Not Worth Stealing

This week in movie news, Hitler has reacted badly to the news that Constantin Films, who own the copyright to "Downfall", have issued a DMCA notice resulting in the removal of many "Downfall"-based parodies from YouTube.

The Downfall parodies are a prime example of what Larry Lessig calls Remix. Constantin Film AG calls it "theft".

EFF, the Open Video Alliance, and others will argue til the cows come home about whether remix is theft or fair use.

I say the hell with it.

Forget about remix. Why start with crap?

I haven't seen Downfall; it was made in Germany, not Hollywood, so it might not be total crap. But what arguments over the DMCA are distracting us from is that

MODERN MOVIES AREN'T WORTH STEALING!

Take Avatar. It was released on video this week. It won THREE Oscars, and was nominated for six more including best director and best picture. It's a two hour cartoon with a juvenile story you could tell in one minute. Don't believe me? Here you go:

Evil militaristic corporation lands on pristine planet occupied by noble giant smurfs and priceless ore. Military begins wiping out smurfs but one honorable disabled underling falls in love with a smurf, goes rogue, and leads the resistance. Just as all seems lost, the planet itself rises up and crushes the invaders, and the hero is magically transformed into an able-bodied smurf himself. In 3D. With lots of heart-swelling music.

Avatar is crap; the only good thing about its DVD release is that if you watch it at home, you'll be able to pause it every two hours so you can pee; I saw it in the theater and I was praying for a catheter by the halfway point.

Edward Jay Epstein's recent book "The Hollywood Economist" is depressingly clear about why almost every movie made today is crap. In a nutshell, it's because moviemakers can't get distribution deals for pictures which aren't guaranteed to herd teenage boys into the theaters in droves (read the book for more details). Epstein notes on his blog that crap teenager-magnets like Avatar are squeezing indie movies (which are still occasionally worth seeing) out of the theaters. Epstein's conclusion is this:

With the prospect of American distribution rapidly fading, indie producers are now finding pre-sale financing almost impossible. "It's a dead business model," a former Miramax executive said.

If so how can Indie producers continue to make movies? They might be able to find wealthy individuals entranced enough with a movie fantasy to put up the money, but they still need to devise a new way in this digital age to distribute them to an audience willing to see something more than the movie versions of amusement park rides.

Bingo. So let's get started.

I promised you two years ago (I know, I know, but I've been busy…) that I'd post a business plan for a New Studio: "…a new business model that lets creative people make a decent living making good, cheap movies. [The New Studio is] going to trust its audience to pay for quality films. It's going to grow its fan base by distributing entire movies on the Internet with no DRM."

In the unlikely event you've been eagerly waiting for me to keep this promise, you're in luck. Here's the first installment:

What is The New Studio?

The New Studio is a business model which uses the new technologies of low-cost digital capture and editing, high-quality low-cost print-on-demand services, and near-zero-cost electronic distribution to take creative control of cinematic storytelling away from producers and studio executives and give it back to writers and directors.

The New Studio is owned and managed by directors and writers, who produce their own material and retain artistic control of their work. Every director in a New Studio has final cut.

The New Studio accomplishes its financial goals by enabling motion pictures to be produced, marketed, and distributed cheaply enough that there is a high probability of a modest profit (and a smaller possibility of a large profit) for every film the New Studio produces.

The New Studio may accept investments by outside producers. Producers’ relationship with The New Studio is, however, financial rather than creative. In return for lower financial risk (that is, a more predictable return on investment than a traditional studio can promise), investors in The New Studio willingly leave all creative decisions to the New Studio’s writers and directors.

What are the The New Studio’s principles?

Hollywood fears the web. Studios fear that releasing their movies on the web will destroy their revenue stream.

Fear of releasing movies on the web comes from a belief that the product is worthless – so no sane person would voluntarily pay for it. This belief is justified by most of today’s movies. They are made not to satisfy an artistic urge, or to tell a story, but to make money. A lot of money.

If you need to make 100 million dollars, you have no time to think about anything else. Including telling a story.

But you don't need to make 100 million dollars, because you don't need to spend 80 million dollars to make the movie and distribute it. In 2010 you can produce movies cheaply using new technologies, as Robert Rodriguez and others have demonstrated. You can distribute movies essentially free using the Internet. This means that, as long as you’re not greedy, there are stories you can afford to tell with the new tech which studios cannot afford to tell for theatrical release. This is good for the artists but bad for middlemen who add cost but not artistic value to projects.

People will want to pay for a story which is worth the money. No story is worth $100 million (well, maybe just a few. The Bible’s done pretty well at the box office…). But lots of stories are worth $2 million.

When you put content into electronic form you enable people to make an unlimited number of copies for free. There is therefore no such thing as theft. Want proof? If someone makes a free copy of my movie, what have I lost? Only something I never had: the copier’s money. (NOTE: If you thought Digital Rights Management could stop people from making copies, you’re confused. Study until you understand why you’re wrong. Until then, don’t bother us).

While there is no such thing as theft, there is such a thing as publicity. A good product, distributed widely, creates buzz and demand. This in turn generates sales.

People who see honest publicity for a good product want to buy it. Digital Rights Management is based on a worldview of shortage. Our worldview is abundance. We think our stories are good – so good that people who see them will want to own them. We want as many people as possible to see them because we know some (not all) of those people will pay us for them.

What does The New Studio sell?

We sell access, experience, and artifacts.

Access to our products and, to a few lucky fans, access to the process of producing our products.

Experience of the magic of motion pictures – the willing suspension of disbelief, the entry into the story, the magic of the motion-picture production process, the glamour of our stars.

Artifacts including high-quality art produced specially for our customers and actual items used in the production of our motion pictures.

We make motion pictures and sell films.

1. We release our motion pictures free on the Internet. In high-quality audio and video formats. Before theatrical release.
2. We sell films. Not DVDs (which are just little round pieces of plastic and metal) – films. Films are released to the retail market simultaneously with free Internet release. The buyer of a film gets a high-resolution DVD with an excellent motion picture that tells a compelling story. This DVD is not region-coded or protected by DRM; the buyer can play it on any device, create any number of copies, and exhibit it to the public if he chooses. The film comes in a high-quality package which creates a film experience.

   The motion picture at the heart of the film is reproduced on the highest-quality media available, so that it will last a lifetime. If media is scratched, or if it degrades, it will be replaced at no cost, with no questions asked – guaranteed.

   The film is sold in one of three editions, and not everyone can own one. The first edition is the limited edition.

   The limited edition film includes original, limited-edition collectible art art (a numbered 8x10 archival black-and-white photograph of one of the stars by an outstanding photographer) which will grow in value over time and which represents a connection between the filmmakers and the buyer.

   The limited edition film includes a high-quality illustrated book containing production stills and a commentary on the production by the screenwriter and the director; this book is available only as part of the film editions.

   The limited edition film includes a unique password for a website which allows the buyer to view dailies and other production details of the next motion picture produced by the studio.

   The limited edition film includes a coupon which can be redeemed for two free tickets to see the motion picture in a local theater after its theatrical release (if it gets released to theaters!).

   And the limited edition film includes a lottery ticket. The two winners of the lottery will be auditioned for roles in a future motion picture produced by the studio. If the winners are not cast in speaking parts, they will be cast as extras or given roles in the crew of the production.

   The limited edition film will be available for only $50 per copy. Only 100,000 limited edition copies of the film will be produced – ever.

   The second edition of the film is the special edition. The special edition film includes all the contents of the limited edition. It also includes a copy of the movie’s poster (signed by the director and shipped rolled, not folded) and a numbered 11x14 archival black-and-white photo of one of the stars by an outstanding photographer, signed on the front by the star and on the back by the photographer. This photo will be shipped ready for framing in a 16x20 archival mat. Both the poster and the photograph will grow in value over time and represent the personal connection between the filmmakers and the buyer.

   The special editions of the film are available for only $250 per copy. Only 1,000 special editions of the film will be produced – ever.

   The third edition of the film is the collector’s edition. These collector’s edition will include, in addition to the special edition film contents, two premiums. The first premium is an actual prop or costume used in the production of the film, with a certificate of authenticity signed by the director and the star most closely associated with the item. The second premium is two tickets to the theatrical premiere of the motion picture, if such a premier is held.

   The collector’s editions of the film are available for only $5,000 per copy. Only 100 collector’s editions of the film will be produced – ever.

3. We sell motion pictures via iTunes. No motion picture will be released to iTunes until three months after its free Internet release – guaranteed. The motion pictures will be optimized for high-quality playback on iPads and laptop computers, and will be free of any DRM restrictions.

   Our motion pictures will be available via iTunes for only $4.99 per copy (for purposes of comparison, “Chicago” is sold on iTunes for $9.99 per copy).

4. We sell prints of motion pictures to theatrical distributors. No motion picture will be released to theatrical distribution until one year after its free Internet release – guaranteed. This benefits buyers of films because they will have exclusive access to high-quality prints of the motion picture for a year before the motion picture is released to theaters. It benefits theater owners because they will have access to motion pictures with a proven fan base on the day of release.

How does The New Studio sell?

We sell direct, over the Internet.

We create demand by letting people experience our motion pictures in their entirety, in high-quality reproduction, for no cost. Our customers are not thieves. They are fans. They appreciate motion-picture art when they see it. If they can afford to own motion-picture art, they will choose to buy our films because those films have lasting artistic value, are worth owning, and enhance their lives.

Some of our customers cannot afford our films, but they still love and treasure motion-picture art. We celebrate the opportunity to enrich their lives by providing them with excellent art, even though they cannot afford to buy a film. Many of these people will become more prosperous, and will buy our films in the future; others will pay for downloads of our motion pictures so that they can play them through iTunes. Fans who cannot afford to pay us in cash will pay us with their voices by recommending our motion pictures to friends. A few of our fans will be inspired to make their own motion pictures, and they will tell stories we cannot imagine – and that’s the best part of all.

How does The New Studio advertise?

We don’t. Our product speaks for itself. People will recommend our motion pictures to their friends and companies will recommend them to their customers. Our motion pictures are so good that we think other people will want to use them to advertise their products and services. We approve. We will give a limited number of people and companies with influence, good taste, and good products permission to host our motion pictures, uncut, on their sites – individuals’ blogs and corporate portals – to help them advertise themselves and their products and services to their customers. If you think your audience or your customers would be attracted to your site by an excellent motion picture, get in touch. But hurry – we’ll grant this permission to a limited number of people and companies who believe strongly and early in the value of each of our motion pictures.

In the next entry, I'll run the numbers to convince you that the New Studio can make money.

The New Studio

I have a bet with a colleague. It's a very serious bet with the highest possible stakes (No, silly, not our immortal souls. A bottle of good Scotch).

My colleague thinks that either movies or music will still be sold with Digital Rights Management in 2012. I, on the other hand, know DRM will be long gone by then. It should be gone now, because it doesn't work. But that's not why it will be gone. It will be gone because it's bad for business.

DRM is bad for business for lots of reasons, but the most important reason is very, very simple.

All products generate sales by exposing people to the product. People who are exposed to the product and don't like it aren't potential customers; they'll never pay. The people who like the product after they're exposed to it are potential customers; they're the addressable opportunity - the "fan base". The people who like the product and decide to buy it are the paying customers. The trick in business is to maximize the number of paying customers.

The first step in the DRM business model is this:

1. Shrink the fan base by making it impossible for potential fans to try the product.

Any business model that starts this way will be destroyed by a business model that increases the size of the fan base.

The music industry has figured this out, and DRM for music is already dead. Every major label now sells DRM-free music, and Radiohead has proved pretty conclusively that people will pay good money, voluntarily, if you put good music up on the Web with no restrictions. Not only that, they'll pay a premium for limited-edition collector's sets, and they'll still buy shipping containers full of your CDs - and your brand new vinyl LPs.

It's amazing that it took Steve Jobs to teach the music business that DRM was a bad bet; after all, record label executives are the same people who used to bribe DJs to give music away free on the radio. But two cheers to the labels anyway; freeing music will result in more music and better music; it may even allow artists to keep some of the money they are currently turning over to agents, managers, and label executives. (well, ok, probably not. But we can always hope.)

Hollywood is lagging behind the music business; Hollywood still hasn't admitted that the DRM business model is a guaranteed loser. There's a reason Hollywood hasn't admitted this: the stakes are too high. As Upton Sinclair famously put it, "It is difficult to get a man to understand something when his salary depends on his not understanding it".

Hollywood isn't run by people who watch movies or who make movies. It's run by people who fund movies. The purpose of a modern movie studio is not to make movies. It's to make money. A lot of money. Not for directors or actors or writers (especially not for writers!), but for studio executives and producers. Whether the movies are good is a minor concern. The major concern is whether the revenues are good.

At this point I want to make it clear that I am a capitalist, and I'm completely behind the idea of businesses making a profit. The problem I have with the Hollywood studios is that their business model is increasingly driving them to try to make more money by making the product worse. This is bad for the audience, of course, because it means we have to watch a lot of awful movies. But in the long run it's also bad for the studios, because it means that someone is going to come along and put them out of business by making a better product for less money (Clayton Christensen explained how this phenomenon kills successful companies in his book "The Innovator's Dilemma". If you're a studio executive, read the book. Now, before it's too late. If you're too busy to read the book, you can just read the Wikipedia entry.)

Movies are hugely expensive today. Paying movie stars is very expensive; exotic locations are very expensive; special effects are very expensive; unionized crew and soundstages are very expensive; and distribution and advertising are insanely expensive. If you believe Wikipedia, the average cost to produce a Hollywood feature is now about $50 million; the cost of advertising and distribution drives the total to $100 millon.

This is a big problem for the studios. If you're spending $100 million, you can't afford a failure. You've got to make the $100 mil back just to break even.

You might think people who are putting $100 million into a movie and who can't afford a failure would make damn sure the movie was great.

You'd be wrong.

You can't make a great enough movie to guarantee $100 million dollars in ticket sales; almost no stories are that good, and almost no movies are that good. Even movies which are that good won't necessarily make $100 million - maybe they'll just win a lot of Oscars and change the way a generation thinks about the world - and leave you famous and $80 million in debt.

Studio executives are smart businesspeople. They know they can't make a good enough movie to earn a profit on a $100 investment. So instead do the only thing they can. They make movies which will sell more than $100 million worth of tickets even if they suck.

They do this by appealing to their audience the same way the Roman emperors appealed to their audience: bread and circuses. Brad Pitt all oiled up in leather armor? You got it. Bruce Willis crashing a car into a helicopter? No problem. Halle Berry giving a blowjob? Absolutely. You want the good guys to win? We can do that. Want the guy to get the girl? Why the hell not?

This stuff is mesmerizing in the previews. But once the audience gets into the theater, the game's up. The audience figures out very quickly that they've been tricked. The story makes no sense. The special effects are just a gimmick to distract us from the boredom of the action. The sex isn't as good as what we can get free on the Internet. The characters are two-dimensional robots; we hope in vain that they'll die.

By the time the audience is in the theater, though, it's too late - the studio has won. All the studio needs is four days. Opening weekend. The studio makes its money before the audience realizes the movie sucks, and before they can tell their friends. The chumps who wander into the theater a week later, or watch the movie in foreign markets, or buy the DVD, are gravy.

Theater owners and distributors love this. Zillion-dollar blockbusters with lots of sex and blood and explosions and huge advertising budgets keep the seats filled, and the money keeps pouring in.

The dark side of all this, of course, is that there are no theater seats left for good movies - especially good movies with small advertising budgets. Even if you save your pennies and make a very good movie for $1 million, you still have to pay $40 million in advertising and distribution to compete with the people who make bad $100 million movies.

Actors and directors know this, and they do things to try to sneak the occasional good film into the theaters. George Clooney makes movies that suck (Ocean's Twelve) to earn enough money to advertise movies that don't (Good Night and Good Luck). Robert Redford runs a festival whose whole purpose is to convince distributors that good movies have a big enough audience to fill a few of their valuable seats for a week or two.

All this explains why DRM makes sense to movie studios; the single most important thing a studio has to do is to make sure nobody sees the movie before opening weekend. Because if anybody sees it early and starts telling people it's no good, the whole house of cards collapses, and everybody loses giant piles of cash. If DRM can allow studios to send the movie to reviewers and Oscar voters without taking a chance that a copy will get loose and screw up the release - well, bring it on! If it can protect dailies and rough cuts and test screening copies from escaping into the wild - hallelujah! This is the most important reason studios use DRM; preventing DVD piracy is nice, but a tax on recordable DVDs would do that job just as well, and a tax on DVD drives or computers would solve any problem the studios might have with P2P sharing.

The elephant in the room is this: Seats don't watch movies. Peoples' eyes do. And movie fans can use their eyes even if they're not in a scarce and expensive movie seat.

If you can make a good movie really cheap, the Internet will let you distribute it free to many more people than you could ever get into all the movie theaters in the world for a weekend. And if you can make a good movie really cheap, you don't need to get paid very much to make a profit.

This means you can take a chance the Hollywood studios can't take. If you can make a movie really cheap, and distribute it for free, you can afford a flop. If people don't like the movie, you're out a few bucks but you don't have to sell ten thousand pounds of crystal meth to pay your creditors. But if people really love it, you can make a lot of money. And you can make money lots of ways - you can charge for downloads, you can charge for DVDs, you can charge for posters, you can charge for action figures. You can even charge distributors to show your movie in a real theater, because you've already proved that there's an audience.

Wanna know a secret?

You can make a good movie really cheap.

Just ask Robert Rodriguez. (And he did it back when it was still pretty hard; you're much better off. You can buy your own HD camcorder for less than $1,000. Not chicken feed, but not close to $100 million. You'll need a good script and good actors, of course, but hey - nobody promised you a rose garden.)

The Hollywood studios know this.

It frightens them.

It should.

Someone's going to come along and create a New Studio. It's going to have a new business model that lets creative people make a decent living making good, cheap movies. It's going to trust its audience to pay for quality films. It's going to grow its fan base by distributing entire movies on the Internet with no DRM, just as Radiohead distributed music on the Internet with no DRM. And if the old Hollywood studios try to compete against it with DRM-encumbered movies that shrink their fan base while the New Studio grows its fan base, the Hollywood studios are going to die.

Mike Masnick at Techdirt has already explained the theory of how to make money selling free goods. I won't try to summarize Mike's Grand Unified Theory of the Economics of Free because I want you to read the real thing. But I do want to agree publicly with what I think is his most important point:

"Saying you can't compete with free is the same as saying you can't compete period."

I'm going to try to apply Mike's theory to the movie industry by posting a business plan for the New Studio. I'll do it in chapters. I hope you like it. I hope you use it. I'm waiting to see your movies.

Maybe you don't believe it can be done; fair enough. But if you don't think you can compete and make money by selling people things they could get for free, I want to ask you one question.

When was the last time you bought a bottle of water?