Tuesday, December 15, 2009

The Way Out (Part 7 of 8)

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

To survive in this new economy, moviemakers must first and foremost be able to recoup their fixed costs, and secondarily recoup their marginal costs. It follows, then, that moviemakers must:

  1. make movies cheaper than they have before
  2. exploit old income streams and discover new income streams

The downward pressure to make movies cheaper is already happening as studios torpedo A-List stars’ salaries in favor of offering them larger back end points, and use relatively unknown actors to make their tentpole blockbusters (e.g., Star Trek). Another measure to cut costs, also well underway, is studios relocating outside of Los Angeles. The other major boondoggle, of course, is slashing union salaries. Hey, I never said this would be pretty.

Moviemakers also need to minimize their marginal costs by streamlining theatrical distribution costs, which means nixing prohibitive film duplication costs in favor of beaming files directly to digital light projectors, and pushing more online sales via portals like iTunes and Hulu. CEO Reed Hastings believes DVDs will stop being the primary delivery format in two years, so free marginal costs are just around the corner. If the studios ever get DECE up and running, 21st century entertainment might finally become a reality.

Discovering new income streams from movies will mean employing advertising in creative ways like product placement and product integration. It will also mean selling any scarce goods which adds value to the movie (the infinite good), e.g., a collector’s edition DVD, an evening Q&A with the filmmaker, T-shirts, toys, etc.

Consider Cnet reporter Greg Sandoval's insightful open letter to Hollywood:
Cut your spending. Save your money. Many of the revenue streams that have gushed into your industry for decades, some for nearly a century, are about to dry up. This will likely mean a period of belt tightening like you've never seen before.

The end is coming for DVDs, traditional movie rentals, and yes, much of your cable money will likely disappear.

The news isn't entirely bad; you still have iTunes and Netflix—places where people spend money to buy or rent movies. You still have Hulu, Crackle.com, and YouTube, which are generating ad revenue by streaming full-length films and TV shows online. But the reality is that the amount of money that these legal operations generate is far less than the returns your industry is used to making. Unless some dramatic technological breakthrough occurs that can defeat file sharing, then you are staring at checkmate. Your business is headed for the same meat grinder that has chewed up the recorded music sector and print publishing. What will come out the other side is still uncertain but will likely be much smaller.

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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