Monday, May 16, 2011

Mobile Convergence: The Single Device Solution

Earlier this month, Nielsen released the results of a study that shows consumers moving towards tablet devices, and away from laptops and eReaders.  I commented at the time that this isn't news, but it is an important trend that should not be ignored.

In a recent interview, Jeff Bezos wouldn't confirm that Amazon is going to release its own tablet, but he didn't deny it either.  He did indicate that it wouldn't replace the Kindle, but I don't think I believe that.  He might say that now, but ultimately it won't make sense to sell a device that is great for reading and watching videos and playing games and listening to music and writing documents and drawing pictures, etc etc., and then sell another device that is just for reading.  At least, that makes no sense to me.

The bottom line on this is that consumers want to minimize the number of devices they own and use.  They want things to be simple, but comprehensive.  An iPad or other tablet can do most everything that a laptop, an eReader and an MP3 player can do, and a lot more.  iPad's will eventually work as Bluetooth mobile phones, as well.  I think the only reason they don't do that now is because Verizon & AT&T wouldn't support that model, but eventually they'll have to.

That's what consumers want.  If I can carry one device that literally does everything I need in terms of media and communication, and it weighs a little over a pound with excellent battery life, my Nook will be on eBay in a heartbeat, and my laptop won't leave my house.  And I love my Blackberry, but I'd probably be willing to sideline that, as well.

And all of you will do the same thing.  We are heading for a single device mobile solution.  There will be some resistance along the way (as there always is), but the trend is already undeniably clear.

Saturday, May 14, 2011

How Do You Succeed In The Entertainment Business? Basic Economics

You learned everything you need to know about success in the entertainment industry the first two weeks of your junior year in high school.

About 7 months ago, I wrote a blog post about how to capitalize on emerging opportunities in the entertainment industry.  It turned out to be one of my more popular posts, and as I sit here 7 months later, I think I stand by everything I said.  Things are going about like we expected they would.

Based on that temporary success, I thought I would revisit the topic from another perspective.  I gave it a lot of thought (about 10 minutes or so) and I think success in today's media business is simply a function of  basic economics.

I am not an economist, but from what I can tell, there is one essential rule in economics from which everything else springs -- supply and demand.  The value of anything moves roughly in sync with demand for that item, and roughly inverse to the supply.

Here's one example: In the media business, the Internet provides an infinite number of channels to distribute information.  Therefore, owning a website has virtually no value by itself.  Everyone has a website.  But having a website that is one of very few channels to highly desired content is very valuable.  High demand + limited supply = high value.

In specific terms, look at the daily news.  You can't copyright the news.  Anyone who wants to report a story can report it.  There are essentially an infinite number of places to get news, and therefore it has little value.  Studies confirm that most consumers are not interested in paying for online news.

Mobile data provides an example of the other side of the coin.  As millions of iPads and smartphones are being sold, there is a massive increase in demand for mobile content.  A lot of us use free WiFi (like at Starbucks, where I'm sitting right now as I write this on my laptop) to get content.  But the mobility of the new devices has greatly increased the demand for anytime, anywhere access -- today, that means access to a cellular system.

In most markets, there are only one or two cellular networks.  That means the demand for access to those networks is rapidly increasing and the supply is limited.  Consequently, Verizon and AT&T have stopped offering programs with unlimited volume and they are charging for every kilobyte of data that runs through their systems.  And as people download or stream loads of HD content on to their iPads, there are a whole lot of kilobytes moving through the air.

So what's the right strategy?  None of us have the money or proper licenses to build a cellular network.  How do we get in a business that takes advantage of Economics 101?  The answer is to do something special and attractive.

All of us have the ability to create an endless amount of content -- but all content is not the same.  Strive to do something that's truly unique.   That handles the supply side of the equation -- the essence of true creativity is that it inherently limits the supply of what is created.  

On the other side, make sure you create something that will attract an audience.  Understand who you are creating for and what they really like.  If you can do that, then there will be a demand for what you create.  The higher the demand, the more valuable the product.

That's it -- it is truly that simple.  Perhaps so simple that you're questioning the value of the advice.  Is it worth stating the obvious?  I think it is.  Some of us get so caught up in trying to create intricate get-rich schemes, that we lose sight of the obvious.  Just find an audience and give them what they want in a unique way.  That's your best path to success.

Now, if you want to talk about financing films with a combination of two-tiered equity, mezzanine lenders and tax credits, that's a little more complicated.  Maybe we'll tackle that one next time....or not.

Wednesday, May 11, 2011

"May You Live In Interesting Times..."

The Challenges of Deal-Making During A Digital Revolution

Clearly we live in interesting times; that's not news to anyone.  But being a lawyer, agent, executive or other deal-maker in the entertainment business over the past few years has been especially challenging. In addition to the economic downturn, many challenges are arising from the blurring of lines between the various methods of content distribution.

For instance, there used to be a clear distinction between home video rights and broadcast rights.  Making those deals was fairly easy.  Everyone understood what was being sold, and we just had to argue about the price.  The studios got two checks, and both the DVD stores and the networks made money.  Everyone was happy.

Then, along came downloads, streaming and mobile and all of the old definitions went out the window.  It's like we're all speaking some new foreign language. As a result, deal-making is not so easy, and it's harder to keep everyone happy..

Let's look at an example.  I make a movie.  I sell the home video rights to Netflix, and they stream it down consumers' cable connections onto their TV's. I also sell premium cable rights to HBO, who puts the film on its HBO On Demand service and streams it down the same cable onto the same TV's.  From the consumer's standpoint, it's the same process.  Push the button and watch the movie on your big screen from your favorite chair.  They don't really care how it gets there; they just want high-quality video and sound, delivered at the best price.

But for HBO or Netflix, this new paradigm often represents unexpected competition - especially when both options are available within a relatively short time period (or even contemporaneously).  And it doesn't help that every large Internet player is suddenly in the digital distribution business.  Competition is indeed becoming fierce.

For the most part, these potential conflicts are still being managed pretty well.  Most deals are kept within distribution windows that limit head-to-head competition between similar methodologies.   However, as technology continues to advance, it is getting more difficult. The windows are getting shorter and sometimes rights are being expanded in unexpected ways.

For example, Time Warner and Cablevision both recently initiated services which allow consumers to use their iPad or other tablet as a mobile television.  The studios take the position that this is not allowed under the existing licenses.  They claim that any viewing of content on an iPad is a part of the mobile rights.  They need to maintain that stance in order to sell mobile rights as a separate window.  Who is right?  As is so often the case these days, it's unclear.  There are likely good arguments on both sides.

The bottom line is that a serious struggle of competing interests now exists.  The studios want to parse the rights into as many windows and revenue streams as possible, and exploit them all within a fairly tight time frame.  Exhibition companies want to have as much time as possible to reach as many consumers as possible without being hampered by obsolete definitions that cause their rights to lose value with each technological shift.  Consumers just want to watch the movie on whatever device suits them without paying extra.  And us lawyers are supposed to write contracts that make it all work smoothly -- even years down the road when everything has changed again.  (Have I mentioned that my work has become really challenging lately?)

The guys who might have the best idea run a new company called Big Air Studios. I heard the CEO, Michael Arrieta, speak at a lunch today.  Very sharp guy.  Big Air is a group of experienced executives and producers who are focused on distributing content by every possible means and through every possible device. Their philosophy seems to be to give consumers what they want and then figure out how to make money at it.  I like that.  I don't think anyone ever went broke making their customers happy.

These are indeed interesting times.  As challenging as it makes my work, I wouldn't have it any other way.  I love progress and change.  Honestly, I can't wait to see what happens next...