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MAY 2007 |
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Reasons For The Consumer To Convert To Digital Platforms Accessibility: Easy Storage: Instantaneous Retrieval |
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The motion picture industry is
on the verge of yet another technological revolution, but this one will not
only significantly enhance net revenues to producers and distributors, it will
revolutionize the way the industry functions.
No its not HD or Blue
Ray. (I agree with Katzenburg who
recently said these technologies will only be a niche business, for
videophiles. These technologies are
not enough of a technicological advancement). So what will it be? What else is
there? It is the electronic
transmission of movies directly to the consumer, whether for rental or sale,
for storage on personal
Many are not given this
potential a realistic evaluation.
Given the current landscape, producers and distributors need to be
thinking ahead. Many distributors are already finding that their existing
contracts will not give them the distribution rights they need to exploit this
new market. In fact, they may find their entire existing library of films
worthless in the near future.
Since around the turn of the
millennium the industry has been talking about electronic delivery of motion
pictures directly to the consumer.
Forecasts in 2000 indicated that by 2005, or 2007 by the latest, most
films would be delivered electronically to the consumer. Gone would be brick and mortar sellers
or renters of videograms. Consumers
would not have to leave their
Unfortunately, technology
did not quite move as fast as everyone had hoped. Today, VOD and electronic sell
through (delivery of a full electronic copy of a movie to the consumer, where
the consumer can store it on their computer and/or burn it themselves on to a
DVD) are only a fraction of total revenues from the exploitation of a movie
(only about 3% in 2006, growing to about 13% in the next 5 years). The reason for this slow growth is not
distaste by the consumer for this medium. The ability to move digital
information to the consumer is still relatively slow (today if you want to
download a full movie to your computer or video IPod its going to take you
hours), not to mention there is still no affordable, or convenient, hardware to
store and access what you have bought, let alone a simple way to buy it (the
recent introduction by Apple of the Apple TV is the beginning of this
change). But once
technological changes occur, and they will in the coming years, electronic
delivery will supplant DVD, and the video industry itself. Unlike the advent of DVD, this change
will be the creation of a new system of delivery of film to the consumer, as
revolutionary as the advent of video itself.
The current estimated growth
in electronic delivery methods is based on present technology, as well as a
failure to truly recognize the potential of this technological change. Talk to a studio, and you get the same
naysay you heard when video was introduced. Talk to an indie, and you hear the
same excitement and vision you heard 25 years ago when video started. Once delivery speeds increase and
greater storage and retrieval devices are marketed, at affordable prices, the
exploitation of movies will be quickly move to this form of distribution.
Possibly in as short as 5 years from mass introduction. There will no longer be a need for
DVD, Blockbuster or Walmart to get your movie. Bah humbug you say? Never
happen? Well, it’s already started with music (music downloads accounted
for only about 10% of total music revenue in the
History could repeat itself
when we look at the mass introduction of DVD and how it changed our
industry. At the beginning of
2000, DVD’s accounted for less than 1% of the revenues for movies, as
very few people had a DVD player. But 91% of the country had VCR’s. By 2005, 76% of the country had DVD
players, and videocassette went the way of the 8-track tape, with very few
video distributors still manufacturing videocassettes. That happened in only five years! The
key was not the invention of the DVD. That occurred many years before
(officially launched in 1995 but invented as an offshoot of CD some time
earlier). What happened was the mass marketing of DVD players at under $200, as
well as an affordable price point to buy DVD’s. DVD was a significant change from
videocassette. Quality, small package, easy shuttling (no more rewinding), and
other benefits gave consumers a compelling reason to buy DVD’s over
videocassettes, and, more importantly, convert their existing video library to
DVD. The advent of DVD resulted in
a boon to the industry, and changed the dynamics, with video revenues now
accounting for more than half the revenues in the life of a movie. Moreover,
because the cost of delivery of a DVD was the fraction of the cost of delivery
of a videocassette, profits soared despite significantly lower prices. The key was that consumers
found a product that gave them a reason to update their “library”
with better quality, easier accessibility, and less storage requirements. Once you experienced the thrill of not
having to rewind a cassette, you never went back.
So too will be the case with
electronic delivery. Accessibility,
easy storage, instantaneous retrieval, will all be compelling reasons to
convert. When the consumer can
replace their DVD player with a similarly sized device that will store
thousands of HD quality movies, instantaneously accessible, to play on their TV
(all at comparable prices) we will see the same phenomenal growth in revenues
and change over that occurred with DVD.
More ominous to some will be the supplanting of DVD, and, frankly, video
as we know it (just as we are
seeing in the music industry where consumers are starting to buy less and less
CD’s and choosing to building their own electronic song library via
I-tunes and other similar download sites.)
Since this new technology
usurps videograms, not upgrades it with another format, there will be a wholesale
change in our industry. In the past 25 years every other technological change
was either a format change (cassette to DVD), or the advent of a supplemental
delivery method (video supplemented TV and theatrical, not replaced it). Not only will brick and mortar sellers
disappear, but so will all the video distributors, manufacturers, middlemen,
retailers and other entities in the video distribution stream since electronic
delivery does not entail the manufacture or shipping of physical goods. (we already
have seen VOD replace PPV, and VOD is making significant in roads in replacing
traditional brick and mortar rental).
Conversely, we will likely
see expansion of the revenues and business of cable, wireless and satellite
providers, who, in all likelihood, will now act as distributors AND retailers
of entertainment. First and
foremost, consumers want to view movies on their TV or other
The problem video
distributors face today is that a distributor with a library of titles more
than a few years old may not have the legal right to distribute their films
electronically. Conversely, a
producer may find themselves with new rights to exploit. If delivery of films to the consumer
becomes entirely electronic, will it be considered video or TV under
today’s definitions? Is
“electronic-sell through” video distribution? Is it some new,
undefined, area in between?
For the past thirty years,
most contractual definitions of video distribution relate to the distribution
and sale of “videograms”.
This is true in the 2005 version of the IFTA standard agreement, used by
most distributors and sales agents at the markets. Videograms are universally defined (and
are so in the 2005 IFTA definitions) as putting a film on some kind of physical
medium, whether that be a videodisc, DVD, videocassette or some other form
“yet to be devised”. However, “download to burn” or
“electronic sell-through” does not fit that definition. Both are electronically delivered. There
is no physical medium on which the film is placed and then sold. Hence, barring an adjustment in the
contractual wording, video rights do not include electronic delivery. So for most video only distributors,
unless they have expanded their rights acquisitions to include electronic
delivery methods, even recent acquisitions may have a short exploitation life.
Buyers of TV rights should
not rejoice either. TV is generally
defined as some form of electronic reception, but reception for viewing
transitorily on television, and/or specified channels. Most rights granting wording do not come
close to any form of electronic sell through.
Internet and wireless
(handheld devices) definitions don’t always help either. The IFTA definition for Internet is
narrow, limited to “exploitation of a digital [copy] by making it
available on the World Wide Web portion of the Internet in a manner that allows
its transmission to a computer.”
Computer specifically excludes “set top box players or recorders
and handheld devices” under the definition. Further, most
wireless/handheld device definitions are limited to playing the downloaded film
on the handheld device. While VOD
may encompass a significant portion of the future marketplace, it will still
not cover delivery directly to a
While many video
distributors who have contemplated the future electronic delivery of movies to
the consumer have added electronic sell through to their contracts, this only
helps going forward. Not for films acquired 3 or 4 years ago, or more, where
video distribution was limited to videograms or their equivalent. If you, as a producer, licensed rights
to films media by media, you may have new rights to license in the very near
future; rights that fall through the cracks of video and TV. (Obviously if the
rights granted to the distributor include all rights “now known or
hereinafter devised,” that’s going to be all encompassing and
there’s no question as to the right of the distributor to distribute the
film via any and all electronic medium.)
Since the industry will have
new media to sell, we will likely have new distributors too. The cable, wireless and satellite
carriers will undoubtedly set up their own acquisitions departments (much like
HBO has done, and Blockbuster did with DEJ) to directly acquire and exploit
these new rights through their established delivery systems. But existing video
distributors, at least in the beginning, will have something going for them;
cash. They still have huge economic power to buy rights, albeit to resell to
the television and wireless carriers.
And what about the Internet.
Why cannot a producer set up their own distribution operation on their own web
site, and avoid distributors and carriers altogether? You don’t need a big manufacturing
and distribution business or the clout to vie for shelf space when you are
talking about electronic delivery.
Assuming you will be able to access the fast delivery methods, there is
still the problem of making people aware that you’re product exists and
differentiating that film from hundreds, if not thousands, of other films. This means advertisement and promotion,
not just for your film, but where to buy it. In other words, if you are selling
a film on your internet site, you not only have to entice consumers about
buying your product, but you have to entice them to go to your site in the
first place. This is not to
say that producers will not be able to succeed themselves. There are certainly
some well known successes today of direct sell through. But each of those successes came from
significant awareness, paid for or otherwise, of the film to attract the
consumer. This is why, as far as
the internet goes, brand name electronic sites, such as MySpace, Itunes,
YouTube, Amazon, and 111pix.com to name a few, may be the site of choice to buy
electronic copies of movies. Each of these sites has recognized this potential
and are trying to catch an even greater share of the public.
As the industry gathers for
another Cannes Film Festival and market what should be utmost on the minds of
both producers and distributors is the’ ‘new delivery system’
and how it affects the rights you are negotiating. Because the electronic
transmission of movies directly to the consumer, whether for rental or sale,
for storage on personal
Either way, delivery of films to consumers will change. Giving new opportunities to producers, and a new breed of distributors and retailers. Opening the non existent borders of a whole new digital world to traverse and conquer.
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Reprinted with permission by The Business of Film
Law
Phone: (310) 247-2790; Fax: (310) 247-2791; Internet: www.thefilmlaw.com
©
2000-2007