Motion Pictures: An Expendable Commodity Experience

In a world where a billion people can create and share content, Hollywood studios compete against their own consumers for audience attention. Hundreds of thousands of hours of video reach audiences through a growing number of channels each day. Web Video Platforms enabling your four-year-old nephew to compete with studio mega-moguls struggle to sift through the infinite noise to help you find the best entertainment. Hollywood Studios struggle to efficiently recapture audiences after the curtain closes, left only to throw billions of dollars marketing desperate pleas to past successes through a record number of franchises, sequels and remakes. As a consumer, building a loyal relationship with either continues to prove as difficult as siding with a parent through a divorce.

The theatrical and home video businesses treat content as a commodity, marking up ticket and a la carte prices to record-high margins. The television and internet businesses treat content as expendable to sell advertising and subscriptions. The answer, for consumers most loyal to great storytelling, lies somewhere in the middle. As the music industry learned through live shows versus lost sales via easily transmittable mp3s, sustainable value lies not in the content itself but the experience through which people consume it. Great content markets special experiences. Rather than fighting an uphill piracy battle, consumers continue to challenge the industry to focus on making it as easy as possible for them to access content in any and all formats that maximize their personal experience. Greater the experience, greater the value.

In the Information Age, consumers expect better quality at their own convenience. Make them wait or jump through hoops and they will likely go elsewhere or steal from you. Are they criminals? The law says so. But the studios are responsible — for failing to build a better relationship with and serve audiences who love their content. As the Internet evolves into a responsive utility with no prejudice between screen sizes or location, producers have the opportunity to reach limitless platforms with ease. What are we waiting for?

With the capacity to reach any screen at negligible distribution cost, how can the industry create the illusion of value in content itself? Commodity value comes from scarcity — supply and demand. Digital can transmit anywhere, anytime, ad infinitum. Unlimited supply. No scarcity. When movies exist as ones and zeros, good luck convincing audiences to pay $30 for a file or stream.

Scarcity, then, can only come through wrapping the movie with an unforgettable experience. The “wrapper” can manifest as a better video player, larger screen or infused relationship with a fan community. But that’s only the beginning. Sure, digital can transmit ad infinitum, but “once in a lifetime” experiences cannot. Exclusive themed dinners, costumed extravaganzas or private viewings with filmmakers all fit the “once in a lifetime” thesis. An experience you cannot rewind or replay. An experience worth paying for. How much would you pay to sit next to Steven Spielberg and watch Jurassic Park or E.T.? The more inventive and unique the experience, the greater the value. Popcorn and surround sound do not sell tickets anymore.

Want to compete against small screens, millions of content “producers” and the Internet abroad? Make content easy for audiences to consume and help fans live your stories.

Don’t just make movies; create memorable experiences.

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Broadcast Contracts Will Kill Hollywood

It does not surprise me that Game of Thrones is the most pirated show on television. Without cable, I have no way to watch it. I’d happily pay $20 per month if HBO GO was open to people without cable subscriptions. Unfortunately, that’s not that case. None of HBO’s shows are available on iTunes, Netflix, Hulu or Amazon. I have no way to watch any of HBO’s shows except pay a $75 per month cable subscription for a television I don’t have, wait for them to come out on DVD, or pirate them. I’m a good boy with little expendable time, so I avoid Game of Thrones altogether. But 25 million people have not been angels and found the show through whatever means necessary. Who knows how many more people opt out entirely and forever pass the show by?

I’ve said before that Hollywood should concern themselves less with piracy and more with audience access. Simple supply and demand metrics – audiences demand content and providers are failing to supply to increasingly popular internet channels. It’s the whole industry’s fault for inciting piracy. They are missing out on an expanding margin of customers. In defense of HBO and others, production companies have entangled themselves in lucrative and restricting contracts with cable partners. To offer direct-to-consumer digital distribution would breach their contracts and deprive them of their single strongest revenue source. For most companies like HBO, that may never happen – at least not until everyone has internet televisions or the cable providers themselves die.

Broadcast contracts may be a reasonable excuse for holding content back from web distribution. But if companies plan to stand behind that excuse, they need to stop making such a big deal about piracy. By threatening or incriminating millions of people who cannot access your primary distribution method, you are alienating potential evangelists of your content and failing to understand the trajectory of your market. Web television is not a trend. In five years, most motion picture content will be consumed online – on connected televisions, game consoles, mobile devices or computers. To fight or deny this is foolish and egoistic.

I left Hollywood because no companies were willing to put the engineering muscle behind personal distribution channels. Beyond sheer web design and database builds, online services require customer service and billing infrastructure that can cost a lot of money. Fortunately, these things are getting easier and cheaper. An independent production company with enough content to leverage could easily set up shop on the web with a very controllable investment and small handful of people on the tech side.

If you want a sustainable career in the movie business, start or work for a company with full digital rights. Careful signing onto productions with traditional broadcast contracts and no digital rights – these opportunities, no matter how lucrative, are sinking ships. If they cannot find a way to breach contracts soon, they may not survive the next wave of liberated web-savvy competitors.

New Media: Revenue and Profitability? [Film Friday]

This is the third post in my series, “Understanding New Media.”

So far, it’s safe to define “New Media” as “content financed, produced for, and released exclusively on the web that serves itself and no other.” Last week’s post tried to rule out marketing materials and spinoffs (content promoting other content or products). But I asked a key question: what happens when one of these videos generates its own revenue online? Since “New Media” is a tech and entertainment industry term, it is relevant to discuss the format in the context of commerce.

If a company authors products that collect money from the hands or by the influence of consumers, then it deserves to be called a “business.” If the company’s products drive profits, then it deserves to be called a “good business.”

In web land, advertising, subscription, download, and rental revenue are mere pennies and cents compared to the millions generated by the multiplex or family room tube. Web video is still young, and very few Internet networks have been able to grow through these sources of income. Most content is financed by upfront sponsorship and rarely sees extra money after launch. For example, our company depends on sponsorships from large brands to kick-start our projects in exchange for guaranteed impressions. But in several cases online, the cost of video production was so low and viewership so high that notable returns have been made. It is not uncommon these days to find content producers on YouTube bringing in generous annual salaries through the site’s Partnership Program. They might be small businesses, but these producers definitely deserve to be called “businesses” on their own. And in a select few cases, some large budget web series have garnered such a following that they have paid their bills in full and earned a DVD release. My favorite is The Hire, starring Clive Owen.

Some spinoff series online, as well as commercials and promotional skits, have attracted huge audiences and generated revenue beyond the marketing spend. The Old Spice commercials are famous for this. While these pieces definitely serve a greater purpose, audiences have awarded them the respect and merit of being autonomous content online. When this phenomenon happens and commercials become Internet memes, it is hard for me still to call this material “marketing.” Likewise, when spinoff series build so much traction that they turn direct profits for the label, I owe them respect as autonomous entertainment product.

When first approaching the subject, I assumed all web endeavors were only ever marketing extensions that inspire viewers to spend money in a way that indirectly supports the content producer. For example, a sponsored video promotes a product that, if purchased by consumers, can afford new content produced in the future. If a series makes money on a DVD release and not by itself online, the web release is really just promoting home video sales. In this case, the web endeavor is still a marketing extension – even if it is promoting sales of the exact same material. Therefore, it is important to distinguish between content that makes money through viewership on the Internet and content that makes money elsewhere.

Long story short, I think it’s fair to say that any content that makes money online deserves the “New Media” industry label. So, for the sake of iteration, let us expand our definition to include “content financed, produced for, and released exclusively on the web that autonomously drives traffic or revenue online.”

All of that is well and good, but I am still stuck on the evolution of the Internet. In five years, there will be little-to-no difference between the way television and web video are distributed. The pipes will be the same and the viewing devices will be the same. So what then is the difference between “New Media” and other forms of content? While television and web may converge, audiences interface with these platforms very differently.

Next week, we will address the penultimate quality of “New Media” entertainment: active viewership.

Will Facebook Rule the Future of Social?

Facebook KingFacebook is very powerful right now, pervading our everyday lives and businesses. And they have no intention of stopping. While not as acquisition-hungry as Google, which has a reputation for buying up every great small business in sight, Facebook is expanding scope like hotcakes. Places, Deals, Marketplace, Photo Recognition, Questions, Games, Groups, Mobile…the list of Facebook products grows everyday.

So my question stands:  Will Facebook rule the future of social?

No, I don’t think so. Facebook, while omnipresent, is not currently based in natural human exchange. Pokes, wall posts and events are digital abstractions of real dialog. The future of social will be…more social.

Facebook is a closed social graph. And by that, I mean it’s A) restricted to the people you “friend,” B) restricted to the people signed up on Facebook and C) restricted to active device users. This type of social network is limiting and far too much effort. Worse, it’s not human. In real life, we meet people and they become acquaintances. We spend more time with people and they become our friends (or enemies). There is no mutual contract, no “friend” button. Venture capitalist Fred Wilson touches on the unnatural effort involved in curating your various network lists when he forecasts the Implicit Social Graph.

Social technology will evolve. I predict that a platform with the most open, implicit social graph and a passive user experience that promotes true human interaction by keeping your phone in your pocket will take the cake as social media king. Facebook is not situated, nor was it founded, to promote such an organic vision.

What do you predict? Do you think Facebook is an unstoppable behemoth or will the value of real life ultimately take it down?

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Imperial Crown (Heraldry) vector art via Wikimedia Commons.