Monday, December 14, 2009

Creating Value (Part 6 of 8)

This is an article in a series. You may read all the articles by clicking here.

I used to think producing a film was like building a house. You build a product for $200,000, and sell it for $500,000. Like building a house, you create a perceived value from nothing, which is called “forced appreciation”. When films are distributed, though, they don’t appreciate in value over time, but act more like cars—when you drive a car off the lot, its value drops almost in half. But a film’s long tail does continue to add value to its film company and to all other films made by that company. This explains how Roger Corman was able to sell his entire 400 film catalog to Disney-owned Buena Vista Entertainment for hundreds of millions of dollars.

To state the obvious, products build cumulative value to your brand over time. Once a film’s fixed costs are recouped on the front end, its marginal costs are ultimately pushed down to zero. If a product is effectively “free”, i.e., not able to regain any more money, then it can be given away for free to help build branding and, thus, add value to the company and its future products.

When the film Ink was pirated on BitTorrent last month, its filmmakers had no distribution deal locked down. They had made no money from the sale of their film at the typical jaunts like AFM or Cannes. In essence, they were screwed... or so it seemed. Instead of getting bitter, they chose to embrace the inevitable and play their hand for as much as they could: they chose to let their hundred of thousands of illegal viewings add value to their film by leveraging Ink's unprecedented buzz.

This is the dilemma in the title of Matt Mason's fantastic book, The Pirate's Dilemma: if piracy is taking value away from your product, Mason posits, you must fight them or you'll have to put the keys under the doormat. "Fighting" piracy can take more traditional forms like legal action, but it can also mean competing with piracy a la iTunes and Hulu. In some cases, as happened with Ink, piracy may be adding way more value to your product than you could ever have added yourself. Are you mentally ready to make that shift in perspective if it happens to you?

This article is part of a series called The Filmmaker's Roadmap to Free. You may read the entire articles by clicking here, or the other articles here:
The Filmmaker's Roadmap to Free: An Introduction

The Free Debate:

  1. Free: The Future of a Radical Price by Chris Anderson
  2. PRICED TO SELL: Is Free the Future? by Malcolm Gladwell
  3. Dear Malcolm: Why so Threatened? by Chris Anderson
  4. Malcolm is Wrong by Seth Godin
  5. Free vs. Freely Distributed by Mark Cuban
  6. Chris Anderson, Malcolm Gladwell And A Look At Free by Michael Masnick
  7. Freemium and Freeconomics by Fred Wilson

The Filmmaker's Roadmap to Free:
  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

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