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.