What does it lead to?

The following piece is an unabridged version of an article first published in Microfilmmaker Magazine, issue #53.

WHY DVR TECHNOLOGY ENCOURAGES PIRACY... BUT NOT REALLY
Hypothetical situation. You're in a movie store trying to return a DVD set of a TV series. The dude at the counter looks at the DVDs you've just handed him. "What's wrong with it?" he says.

"The episodes have been shuffled around," you say. "Every episode in the series is out of order so I have no idea which episode needs to be played first."

"Okay."

"It's usually pretty important to see a TV series in the right order."

Shrugging, "Nobody else seems to care."

"Look, I care—and I'm a paying customer."

"What can I say? Don't buy it, then."

At this point in the conversation, most people might walk out of this movie store in disgust. This is probably what they'd be thinking:

Are you seriously telling me, a paying customer, not to pay you $50-$100 for an entire season's worth of DVDs—which could end up leading to a larger purchase of the entire series if I like it enough—simply because you won't sell a DVD set with each episode in its correct order??? That's lame, bro. I hope you go out of business. In fact, although I know there are more important things in life to worry about, I'm going to make it my mission to see you go down. I'll start by finding a competitor of yours who cares enough about earning my money that they'll give me what I want. And if I can, I'll even go so far as finding that TV show online somewhere illegally, and then I'll happily download it because I know by downloading it, I didn't reward your short-sighted cavalier attitude with my money.

We've all encountered lame customer service, but in a competitive economy, companies with wretched customer service eventually lose their customers and go out of business because another company would have successfully spotted their competitor's shortcomings and filled the market need. As customers, we'd never accept this kind of flippancy coming from a company we're giving money to, especially if the amount of money dips into the triple digits.

GREAT TECH, BIZARRE LOGIC
My wife and I swore off cable TV in 2003 for two reasons: 1) the current quality of American TV had always seemed so low to us that it's hard to find anything we want to watch that we can't already rent on DVD, and 2) commercials suck.

Seven years later, TV has changed a lot. The selection of quality isn't that much better, but networks like ABC have begun to offer their shows online, and DVR technology like U-Verse and TiVo have become ubiquitous. So my wife and I tried out cable with DVR and chose to keep it for a while, just to experiment.

Despite my reluctance, I must admit that AT&T's U-Verse DVR system is awesome. If I like a TV show, I just tap a few buttons and know I'll never miss any show in a series again, even if that show gets pushed to a different time due to unforeseen circumstances. Whenever I sit down to watch TV, I know I'll always have the most recently broadcast episode queued up waiting for me. And AT&T's U-Verse remote has a killer 30 second skip feature to allow me to blaze past commercials whenever they intrude upon my viewing experience.

When I watch a TV show, I prefer to watch the series in its original order. Not all TV series are written with a specific order in mind, but you never really know from one show to the next how rigid a season's story arc is going to be. The show might be extremely episodic in nature, i.e., you can watch each episode in sequence with no problem, or the show might be highly dependent upon sequence, where watching one episode out of sequence would throw you off completely. I remember watching a marathon of The West Wing in its original order and saw the season's timeline unfold over the course of a single day... events were causal and cumulative, and there was immense satisfaction knowing the contextual signficance of each subsequent plot development based on all the plot points that had come before it. You wouldn't watch a movie on DVD with the DVD player's chapter shuffle setting on, would you? And you wouldn't buy a DVD set of a TV series with its episodes out of order, would you?

So it really irks me when station programmers broadcast old TV series episodes out of their original order, flipping back and forth from one season to the next with no clear reasoning behind their decision. They have their own bizarre logic in doing so, and it's irritating if you're trying to really invest in that TV show's world. For instance, the geniuses at FOX opted to bump Firefly's original pilot episode, and insisted another episode be created because they felt the pilot wasn't good enough at introducing the series to new audiences. Dude, trust the writers. Trust the audiences. We're not dumb. Let us see the content the way it was intended to be seen.

...and that's where piracy comes in. Here I am, I'm looking at my U-Verse DVR screen, scanning over a long list of episodes my DVR has dutifully recorded for me. As far as I can tell, I can have at least 24 episodes in a series to choose from at any time—a season's worth of episodes. Given enough time, my DVR will eventually soak up every episode ever broadcast from that series. Which means my DVR is, ultimately, going to deliver to me exactly what I want—the series—but not in the order I want it. And because I may be watching a series where that's kind of important, that irritates me quite a bit. So if I have access to BitTorrent or an online site where I have that choice to watch pirated versions of those same TV episodes but in the order I want to watch them, even if it means sacrificing some quality... I could easily see myself doing it. Broadcast TV has failed to deliver what I really want, and now I'm going to get what I want without broadcast TV.

The clincher is that the experiences of using DVR technology and using BitTorrent are strikingly similar. With both U-Verse DVR and BitTorrent, I would:

1. Find a program and get it recording/downloading;
   
2. Wait for it to be finished and come back whenever I want to watch it.
   
3. For U-Verse, I skip over commercials in 30 second leaps. For BitTorrent, the commercials have been conveniently removed—effectively, these are the same experience, though BitTorrent is slightly more convenient and time-saving.

Thus, if both experiences are effectively the same, but my BitTorrent copy deletes commercials that would have been skipped over anyway (and saves users the time of reaching for the remote and finding the exact spot where the commercials stop) and offers more content choice than using my DVR... well, it's pretty obvious why users are willing to sacrifice a little image quality to pirate content.

BACK FROM HELL... BUT WITH CASH TO BLOW
I could stop there and say broadcast TV's myopia has effectively forced me into BitTorrent piracy once and forevermore... but that would be a lie. The fact is, contrary to what most people might think, an act of copyright infringement of a TV series is actually a huge win for the TV series' creators. Yes, a fan has resorted to piracy to seek out episodes to play in the original order they were intended... but that fan is still watching their TV series. Meaning, they still have a person's attention. Thus, it doesn't follow that a person will continue to pirate every episode of the TV series just because they can. On the contrary, the more a person pirates a series, the more of a fan that person becomes (if the series is good, of course)... and the more likely that person is to keep watching the series on DVR. Right now, the best quality image is still on TV so, when given a choice to view content on a TV set or through BitTorrent/web streaming, I know that I would still prefer to watch stuff on my TV. Why? If I can get all my content for free, why wouldn't I? Because BitTorrent and web streaming piracy is still way too much effort (i.e., it takes too much time and it's too inconvenient) and pirated web streaming is typically of far poorer image quality (it has poor embodiment).

This is the single most irritating myth I hear invoked about piracy, that "piracy is a lost sale". Rubbish. Maybe that's true in some cases, but piracy is never as clear cut as always equating to a lost sale. In my case, piracy actually leads to sustained and increased fandom because the more attention I give that content, the more time I have to become a fan of it... and the more I think about buying DVDs on Amazon for myself and/or my friends. Perhaps this is why rumors persist that allowing copyable content (music, movies, books) roam free on the internet without copyright enforcement actually increases the sales of non-copyable content (merchandise, concert tickets, lunch with the content creator, watching in IMAX 3D).

Of course, people resort to piracy for many reasons, but I still believe that casual users—which likely represents the bulk of pirates out there—don't resort to piracy merely because they can get something for free. If I could get anything I wanted for free online without fear of negative consequence, why do I still pay for cable? Why do I still pay for Netflix? Why do I still buy off of Amazon? Piracy, at its juicy inner core, is really about control. Consumers of digital content want what they want and if producers can't figure out how to make money by giving consumers what they want, consumers will get it regardless. The mortal sin for producers is that if they remain obstinate enough to allow consumers to venture into piracy (and yes, piracy is the producers' fault for not fulfilling a market need quickly enough), producers have not only lost an opportunity to get their consumers' money, but they've also lost a chance to get their consumers' attention. As anyone in marketing knows, it takes seven touches to a sale, so the more attention your customers give your product or service, the more your sales should increase overall. Pirates are also fans, and fans buy stuff. As long as producers are clear that fans don't buy the actual product, but the intangibles embedded in the product, producers should be fine with letting their content be freely available online. Content only gets buyers in the door, but intangibles are what get money changing hands.

Another mental eddy I run into is people seeing red when they hear the word 'piracy'. People's brains shut down. Their knee-jerk reactions seem to be steered by moral judgments they've made months, or even years ago, about theft: It's wrong, it's theft, they're pirates, and they should go to jail. Theft is actually an Analog Age concept—taking an apple from you which deprives you of its use—and if we apply the rules of the Analog Age to the Digital Age, this would certainly be true... but the Digital Age has new rules. Never before has it been possible to infinitely copy a product with zero cost to the producer. If I could go back in time 600 years and tell someone a book could be copied and sent to every person on the planet in less than a day, they'd laugh in my face. A book, they'd say, is a scarce object, something venerable because of its inability to be copied. (Even if a book were copied back then, it would still be so original that it would remain unique.) But then they'd see the invention of the Guttenberg press and be both amazed and horrified about its ability to duplicate books with ease. As printing presses increased the supply of books, their price per unit dropped and what had previously been scarce was now suddenly far more abundant and accessible. The Digital Age is merely the latest evolutionary chapter: instead of having a low cost of reproduction, we now have a zero cost of reproduction. And when something can be handed from one person to the next without any cost to the producer, it cannot be defined as theft under any definition. Even the law recognizes there is a difference—illicit digital copying isn't called theft, it's called infringement.

ROCK LOGIC & WATER LOGIC
Here is it useful to look at piracy in a different light. Rather than define the act of piracy for what it is—i.e., illegal and immoral—let's look at the act of piracy as what it leads to. You can look at the world in static terms or in fluid terms, and the latter yields more useful conclusions. Author Edward de Bono draws a distinction between the two forms of thinking:

de Bono contends that traditional logic is static, based on the solid foundations of 'is' and identity. In contrast to the traditional 'rock logic', he proposes 'water logic' which is based on 'to' and the flow of the mind: 'What does this lead to?' as opposed to 'What is...?'

How does this pertain to piracy? de Bono explains further:

Pragmatism is very much based on the 'leads to' of water logic. There is a justified fear of pragmatism because it seems to seek to operate without principles. This is nonsense because the principles can be just as much part of the pragmatism as are the circumstances. One strong reason for a dislike of pragmatism is the fear that 'the end may come to justify the means'. In other words if the end is worthwhile then the means of achieving that end are justified. Since different people and different bodies will have different notions of worthwhile ends, the result would be chaos and barbarity. Interestingly the very reason we reject this notion of the end justifying the means, is a pure example of pragmatism and water logic. We are concerned with what it 'will lead to'. So pragmatism can police pragmatism just as well as rock logic policies rock logic.

To cite another de Bono example, if a customer goes to a store without a receipt to return an object they bought, the store can point to their sign that says, "No receipt, no refund." According to Rock Logic, the store would be in the right and the customer would be in the wrong. According to Water Logic, though, that sort of rigid decision leads to a dissatisfied customer unlikely to buy from that store again. Would you rather be right... or breed lifelong customer loyalty?

In Rock Logic terms, piracy is bad/wrong/evil, etc. and always will be until the end of time. Fine. But what does it lead to? What does having a film leaked on BitTorrent lead to?

Piracy leads to attention... and attention leads to more sales.

It sounds so simple, doesn't it? John August had his film The Nines leaked onto BitTorrent and he had this to say about it:

IMDb searches for The Nines peaked at #11 on January 20th, 2008 — two weeks before the DVD was released. That’s because it finally got leaked on BitTorrent. Suddenly, that college student in Iowa and that programmer in Arles could finally see the movie.

Let’s try a thought experiment: what if The Nines had leaked shortly before the theatrical release, say, August 19th? At that point, we were number 836 on IMDb, and that was during a concerted publicity campaign which would ultimately get us as high as 47 on the chart.

Would the leak have helped us or hurt us?

Given we were only playing in two cities in the world, I can’t think it would have hurt us much. And if there had been a legal and easy way to let people watch the movie — say, through iTunes — I think we could have capitalized on the attention. The pirated version was going to be available on or before the release of the DVD regardless, so one might as well benefit from it as much as possible.

To my thinking, leaking a decent-quality, watermarked version would have greatly increased the awareness and discussion of the movie, which could have paid off if the DVD and/or iTunes version were available shortly thereafter.

Piracy is the only explanation for why a film like the massively pirated Wolverine—which received awful reviews—actually did better at the box office on its opening weekend than the other equally popular franchise film Star Trek, which received rave reviews. For every case of a pirated film where the producers claim they lost everything, it feels like I can point to just as many films which seem to have done very well because of piracy and/or because the film was free. My hunch is that the pirated movies that don't make money aren't good enough to demand repeat viewings... so we only hear complaints from the producers who are getting their asses tanned for making product the market doesn't want badly enough.

In a digital age where a decade of enforcing copyright has yielded nothing but a pyrrhic victory, does it make sense anymore to keep throwing money at a pointless battle... and then feel bitter about its lackluster results? Or do you think it's maybe time to bite the bullet, embrace the market's new rules and get on with making money the new way?

Ask The Right Questions

Justin Timberlake has over 120 revenue streams—only one of them is selling recorded music.—Matt Mason (link)

Jackie Barbosa wrote an excellent blog post yesterday which kicked off a flurry of Tweets between us about piracy in the entertainment industry. Jackie is smart enough to get that the publishing industry's claim that ebook piracy is costing the publishing industry "as much as $3 billion" is a bunch of hooey. An illegal ebook download is not equal to a lost sale—readers simply downloaded the ebook. Who knows if they would have actually paid for that download if they had been offered no other choice?

While Jackie ultimately concludes that she doesn't get too concerned when she sees her ebooks on a torrent site, she lays a harsh judgment on ebook pirates:

...these people are thieves, plain and simple. And just like a thief won’t buy the diamond bracelet because he can’t knock over the jewelry store, the ebook pirate won’t go and buy a legitimate copy if she can’t get it for free.

I get where she's coming from. It can be frustrating when you put a lot of work into something, put it up online... and then watch it get taken out of your control and given to the world in perpetuity.

And that's exactly where I think Jackie is seeing everything from the wrong perspective. She's seeing the world through a pre-digital lens. In a digital world, things get copied and with P2P networks, nothing can be effectively done to stop it. You can commiserate about it, reproach, bemoan, and even try to legislate... but you cannot enforce laws against it. For every P2P network you shut down, two more rise in its place. It is a losing battle. Do you want to go the rest of your life living in resentment and bitterness? Or do you want to accept that the world is changing around you, that your presumptions about how things ought to be might have to change accordingly, and upgrade your business model to leverage the internet's unique properties of infinite distribution to work for you rather than against you?

Jackie and I had the following conversation over Twitter:

Ross: Piracy is a market force saying, "the price for content is too high." When the price comes down, pirates turn into consumers.

Jackie: So bank robbery says bank fees are too high? Sorry, no.

Ross: The difference is whether piracy adds value—robbing banks removes value, pirating books increases their popularity.

Jackie: I'm sure piracy does increase some book's popularity. But unless that popularity leads to more $ sales, it's not adding value. Even the music industry hasn't given up the notion of charging for music in favor of ONLY other revenue streams.

Ross: ...which begs the question, what are you really selling—books or stories?

Jackie: That's like asking whether you're selling music or songs, in my opinion. The "book" is just how the story is delivered. A novel cannot be delivered by a live reading via the author (or anyone else). At best, only PORTIONS can be delivered that way.
Jackie: What I'm asking is where the viable revenue streams are if not from sales of books themselves? Show me the money.
Jackie: Even in the industry you cite as "proof" sharing is good (music), publishers still put a PRICE on their product. Books are the same as movies: they're entertainment. But I don't see how that relates to the discussion (unrestricted sharing).
Jackie: If all books are free, where is the revenue stream? WHEN/HOW does the author/publisher get paid for creating the entertainment?

Jackie's asking some well-intentioned questions, but they're mostly the wrong ones. She's still focused on the selling of a tangible—her books—rather than the intangible—her stories. When Jackie finally gets that she is a storyteller and not a bookseller, she'll start to mold a more sustainable business model around that concept.

Her question, "WHEN/HOW does the author/publisher get paid for creating the entertainment?" is foremost on the minds of all producers in the entertainment industry. How is what we're doing sustainable? How do we make money at this? How do we survive and thrive?

Counter-intuitively, when content is allowed to be free in the digital realm, it seems to bolster sales. Why? That doesn't make sense, does it? Consider the story of Matt Mason who wanted to release his book online for free alongside the hard copy version, but Matt's publisher denied his request. When Matt saw his ebook was being pirated, he again approached his publisher and said, "Look, it's already out there. At least if we release our own ebook, we can control it a little more. Maybe we can even find out something about our readership." His publisher agreed and released the book as a free PDF. A while later, a music bigwig heard about Matt's book, went to Matt's site and downloaded the PDF... and he was so impressed with the ebook, he went down to a brick and mortar bookseller and not only bought a hard copy for himself, but for everyone he knew. Without the free ebook available, Matt would have missed out on those sales.

So the questions Jackie should be asking herself is, what is she actually providing her readership? Is it the book, or is it the story in the book? What are the infinite goods and scarce goods in her business, and how can she leverage those infinite goods (the ones that can be copied infinitely on the internet) to increase the value of her scarce goods (the ones that cannot be copied on the internet) so that revenue streams flow to her and/or her publisher? How can she employ generatives to her maximum possible advantage?

Perhaps the hardest question of all: if Jackie can't find a sustainable business model for being an author, what does she do next? This is an extremely volatile question which I hate asking because so few people are willing to examine with unflinching honesty whether their business as it currently exists deserves to survive. Nobody wants to hear their business is slowly dying, but history is littered with businesses who were too stubborn to accept the decline of consumer demand for tangibles that no longer met the market's needs:

1. The need for personal transportation is perennial, but the method shifted from horses and carriages to automobiles.
   
2. The need to watch audiovisual arts is perennial, but the method shifted from film to VHS to DVD to P2P & streaming.
   
3. The need for listening to music is perennial, but the method shifted from live performance to records to eight track tapes to tape cassettes to CDs to MP3s.
   
4. The need to share news is perennial, but the method shifted from town criers to the printing press to desktop publishing to the internet.
   
5. The need to read stories is perennial, but the method shifted from illuminating manuscripts to book printing to ebooks.

If you had built your business on any of those shifting methods, and only provided a tangible product or service ["tangible service" is an oxymoron] to the market, then your business was in danger of extinction (manuscript illuminators, town criers, horse and carriage drivers, typesetters, record makers, tape cassette makers, VHS makers, etc.). Yet if you build your business on a perennial market need and shift with current methods to fulfill the market need, then your business will be around as long as that need is around.

The good news for Jackie is that authors are in the business with the lowest possible fixed costs of any entertainment sector—compared to movies which have to employ up to hundreds of people to create that first unit, authors are the definition of svelte: 1 person, 1 room, 1 laptop. It can't get much easier, or cheaper, than that.

So I do think a sustainable business model for authors in the digital age exists, although those models may be so radically different from the current model that authors may not feel like they are "purely" authors anymore. Authors like Jackie complain that their primary revenue stream is being "stolen" by pirates, but look at Justin Timberlake: the guy is a musician who has secured over a hundred revenue streams which do not involve selling recorded music. Instead of resting his entire livelihood on one revenue stream, Timberlake is almost certainly hoping his fans pirate his music because the increased exposure will only make his other 100+ revenue streams increase in value. Can authors do likewise? More to the point, can they afford to not do likewise?

I've already done the broad sketches for a filmmaking model. I'd like to flesh that out more before speculating on other models so I won't offer my thoughts (yet) on what new revenue streams for authors might be. Nevertheless, I'd like to see somebody take a stab at coming up with new models for authors because the digital age isn't going away—in fact, the next generation will likely make that logical leap which we, fettered to our pre-internet analog childhood, are unable to stomach: that file sharing is easy, unstoppable, and commonplace. As long as artists find ways to thrive in the digital age, will it really matter to their fans how immoral file sharing might be?

CwF + RtB For Filmmakers (Part 6 of 6)

This is an article in a series called The Filmmaker's Roadmap to Value. You may read all the articles in this series by clicking here.

CwF + RtB FOR FILMMAKERS
A lot of film people address parts of the CwF + RtB equation but not the whole equation comprehensively. Mike Masnick does a wonderful job explaining the equation's fundamentals in the concluding article of his series, The Grand Unified Theory On The Economics of Free. Masnick lists four steps with examples from the music industry:

1. Redefine the market: The benefit is musical enjoyment
   
2. Break the benefits down: (not a complete list...) Infinite components: the music itself. Scarce components: access to the musicians, concert tickets, merchandise, creation of new songs, CDs, private concerts, backstage passes, time, anyone's attention, etc. etc. etc.
   
3. Set the infinite components free: Put them on websites, file sharing networks, BitTorrent, social network sites wherever you can, while promoting the free songs and getting more publicity for the band itself—all of which increases the value for the final step
   
4. Charge for the scarce components: Concert tickets are more valuable. Access to the band is more valuable. Getting the band to write a special song (sponsorship?) is more valuable. Merchandise is more valuable.

If we applied these steps to filmmaking, the results wouldn't be that much different:

1. Redefine the market: The benefit is musical cinematic narrative enjoyment
   
2. Break the benefits down: (not a complete list...) Infinite components: the music story itself. Scarce components: access to the musicians filmmakers, concert tickets theatrical showings, Q&A with the filmmakers, merchandise, creation of new songs films, CDs DVDs, private concerts screenings, backstage on set passes, time, anyone's attention, etc. etc. etc.
   
3. Set the infinite components free: Put them on websites, file sharing networks, BitTorrent, social network sites wherever you can, while promoting the free songs films and getting more publicity for the band itself film company—all of which increases the value for the final step
   
4. Charge for the scarce components: Concert tickets theatrical showings (actually, the true equivalent here is a Q&A with the filmmakers) are more valuable. Access to the band filmmakers is more valuable. Getting the band filmmakers to write a special song shoot a short webisode (sponsorship?) is more valuable. Merchandise is more valuable.

Using this approach for films and skillfully blending it with Kevin Kelly's generatives is the next logical step; below is a first pass at how generatives might be applied to create value for films. One size does not fit all here—the final phase would be a much deeper analysis to break each good listed here into its scarce components (attention, time) and its non-scarce components (reputation, trust, etc.)... enough material for a book in itself.


IMMEDIACY
Fans want the product now. How can they get it?

Film: Internet VOD, Cable VOD, Hulu, Netflix, tickets to a premiere, BitTorrent, sneak preview (like a software beta release, but for a film, the preview is either free if you need a full house, or at a discount price if your product is high in demand)

Non-film: Email notifications and newsletters from the filmmakers, physical newsletters, blog posts, twitter/facebook updates, forum threads, IMs, live broadcasts (Ustream), lifecasting, ebooks, pdfs, iPhone apps. NB: in development, customers' feedback adds value by focusing on areas they want to see developed; transmedia is ideal for this.


PERSONALIZATION
Fans want something just for them. To create that "personal touch", producers start and maintain a dialog with fans. The end result is "stickiness"—both sides have a time investment in the relationship, so neither is inclined to let that relationship die. And the dialog adds further value to the product.

Film: Customized DVD mixes (for different ratings, a 3D and/or 2D version), a high quality version, limited editions, special editions, a director's cut, some versions could be tweaked for a specific theatrical venue, e.g., LOST did some hilarious mock clips at a convention just for publicity. Allow consumers to create their own mixes and offer a prize for the best mashup. Offer up the film without a soundtrack so musicans can show off their musical prowness by adding their own score. Let editors try their hand at editing your trailer and choose the best as your trailer. Or let the community pick your trailer for you.

Non-Film: customized merchandise (e.g., Cafe Press, or autographed goods), customized soundtracks like a kareoke version, offer only parts of a soundtrack so musicians can riff along with the score, customized ebooks, autographs, web sites with varying subscription levels (higher levels have more personal interaction with the filmmakers).


INTERPRETATION
Some fans simply want a film to be explained, while others want a film to be a rich starting point for a discussion. A movie could be free (or nearly free), but its accompanying commentary or literature could be charged for because a free product is more valuable with deeper insight, references, and a vibrant (and intelligent) forum discussion.

Film: A special edition DVD with multiple commentary tracks by actors, director, film critics, etc.

Non-Film: A "manual"—especially one written by the filmmakers—might ask questions like, What is the product? How does it pertain to me? What can I do? If your movie is a stand-alone product, it will eventually fade over time. But if you wrap your movie in an issue, it will have a much longer shelf life on the long tail.


AUTHENTICITY
Fans can get your product from other sellers... but why not get it from you?

Film: If a film is allowed to be mixed and remixed by its fans, then the original unmixed and "authoritative" version becomes extremely valuable. Authentic DVDs could be marketed as donating its proceeds to related charities, e.g., a prison movie could donate its proceeds to Amnesty International. DVDs that glow in a DVD player when played also dissuade customers from pirating DVDs. Remember how cool it was to see the Paradise Theatre LP by Styx?

Non-Film: Autographs establish credibility. Twitter & blogging, podcasting, and audio commentaries are all voices of authority which add value to the scarce product (a DVD). In some cases—like Ansel Adams purposefully burning negatives of prints he considered complete—destroying a master adds enormous value to all other copies.


ACCESSIBILITY
Fans want your product at any time. Are you part of their problem or part of their solution?

If you accidentally break a DVD, wouldn't it be nice if you always had free access to a replacement DVD, or at least a digital copy (which costs a producer nothing to produce)? If you buy a standard DVD and want to upgrade to a Blu-Ray version, wouldn't it be nice to upgrade to the better quality version for a small extra fee rather than feel gouged when buying the latest full price version? Why not create a subscription-based service through your web site to stay in contact with fans by providing them a service after you sell them a product? If you've done it right, users should feel completely safe that buying from you means they'll never have to worry about their content again. If they buy a DVD from you, they should know that they'll be able to watch that content on any device they own—TV, computer, iPhone. Customers should have access to anything they want, whenever they want, however they want. Offer that kind of service at a low price, make it simple and intuitive, and you'll have loyal customers forever... who will be very interested in whatever you sell next.


EMBODIMENT
Fans will pay good money to get their product in a high-quality physical format.

Film: IMAX 3D tickets are $16 ($18 if you buy them online). Fans will pay extra money for anything they can't get at home: 3D, Digital Light Projectors, Dolby Surround Sound, etc.

Non-Film: Q&A with the filmmakers, related live events before and/or after the film. Special print collateral could be given out or sold at screenings, e.g., a sheet with the cast of its characters, information about the movie's issue, or a special souvenir. Why not sell or raffle off a printed screenplay (with official card stock covers & Acco brads)? Or auction off clothing actually worn in the movie? Or create a book of collected printouts of development emails to be sold only at screenings? You could print high quality invitations, all slightly different, and include a "Willie Wonka" type invite with a special prize only to be given out at the screening (not only does a lucky audience member get the prize, but everyone gets to keep that high quality invitation as a cool keepsake!).


PATRONAGE
Fans want to throw you their money—are you ready to catch it?

Use a web site as a portal for fundraising and donations (subject to SEC regulations about soliciting investors). Let users join the web site as free members but offer paid tiers, too, with every donation range, especially the lower tiers. It's important to let people feel part of something no matter how small and their seemingly insignificant patronage could pay off later when you need free word of mouth to promote your film's release. Each tier would include more perks and make consumers feel they're doing the right thing. You need not simply ask for funds, either: along with subscriptions, you should also be offering scarce goods like T-Shirts and books. One example of a subscription tier, with amusing labels:

• $1-$9 Pal
  
• $10-$49 Friend
  
• $50-$99 Sneezer
  
• $100-$249 Supporter
  
• $250-$499 Megaphone
  
• $500-$999 Decoder Ring
  
• $1,000-$2,499 Patron
  
• $2,500-$4,999 Super Patron
  
• $5,000-$9,999 Über Patron
  
• $10,000–$24,999 Advocate
  
• $25,000-$49,000 Heavyweight
  
• $50,000-$99,999 Aristocrat
  
• $100,000–$249,000 Time Lord

Create physical and virtual tip jars: checks, VISA, cash, Paypal, cell phone donations. Allow options for anonymity and/or ability to leave notes with donations.

Accept bartering as payment by offering partnership deals with companies, e.g., you let us show our film at your company and help us advertise, we'll donate X% of our proceeds to your company. Perhaps advertise that all or some of the film's proceeds go to a charitable cause.

Make it easy to give. It should be so easy that your septuagenarian grandmother could donate without help in less than sixty seconds.


FINDABILITY
Generate massive publicity around your release date. Have a central web site where all traffic is directed. Put that URL on all your literature. Make that URL dead simple to remember and type into a browser:

YES: www.deadsimplemovie.com
NO: www.deadsimplemovie.com/moviesplash/&2hg/index.html

More tips:

• One piece of merchandise can and should cross-sell another piece of merchandise, e.g., a behind the scenes pictorial book could promote a printed screenplay, T-Shirts, etc.—but all merchandise should point back to the same URL. Perhaps all collateral would even have the URL at the bottom of every page.
  
• Don't be haughty about where your film gets distributed: upload teasers/trailers/movie to every single video platform you can, including Vimeo, Youtube, blip.tv, Facebook, Apple trailers, Hulu, Netflix... even BitTorrent (if you are hesitant about uploading to BT, why not insert sponsored ads into your BitTorrent release?).
  
• Generate buzz by putting different clips on different video platforms to get people comparing notes.
  
• Hand out partial or full-length screeners with your URL emblazoned across the bottom.
  
• Launch your film domestically and internationally on the same day.
  
• Donate a copy of your film to related charities or organizations.

As you can see, there are countless ways to infuse generatives to bring value to your film, and in doing so, bring value to all of its related scarce goods. The unfortunate truth filmmakers face in the modern age: films are no longer a protected scarce commodity as they were a half a century ago. In this digital age, the internet is one giant copy machine... once content gets online, it stays there, echoing throughout eternity. Rather than waste time and money fighting that Hydra, why not use the internet's unique ability to infinitely distribute content to add more value to your scarce goods? Why not use transmedia to build audiences who will buy your scarce goods? Why not let profits from your scarce goods fund your film's fixed costs? Why not weave generatives into every aspect of your business model so that only you can offer the product you're creating?

Filmmaking isn't only feature films anymore—it has expanded to be storytelling across many different media. Things like machinima will creep onto the scene as well as webisodes and short, funny clips. Feature films as a format will still exist, but they'll have to compete with the freemium and transmedia models that indie filmmakers are pioneering today. And, because of these wonderful new models, more indie filmmakers are connecting with fans and giving them a reason to buy.

There will always be money in filmmaking because there will always be value in storytelling... just don't expect films to be the main products that generate all the money.

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

1. Save the Tower Theatre
   
2. A Plea to Consumers
   
3. A Rotating Film Tour
   
4. What Are You Really Selling?
   
5. Transmedia: Connecting With Fans
   
6. CwF + RtB For Filmmakers

Transmedia: Connecting With Fans (Part 5 of 6)

This is an article in a series called The Filmmaker's Roadmap to Value. You may read all the articles in this series by clicking here.

TRANSMEDIA: CONNECTING WITH FANS
Telling a movie's story outside of a movie—i.e., in other media—is called "transmedia" and it's fast becoming a dominant model for filmmakers who realize transmedia's power to cultivate and exploit fans for their projects. Robert Pratten of Zen Films wrote a superb analysis about transmedia business models called Moving Filmmakers to a Transmedia Business Model. Pratten emphasizes how critical it is to target and nurture fans in the earliest stages of a project in order to build a platform before the product is even developed. From a cost perspective, this is fundamentally true. Filmmakers determined to only make a feature film may have difficulty understanding that making and selling feature films in themselves will become an increasingly outdated model. Of course, filmmakers will still be able to make feature films the old way by trumping for funds before connecting with audiences, but it will just get harder because other filmmakers will have already been feverishly connecting with their fans. If you were an investor, which film would you rather dump money in—a project whose target audience has never even heard of the film, or a project with a growing and vibrant community excited about a film's release despite it not having entered pre-production yet?

Pratten's Transmedia model explains how using transmedia to connect with fans early in the process is integral to getting funding sooner. For independent filmmakers, Pratten's overview should be like getting manna from heaven. Unfortunately, Pratten doesn't really address the other part of the formula, which is getting consumers to buy. The assumption goes that consumers involved in the development process will automatically buy the final product, and that's probably true. Still, I feel it deserves more attention. If I'm a fan connecting with your film across multiple media—what am I inspired to buy from you, and why? I love your story across DVDs, movies, the web, forums, software, etc., but why should I plunk down cash for your product? I'm not talking about the tired Old Guard defense, "I made a DVD and slapped a price on it—that's why you should buy it." I'm talking about what makes your product so unique, so clever, so irresistible that I would pay money for it even if I could already get it for free.

Transmedia shows us how and why we can get eyeballs on a product, but how do you covert those eyeballs into dollar signs? This is the part where we have to talk about CwF + RtB = $$$:

Connect with Fans + Reason to Buy = Profitable business model

First, we look at a product(s) we produce and ask, what benefit does it provide? Are consumers buying the film itself or the enjoyment of the film's story? Then, we take that benefit and figure out which components of it are scarce and which are non-scarce (or abundant/infinite). Tangible goods are scarce, intangible goods are non-scarce. For example, CD's are a tangible good and a producer's ability to produce 1 million CDs is limited by the producer's bank account. However, the music on those CDs is an intangible: a song can be listened to and copied infinitely with no cost to its original producer.

Non-scarce or abundant goods add value to the scarce goods. An infinite/non-scarce good like trust adds value to a scarce good it's associated with. For example, given two cars of equal retail price, we will always choose one brand over the other because we know one brand has a longer history of reliabilty. This brand's cars never break down. We trust that company to make a reliable product. So the infinite good (reliability) adds value to the scarce good (the car). Consider the example of this clever music band:

...The String Cheese Incident, a band that recognizes, "The more people are exposed to the music, the better it is for the band." The music (the non-scarce good) helps them sell a lot more tickets to concerts (a scarce good). However, that band took it a step further. They set up their own travel agency to help fans attend their concerts—and have been making money there by saving people time (scarce good!) and helping them secure flights (scarce good) and lodging (scarce good), all in the pursuit of access to the band (scarce good) who they value so much because of the music (non-scarce good).

Trust is a non-scarce good, but also a specific tool to influence behavior. Sally Hogshead has spent years trying to answer a simple question: why are we fascinated by things? The results are in her new book, coming out in February, called Fascinate: Your 7 Triggers to Persuasion and Captivation. In Sally's words:

There are seven different "triggers" that activate our fascination: Power, lust, mystique, prestige, alarm, vice, and trust. Each trigger shapes our behavior in a different way. For instance, the mystique trigger provokes our curiosity, making us want to seek out more information. The lust trigger makes us crave an experience. Alarm increases anxiety at the threat of negative consequences. Trust calms us with familiarity and reliability.

All seven non-scarce triggers are used to entice customers to buy certain products or, put another way, to add value to scarce goods. If you are marketing any kind of product (and "product" includes stories and characters!), Sally's book will become a must read in an age of "free" where attention is our most valuable scarce good, a good which every company fights to obtain.

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

1. Save the Tower Theatre
   
2. A Plea to Consumers
   
3. A Rotating Film Tour
   
4. What Are You Really Selling?
   
5. Transmedia: Connecting With Fans
   
6. CwF + RtB For Filmmakers (12/29 09:00 PST)

Parts 5 and 6 of this article series would have been impossible without Mike Masnick's lucid and insightful writings on Techdirt. To say I owe Mike a debt of gratitude here is an understatement of the grandest possible measure.

What Are You Really Selling? (Part 4 of 6)

This is an article in a series called The Filmmaker's Roadmap to Value. You may read all the articles in this series by clicking here.

WHAT ARE YOU REALLY SELLING?
There is a larger and more urgent question: are filmmakers, especially independent filmmakers, really aware of what business they are in? If they think they're in the business of producing and selling movies, they are dead wrong—filmmakers are actually in the business of entertainment. Consumers don't buy movies to support a filmmaker... they buy movies to be entertained. All too often businesses define themselves strictly around providing a tangible item and then fight to the death when that tangible item is replaced by a better product. Horse and carriage drivers weren't in the business of providing a horse and carriage—they were in the business of providing personal transportation. When cars were introduced and took over their market, horse and carraige drivers futilely tried to hold back the tides of progress. Newspapers aren't in the business of printing newspapers (a tangible), they're in the business of providing newsworthy information (an intangible). Before the digital age, where printing was costly, there was a place for newspapers... but now, when killing trees is increasingly unpopular, newspaper print production seems the pargon of waste.

Another great example is iTunes—they aren't in the business of providing media to consumers. If that were the case, they might only be selling DVDs or digital files with highly restrictive DRM. Instead, iTunes is actually providing quality and convenience at a low cost. I know (and so does Apple) that I can get almost anything iTunes offers for free from countless pirated web sites, but iTunes offers the best quality version on an intuitive platform for next to nothing. Why would I bother BitTorrenting when I can find anything I want, easily, and download it immediately... and do it legally?

As I was walking around Disneyland a few years ago, I realized that Disney doesn't simply sell merchandise for their films. Merchandise is a tangible, and as such, any other company could do that. What Disney does, what really separates them from everyone else, is that they sell an intangible. Disney cultivates and sells the magical experiences all children want (be a princess, be a pirate, a Jedi, etc.)... and offers it in the shape of physical merchandise (toys, keychains, stuffed animals, sweatshirts, etc.). Since most parents will do anything to please their children, parents trip over themselves to buy merchandise to sustain that magical Disney pixie dust. If you look at Disneyland closely, everything they do there is infused with this concept: "free" parades, fireworks, random musical numbers, barbarshop quartets. Pirates of the Carribean isn't just any old theme ride—it's a boat ride through supernatural piracy.

Filmmakers aren't in the business of selling movies—movies are the tangible. Instead, filmmakers are in the business of selling the experience their movie provides. Once you understand that distinction, you realize that clinging to many aspects of filmmaking could threaten your long-term career in filmmaking. If you focus your energies on enhancing the experience movies provide, then the movie becomes just one of numerous media adding to that experience. Depending on your career goals, you can either make the movie the main part of the experience, or you can let it be only a secondary part of the experience.

The Blair Witch Project has sometimes been described as an outlier, something so far above the mean that it's an exception that proves the rule. However, I believe Blair Witch was so successful because its filmmakers understood (perhaps only intuitively) that the experience of the story was what audiences wanted... so the filmmakers built an entire world outside of the film which enhanced the film's experience. For example, on the Blair Witch web site, you could see "real" pictures (from the local Sheriff department's murder investigation) of the film cannisters from which the movie is supposed to have been edited. Allegedly, college archeologists on a dig found all three film canisters 20 feet under the ground nestled snugly beneath an undisturbed stone wall over 100 years old. How could the cannisters have possibly been buried there without disturbing the stone wall above it? It's a small detail, perhaps even unnecessary to the movie, but a detail with such supernatural creepiness that it piqued a lot of people's interest in the movie's storyline, and thus enhanced the experience of the film. On their web site, you could get immersed in Blair Witch's detailed alternative reality. You knew it was all fake, but the more you looked at it, the more you wanted to see the film to find out what had happened. In the end, it was fun to squint your eyes and pretend it was real just to feel what the characters might have been feeling. Cloverfield took this approach a step further by creating web sites for an ARG treasure hunt and gave all the movie's main characters Myspace profile pages to interact with the public, a remarkably inexpensive but effective marketing campaign for a studio film.

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

1. Save the Tower Theatre
   
2. A Plea to Consumers
   
3. A Rotating Film Tour
   
4. What Are You Really Selling?
   
5. Transmedia: Connecting With Fans (12/28 09:00 PST)
   
6. CwF + RtB For Filmmakers (12/29 09:00 PST)

A Rotating Film Tour (Part 3 of 6)

This is an article in a series called The Filmmaker's Roadmap to Value. You may read all the articles in this series by clicking here.

A ROTATING FILM TOUR
A pet peeve of mine is those who criticize but offer no viable alternative. Here goes:

Using my previous example, the Tower Theatre could thrive if it adapted to the changing market's needs. Art house film owners should be rethinking what scarce goods only they can offer, things which other theatres can't or won't offer. Taking a cue from Jon Reiss, art house film owners could make their movies more event-based. Let's look at that in more detail.

Imagine if 50 art house theaters across the nation held a kind of "rotating filmmaker Q&A tour"? Pair up two filmmakers, one famous with someone not so famous and double bill those movies. Play that double-bill for a whole week at an art house theatre and the filmmakers show up after the show for a Q&A a few days of the week (Saturday & Sunday?). 50 weeks long, 50 art house cineplexes, 100 films, 100 filmmakers. Filmmakers talk about their movie with local audiences, sign autographs, sell DVDs, merchandise, etc. It brings much needed business to all 50 art house theatres and offers the filmmakers a chance to sell merchandise and help build awareness about their movies. Now that's a model for sustainability! As a consumer, I can tell you that whatever "urgent" plans I have going on, I'll find day care and scramble to the Tower Theatre to hob nob with visiting indie film directors.

This is all about giving a consumer a good reason to buy. It's about creating value. You don't lure customers into your store because you appeal to their pity, because 'your store has been in the same location for 20 years and it would be such a shame to see you go out of business.' You lure customers in your store by offering them something they can't resist, something only you can provide. And, whenever possible, you make sure it's a scarce good they have to pay good money for.

Trent Reznor has successfully made that strategic shift—he doesn't sell CDs for $15 because he knows his fans can already get his music for free on P2P networks. Rather than gripe about it, he uses that industry shift to his advantage by giving away his music for free and the only "payment" he asks for is a fan's email. That may not sound like such a great deal for Reznor but consider how clever that as a way to stay in contact with fans. No record label has standardized this approach yet for CD purchases... and they wonder why their business is hurting.

Offering great content for the price of contact information is called an "ethical bribe". Fans get your music, you get to contact them about upcoming concerts, new products in your store, etc. For instance, Reznor created a ultra deluxe limited edition 4 disc collection of his music (a product he already gives away for free) and sold each copy for $300 to his first 2,500 fans. The limited edition is swanky, including three embossed fabric-bound hardcover books, a data DVD of the multi track recording sessions, etc... and it sold out in days. Reznor grossed $750,000 from a product he already gives away for free. How? Because he's collecting emails. Because he's selling something scarce. Because he's giving away his digital products. Because he's connecting with fans and giving them a reason to buy. Still not convinced? Read the story of Amanda Palmer who made $19,000 in less than a month simply using Twitter to connect with her fans.

The trick with independent films is straightfoward—to give fans a reason to buy, you need to offer them value. But how do you create value when art is so subjective? Nobody could have predicted Slumdog Millionaire would win an Oscar for best picture. A dramatic feature about extreme poverty in India's slums? No way. Boyle's films are not your standard fare for studio films... Trainspotting has some "page killer" scenes which no Hollywood studio would have ever dared to film. However, because Slumdog won an Oscar and did so well at the box office, it is—by many earmarks, an independent picture with a big budget—thus, a commercial film. So how do you slice the pie to figure out what an indie film is and what isn't?

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

1. Save the Tower Theatre
   
2. A Plea to Consumers
   
3. A Rotating Film Tour
   
4. What Are You Really Selling? (12/27 09:00 PST)
   
5. Transmedia: Connecting With Fans (12/28 09:00 PST)
   
6. CwF + RtB For Filmmakers (12/29 09:00 PST)

A Plea To Consumers (Part 2 of 6)

This is an article in a series called The Filmmaker's Guide to Value. You may read all the articles in this series by clicking here.

A PLEA TO CONSUMERS
Jon Reiss recently posted a very thorough article called A Christmas (and Hanukah) List to Help Save Independent Film. It's a valiant effort and may actually help some independent filmmakers stay afloat, much in the same way that NPR has stayed afloat with listener donations. Which is great. If CC P2P services like Vodo.net explode and consumers find a simple way to patronize the indie filmmakers they like, we'll all live in a much better world for the arts.

Even so, I can't help wonder: isn't this just bailing a sinking ship? Don't misunderstand: I'm not saying independent filmmaking is a sinking ship, at least not in whole. Quite on the contrary, some recent indie films have been wildly successful, both artistically and commercially, e.g., Precious, Once, Paranormal Activity. Supporting indie filmmaking, though, comes naturally when the market enjoys the content. If you're telling a story people enjoy, you should—in theory, anyway— never have a problem finding some kind of funding for your film.

Last week, I started a virtual panel on Twitter called Infinite Distribution. The panel focuses on film distribution in the digital age which you can find and contribute to at #infdist. Lots of people have been contributing to it, including Jon Reiss (author of the must-read book, Thinking Outside the Box Office), but a few comments in particular resonated with me. Self Helpless is a no budget comedy being released for free over BitTorrent for 7 days, followed by a DVD release with related mechandise like T-shirts, etc. In itself, their model is worth writing more about (read more about their BitTorrent model here), but this is a collection of @Selfhelplessmov's tweets:

Make shit people want and give it to them for free. Not for everyone, but it works for us. The idea of retraining or cajoling audiences irks me... maybe audiences need to retrain filmmakers to make movies people will like. Training people to be more film-savvy seems weird. Making movies FOR the audience often gets left out of the conversation—before we can teach, don't we have to gain their trust by giving them good films?

Why are indie films struggling? I see two obvious reasons (though there may be many others): the market doesn't support indie films, and costs to make indie films are too high. This is a tragic and vicious circle... when the market does support those films, then the costs aren't too high, right? So are we seriously objecting to a lack of support in the market for fringe indie films that can't seem to find their market? As Big Champagne CEO Eric Garland recently said:

...growing a sector is a privilege and not a right. There is no right size. There is no correct or God-given size for any sector. Why do we get to make movies that cost $300 million to make? Because we have found venues where people will spend more than $300 million on the result. If people spend only $50 million then the price of a movie must be $49 million or less.

This economic principle is and always will be mercilessly democratic. It applies to physical products 100 years ago and to digital products today: if audiences for indie films only spend $1 million, then the cost of indie films must be less than $1 million. If audiences spend $50,000, then the cost must be under $50,000. If there is no market for a particular indie film, then that indie film must either adapt... or it will die. You can bail water on the sinking ship if you so wish, but sooner or later, your arms will get tired. Appealing to consumers' good nature to help fund independent movies for its own sake is putting a band-aid on a bleeding jugular.

Terry Rossio once wrote on Wordplay, either in a column or a comment, and I'm paraphrasing: "we can give you all the advice about pitching your story to a producer, about how to format your script, about all these other little tips and tricks... but it won't make any difference if you can't write a Damned Good Screenplay. You could even write a screenplay in crayon but if its story and characters were compelling enough, that multi-colored script will still get a green light. So stop worrying about two vs. three brads and start worrying about your opening words. Worry about your character development. Worry about your story." Indeed. Rather than focus all your efforts on how to market your product cleverly, just focus your efforts on improving the damned product. Good content advertises itself.

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

1. Save the Tower Theatre
   
2. A Plea to Consumers
   
3. A Rotating Film Tour (12/26 09:00 PST)
   
4. What Are You Really Selling? (12/27 09:00 PST)
   
5. Transmedia: Connecting With Fans (12/28 09:00 PST)
   
6. CwF + RtB For Filmmakers (12/29 09:00 PST)

The Filmmaker's Roadmap to Value (Part 1 of 6)

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

SAVE THE TOWER THEATRE
Sacramento has a local art house cineplex called the Tower Theatre. Its billboard out front reads, "Save The Tower Theatre" and has been posted there for years because Sacramento was going to (and might still) spend millions on a competing theatre in a fancy mall area in nearby downtown. The new mall theatre's art films would compete directly with Tower, but the new theatre would also be given, rent free, to the Century Theaters Corporation. Obviously, Tower Theatre and its patrons are up in arms about the deal.

Now let's be abundantly clear: I support the arts. I support the very idea of the arts. I got my B.A. in the Humanities and love publicly supported news organizations like NPR—they play a critical role in holding other for-profit news corporations accountable. That's a long-winded way of saying I get the warm and fuzzies whenever I see the arts flourish.

That said, Darwinism is an unrelenting and unforgiving bitch. Any animal, technology, system, or concept unable to sustain itself will either adapt... or die. And, to be blunt, if it can't adapt quickly enough, it should die. The cold truth is that extinction is not anathema to evolution—it's part of evolution. In order for newer and better systems to be born and thrive, decaying and less efficient systems must die off to clear the way forward. In the words of Dennis Leary, "I once heard Keith Richards say kids should not do drugs... Keith, we can't do any more drugs because you already did them all! We'll have to wait until you die and SMOKE YOUR ASHES!!"

I hope the Tower Theatre stays afloat. I really, really do. I try to make it over there when I can, but... it's a little too far away, I have two kids keeping me busy at home, and the movies Tower shows don't always grab me right away... It's interesting how I ordered my list of objections. If I lived next to the Tower, even if I had kids and their movies didn't grab me right away, I'd still go more often than I do now.

Whenever I do get over to Tower, I don't give them my money simply to support independent movies—I give them money because I like the indie movies they show there. If the Tower can't sustain itself showing indie movies, I will of course be extremely sorry to see them go... but I also have little sympathy for a business that's failed because they didn't understand how to earn more money than they spent.

The monetization of digital distribution is shifting under our feet like tektonic plates. Take a good look around because things will not always be so: if Blockbuster doesn't act fast, it won't be around in 5–10 years. On the other end of the scale, Netflix is already migrating its DVD rentals into a Watch Instantly service. News comes this week about Apple offering a $30/month iTunes TV subscription. Things are moving quickly and the ones who can adapt will earn the privilege of sticking around.

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

1. Save the Tower Theatre
   
2. A Plea to Consumers (12/25 09:00 PST)
   
3. A Rotating Film Tour (12/26 09:00 PST)
   
4. What Are You Really Selling? (12/27 09:00 PST)
   
5. Transmedia: Connecting With Fans (12/28 09:00 PST)
   
6. CwF + RtB For Filmmakers (12/29 09:00 PST)

The Key is Generatives (Part 8 of 8)

THE FILMMAKER'S ROADMAP TO FREE (part 8 of 8)
This is an article in a series. You may read all the articles by clicking here.

THE KEY IS GENERATIVES
When Sheri Candler passed me this speech by Brian Newman at DIY Philladelphia, I'm not ashamed to say I was ecstatic. Finally, I thought, fiiiiiiinally, somebody who really gets it. Brian’s lecture provides a succint overview of how content producers can still make money in a free economy:



I went searching for more information about generatives and found what appears to be the original article by Kevin Kelly. Below are the most salient parts from his article:

The simplest way I can put it is thus:

When copies are super abundant, they become worthless. 
When copies are super abundant, stuff which can't be copied becomes scarce and valuable.

When copies are free, you need to sell things which can not be copied.

Well, what can't be copied?

There are a number of qualities that can't be copied. Consider "trust." Trust cannot be copied. You can't purchase it. Trust must be earned, over time. It cannot be downloaded. Or faked. Or counterfeited (at least for long). If everything else is equal, you'll always prefer to deal with someone you can trust. So trust is an intangible that has increasing value in a copy saturated world.

There are a number of other qualities similar to trust that are difficult to copy, and thus become valuable in this network economy.  I think the best way to examine them is not from the eye of the producer, manufacturer, or creator, but from the eye of the user. We can start with a simple user question: why would we ever pay for anything that we could get for free? When anyone buys a version of something they could get for free, what are they purchasing?

From my study of the network economy I see roughly eight categories of intangible value that we buy when we pay for something that could be free.

In a real sense, these are eight things that are better than free. Eight uncopyable values.  I call them "generatives." A generative value is a quality or attribute that must be generated, grown, cultivated, nurtured. A generative thing can not be copied, cloned, faked, replicated, counterfeited, or reproduced. It is generated uniquely, in place, over time. In the digital arena, generative qualities add value to free copies, and therefore are something that can be sold.

Eight Generatives Better Than Free

Immediacy—Sooner or later you can find a free copy of whatever you want, but getting a copy delivered to your inbox the moment it is released—or even better, produced—by its creators is a generative asset. Many people go to movie theaters to see films on the opening night, where they will pay a hefty price to see a film that later will be available for free, or almost free, via rental or download. Hardcover books command a premium for their immediacy, disguised as a harder cover. First in line often commands an extra price for the same good. As a sellable quality, immediacy has many levels, including access to beta versions. Fans are brought into the generative process itself. Beta versions are often de-valued because they are incomplete, but they also possess generative qualities that can be sold. Immediacy is a relative term, which is why it is generative. It has to fit with the product and the audience. A blog has a different sense of time than a movie, or a car. But immediacy can be found in any media.

Personalization—A generic version of a concert recording may be free, but if you want a copy that has been tweaked to sound perfect in your particular living room—as if it were preformed in your room—you may be willing to pay a lot.  The free copy of a book can be custom edited by the publishers to reflect your own previous reading background. A free movie you buy may be cut to reflect the rating you desire (no violence, dirty language okay). Aspirin is free, but aspirin tailored to your DNA is very expensive. As many have noted, personalization requires an ongoing conversation between the creator and consumer, artist and fan, producer and user. It is deeply generative because it is iterative and time consuming. You can't copy the personalization that a relationship represents. Marketers call that "stickiness" because it means both sides of the relationship are stuck (invested) in this generative asset, and will be reluctant to switch and start over.

Interpretation—As the old joke goes: software, free. The manual, $10,000. But it's no joke. A couple of high profile companies, like Red Hat, Apache, and others make their living doing exactly that. They provide paid support for free software. The copy of code, being mere bits, is free—and becomes valuable to you only through the support and guidance. I suspect a lot of genetic information will go this route. Right now getting your copy of your DNA is very expensive, but soon it won't be. In fact, soon pharmaceutical companies will PAY you to get your genes sequence. So the copy of your sequence will be free, but the interpretation of what it means, what you can do about it, and how to use it—the manual for your genes so to speak—will be expensive.

Authenticity—You might be able to grab a key software application for free, but even if you don't need a manual, you might like to be sure it is bug free, reliable, and warranted. You'll pay for authenticity. There are nearly an infinite number of variations of the Grateful Dead jams around; buying an authentic version from the band itself will ensure you get the one you wanted. Or that it was indeed actually performed by the Dead. Artists have dealt with this problem for a long time. Graphic reproductions such as photographs and lithographs often come with the artist's stamp of authenticity -- a signature -- to raise the price of the copy. Digital watermarks and other signature technology will not work as copy-protection schemes (copies are super-conducting liquids, remember?) but they can serve up the generative quality of authenticity for those who care.

Accessibility—Ownership often sucks. You have to keep your things tidy, up-to-date, and in the case of digital material, backed up. And in this mobile world, you have to carry it along with you. Many people, me included, will be happy to have others tend our "possessions" by subscribing to them. We'll pay Acme Digital Warehouse to serve us any musical tune in the world, when and where we want it, as well as any movie, photo (ours or other photographers). Ditto for books and blogs.  Acme backs everything up, pays the creators, and delivers us our desires. We can sip it from our phones, PDAs, laptops, big screens from where-ever. The fact that most of this material will be available free, if we want to tend it, back it up, keep adding to it, and organize it, will be less and less appealing as time goes on.

Embodiment—At its core the digital copy is without a body. You can take a free copy of a work and throw it on a screen. But perhaps you'd like to see it in hi-res on a huge screen? Maybe in 3D? PDFs are fine, but sometimes it is delicious to have the same words printed on bright white cottony paper, bound in leather. Feels so good. What about dwelling in your favorite (free) game with 35 others in the same room? There is no end to greater embodiment. Sure, the hi-res of today—which may draw ticket holders to a big theater—may migrate to your home theater tomorrow, but there will always be new insanely great display technology that consumers won't have. Laser projection, holographic display, the holodeck itself! And nothing gets embodied as much as music in a live performance, with real bodies. The music is free; the bodily performance expensive. This formula is quickly becoming a common one for not only musicians, but even authors. The book is free; the bodily talk is expensive.

Patronage—It is my belief that audiences WANT to pay creators. Fans like to reward artists, musicians, authors and the like with the tokens of their appreciation, because it allows them to connect. But they will only pay if it is very easy to do, a reasonable amount, and they feel certain the money will directly benefit the creators. Radiohead's recent high-profile experiment in letting fans pay them whatever they wished for a free copy is an excellent illustration of the power of patronage. The elusive, intangible connection that flows between appreciative fans and the artist is worth something. In Radiohead's case it was about $5 per download. There are many other examples of the audience paying simply because it feels good.

Findability—Where as the previous generative qualities reside within creative digital works, findability is an asset that occurs at a higher level in the aggregate of many works. A zero price does not help direct attention to a work, and in fact may sometimes hinder it. But no matter what its price, a work has no value unless it is seen; unfound masterpieces are worthless. When there are millions of books, millions of songs, millions of films, millions of applications, millions of everything requesting our attention—and most of it free—being found is valuable.

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

The Way Out (Part 7 of 8)

THE FILMMAKER'S ROADMAP TO FREE (part 7 of 8)
This is an article in a series. You may read all the articles by clicking here.

THE WAY OUT
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

Creating Value (Part 6 of 8)

THE FILMMAKER'S ROADMAP TO FREE (part 6 of 8)
This is an article in a series. You may read all the articles by clicking here.

CREATING VALUE
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

It's All Fixed (Part 5 of 8)

THE FILMMAKER'S ROADMAP TO FREE (part 5 of 8)
This is an article in a series. You may read all the articles by clicking here.

IT’S ALL FIXED
The problem at the chewy center of the free debate is about fixed costs.

Let’s say you’re publishing a book. If your book costs $5,000 to produce the initial printing plates, but only $5 to print and distribute each book after those plates are made, then your fixed cost is $5,000 and your marginal cost is $5. Traditionally, a publisher might charge $20 per book and break even once that $5,000 fixed cost had been recouped after which the publisher could either sell each book for as little as $5 or continue selling them at $20 to make handsome profits.

Unfortunately for producers, competition will always drive retail prices as close as possible to their product’s marginal cost and—in the case of airlines desperate to capture holiday travelers—retail prices can sometimes go lower than the marginal cost. Other market forces like labor unions and anti-outsourcing lobbyists are hard at work to artificially inflate this downward market pressure but, ultimately, businesses must seek profit (or simply survival) by using their resources in the most efficient way possible… which often means relocating factories overseas where 10 foreign employees cost the same as one American employee, or installing cutting edge technological systems that do three times the amount of work with only half the staff. Still, it’s the fixed costs that matter. If you don’t get your fixed costs paid back, your business will soon die.

And no matter what your product is, basic economic laws apply—no business model is sustainable when 1) fixed costs are so high that they can never be recouped or 2) retail prices are consistently lower than marginal costs. Therein lies the quagmire for the movie industry: unlike books and music, movies cost a lot. Studio movies have staggeringly high fixed costs and, for theatrical releases, substantial marginal costs as well. By comparison, a movie’s digital distribution (marginal) costs are nil—once a film gets burned into a digital version, it can spread like wildfire around the world with no harm to the original file. Digital files are an infinitely renewable resource.

If movies cost too much (i.e., their fixed costs are higher than their projected revenue) and the movie itself is the only product being sold, then piracy does indeed pose a fatal threat to that particular movie and fundraising for similar films in the future. Thus, if studios are resolute in keeping the industry exactly as it has been over the last 60 years, then the film industry will get left behind, just as horse carriage drivers were left behind when automobiles were first introduced into the market. As Big Champagne CEO Eric Garland says, “…growing a sector is a privilege, not a right.” How bitterly ironic that Hollywood was founded by a group of independent filmmakers who blatantly ignored Thomas Edison’s patent laws—those outlaw "pirates" are now the orthodoxy. Oh, how the mighty shall fall...

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