July 7, 2005

FORWARD TO THE PAST
Part IV - The End

Part I, Part II, Part III, Part IV

The Next Commercial Step... Content Variation

When you have a system that basically works… and the current one works extraordinarily well… the future becomes about maintenance and expansion of the market. DVD did that brilliantly. It was a new media that actually made sense financially and logically. The hope is that HD-DVD and or in-home digital delivery will be too, but as I've written before, I see huge potential pitfalls.

So what other option for expansion is likely?

Tailoring the entertainment opportunity has already proven to be an intriguing business opportunity. Clearplay has survived industry legal attack so far, the idea of a system that doesn't sell copyrighted material at anything less than the normal amount paid for said material, adjusted to the tastes of a niche audience, is, while galling to artists, a logical bit of business. How long before the industry decides to control this niche itself, releasing a variety of versions of many of their titles… which will either succeed or fail on the market interest?

In theatrical release, Paramount's 1978 effort to do a mini-release of Saturday Night Fever as a PG, with six minutes of material excised, hoping to expand the audience for the R-rated smash, was a failure.

Movie marketing has taught us that selling more than one idea at a time is usually the path to disaster. Is a movie released with varying ratings inevitably going to fail? Perhaps. This may only be a Home Entertainment option.

This week in the L.A. Times, Patrick Goldstein wrote a piece about the success of "unrated" versions of R rated comedies in the DVD market. This is kind of the opposite of the Clearplay paradigm. The first of the two most memorable versions of the expansion concept was Bob Guccione's 1979 Caligula, shot as a "real movie," loaded with high-end Brits from Peter O'Toole to John Gielgud and beyond. And, when it didn't get much audience interest, he added separately shots scenes of hardcore sex to a film that was already a soft X.

The second event was an expenditure of tens of millions of dollars for additional sequences exclusively for the extended versions of the three Lord of the Rings movies.

Just this last year, Warner Bros and their financial partners on The Polar Express avoided a major derailment thanks to an IMAX success that was a truly different film experience than the traditional projection that rolled out across the country.

Robert Rodriguez scored a big success with 3-D in the third of his Spy Kids series. But the numbers for his new Shark Girl & Lava Boy would suggest that the draw of a novel idea is over by film two. What does this say for Jim Cameron's ideas of using 3D? Probably not too much… a good Jim Cameron film will succeed in any medium.

Analyzing and solidifying the various markets is probably key to long term success using either the added or subtracted materials model.

Why Hasn't PPV Worked?

Pay Per View has never become the cash cow the studios hoped and expected it to be. Why? The range of available titles has expanded and already cable companies like Comcast and satellite operators like DirecTV are pushing DVR technology that allows buy-and-record ease that allows not only starting, stopping and time shifting, but endless repeat viewings. So perhaps the expansion of DVR will start to make PPV a more popular choice… or maybe not.

If you are a cable or satellite subscriber and you are paying for movie channels, you are into at least $70 a month already. Hundreds of channels, including dozens of commercial-free film channels are already being paid for. Today at 5p PST, fourteen of forty-nine channels on my DirectTV are showing films released in the last 24 months. And truth be told, I've seen every one of them. But I'm not a regular customer. And I have no fewer than 30 hours of films sitting on my Tivo that I really want to watch. I'm not sure that I need to spend $4 more on Team America: World Police, even though I am interested in seeing the film again. (And here's a secret… $4 is not a price point I worry much about spending.)

But even those who are a waiting audience, anxiously looking to view these films, the alternatives make more sense on every level but convenience. For just $20 a month or less, a customer can rent an unlimited number of titles on DVD at either retail outlets of via the mail, keeping three or more on hand at any time. Currently, DVD is scheduled ahead of PPV, so the product is closer to the original release date.

Logically, a $2 Pay Per View price point could go a long way towards breaking the logjam. But once you get to that, you start looking at new ways of repurposing the materials. The idea of something like NetFlix, in part, is that not everyone turns their DVDs over every week or very often even. The demand issues are helped by queues that offer fulfillment when titles are available. How many people would watch movies that are now part of the PPV window? How viable would a $25 a month channel that offers, say, 30 PPV window movies a month and shares revenues between studios be? Maybe the viable price point is even higher. Then the question is, as it always seems to be, how much would such an opportunity cannibalize other cable/satellite options?

Does Simplification/Ease Of Access Actually Help Anyone… Even The Consumer?

As we consider the endless possibilities for the future of distribution opportunities, there is an issue that is all to easily overlooked. People like structure.

The offer of more consumer freedom is not necessarily in anyone's best interest. A big part of the wonder of the DVR and the iPod is that it disconnects the aggressive user from traditional structures of receiving visuals and music. The iPod, unlike the DVR, is not directly connected to the newest stream of content at all times. If you have your 200 favorite albums with you at all times, how motivated are you to buy new music?

The new music opportunity of the moment is satellite radio. What's the hottest music channel, in terms of motivating sales? Beatles music, all day, every day. What's the hottest come on of the summer? Baseball on radio, available from all the other markets. What is Sirius betting its future on? Howard Stern listeners buying in droves. Niche, niche, niche.

The niche future is inevitable. It is the internet paradigm and in a world with too many options, making your choices is a requirement of not being buried daily in indulgence.

But the studio movie business is a mass market business. The average film needs about 25 million consumers, whether in Theatrical or Home Entertainment to make a purchase before the ancillary market in order to break even.

So the question is, can a marketer engage 25 million people in a short time by giving them even more options?

How Do People Feel About Spending On Entertainment... It's More Than Numbers.

As much as I linger on the accounting, the market for entertainment is not a pure numbers play. No matter how hard we try, this is not a widgets business. It really is, as the song says, like no business I know.

About three times a week, every week of the year, major studios release brand new product into the marketplace that requires people to take money out of their pocket on impulse. The high-earning life span for the film tends to last less than a year. The only real way to expand the most successful brands is sequels or TV spin offs.

A successful TV show has a life span of no less than five years. Coca Cola and McDonald's are many decades old. A clothing store like the Gap, which changes merchandise almost as regularly as the film business, brands the store. But in the film business, seven majors now battle one another, only Disney building on brand aggressively with its family product.

People want entertainment. And for those who want to go out, the movies are still the cheapest, highest quality game in town.

Home Entertainment is a different thing altogether. And the big question now is how much more, in what context, that audience can be caused to spend more than they spend now. There are hundreds of variations on the answer for individuals. This goes back up to the issue of whether indulgence of the consumer works for the industry.

How do people value each of the experiences with filmed entertainment?

How many times are people willing to make an individual investment in any one piece of entertainment and how many times in one year-long period will they spend?

Can the novelty of DVD sell-thru be maintained or replaced?

How many kinds of spending options can be offered before cannibalization starts becoming a major problem?

Should the business be building as big a cushion as possible for an inevitable fall?

CONCLUSION

The future may just not be pretty. The simple fact is that consumers will have built-in expectations for the digital delivery experience that have matured over the last decade. Expanding the opportunities for people who aren't going to the movies or buying DVDs or even those who are doing neither, so that this group is willing to add even incremental dollars into the overall filmed entertainment pool makes sense.

But there is every possibility that the effort to expand the market could devalue the bigger spending market that already exists.

Ultimately, the first big step would be getting studios and filmmakers to stop spending every dollar they can get their hands on like drunken soldiers on leave. The greatest danger to the film business is not lower ticket sales or DDV sales flat lining, but the still rising cost of production and distribution.

If you have to spend every dollar you earn, do yourself a favor and make more movies, not more expensive movies, and plan to designate some of the less successful titles as direct-to-video or PPV first run.

The expectation of significant yearly growth has become a sickness that is counterproductive. Taking a step back to move a step forward is a necessity. But taking a bunch of steps with the hope of making a giant leap… well, in space, no one can hear you scream.

E-ME. Step away from the step!