The Filmmaker's Roadmap to Free

...nobody knows what to do right now, me included. The music business model is broken right now. That means every single job position in the music industry has to re-educate itself and learn / discover / adapt a new way. Change can be painful and hard and scary. —Trent Reznor, Nine Inch Nails, July 9, 2009

Chris Anderson’s latest book, Free: The Future of a Radical Price, set off a fevered discussion earlier this year among many in the entertainment and investment sectors. When this all erupted, I collected the book's most cogent replies into one long file and pored over them during a few hourlong jaunts to the gym. I don’t remember too many of those workouts because my mind was racing to imagine how any business could possibly function in a world of free products, especially films.

I’ve already reached some conclusions about piracy and I have some other thoughts the ‘free’ debate as well. However, it seems... well, incomplete to state my own opinion without quoting all the other amazing articles so pivotal in forming that opinion. So I’ll dedicate a series of posts to each of these authors’ articles with links back to their original web sites.

Articles I’ll be listing in the timeline:

1. Free: The Future of a Radical Price by Chris Anderson—The book that kicked off the debate.
   
2. Priced to Sell: Is free the Future by Malcolm Gladwell—Malcolm’s review about Free.
   
3. Dear Malcolm: Why so threatened by Chris Anderson—Chris’ reply to Malcolm.
   
4. Malcolm is wrong by Seth Godin—Notable blogger picks a side.
   
5. Free vs. Freely Distributed by Mark Cuban—Owner of HDNet and Landmark theatres weighs in.
   
6. Chris Anderson, Malcolm Gladwell And A Look At Free by Michael Masnick—A superb overview of the debate.
   
7. Freemium and Freeconomics by Fred Wilson—VC guy, referenced in the final article by Burnam.
   
8. Chris and Malcolm are Both Wrong by Brad Burham—Great piece about the whole debate, Fred Wilson’s article, and the free economy.

At the end, I’ll list my own thoughts in nine sections over nine days:

1. OK, it's wrong... so what?
   
2. The Moral Issue
   
3. Feedback from Pirates: A Case Study
   
4. Digital Theft, Oxymoron
   
5. It's all Fixed
   
6. Creating Value
   
7. The Way Out
   
8. The Key is Generatives
   
9. Acknowledgments & Further Reading

The Constant is Change

In the mid-80s, desktop publishing systems had finally matured to a point where they could replace "hot lead" typesetting and the implementation of these systems caused a massive backlash from career typesetters. The article below eloquently details the full context of the infamous "Battle of Wapping" with my comments after it:

Appendix: A Brief History of Typesetting

“I want to talk about the story of Wapping partly because I like talking about it, but also because Wapping is a microcosm of the issues that face us now. It puts them all in a nutshell.” Rupert Murdoch, November 1989, New York City

Movable type was invented by Johann Gutenberg in 1440. Before then monks copied books by hand—which took, unsurprisingly, years. He melted lead into the shapes of individual letters, combined them to form lines of type, and then pages. The process of sticking the little lead blocks together was called typesetting. The lead was slathered with ink, mounted on a modified wine press over a sheet of paper, and printing was born.

Gutenberg’s press was so good that it remained pretty much unchanged for centuries. In the 1700s, Ben Franklin printed Poor Richard’s Almanac with movable type. At the Franklin Museum in Philadelphia you can watch them turn out pages just as Ben did. You can even ink a page yourself, if you girlfriend isn’t tugging at you to get lunch.

By the early 1900s there were more than 100,000 people employed as typesetters and machines such as the Monotype and Linotype automated constructing lines. Type text on a keyboard and voilà, a line of lead type would be melted on the spot. Inventors tried to make up whole pages automatically, but mechanical contraptions weren’t up to the task. Mark Twain lost almost everything investing in such a machine—his own “dot com” business.

Lead pages are heavy, take up lots of space, and are a real problem if you drop them, especially on your foot. In the 1960s there was a significant departure from the technology of the Middle Ages: photolithography. An image of the page was made with a camera. The resulting film (no different than a regular photograph) was placed on top of a metal plate and bathed in chemicals that ate the metal wherever there wasn’t type—leaving a surface with raised type. The plate was inked and used to print.

The process was called “cold type” because in wasn’t like melted lead which was, um, hot. In the 1970s computer-based typesetting systems appeared. They cost millions of dollars and were difficult to use, but technology advanced furiously. In the late 1980s, Time magazine collaborated with two programmers to create software called QuarkXpress that did typesetting using the new Macintosh desktop computers. What had taken days with knife and film using older methods could be done in seconds with a Mac and a mouse. Quark and similar systems such as Atex made a fortune for the programmers, however fewer people with less skill were needed to make pages.

It was at this juncture in technology that Rupert Murdoch bought the prestigious London Times newspaper from Lord Ken Thomson of Thomson publishing. Lord Ken was no fool and after one labor strike too many (the journalists struck just two months after getting the printers back to work), he decided to cash in on the value of the word “prestigious.”

The Times was still being set in hot lead. Every other major newspaper in American and Australia was using the newly developed photocomposition systems, but the printer’s union in London was resisted change successfully—thereby, in their estimation, protecting jobs.

But Murdoch was not impressed with the union. He recounted, “Many of them, for example, ninety percent of the News of the World publishing department, had other jobs. Some worked for rival publications, some were cab drivers or car mechanics, one owned a vineyard, another was a mortician.” Composing and printing the Times took “three times the number of people at five times the wages” of his other papers.

While appearing to negotiate with the unions, he secretly set up a new computer driven factory in the town of Wapping in the docklands of East London. The offer to the unions was, as it was designed to be, unacceptable. When they struck, he dismissed them all and pulled the wraps off of the new plant.

There were literal riots. Almost two thousand police were dispatched to protect the barbwire-fenced Wapping. Delivery vans loaded with scab produced newspapers would be launched at high speed at unexpected intervals to thwart protesters attempting to block them. It was a spectacle and it altered the world of British publishing forever. The newspaper the Independent emerged made up mostly of dismissed Times employees, but, Murdoch pointed out, they used the same electronic production methods he had pioneered. Nobody wanted to go back to the old ways.

It’s easy to point the finger and say that Murdoch was a greedy capitalist. On the other hand, a newspaper, like any other business, has to make money. Would he have been less evil if he’d kept the Times going until a competitor emerged and drove them out of business? Would the world applaud him then? There was no solution to the problems at the Times without many losing their jobs, or losing to less expensive competitors. It was either the whole company or the printers.

In Prague, I met a man from Australia who had been in Wapping in 1986. He’d worked for one of the technology companies that supplied the new plant. He told me he crossed the picket lines to train “unskilled brick layers and gardeners” to become typesetters using the new-fangled computers. He recounted to me that he did his part for all involved: strikers, new workers, his company, and Murdoch, by getting himself “piss drunk” every day and doing as bad a job as he could. That way, he proudly told me, the change he’d been dragged into wouldn’t be his fault.

I smiled, thinking how well he would have fit in in Iowa. Link.

I quoted this article in full because it epitomizes mankind's futile struggle to defend the status quo despite a clear path towards a more efficient future. We always seem to fight this change, yet we also capitulate to it in the end... and all the resources we spent resisting change were wasted. Can you picture accountants staging violent riots because the invention of spreadsheets jeopardized their jobs? Can you see musicians protesting the invention of records because it threatened their livelihood? Time after time, we are presented with a new technology that uses fewer resources to produce the same results... and we resist using that tech simply because it may put us out of work. Nowhere is there a better definition of myopia.

Wouldn't it be so much simpler if we embraced these new technologies and, instead of paying expensive lawyers to fight the change, we spent all our time and resources figuring out how to best use these new technologies? Yes, inevitably this could mean many people lose their jobs, but only in the short term. Accountants now use spreadsheets and serve many more clients. Records, and later MP3s, have only helped to grow the music industry, not threaten it. Basic economics dictates that all income streams will adapt to change. And the businesses whose income streams don't adapt, starve.

Our choice is simple—adapt now on our terms, or adapt later on someone else's terms.

The Bling! Button

Filmmakers Jamin and Kiowa Winans posted an insightful update (A 360 View on Internet Piracy) on their experiences so far about having their feature film downloaded 400,000 times for free. This section in particular caught my fancy:

If the download community wants to send a real message and be recognized as an audience, here's how:

• For those out there who download because you want easy access to something you can't otherwise get (i.e., you're outside the US and movies take forever to get to you, which we completely understand), then please do the download community a favor and track down the filmmakers and give them a few bucks.
  
• For those of you who only want to pay for what you like, please find a way to support your favorite artists as best you can. This will also send an extremely strong message to Hollywood to make better films and not just expect everyone to keep digesting a huge cafeteria of re-makes and franchise films.
  
• For those of you who expect things to be free, please consider how flawed that thinking is. Do you expect groceries, clothing and other commodities to be free? Making Ink is the single most difficult thing I've ever done and I can guarantee that every artist who crosses the finish line with a completed project feels the same. If the answer is truly that people expect things for free then the logical conclusion is that no one will take any financial risk in this industry and eventually there will be nothing to pirate. Talk about the law of diminishing returns.

This is a new era and no one knows which end is up right now. If instant file-sharing is truly the next step in film distribution, then there still needs to be a financial model in place that works. All anyone wants to do is to be able to move on and make another movie. That will be impossible if the world expects things for free. Or, all our movies will be paid for by huge corporate sponsors and littered with product placement—is that really a better alternative? Do we really want The Storytellers in Ink to be eating a Big Mac and swilling Coke after every fight? Probably not. I'm not claiming to know any answers here, I just want to put it up for discussion so please share your thoughts below and we'll continue to provide updates.

Everyone is hunting around for a way to monetize file sharing so that indie filmmakers (and studio filmmakers) can continue making movies without having their hard work taken with no hope of any financial recompense. So the Winans' appeal to our better nature to buy legally is, though well-intended, misguided. The actual barrier to consumer donations is not moral in nature—at least not largely moral—but technological. If P2P applications like BitTorrent and various media players like Quicktime, WMP, etc. were improved to make it dead simple to donate directly to producers, money would start flowing. Narrowing the action required to donate from two clicks to only one click is the kind of thing I'm talking about here—it should be stupidly easy and quick to donate money—a child should be able to figure it out. It should be fast, secure, reliable, omnipresent, and probably even anonymous, too.

Let me offer an anecdote. IAlertU is a third party application for my laptop. It uses three of my MacBook’s utilities to provide one kick ass app: the remote control “locks” the laptop so that nobody can use it while you step away (and makes a cool car alert sound when you push the remote’s button), its motion sensor detects if the MacBook has been illicitly moved, and the laptop’s camera snaps a picture of any thieves and emails that photo to you. Really, it’s briliant! Rarely do I find an application with such ingenuity. It is the third party software developers like this whose products are bought and then integrated into Apple's next OS iteration.

Anyway, iAlertU is shareware, so I downloaded it for free to try it out. After seeing just how cool the application was, I felt this sudden wave of gratitude. I said to myself, “If this guy has made it super-easy for me to pay him, I’ll gladly reward him by giving him $5.” Without too much surprise, I did indeed find a Paypal link among the appication's menus and less than 60 seconds later, I had given the programmer my $5 donation. Had it taken longer than 60 seconds—or more accurately, if I had thought it might have taken longer than 60 seconds—I can’t say I would have bothered to donate at all.

Be it a song, a software app, or a movie, consumers are often struck with such overwhelming gratitude as this and are very willing to show that appreciation with their hard-earned money... but that moment can be fleeting. If the coin bucket is always there, I guarantee you coins will be dropped into it. As the Winans have said before, if just $1 were donated from every download they had, they'd be easily put in the black again.

Somebody needs to get the software people behind all media players and P2P apps like BitTorrent in the same room with Paypal and Visa. Gobs of money can be made here if a simple button is added to all media players and P2P applications. The button might say something like, “Reward the Artist”, “Donate”, “Give”, “Help Out”, “Tip”, or even “Bling!”. Whatever its iteration, the gist is the same—the consumer needs to know that when they click that button, their money will go directly to the artist with zero hassle.

Embrace the Future, or Perish

Something extraordinary has been happening this week. The film that Jamin Winans has been working on the last few years, Ink, was released and suddenly exploded all over BitTorrent: 400,000 downloads as of today, and counting. But that's not even the extraordinary bit—the filmmakers, independent filmmakers at that, aren't mad or resentful that hundreds of thousands of people are watching their film without their permission, for free... instead, they're ecstatic so many people are watching their movie.

I've been studying piracy with great interest over the last four years, and I've arrived at a few conclusions...

Counter-intuitively, the filmmakers behind INK have sold way more DVDs and ticket sales as a result of this "piracy". It's worth emphasizing that they haven't sold INK to a distributor and only built word of mouth by four-walling and promoting/selling DVDs through their web site (and from riding the publicity off their amazing short, Spin), so when their film got 150,000 views via BitTorrent in only 72 hours, this increased exposure could only have helped their film and company.

After carefully studying DVD piracy and BitTorrent file sharing, here's my own take on piracy:

1. It's morally wrong to copy or download music, movies, and software for anyone other than the person who purchased that product. I've always thought so and will always continue to think so. Piracy is like forcing a musician to busk against their will, and that's not what he agreed to.
   
2. It's currently impossible to stop the masses from engaging in piracy. If you stop them in the US, they'll do it elsewhere and now anyone can watch movies by going online. For example, right now, I can watch any movie I want—100% free—by going here: watch-movies-online.tv or surfthechannel.com. The quality can be bad sometimes, but if all I want is to see a film, then it's good enough for me.
   
3. Piracy is the market pushing back against too much control. Nobody would accept producers of furniture, automobiles, toys, or confectionaries to tell consumers how to use their product after it was purchased. Can you imagine selling me a car and then telling me not to hang dice from its rear view mirror? Yet that is exactly how producers act when you "share" an MP3 with a friend. In China, only 20 foreign movies are distributed every year—is it any wonder piracy is so rampant there? Wouldn't you resort to piracy if also presented with the same authoritarian control?
   
4. Piracy is usually about convenience, not cost. Consumers simply want to watch the film right now and they resort to piracy to get around any obstacles to that need. The obstacles are not often money, e.g., a movie is not out on DVD yet, or it's released overseas months before it's released domestically, or the duplicated DVDs are being given away for 25 cents, or for free.
   
5. Piracy does not necessarily equate to lost sales. In an information age where content can be infinitely duplicated without degradation, a pirated viewing is probably from a consumer who wasn't going to spend money on your product anyway. However, if they see/play/listen to your product, they might change their mind and buy your product, or tell their friends who might then buy your product.
   
6. For an unknown production company or film, piracy can be fantastic and inexpensive word of mouth. Sure, you can spend time and money trying to stop it, but you will ultimately fail and you just get frustrated and resentful in the process. Instead, it's much better to be happy someone is watching your film and—this is the key part—telling all their friends about it.
   
7. It is still possible to compete with piracy. Tap water is ubiquitous and free and the bottled water industry remains extremely profitable. Musician Trent Reznor gives away all his albums for free and still makes a ton of money around the unique ways he packages his music, e.g., selling a limited edition boxed set for $1500 (he made $1 million in less than 48 hours selling just those boxed sets).
   
8. The emerging business model (thanks to techdirt.com) to counter piracy seems to be:
   

   CwF + RtB = $$$

   
   This stands for Connect with Fans and give them a Reason to Buy. iTunes offers convenience at almost no cost, and that's a great reason to buy instead of resorting to piracy. Reznor goes out of his way to cultivate and reward his fan base... then he offers them options to buy scarce goods like physical merchandise that cannot be pirated.

In 1999, I thought that all music piracy should be prosecuted to the full extent of the law. However, over time, I've come to see (as have the heads at ABC and Disney) that piracy is an informal business model and, as such, it's a more efficient use of one's resources to simply compete with that model rather than trying to fight against it. Look at hulu.com and abc.com as choice examples of how big Hollywood producers are effectively competing with piracy.

For all these reasons, I'm not so worried about piracy as I once was. Yes, it is a financial risk for producers if not approached properly, but as long as producers keep in close contact with their fans and give them a good reason to buy by making a great product, piracy will just give producers great exposure (like INK) and end up adding more value to their product.

If you want to read one of the most lucid and insightful interview about piracy, check out this interview of Eric Garland, Big Champagne's CEO (thanks to Sheri Candler's tweet.). Garland points out:

I don't want to sound like the armchair pundit. You end up sounding not very empathetic. You sound like some ass who says "This is how it's going to be and if you don't like too bad." I'm not trying to be dismissive. I'm not trying to be glib about this. I understand the implication may well be tens-of-thousands of jobs lost, billions of dollars pouring out of the industry, shutterings, downsizings...I'm not trying to make light of that. I'm just telling you that in the final accounting i think some things we now know. Some of them are very unpopular even in concept and some of them are very hard to incorporate into strategic thinking, but that doesn't make them any less avoidable or inevitable.

Then later:

We'll spend some number of months—I'm just essentially recounting the music industry's journey—filing vast numbers of infringement notifications, letting everybody and their granny know you're infringing our content. They'll take the temperature and they'll do surveys and collect data and they'll try to convince themselves that this is having a real effect in reversing the tide and then after some period it will just not have been convincingly demonstrated to have worked. And they'll realize that by any number of measures the piracy problem has only grown worse. But they will have to exhaust all of those things and more. They will have to chase legal remedies, legislative agendas, all the way to what they view as being the end of the line before they say "OK, so this really is the landscape we're stuck with. As much as we didn't want it, this appears to be it. Now we have to just dive in and make businesses that work here."

As Seth Godin put it, "...how will this new business model support the world as we know it today? Who cares if it does? It is. It's happening. The world will change around it, because the world has no choice. I'm sorry if that's inconvenient, but it's true."