Internet Movie Distribution

The distribution of films on the Internet is having ‘the same revolutionary impact on the film industry as the introduction of video in the ‘70s’ [1]. The fear Hollywood has towards films going out onto the Internet is rampant piracy; the architecture of cyberspace enables digital content to be copied perfectly. That case could have been argued with video and DVD, and indeed it was, nevertheless, the film industry has always managed to reinvent itself and continues to be successful.

Hollywood’s underlying issue though, is loss of control; Hollywood exploits its power in order to increase profits. The architecture of cyberspace means there are no controllers as it ‘neither needs nor permits the centralization of control’ [2]. What is interesting about control, in the words of consultant Jim Griffin, is ‘every time we crave control, we lose. Every time we let go, we profit’ [3]. While this lack of control will not in itself mean Hollywood will go out of business, and indeed, it will not if it finds smart business strategies, it will mean that ‘the success of any particular kind of content is more convincingly a function of the desire for that content’ (ibid). What it boils down to is, give people what they want, not only in terms of convenience and cost, but also in terms of content.

The digital distribution of movies has been in operation since the mid 1980s, however Internet distribution is a more recent phenomenon. CinemaNow, founded in 1999, distributes video content via its Web site, www.cinemanow.com, and is currently the leading destination for the authorized distribution of feature films and other video on the Internet. CinemaNow offers online video availability on a pay-per-view, download-to-own (digital sell-through) and subscription basis. It has recently premiered two new formats: a portable media video content format and HD video-on-demand (VoD) content format. However, CinemaNow, as with Movielink, only offer films that have been released for several months on home video.

Reluctantly, Hollywood is trying something new, and creating a buzz. The motion picture, 'Bubble', due to hit the silver screen this autumn, will be Hollywood’s first ‘universal release’ [4]; it will simultaneously be available in the cinemas, on home video and through pay television. Hollywood knows it can no longer tell consumers where and when they can consume its products; the pendulum has swung in the opposite direction; consumers now dictate the terms. Any company unwilling to evolve in this fast changing landscape is going to go out of business sooner or later.

Traditionally, films have been released through a series of discrete time frames or ‘windows’; they are ‘an attractive business strategy because the product is not used up by consumption and hence can be resold to different markets over time at little addition to cost’ [5]. The various windows include, theatrical release, pay-per-view, home video, cable channels and television. The impact of shorter windows needs yet to be seen, but ultimately, the studio executives are not simply looking to protect their business, they are seeking to achieve greater returns.

Given the success of iTunes, film studios are ‘warming quickly to the idea of "digital sell-through," an industry term for selling a permanent copy of a movie that can be downloaded to a computer’ [6]. Universal Studios has confidence in the next generation of anti-piracy controls, and is working on digital sell-through [5]. The studio wants to allow consumers to download digital files from the Internet, transfer them to other devices, and even copy to DVD (ibid). To coax retailers into the process, Universal ‘may try to enlist them to sell its films over their websites - giving them a piece of the resulting revenue, as with DVD sales’ (ibid).

A new company, called ClickStar (www.clickstarinc.com), is a premium movie service where consumers can easily access, purchase, and download pre-DVD, first-run Hollywood films for a home entertainment experience. ClickStar has been created with the aim of leveraging the evolution in consumer demand for digital content and its intention is to make film easier to buy than to pirate. The company is ‘taking on an unfamiliar and potentially controversial role in Hollywood circles’ [7] who have viewed online distribution unfavourably. ClickStar's new chief executive officer, Nizar Allibhoy, a former Sony Pictures executive commented, ‘making content available on the Internet is not an option – it is an imperative for the industry, given piracy and consumer demands for flexibility’ (ibid).

With a slump in box-office revenues, slowing DVD sales [4], increased broadband speeds, rising film production costs and a growth in snazzy home theatres, the ‘next generation of Wi-Fi home networking technology expected to hit the market later this year’ [7], which streams movies from the PC to the television, makes sense.

In the post-Grokster era, a new wave of law-abiding, P2P companies is emerging. Mashboxx, expected to go live in mid-September [8], and other record label-friendly companies, ‘hope to meld traditional file-swapping technology with copyright-friendly filters that will replace unauthorized downloads with copies of songs that must be purchased in order to be played’ (ibid). In the future, P2P networks could play a significant role in the distribution of music, although these ambitious plans have yet to be tested in the marketplace. In terms of events, the music industry is one step ahead of the movie industry; most likely Hollywood will be watching closely to see how things develop.

As Internet movie distribution becomes established, the winners will be the film industry, as more films are distributed, and consumers with more content choice, to view any time, any place, and on any device. Independent and less known films will benefit from online distribution as content providers distribute to niche markets and targeted audiences. More people will probably watch more movies, because more content, and diversity of content will be available. This has transpired with iTunes.

While the potential of Internet distribution is exciting, it will take years to sort out the business and legal implications of the new distribution model. The film industry is a conglomeration of rights. There are ‘underlying rights for the underlying material, the rights of the materials used to make the film and then there are the peripheral rights of the music’ [9]. At present, there is no uniformity in terms of what rights the different stakeholders have regarding digital distribution. ‘Internet rights of music in films and the last decade of movies are not available, so in terms of music the online rights tend to be held back’ (ibid).

Before the Internet, ‘everyone went to an all rights deal’ (ibid), but since the arrival of the Internet, rights have been held because the Internet is seen as a potential threat. The problem now is how are those rights going to be cleared before the films get distributed? ‘There is a big gulf of about ten years of movies that are going to be stuck, which is tricky to distribute for a lot of people’ (ibid). In the future producers may follow the example of the Vertigo Films model, where the producer retains the copyright and handles their own distribution [10].

Another consideration is the currently unproven economic viability of Internet distribution. The traditional distributors perform an important marketing function that an Internet distributor may not be able to fulfil. Traditional marketers are a tried and tested model, and play a crucial role in movie promotions, while Internet distribution is of questionable profitability. The distribution of movies over the Internet can ‘jeopardize agreements with traditional distributors’ [11]. A final reflection, Internet distribution could possibly displace physical films, videos and DVDs, and thus threaten the long-term survival of video rental stores and other middle layers in the value chain.

Movie Business updates at: www.screenmediabiz.com

[1] Moore, S. M. (2000). The Biz: The Basic Business, Legal and Financial Aspects of the Film Industry. Los Angeles, Silman-James Press
[2] Lessig, L. (2002). The Future of Ideas: The Fate of the Commons in a Connected World. New York: Vintage Books
[3] Lasica, J. D. (2005). Darknet: Hollywood’s War against the Digital Generation. New Jersey: John Wiley & Sons, Inc.
[4] Chaffin, J. (2005c). Hollywood is Facing a Journey into the Unknown. [Online] http://news.ft.com/cms/s/7e076da6-09cc-11da-b870-00000e2511c8.html

[5] Hoskins, C., McFadyen, S. & Finn, A. (1997). Global Television and Film: An Introduction to the Economics of the Business. Oxford: Oxford University Press
[6] Borland, J. (2005b). Where’s the iTunes for Movies? [Online] http://news.com.com/Wheres+the+iTunes+for+movies/2100-1025_3-5772286.html
[7] Borland, J. (2005c). Intel, Studio from Movie Download Venture. [Online] http://news.com.com/Intel%2C+studio+form+movie+download+venture/2100-1025_3-5776588.html
[8] Borland, J. (2005d). How Label-backed P2P was Born. [Online] http://news.com.com/How+label-backed+P2P+was+born/2100-1027_3-5840310.html
[9] Marshall, A. (2005). Interview with Alex Marshall, Head of Business Affairs, Spice Factory (UK) Ltd.
[10] Allen, R. (2004). Making sense of Britain’s New Financial Climate, Report on UK Film Finance Summit October 2004.
[11] Litwak, M. (2003). Internet Distribution: The Promise and the Pitfalls.

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