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.

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.   

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.

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.

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.

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.