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.

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.

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.

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?

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.

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.