A continuation of the discussion presented in the blog entitled, TENT POLE ECONOMICS - HOW HOLLYWOOD STUDIOS WILL BE MAKING MONEY IN THE DIGITAL AGE AND BEYOND.
The economics of next-generation-digital-distribution has transformed in the last three to five years and as I mentioned before, digital piracy is the driving force behind this transformation. Sadly, it is the biggest single game changer for the indie filmmaker hoping to make a return on his or her investment. Hollywood itself has been unable to effectively combat this rather elusive issue. For the most part, they have given up trying! The internet is still in its infancy and Hollywood has accepted that the net is a "wild wild west" if you will. And piracy will continue to have a strong hold on film economics until a solution is found.
As a symptom of piracy we are finding that the money, if you will, is no longer in digital downloads as it once was. There was a time when Itunes was king of the market place and with a 70/30 revenue split in favor of the artist, a filmmaker posting on that platform was bound to make a healthy return. That just isn't the case anymore. Because audience aren't downloading anymore, they are streaming. Why you ask;? It's because of piracy-- in
the broadest sense of the term.
You see, the mindset of the online culture has morphed in the last 15 years because it's audience has matured with it. We now live in a digital world where people who grew up with certain platforms expect things for free. Facebook is and always has been free (if not exclusive). Twitter is free. Instagram is free. Youtube is free. So why shouldn't all content be free.
As a result of these developing attitudes there has birthed a devaluation of content. When a company such as Amazon Prime has the power to deliver numerous films or television shows all for one low price, the consumer eventually develops a decreased value in the commodities themselves. And with consumers never actually seeing their hard earned money transfer from their bank account into the Amazon coffers, it all feels free too. It is the proliferation of this type of consumer mind set that contributes to viewers developing a clean
conscious when thy pirate a movie that they can't otherwise find on their preferred stream-ing service.
The streaming services understand the psychology of it all and they envisioned this future long before Hollywood got wind of it. The revenue shift is now in acquiring and maintaining a subscriber base for any given platform. The is the new business model of Hollywood and soon all the studios will follow suit or they will parish. In fact, we are now starting to see all of the studios in various stages of developing their own streaming services, beginning with Disney. And this is also why Netflix, in anticipation of losing contracts with it's biggest Hollywood providers (the studios), invested over 6 billion into original programming over the last several years. Have you ever seen how much content they produce to keep their wide variety of consumer tastes satisfied. It's enormous. They can't afford to be niche and yet only a few of their shows have really taken off, those being "House of Cards", "Orange is the New Black" and of course "Stranger Things". But how well are these shows doing?
Only Netflix really knows.
This might finally explain why in our numbers conscious society, corporations such as Netflix or Amazon Prime will not share information related to traffic flow for a particular show.. even with their partners such as Disney. They don't need to!!!! From a numbers perspective artists are left in the blind as to how their product is faring on these platforms. Point in case, in a recent interview I read with the Duffer brothers (Stranger Things), a reporter referenced how "watched" their Netflix original show was and they responded that the reporter might know better than they would because Netflix wasn't sharing that information with them. Wait. WHAT? Netflix isn't even telling the artist they hire for their own production company how well their show is being received? Again, they don't need to! Because It's not about any one show. It's about diversity in programming, so that these companies can maintain millions of subscribers in order to keep that revenue stream flowing. Numbers are irrelevant in the grand scheme of their business model. So long as the subscriber base is maintained they can continue to stay in bushiness and they'll continue to gain venture capital investors.
Point in case, for our film Mortal Remains, on one day in November of 2017, a month after our digital release, we managed 216 downloads in a single day. Not bad for an indie film nobody knows about. But we only made a total of $45 that entire day. Now on iTunes, a transactional video site, that would have translated to over $2,000. But on SVOD … subscription based video on demand, the artist is only getting a proportional amount of
that $13.99 a month subscription collected by Amazon or Vudu or whoever.
What I have discovered is that our fan base and the public at large has stopped using transactional VOD so the ROI, the return on investment is no longer there for the indie film maker. Digital sales are dead because the market has already shifted to streaming.
To make matters worse, the fans I have talked to keep asking me, when is your film "Mortal Remains" going to be on Netflix. Since these fans are already paying for a Netflix subscription, they aren't interested in paying more to another platform in order to watch our film. They would rather wait until it comes out through their preferred provider, because
the majority of entertainment consumers now favor subscription base outlets.
Another tell tale sign that the consumer attitudes are shifting is in the number of people I know (personally) who have dropped their $170 a month cable provider and instead subscribe to Netflix, Amazon Prime and any number of other streaming resources all for about $40 a month. On top of that, they get added benefits that the cable providers would never be able to offer, such as free Prime two day shipping or other similar perks. It's a economic no brainer. My God… there are company's now offering a NetFlix subscriptions as part of their own merchandising packages, because it's only another $13.99 a month for them to
invest, in order to hook you into purchasing their cell phone or what have you.
So, where does that leave low or micro budget filmmakers in the wake of all this transformation? Well, lets go back to the importance or value of having a relatively known "B" list actor attached to your film. In order to make any money via a digital release you need to have thousands of downloads, not simply hundreds like it used to be. Because thousands of downloads will provide a reasonable ROI. The only way to get that is to have something familiar attached to your product such as a 'B" list actor or director with a built in following
or a little name recognition. That is the first step to solid digital sales.
And now we have come full circle in explaining why tent pole sequalitis is a key business model for Hollywood. Familiarity drives sales and since the only way to make money is to manage thousands of downloads, then it seems to be a reliable business model. Unless of course, you simply create your own streaming service. And for that you need lots of content.
Which brings me to the upside of all of this. In order to remain competitive in the digital age, studios will be cracking open the vaults as they pilfer their copyrighted content for yet un-released films they can add to their streaming service in order to entice us to subscribe. Many films we have been eager to see released may have digital life after all.
I'm just trying to see the upside here folks.