Wednesday, 4 October 2000

RANTING & RAVING

Inside.com got an actual exclusive, smartly, from a debate at Harvard between Jack "Boom Boom" Valenti and law professor Lawrence Lessig. And as much as Valenti can rile me, he often makes complete sense to me when he is backing away, defending a position from people who are completely outside the industry...like Professor Lessig, who seemed quite willing to prove, yet again, that the people most dangerous to the creative community are people who never create anything themselves -- except for debate.

I was not there, so I can't really speak to the nuances that Inside's correspondent, Laura A. Siegel, may or may not have been left out of her piece. But what I got was this: you had Valenti, as the defender of the rights of artistic ownership, versus Lessig, as the defender of the public's right to pretty much do as they please. Valenti had points deducted for not giving answers as to where every line should be drawn. Well, as head of the MPAA, which will be duking these details out in Congress, he would have to be an idiot to give any specifics that could be hung around his neck later, wouldn't he? Lessig got points for being brash and uncompromising.

But here's the rub. Lessig seems to have embraced the Communist ideal as the strategy for the future of the Internet. Now wait, before you start calling that comment McCarthyesque, understand that I don't consider that an insult. The idea of living in a society that shares everything freely is quite wonderful. Russia and China and many others have shown that it is a virtually impossible ideal to maintain...and that's the problem. Even in this debate, it was pointed out that one of the guys involved in the case over the publication of a program that can break DVD encryption was shouting for his civil rights, since his magazine, 2600, didn't actually break DVD copyrights but "only" gave their readers the tools to do so.

To quote, "I thought a thief was someone who steals something with the intent to steal something. I learned that a thief is someone who writes software that can be used to steal something. I also learned that someone who calls attention to source code that can be used to steal something is a thief. I'm wondering how far this can go."

This is a valid and pressing concern. On both sides. "Fair Use" has become "All Use." And that's not fair to creative talent looking to make a living off their efforts, physical, spiritual or intellectual. On the other hand, the idea of such harsh restrictions on content that making a video of a show on cable suddenly brings stormtroopers into your living room is horrifying. The thing is, the entertainment industry has, for the most part, been pretty generous with its copyrights. And, for the most part, the public has never taken grotesque advantage of the lack of enforcement. Until Napster. Until the idea of being able to download DVD movies in pristine quality over a T1 line in an hour or two.

The music business has set themselves up as fall guys here because they have taken such advantage over their customers in the evolution of the CD. Initially, as I'm sure most of you know, the $15+ CD pricetag was blamed on the high cost of making and marketing a new format. Now, the CD is cheaper than tape. Yet, the price is as high as ever and rising. There is an argument to be made for kids who scream, "You sell me a CD that costs you less than a dollar to bring to market for $16 and you expect me not to steal a song here and there when I can?!?!?"

But the movie business is not the CD business. Going to the movies has gone up in price, but incrementally, 25 cents or 50 cents a year. And while there are $10 theaters in New York City, there are none in Los Angeles or Chicago and the average ticket price is still under $6.00 across the nation. But even more importantly, the cost of production for a movie is, as Valenti argues, so high that most profit is now made exclusively in ancillary markets. Even the shorts business, which is still not a Web-based moneymaker despite the fact that companies like AtomFilms pay no more than $500 a film and often as little as $50 for the content that makes up their sites (or nothing in the case of sites like iFilm), creates a false impression that free movies can be a workable business. The people making the shorts that you see on those Websites are all taking a financial loss with the goal of promoting their way to a moneymaking job in Hollywood. That includes the guys who made the big hit short for $8000. They ate most of that $8000.

The music business has significantly more options in adapting to the reality of a Napster-accessible world than the movie business. If each record company offered, as has been proposed, open, legal downloads of every song on their label for, say, $10 a month, they could still make a profit. Some say that their profit would be greater than the profit that they make now. But even if it's less, life will go on if the record companies stop gouging consumers.

Now let's set up that analogy for the movie studios. Take The Warner Bros. Web Net. (I'm sending in my copyright and URL reservation right now!) 22 brand new feature films a year at a cost to the studio of just under $700 million. Let's say that it costs another $50 million a year to operate the network. And the studio has to pay residuals and back end to the tune of 10 percent of overall gross. So in broad terms, let's say the bill is now up to $850 million for product.

Did you know that HBO spends $1 billion a year for programming, between the costs for existing movies and original movies and series? Did you know that HBO generates about $3.5 billion in the U.S. alone. (Here's the formula: $12 a month, 12 months a year, in 90% of America's 27 million cable-ready homes as of last year.) And the U.S. makes up only about 42 percent of the world's cable-ready marketplace. Spending that $1 billion on programming, HBO had pre-tax earnings of $527 million in 1999.

A studio like, say Warner Bros., may generate $1 billion in domestic box office in a year, buoyed by another $1.5 billion in ancillary revenue. That's a good year. If you take that $700 million cost for production and add another $600 million in marketing costs, the studio is probably just getting into black ink before foreign box office dollars start rolling in. And this is in a really good year. And that's before fixed costs.

If the studios divvied up the revenue from HBO, Showtime and Starz/Encore, they'd have about $6 billion in revenue in the U.S. market, which continues to expand to more homes every year. Isn't that enough? The answer: no. Because there are six or seven major studios and only one HBO. America's willingness to pick up the slack is a question mark. And 44 hours of programming a year (22 movies @ 2 hours a pop) doesn't begin to fill the pipeline in a competitive way.

So, let's throw it all into the pot and see what happens. Last year, Sony's movie divisions generated $4.6 billion, resulting in pre-tax earnings of $362.5 million. (That includes foreign distribution income and revenue for already-produced films.) So, Sony Movies generated 31 percent more revenue than HBO and generated about 45 percent less in earnings. Now, Sony didn't have an exceptional year -- or even a particularly good one. But the most successful studios are operating on margins of no more than 15 percent in their best years.

Even if one figures that an open Internet system can replace, in some form, the home video cassette/DVD in the ancillary business, you're still looking at a need to produce about $10 billion in revenues...something that even cable can't do for itself at this point.

Oy, have I gotten off track. But you get my point, I hope.

I do believe that pay-per-view will eventually become a standard for the exploitation of ancillary rights to motion pictures. But we are a long way away from that and even when we get there, the industry will never be able to afford to lose any more of the ancillary dollars than it is currently losing through "Fair Use" video taping and illegal domestic piracy. The movie business is stupid enough as it is. It simply will not survive any further tightening of the margins.

Now, it may not be fair to Lessig to say that he wants a complete free-for-all. He does concede that there is a value to copyright. But anything more than 14 years for a copyright seems to raise Lessig's ire. He also doesn't believe in extending copyright to the estate of a deceased creator, which is now the law. Inside's Siegel quotes the exchange with Valenti saying, "This is an issue over which intelligent men can differ. And Lessig responding, "None that I've met."

Again, the words of a man with nothing to lose. It is a basic part of all cultures that possession retain a value over time. What is the difference between a chair and a manuscript? Why is a painting of value forever, in fact, in eternal ascendance and the work of a screenwriter no longer the copyright owner's to exploit after 14 years or 50 years or 100 years?

Lessig says, "The ability of people to take and use copyrighted material consistent with the underlying copyright law has got to be guaranteed." Yes. But that's a moot point. The entertainment industry has rarely had a problem with "Fair Use." Yes, it got them nervous when the VCR was first growing in popularity. But now, the industry is used to the realities of that medium and has found a way to make it highly profitable. The Internet is not the same animal. The ease with which "Fair Use" becomes distribution is a new and unique threat to the future of the film business.

And this is a real threat. It is not like television or home video, which offered alternatives to the moviegoing experience. This is the threat of competition with one's own product, distributed en masse without cost to the consumer, pushing down the margins that are the lifeblood of a very expensive business.

I am not a hardcore pessimist. I do believe that there will be a solution. But the attitude of many, that the studios are just greedy corporate dogs who won't suffer for your indulgence, it's not...well, it is true...for now. But it won't be true as the pipe expands. And legislation is not a threat to freedom under "Fair Use," but an absolute necessity to allow filmmakers to afford to continue engaging in their unique, cash-sucking form of speech.

(The Inside.com piece is here...as of the writing of this rant.)

READER OF THE DAY: "Hi David, Bill Chambers here, long-time reader and fellow online film-guy. I glimpsed you often during press screenings at the recent TIFF, but wading through the media sea to introduce myself proved consistently impossible, so here I am extending a handshake electronically.

My antennae went up this morning when you listed Walter Murch's "In the Blink of an Eye" among your Top 10 movie books: I recently interviewed Mr. Murch for Film Freak Central, my Website, and thought that you and maybe your followers would find it an interesting read, as he goes into as fascinating detail as he did in his tome regarding a range of topics, including non-linear editing and his ill-fated, underrated stab at directing, Return to Oz.

Mr. Murch is a really swell guy, and has to be one of the most generous interview subjects out there. I hope you find him as entertaining as I did. Click here to read the story.

And Bobby is a ROTD who has his own ROTD to offer: "From Sunday's Los Angeles Times Calendar letters section...http://www.calendarlive.com/suncal/20000930/t000093081.html

'Forward' or Backward?

Hollywood has once again passed up an opportunity to practice what it proposes to preach. In the past few years, people of color have made it well known that Hollywood has rested on its laurels when it comes to hiring actors from all walks of life to appear in its films and television shows.

In the upcoming film Pay It Forward, there was a perfect and built-in opportunity to hire a black actor to portray a positive role model ("No, It's Not Too Early to Start Talking Oscar," by Richard Natale, Sept. 10). In the book upon which it is based, the teacher who inspires students to change the world is a black man. In addition, he has a facial disfigurement, which turns out to be more of an obstacle for him than being black.

In the upcoming film, the teacher is white. Why the change? Is it because in the book the teacher begins a relationship with the mother of one of his students, who is white? Is it because they "couldn't find a talented black actor"? I can think of at least three who would be great: Don Cheadle, Denzel Washington or Morgan Freeman. In the book, one of the negative characters is also black. I noticed they left that character in the film.

I can assure you I will not be being paying money to see this film. I do encourage everyone to run out and buy the book -- it is excellent!

ELIZABETH TATUM-HARRIS
Pasadena

Whazzup with that, WB?"

E ME: Good question.