FilmDependent

The Commoditization of Movies

There are two ways to price and sell products at market:

• One is the MARGIN method.
  • The Margin method is usually based on a scarcity; either of product (even if artificial, like diamonds) or of consumers. The margin method is how Apple has typically pursued its business. Make the product at as high a level as you can, understand that your constituency will be a smaller and more loyal body of fans, and make money on the wide “margin” between costs of production and the price paid by consumers.
• The other is the VOLUME method.
  • The Volume method, then, is usually based on a high availability, essentially, of both product and desiring consumers. When Blu-Ray players were introduced at $500 to $1,000, they were scarce, and only wealthy early-adopters could or would pay that much. But there was more margin in each sale. Now it is possible to acquire a Blu-Ray player for as low as $79.95, moving it into the reach of most. Many technology products enter the market this way, following a path through early-adopters to the wide consumption landscape. Under this volume method, the product is priced at about as low as it can get, intending to saturate the market at a level that is always aiming at “everybody.”

Until the advent of DVDs, motion pictures for home viewing used both of these methods. If a movie had a high potential to sell a lot of units (if it was for “everyone,” like E.T.), then the VHS cassette would be priced at something under $24.95, and often as low as $14.95, maybe after a MacDonald’s or Pepsi partner rebate or the like This pricing was called SELL-THROUGH (or Sell-Thru). Other titles would be priced from about $59.95 to as high as $112.95, with the average pricing for quality titles around $100 around the time that DVD was introduced. These titles were priced for RENTAL, and for the collector who had to have that title and was willing to pay up to own it.

So, some films were treated as Margin titles (Rental), and some as volume titles (Sell-Thru), according to the necessary and reasonable analysis of the size of the market for the movie itself. This pricing methodology brought a broad range of quality films of all types within the consumption grasp of a wide cross-section of the film-loving public. Sell-Thru blockbuster status was highly desirable, but everyone knew that every film was not a blockbuster, so many films used the margin method to maintain profitability.

Enter DVD

Now, when DVDs entered the marketplace…

If you would like to read more of this post, and our other posts, please go to: http://filmprofit.com/?page_id=16

New Post at FilmProfit

“Our Thinking Lately”
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Service Deal, Self-Distribution, Four-walling

We have come a long way from 1971, when the makers of Billy Jack took their orphan film on the road after a succession of studios abandoned it. The box office of the film eventually reached $40 million. It supposedly still ranks as one of the all-time 100 box office hits ( inflation-adjusted).

In the same year was also birthed Sweet Sweetback’s Baadasssss Song, a film that was written, directed, produced, edited, starred-in (doing his own stunts, too), scored, and then released by hand by Melvin Van Peebles. Carried from theater to theater, a starved constituency embraced the film, its ideas, its attitude, and its moxie. Who woulda known? 

What I mean is, who ever knows? Who actually knows when a film will strike a chord? Both of these films found their success after being rejected by “the man,” the distribution complex. Now, I don’t believe in “them” and “us,” or “the man” and us, but I do believe that innovation happens in garages, no matter the product line. And independent filmmakers are the garage-tinkerers of the film business, making the things that others find hard to believe in, no matter how many times they are shown that “not believing” is a big mistake.

The core of the business is structured on “not believing.”

• Not believing that a film has an audience
• Not believing that home video will do anything but destroy their business (When it really more than doubled it)
• Not believing that anyone could be so silly as to want to watch anything on a phone, for god’s sakes!
• And so on…

And not believing in a film is a convenient way to avoid all the trouble and heartache and work it will take to make any film the success it is capable of being. It takes that leap of faith and then it takes work and marketing money. It is hard for a distributor to acquire your film. They and their investors are wary. So, they might want to dismiss your film more than embrace it, as embracing it means toil and trouble that feels risky to them. So, they build…

Deal Structures That Devalue Your Film (To You)

This is all about access to market. You want it, they have it. They decide if you get it and set the price for that. This analysis of the market structure has no value judgment, but is meant to strip away the fluff from the press releases, the stroking, the hand-holding solicitation, and look at it clearly. The conventional film distribution deal is tilted away from you, the initial rights owner, and toward the acquiring (rights-seeker). In this way:

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If you would like to read more, go to:  Our Thinking Lately

Onward and Upward.
Jeffrey Hardy

There is so much to write about nowadays. Today. There is so much to write about today.

But the key issue is that, in looking back over the history of the movie business, at each crunch juncture there was also significant opportunity knocking on the door. At each of these points of crunch or change, those who reached out for the future caught a wave and transformed the business. All of the primary junctures in the business of filmed entertainment have been driven by technological advancement, some in production, but more in delivery. We are moving further and further from the appointment with entertainment and more toward the finding and accessing of entertainment. Appointments will always hold their mystique and audience, but the bulk of entertainment as we go forward will not be by appointment but “On-demand.”

New Technology Create Consumer Choice

These waves have come faster over the last thirty years. A new technology does not any longer have two decades of free elbow-room. Based on DVD, with a ten year growth curve, new technologies may have a decade in which to run free, and then things will swing in a new direction. Contemplating this cycle speeding up can spin the head, but it will most likely speed up and proliferate. But key is the fact that new technologies offer new choices and freedom for consumers, certainly shown by the embrace of VHS and then DVD, and now we are on the cusp of VOD (Video On Demand) in all its myriad forms. On Demand describes the relationship filmed entertainment (filmed information) will have with consumers. They will have more choice, more ways to access that choice, and they will enjoy their choices.

Now, most large organizations are focused on building fences around their operations and fighting down competition, holding tight to their assets and charging as much for admission as the market will bear.

Rump organizations, start-ups, new producers are just looking for an outlet, any outlet. They are part of the competition. They want access to consumers, and they often see the large organizations as their path to those consumers. But new technology blurs those relationships, and producers can be distributors now. Even Rupert Murdoch looked at production and distribution gear and technology and predicted that there could easily come a day that the studios would be obsolete, producers would not need them for consumer access.

Double-Whammy Time

Is this missive a recipe or a specific plan for going through the double-whammy times we find ourselves in? What do I mean by “double-whammy?” We have truckloads of new technology choices, from mobile delivery capabilities to set-top boxes about to deliver ultimate choice straight from the Internet to the TV. This is opportunity. And it is disruption for standard business. This is one of the whammies, the disruption. Disruption causes job loss and changes in business. Look at the music business over the last ten years for a lesson in disruption. The other whammy is the financial contraction we find ourselves in; a loss of trust in the system. And the last eight years have been nothing, if not a steady chipping away at the foundations of trust. Now, finally, the financial system has stopped to look at its own foundations and found them less than solid. What in this house of mirrors do we now truly trust, and what do we jettison as distrustful. This is a contraction. And this stopping to examine and probe further has brought us all closer and closer to a halt, fearful we cannot expand because our previous expansion was not based completely on reality. The jig is up, in other words, and now we are left with a mess to clean up, like after a frat-house party held in a crumbling old mansion.

Who Has A Plan?

So, again, is this missive a recipe or a specific plan for going through the double-whammy times we find ourselves in? Well, no, but there are a couple of ideas that I have been working on as I watch the theatrical business wobble and falter, not only for good independent films but for bigger films by highly experienced and big-ticket filmmakers. It derives from my belief that every film is, ultimately, a marketing problem. The theatrical exhibition business is, largely, a marketing platform for a film’s follow-on delivery systems. With DVD being worth near 3 times theatrical exhibition, this is not hard to figure out. DVD is not growing, but it is still big. With 239 million DVD players sold in the US in the last ten years, if they were all still working, would provide two for every household among the 112 million US households. We have, in reality, greater than 90 percent DVD-player penetration. Over the last eleven years, since inception, 9.52 billion DVDs have been sold. 1.6 billion of those were sold in 2007, and in the first half of 2008, another 660 million were sold (about 10 million more than in the first half of 2007). We definitely are in a contraction, though, and so is DVD, with sell-through and rental both down in the upper single digits last year.

Technology Can Turn The Tables

But there are still a lot of DVDs to be sold. Rump players are less focused on the giant plays, and more on finding their own niche of customers. And new technology offers us ways to break through and market niche filmed entertainment to consumers without the fantastic expense of a theatrical release that can weigh down the Return on Investment. This is true for horror films as much as it is for art house dramas. Overcoming the marketing gap for these films is an issue I have been working on for a good deal in the last six months. I think there are very interesting ways to overcome it, but each film needs its own individual strategy.

In this time of double-whammy, can we find our way to embrace innovation and technology and deliver? Can we find opportunity. I think the effective business plans of these next several years will focus more on self-reliance, on being thoughtful about the path from concept to audience, and I think the next several years will embrace change and they will embrace the increasing interconnectedness of the world.

Within this I see nothing but opportunity. Opportunity for those who can innovate in their content, innovate in their approach to delivery, and innovate in their marketing, to build and grow businesses and careers.

And Don’t Forget The Power of Honesty and Trust-Building In All Endeavors

This missive is, actually, a call to embrace the opportunity within these momentous changes, and to embrace the opportunity to build a system of trust in all of our endeavors. We can all contribute to an atmosphere of trust in our business and in our lives, and if we do it in ours, we encourage others and demand that others do it in theirs.

I think there are many more Miramaxes to be born, though they may start looking more like Social Networking, or something else we might not even know yet. I think there are more delivery technologies to be innovated, more marketing approaches to be tried, and more businesses to be built, they just may not look like all of the other old businesses…

Onward and Upward
Jeffrey Hardy

Poor Jim Cramer. Now the roof of the house has fallen on him—but this is a house he helped in building. For some time now, I have been planning to write a piece calling Jim Cramer a Jerk (or much worse, actually). Now, the clarity of his Jerkness is so much more evident to all. But, do I want to call the guy a jerk for yelling ‘fire!’ in a crowded theater? No.

For some time Cramer has been talking about companies like Google and YouTube, companies that, for their popularity, show that they provide serious value to the consuming public. He says about Google, that “It’s just a parasite… It doesn’t create content, it steals it, borrows it, shares it.”

This is similar to the type of screaming we would have heard in the late ’70s with the birth of home video, and the studios and others were afraid that giving consumers freedom of choice and access to content would destroy the film business. The fact of the matter is that this choice grew the business; it ultimately grew it in very significant ways, including tripling the income stream. What was the harm, though? This screaming and fighting that the content owners engaged in allowed them to gain even more control of a content stream that created more and more profits for them. Then they hoarded these profits for themselves, not sharing them with the content creators, not sharing them with the artists that contributed–unless they were “brand” artists that formed part of their “market insurance” and high cost as protection mindset.

DVD expanded, nay, exploded this market value again, and the control of the marketplace they sought to exert at the big media companies served to give them years of growth, and to ultimately turn this growth into short term profits for their growth machines, but to limit the overall value of the marketplace over time. Pricing all DVDs as sell-through is a recipe for failure of many pieces of filmed entertainment, and now there is almost no going back on that, is one of those mistaken ingredients in the recipe.

We Are In A Window of Opportunity

We are at a new window of opportunity, and Google and companies like that are part of this opportunity, democratizing access to content. A part of access is being able to find the content you want yourself, that you can cleave to your passions, your fetishes, your heart; it’s almost like a right of being human. Humans want to communicate with each other in many ways (and filmed entertainment runs from the sublime to the ridiculous in communication) but there are folks who want access to a broad smorgasboard of content of all types. The Internet, with its search technologies, its delivery platforms, its ease of transaction and/or advertising support (and even when content is just plain FREE)–the Internet is crucial to that access, to the smorgasboard surviving.

Jim Cramer Is Kind Of A Jerk

So, Jim Cramer is a jerk for not seeing that this growth of markets is good for all, and he and those who think that the only way to run a content company is to have it behind gates with armed guards, are very mistaken. All transactions between people and content do not need to be under armed guard oversight. The record business showed us that this mindset creates dinosaurs that are easy to topple and brittle of bone. Crash, go boom and break into thousands of tiny pieces.

The Film Business Needs To Do It Better

In the film business, we need to embrace and create value in these rump marketplaces, and be committed to being where the consumers want to access content when they want to, and we need to give them value for the transaction, not seek to manipulate them into a transaction they then regret.

This is like the over-the-top campaign for a film that is a disaster of artistry. All the cynicism of the marketers takes over and shoves it down unwitting throats. No. We can do better and we can seduce and sell quality content based on a knowledgeable transaction, and have a win-win sale of content to an informed and enthusiastic audience. And we can make money at it and create goodwill, rather than an “us against them” atmosphere. Jim Cramer is part of the old way of thinking, and so lack of control makes him want to get out the transaction police. But look at where this kind of thinking has gotten him–and gotten us all.

Onward and Upward, Jeff

Every so often, a window of opportunity opens up in the motion picture business, and independent filmmakers, never a unified lot (hence the independent moniker), have a chance to dive through or be pulled through to the other side when the gatekeeper studios gain control.

All of these opportunities are based on technology: sound, camera, lighting, projecting, and signal, copy and transaction methodologies.

We are now at a watershed where all four elements of: capture (digital cameras to pocket phones), signal (broadcast digital dispersion) copy (digital download and streaming) and transaction (digital micro-payments to digital subscriptions) are about to transform the business of filmed entertainment in a mighty way.

Harking back to the name of this newsletter, FilmDependent, we are all pursuing personal dreams and skill sets. Often a skill set and love of, say, just handling film stock and watching it flow through the moviola, are so strong that we reject or dismiss the changes in editing coming at us.

Windows of Fear

The studios, too, have a strong history of fighting down and rejecting new technology as an almost certain erosion or cannibalization of their stranglehold on the marketplace and the gateways there. This is historical. All large, established organizations focus more on defending the gates than on innovation.

Once they have been mollified, and they have held innovation off until it works the way they want it to, and the new technology is theirs to control, all of their fighting subsides, and the standards are theirs and everyone has to go through them to get to the marketplace.

Window of Opportunity For All

We now have a window that is narrowing as the studios will inevitably seek to control all digital delivery streams. I don’t care if it’s the Internet download, or the iPod, or the mobile phone, but all digital platforms are now moving into play, and these platforms provide and will provide the possibility of direct access to consumers of filmed entertainment.

It is anticipated that as much as 50% of content income will be delivered through IP (Internet Protocol) streams and downloads by 2012 or 2013. The Internet is the new TV, but it is also the new smorgasbord personal screening room. This expansion of access, somewhat like the addition of cassette tapes to the marketplace, allows people to pursue their own muse in entertainment, and broadens the potential for independent makers and distributors to build audiences, both niche and substantial.

It is in finding, communicating with, delivering to and transacting with these audiences that is at the crux of your success in this new world. Since I look at every film and its financial success as primarily a marketing problem, I believe it will be no different here. Understanding your movie, understanding its core audience, and how to reach and move them is key to the equation of success.

At the same time that IP and mobile technologies and the like provide a platform for delivering, they also provide the savvy and focused entrepreneur with the window of success. They also can change the game on costs of communicating and transacting, taking movie delivery into the realm of this entrepreneur while holding also the opportunity of scale to the film that can gain wide acceptance.

There is a little bit of revolution in my soul. Does this revolution disdain studios or large organizations? No. I embrace them as partners on the right projects, and I embrace them as clients. But for many indie films, they create a competitive battleground in which the competition is completely unbalanced, uneven. I want the entrepreneur to have a chance in this environment, and that is where the revolution lies, in taking tickets that could have gone to a studio, in expanding the audience of films to the disaffected and under-served or un-served. This is the mission of my revolution, to enable the dream of the film writer and maker to meet with the dream of the consumer. I call this shared dream the “through line” (thru-line). It is the arc of inspiration and meaning that brings us all to film, whether making, delivering, just consuming, or all three.

This installment is a preamble to what I hope to be able to deliver on a regular basis, a series focusing on a succession of topics that, at least at this juncture I intend to drive through all the markets.

But, who knows, in my practice I am constantly grappling with ideas and issues brought up by my clients and the films they are making, buying or marketing. These ideas and their currency may send me down one track or another. If they could be helpful, eye-opening or thought-provoking to you, I want to pursue them.

Onward and Upward!
Jeffrey Hardy

It seems that 2007 is a year of many changes here. We have been busier than ever before with client work, if that was possible after 2006, when we thought that was as busy as we could get with client work. We have been growing our staff slowly, and are very happy to have Lydia Hoffman working with us now! Lydia is very involved in our document creation, editing and research. And Yuko, the office manager, has been trying to keep a handle on our systems, billing, along with crucial research and data corraling.

As well, we have been in a slow process (now accelerating) of aggregating all of our efforts under the brand name of FilmProfit(r). FilmProfit is a registered trademark that we own, and it seems that it has kind of embedded itself into the film community more deeply than big horse has. We are going to remain to be big horse, but we have now completed resolving all of the bighorse.com web pages to filmprofit.com.  We have also resolved a way to collect our newsletter signups. If you would like to signup, please go to www.filmprofit.com.

Likewise, over here at FilmDependent (which will continue to stand alone here), we have begun to aggregate everything into a blog, entering the blogosphere, sounds like floating off in a balloon. Maybe we are without knowing it. Hello, down there, can anybody hear us? The purpose of this is to make it easier to collect and post our thoughts about, well, whatever strikes our fancy, as long as it is learning about the industry.

And while we are starting to natter on about that, this appears to us to be a watershed year. There is a lot of going on out there about things like the long tail, maybe the short tail, and we have almost begun to enter a phase that could lead to a bubble mentality about digital delivery of content, if everybody is not careful. I just went through some bubbleheaded articles from 1999 and thereabouts talking about broadband taking over. Now, seven or eight years later, we have reached 50% broadband penetration in the US, and I just saw a report that 29% of the population plans to NEVER get online. We have 65% plus or minus cable households, with 30 million or the like with digital (VOD-capable). A long way to go there. There are still a lot of problems to solve, but I get ahead of myself. I plan to write about these things in the near future.

 We have had to do a lot of studying about this, and many of the other technological and industry goings on as we work for a varied list of clients, from distributors to production companies with slates, to individual projects.

More about all that later, but maybe you want to check out some of the stories and articles in the links to the right, here. Maybe you even want to go over and see what we have going on at www.filmprofit.com. Hope to talk with you again, soon, as we get our heads above water again.

Jeffrey Hardy

Sweet Land is now in theaters.

When we first read the script for Sweet Land and started working on the project in 2002, it was called Quiet Breathing. We liked the quiet and strong story, and we liked working with Ali and his cohorts in building their financing package, including providing our Markets Report, Comparable Pictures Reports (ROIs) and a Core Audience Analysis.

Now the film is out, and receiving very nice reviews. Check out the Sweet Land Review in Village Voice. Congratulations Ali and folks!

I am writing this in the last days of 2006, as we struggle to bring our web sites under control. With three main sites, www.filmprofit.com, www.bighorse.com and www.filmdependent.com, we feel that it will be easier to maintain, update, manage, and keep our information under control if we aggregate it all more closely under one roof, www.filmprofit.com, with our free publishing under www.filmdependent.com.

We are working on that now, and hope to welcome all of you who come in 2007 with a newer, easier and better site. Some of our more interesting older material will be incorporated right into this blog.

As well, we are trying to streamline how you can get to communicate with us, learn more about our services and products, and even transact with us.

More, we are hoping to begin a series of discussions by me on key issues in the film business, as they unfold. This will probably all fit under the rubric “What’s My Thru-Line?” my focus on the key elements that should drive producers’ business plans.

I hope to see you here often as we go forward, and try to keep this area fresh and meaningful in your own dependence on film…

Jeffrey Hardy

FilmDependent welcomes you to the birth of our blog! This is where we will be posting all of our newsletter content in the future:

The findings, analysis, and speculations that we come across, achieve and suffer, and then share with you.

this site is sponsored by FilmProfit(r), the business of successful films.