John August

Film Industry

Hollywood by the numbers

Film Industry, Geek Alert

Give Horace Dediu a bunch of Hollywood data and he’ll make [some great charts](http://www.asymco.com/2012/02/07/hollywood-by-the-numbers/) that test your hunches.

For example, it’s very unlikely to have a $200 million blockbuster outside the summer or Christmas windows:

blockbuster seasons

(That outlier from 2004 is [The Passion of the Christ](http://boxofficemojo.com/movies/?id=passionofthechrist.htm).)

Deidu asks a question I’d never considered: How feasible is it for an outside company to become a major distributor?

> The top five [studios] were earning 64% of revenues in 1975 and the top five were earning 60% in 2011. One of the top five from 1975 is no longer in the running this year (MGM) and one new major was added (Buena Vista, owned by Disney).

> There has been one other notable change: Columbia was acquired by Sony but stayed out of the top 5. Beside Disney there is one new significant entrant in Dreamworks gaining share in the last decade.

> But the prevailing impression from the data is that the incumbents remained as such during the last four decades. There are many small studios but they have not “disrupted” the market by shifting significant revenues out of the hands of the majors.

The same big studios have been dominating the business for *forty years.* That’s remarkable stability for an industry that feels so tumultuous.

Dediu’s [whole analysis](http://www.asymco.com/2012/02/07/hollywood-by-the-numbers/) is worth a look. Or a semester’s study.

How to write Groundhog Day

Books, Film Industry, Genres

I’ve only just started reading Danny Rubin’s [How to Write Groundhog Day](http://www.howtowritegroundhogday.com/), but it’s promising enough that I think many screenwriters will want to take a look at it this weekend.

It’s [available on Kindle](http://www.amazon.com/gp/product/B0072PEV6U/ref=as_li_ss_tl?ie=UTF8&tag=johnaugustcom-20&linkCode=as2&camp=1789&creative=390957&creativeASIN=B0072PEV6U) and Nook, on sale for $9.99 today.

Rubin walks the reader through the genesis of the idea — and all the other ideas competing for his attention. The ebook includes a lot of marked-up pages from his initial notes and drafts. Most of these are readable on a traditional Kindle, but it’s one of the rare titles that actually works better on an iPad.

Groundhog Day is nearly 20 years old, but still feels very contemporary in terms of high-concept comedies, with its simple-but-clever premise and curmudgeonly fish-out-of-water protagonist. My only caution to readers is that even though we keep making variations of this movie (c.f. Click, Liar Liar, A Thousand Words), the film industry itself has changed, so descriptions of the business and process might not reflect current reality.

Standardization and differentiation, or why UltraViolet is probably doomed

Film Industry

At CES last week, I participated in a [Variety panel](http://www.variety.com/article/VR1118048501?refcatid=1009&printerfriendly=true) about digital distribution — what we used to call home video.

As I’ve discussed before, I’m skeptical of digital lockers like UltraViolet. I don’t think consumers understand the difference between ownership and rental of intangible goods. They just want to watch their movie with the least hassle possible.

But I could be wrong. Lori MacPherson, executive VP of global product management at Walt Disney Studios, made the single best argument I’ve heard for why lockers might work:

> The exciting thing for content in the cloud is any consumer who has used an ATM machine should intuitively understand what it is now.

Her point is that just like you can go to any ATM and get your money, you should be able to watch your movies from any device, without worrying about the technology or the infrastructure behind them.

It’s a promising analogy.

While my mom steadfastly refuses to use ATMs, most Americans are comfortable with them. Every ATM is a little bit different, just like every DVD player is a little bit different, but the workflow is consistent: you put this in, you get this out.

Of course, readers old enough to remember early ATMs will recall that it wasn’t all smooth sailing. There were some mechanical problems with early machines, but the bigger issues were structural. Certain ATMs would take your card, others wouldn’t. Some banks had longer PINs. Sorting this out took years — but it got sorted out.

In a strange way, this history helps validate the ATM analogy: UltraViolet and similar ideas should be expected to have problems that require iteration to fix *just like ATMs*, but will eventually work great. Right?

Unfortunately, movies aren’t much like money.

Money is completely fungible. You don’t care which $20 bill comes out of an ATM, or how it looks.

You do care about movies. You can’t substitute one for another.

Despite the similarities, [Friends with Benefits (Timberlake)](http://www.amazon.com/dp/B00650SSWG/?tag=johnaugustcom-20) is not the same as [Friends with Benefits (TV series)](http://www.amazon.com/dp/B005G6L1NI/?tag=johnaugustcom-20), nor is it interchangeable with [No Strings Attached](http://www.amazon.com/dp/B004RC8NUQ/?tag=johnaugustcom-20).

Each time you click “play,” you expect to get exactly the same movie you purchased — and you want it to play at a good resolution for your screen, with good sound.

Audio and video problems are largely solvable by standardizing around formats that can scale based on device and screen size. Technically challenging, but do-able. (Apple does it fairly well today with movies sold through iTunes.) Some good news: the turmoil surrounding HD-DVD and Blu-ray should convince all parties involved how important it is to agree on formats.

I suspect they’ll agree on pixels and waveforms and overlook other crucial elements.

Standard but different
—-

The main reason ATMs are so easy to use is that every ATM is basically the same. Put in your card, then type in your PIN. Hardware varies — sometimes the keypad has physical buttons, other times it’s on the touchscreen. Software varies, with some banks organizing their menus differently. But once you’ve used one ATM, you can use any ATM.

For customers, ATMs are *standardized.*

For banks, ATMs are *differentiated.*

Manufacturers create different models of ATMs for different locations and uses, at different price points. Their customers — the banks — can pick which machines they want, with which features. Some features are user-facing (touchscreens) while most are important only to the banks (cash capacity, video recording, data management).

On the Variety panel, each of the studio reps stressed the importance of product differentiation. Remember: They’re marketers. It’s in their DNA.

Studios don’t want to just sell you a movie. They want to sell you more: special features, director’s commentaries, tags that let you share your favorite moments with your friends. They have a lot of ideas, many of which sound great. These enhancements would allow the studio to price the movie at different levels for different consumers, much the way special-edition Blu-rays command higher prices.

Device makers — the Sonys and Samsungs and Toshibas — also want to differentiate their products. They need to give you features no one else does, or else they’re simply competing on price. (And once they’ve sold you one UltraViolet player, they need to find reasons to sell you another in a few years.)

Differentiation allows choice. Personally, I want to be able to buy the director’s commentary. My brother probably doesn’t. I may prefer one manufacturer’s interface to another’s, or choose to buy a combo unit that can do more than just play UltraViolet movies.

With UltraViolet and its kin, we choose between hardware and software options based on our needs. In the ATM analogy, we’re more like banks than bank customers.

Standardization is good. Standardization makes things easier for the buyer: any of these products will meet my needs.

Differentiation is good. Differentiation allows buyers to get exactly the features they want: this product is best for me.

But standardization and differentiation are *competing forces.* You can only differentiate your product by moving away from a standard.

Differentiation inevitably makes things more complex: Which version of this movie should I buy? If I buy it, will it play on my TV? Will it play on this new phone I’m considering buying?

Today’s problems vs. tomorrow’s problems
—-

UltraViolet and solutions like it are designed to take away these nagging doubts — “Don’t worry! It will work!” And it should, for a while. The first titles will adhere to a narrow spec, and should play just fine on the limited hardware available.

Once you move beyond the pixels of a movie, you’re really selling software. Software is complex and prone to breakage.

Let’s say Disney comes out with a version of The Muppets that lets you Muppet-ize your Facebook friends. It’s fun, and works great on all the 2012 players.

Two years later, that title breaks on Sony’s 2014 model.

Who’s responsibility is it to fix that, and what is their incentive?

1. Should Disney fix it? They’re busy working on 40 other movies, and might not be able to fix it anyway. In all likelihood, the Facebook Muppets feature was subcontracted to an outside firm, which may no longer exist.

2. Should Sony fix it? How many resources should they devote to a patch for a two-year-old title from one of their competitors?

If you’re the customer who bought The Muppets, this experience may have left you dissatisfied and less likely to trust either Disney or Sony.

To me, UltraViolet is a chimera. It attempts to fuse together the permanence of DVDs with the flexibility of digital through the magic of the cloud. It turns studios into software developers. This seems foolish; they barely know how to make movies.

Five years from now, I don’t think we’ll be talking about UltraViolet. I don’t think it will work.

And in my cynical moments, I suspect the studios know it won’t work. They see it as a value-add to DVDs and Blu-rays — “includes free UltraViolet Digital Copy” — encouraging shoppers to keep putting discs in their carts. That may help prop up home video sales for a few years, so speaking as someone who derives income from DVD sales, I guess that’s a good thing.

But I don’t think UltraViolet will catch on with consumers. The amount of time and energy the studios will spend trying to make it work would be better invested in other business models.

Disney easily has the brand power to create something like HBO’s Go. Other studios would be wise to aggregate their libraries by genre: a subscription-based outlet for all the comedies of the last 20 years would be worth a lot to many viewers.

And while the studios are reluctant to cede too much power to Apple, Amazon and Microsoft (XBox), that’s where consumers feel safe buying digital content. Getting a movie through any of these services is as easy as using an ATM. Trying to duplicate this experience through digital lockers feels misguided.

First-sale doctrine

Film Industry, Rights and Copyright

Craig and I talk a bit about the effects of first-sale doctrine in this week’s podcast, but we don’t define it. So let’s venture over to the [law library](http://www.aallnet.org/main-menu/Advocacy/copyright/firstsale.html):

> The “first sale” doctrine says that a person who buys a legally produced copyrighted work may “sell or otherwise dispose” of the work as he sees fit, subject to some important conditions and exceptions.

> In other words, if you legally buy a book or CD, “first sale” gives you the right to loan that book or CD to your friend. Libraries heavily depend on the first sale doctrine to lend books and other items to patrons.

It’s easy to understand first-sale doctrine in relation to traditional books. *Of course* you can lend a book to your friend. You’re not making a copy of it. You’re literally handing a collection of atoms to someone else, and while she has it, you have no use of it.

Everything gets more complicated with bits.

How do you lend an e-book? Amazon has a way to [lend Kindle titles](http://www.amazon.com/gp/help/customer/display.html?nodeId=200549320), but it’s cognitively burdensome: a flag that’s enabled per book, with specific restrictions. [Authors aren’t happy](http://blog.authorsguild.org/2011/11/14/contracts-on-fire-amazon’s-lending-library-mess/), and understandably: they’d rather have buyers than borrowers.

I’d argue that first-sale doctrine has a similarly-sized impact on screenwriters, because the profitability of the film and television industry depends on home video — and without profits, we don’t get hired to write movies.

Home video started out as a rental business. Videocassettes were initially expensive, beyond what an average consumer would pay, so they sold mostly to mom-and-pop video rental stores and chains like Blockbuster. Videocassettes became cheaper to produce — and DVDs cheaper yet — which led to a market for sales rather than just rentals.

Studios love selling movies on DVD and Blu-ray. Their libraries become valuable assets, waiting to be tapped. With each new technology, and each new director’s cut, they can reissue and resell old titles.

One problem, though: rentals are still around.

Rentals have always relied on first-sale doctrine. If Blockbuster buys a legitimate copy of Charlie’s Angels, they can rent it as many times as they want. Obviously, Blockbuster would prefer to buy that copy for $5 rather than $100, but the price isn’t what makes it legal or illegal.

The studios, like the novelists, would rather have buyers than borrowers. When Warners seeks to create a [56-day window](http://www.reuters.com/article/2012/01/06/idUS87226089920120106) between when a movie becomes available for purchase on DVD and when it’s available for rental at Redbox, that’s a studio talking about their goals and policies, but not necessarily reality.

First-sale doctrine means that Redbox/Netflix/whoever can simply buy a DVD and rent it out. They may not be able to buy it directly from Warners, or at the price they’d like, but they’ll be able to get it. They’ll buy them at Wal-Mart if they have to.

Where it gets murky
—-

When talking about DVDs, we’re talking about atoms — aren’t we?

It’s easy to argue that the digital information on a DVD is essentially software, and anyone who’s installed software is accustomed to clicking on End User License Agreements that may constrain what we’re allowed to do with it. The laws regarding these clickwrap contracts are head-spinning, but most of us just click ‘Accept’ and move on.

So far (at least to my reading), none of the Hollywood studios have been able to convince the courts that a DVD is an analogous to a “license to watch” a movie. DVDs are treated like books, available to lend or rent or re-sell.

I don’t think first-sale doctrine is going anywhere, at least for physical media. Try telling Americans that the DVD they bought at Target can’t be loaned to their brother. It’s a non-starter.

Many DVDs sold in 2012 will include a bonus UltraViolet copy. Does first-sale doctrine apply here? To the degree any consumer understands UltraViolet, I doubt they’ll think of “ownership” in the same way they do with physical media. It’s a practical issue as much as a legal one; if users can barely figure out how to get the movie to play on their own devices, they’re unlikely to be able to lend it.

It’s not hard to think of other legally-murky situations regarding first-use doctrine:

* What if your company offered to [edit all that swearing and nudity](http://en.wikipedia.org/wiki/CleanFlicks) out of customers’ DVDs?

* In an effort to combat Chinese piracy, let’s say Paramount floods the Chinese market with low-cost Transformers 2 DVDs. Could an American retailer simply buy them up and bring them back to the U.S., dramatically undercutting the price? (This is a major reason for DVD region encoding.)

As screenwriters, what would we like to see?

Like I said at the outset, if the film industry can’t make money, we’re out of job. The same holds true for grips and gaffers and wardrobe PAs.

But for screenwriters, home video matters even more directly: our residuals for home video are simply a percentage of the distributors’ income. Bluntly, the more they make, the more we make.

From this observation, we can derive some principles:

* **We make more from DVD sales than DVD rentals.** If Redbox buys one copy of The Hangover 2 and rents it out 100 times, we’re only getting residuals for that one copy sold.

* **Price matters.** That expensive Blu-ray means more residuals than a normal DVD. To the degree UltraViolet helps prop up DVD prices, that benefits us.

* **Netflix streaming is worth more than disc-by-mail Netflix.** Traditional Netflix buys just enough DVDs to meet its users’ needs, then mails them around forever. On the other hand, when studios license movies to Netflix (or Amazon, or other online streaming outlets), screenwriters take home a small percentage of that money in residuals.

* **In digital, rental isn’t a bad thing.** When someone rents a movie through iTunes, that transaction generates residuals. Because the price point is fairly low, the money we’re bringing in is fairly low compared to selling a DVD — but it’s more than the $0 we would have gotten if that same person had rented the same movie at Redbox.

* **We make no money on pirated copies.**

This last point is important. My hunch is that a 56-day window will just push more users towards illegal downloads.

First-sale doctrine will seem like a luxury when you’re making zero sales.