to make really high quality pictures for a fraction of what it used to cost.  Costs are going down and sales are going up.  That sounds like a place that most investors would want to put their money.  So what's the problem?

The challenge (I never like to use the word "problem") is that the revenue streams are changing and no one knows what the new revenue structure really looks like.  The studios are moving towards shorter theatrical release windows to allow for earlier DVD releases.  Except everyone sees that the DVD (and soon the Blu-Ray disc, as well) is dying a relatively speedy death.  Hollywood Video is done and Blockbuster is following (but hoping to use its market power to arise as something new).

Within a very short time, consumers will be pushing a button on their remote and pulling a high definition, 3D version of a relatively recent film onto their living room big screen.  That scares a lot of people in the industry because they aren't sure how they continue to make big bucks from that model.  So, they aren't sure how much to spend on a film or how to make deals that won't make them cringe when they pull the contract out of the drawer five years from now.

It is a time for vision and courage, my friends.  It is in times of change that the opportunities are greatest.  It is possible to create assets today that will be bearing fruit for years to come.  And the key is recognizing the power of the long tail.

A copyright lasts for decades, but we have been trying to make all of our money back in the first weekend of release.  If we look at each film as a seed that is being planted (rather than a pinata that is bursting open while we scramble to grab the most candy as quickly as possible), we can build strong, profitable businesses.  Each picture needs to be nurtured and encouraged to find new audiences year after year.  And we need to connect with those audiences in new ways that make them eager to spend a few dollars to engage and continue those relationships.  It's still about stars and stories and beautiful sights and sounds, but let's not think of each new film as a one-night stand.  Let's take the time to form relationships with our audiences that will pay dividends over many years.

Monday, February 1, 2010

Many Entertainment Opportunities for 2010

Here we are on February 1. We are fully into 2010 -- past the time when we are wishing one another a happy new year.  We're getting down to business.  We're also past January, which is the month of trade shows and awards.  In the past 30 days, the Consumer Electronics industry had their big shindig in Las Vegas, the musical instrument business had it's major annual conference in L.A., the independent film business gathered in Park City, Golden Globes were awarded, Grammys were awarded, the DGA honored directors -- the list goes on.

So what do we know as a result and how does it help us?  Here's a short (and certainly not comprehensive) list:

1.  We know that 3D is a huge phenomenon.  Will it last?  Probably, but it remains to be seen.  In the meantime, Avatar is the biggest film ever in terms of box office dollars, and the CES show was all about 3D technology for the home.  At the Grammys last night, the audience wore their 3D glasses without shame.  The technology has emerged from the nerd closet and become a part of the ubiquitous mainstream.

This creates big opportunities to capitalize on this phenomenon.  Everything from cool 3D glasses for the home to 3D networks to low-cost 3D remakes of classic content.  There is a lot of money to be made in the next few years by riding the 3D wave.

2.  Distribution continues to decentralize.  There are a plethora of small, specialty content distributors coming alive and many of them will do well.  The music business has showed us that technology gives power back to the artists.  When you can reach your audience directly, you don't need to pay a huge premium to large companies for market access.  Bad news for the huge companies, but probably a net positive for the artists and the audience.  There is infinitely more music to choose from than 10 years ago, and there are more artists making a living.  They aren't getting rich, but many small, specialty artists are actually able to survive through their art.  That is very different than it used to be.

And the same phenomenon is coming to film.  The DVD is in its final cycle before it dies all together.  Blu-Rey is nice, but it will also eventually go away.  Filmmakers are creating quality content for a fraction of what it used to cost.  The artists are gaining access and control; it is the same pattern as seen in the music industry.  Make no mistake -- if you want to make a living as an independent producer, now is a very good time to be getting into it.  You may not make the gazillions enjoyed by the successful producers of the past couple of decades, but you will be able to live a nice life from your art.

3.  The world is becoming one market.  More than ever before, we are all gaining access to the world market.  -- and the world's money.  Companies all over the world (like Reliance, for example) are investing in U.S. content and companies.  And international sales of films and other content is becoming an increasingly important part of the overall financial picture, even for smaller films.  When something catches on, it doesn't stop at the coasts of North America.  It is as easy to find an online audience in England or Norway or Japan or even China as it is to reach people in Chicago or Denver.

Of course, the real challenge is still in finding business models that will work in this new environment.  Advertising dollars are big, but limited.  Online commerce is a better model, but the value of content online is clearly much lower than in a physical environment.  But it is also less expensive to create the content, so technology has delivered both the problem and the solution.  And for consumers, that means a lot more choice.  But with that choice, marketers face the challenge of rising above the din to find an audience.

That's enough for now.  It is enough to spin your head.  Suffice it to say that it is a completely new world and many people will continue to gain wealth in this new environment.  Keep your head up and look for the opportunities, and there is nothing to stop you from being among the new crop of winners.