Hollywood's Doomed Obsession With Reselling Video Online

Over the past 20 years, a Hollywood film has become the starting point for ongoing revenue streams for some lucky ones.

Those lucky movies that have gone on to become enormous ongoing money earners through television, dvd, merchandise, videogames and theme parks, have essentially driven up the price of producing the initial film that kicks the whole thing off. When a major motion picture is greenlit, the intention is to one day have the title throwing off money from it's theme park ride. If that is the intention, it is very hard to tell everyone in the film that they should be paid based on the probability that it will not make it to that status. The filmed entertainment business is based on producing ten films and having the 1 or 2 home runs pay for the bombs.

So what does this have to do with the internet ?

After a film is made and marketed for the theatrical release, the studio then has to spend the next ten years trying to make the money back that they invested. Sure the theatrical, dvd and television releases are sexy. But then it is about licensing the characters to McDonalds and cereal companies to claw back some more money. So along comes the internet and someone has said, "Hey, this is just another distribution point for our filmed entertainment!" Yes it is, but not it isn’t.

I think it is definitely a way for them to make money out of their stories and characters. But not by reselling the actual video. The same way the studios need to build a theme park ride for a theme park, they need to create a web product for the web.

The web is an interactive medium. That means there are things you can do on the web such as interact with the content and with other people. So, it puzzles me that studios believe that by taking something that has been made specifically for non-interactive mediums such as the theatre and television will be a big success on an interactive platform.

In the early days of the internet, e-retailing was all the rage. The thinking was, build a website, go to sleep and wake up with a million orders in your inbox. The amount of times I have heard from well funded companies that all they have to do is capture 1/50th of 1% of the market to make millions astounded me. I really believe that the studios are thinking the same thing. “There are millions of people out there in the cyberworld, so lets just keep licensing the content and watch the money roll in.”

My contention is that the studios and license holders need to think about creating web versions of their stories for the web and to quit trying to re-distribute content that was made for non-interactive mediums.

After being very aggressive in the amount of shows it distributed online last year NBC netted only $15m. As Jeff Zucker said, “"We don't want to replace the dollars we were making in the analog world with pennies on the digital side".

So, yes, to get lucrative revenue on the internet, you have to be really smart about what you do and where you invest. Just because it is so easy to put up a website and that there are no printing costs like there are for movies, does not make it any easier. The audience is still super savvy and will only spend time on things they want to do.

At the moment, there is an obsession with reselling video on the internet. There are very few successful adaptations of filmed entertainment in the online world. When Hollywood starts creating web versions of their licenses look for new revenue streams and models - until then, look for pennies from reselling video. Actually, if you see a company focused on it, sell their stock. It wont cover the cost of the catering for that film.

Here are two articles from Peter Chernin and Michael Eisner calling for the same thing:

News Corp: Media Need New Business Models

Michael Eisner Sees Web's Future in Storytelling

The Future: You Are Dependent On Your Profile. Not The Machine You Are Using

Here is the future scenario of a Sunday morning in a house with two adults with their two kids.

The parents have purchased a collection of Disney films and Nintendo Wii games for their children. On any given Sunday before driving to see the grandparents, one child will be playing the Wii game on one screen and the other child is watching a movie upstairs. When it is time to all get in the car, the children will pause where they are up to and logout.

As soon as they get in the car, they will log back in and pick up from where they left off. All the content and settings will be based on the network. Not on the device.

So a few things are going to happen.

The "network" is going to get faster both for download and upload. Infact, to think about the future, you should remove bandwidth as any sort of impediment.

Devices are going to be all about processing power and not so much about memory. They will be "thin clients". Meaning that they will serve the viewing experience and not also be depended on as this storage unit.

All things that used to be hosted on your computer - will be hosted on the network and you will be able to access them through any screen that you give permission to. ie You are sitting in a hotel room and login with your Gmail address for example, and you will get access to all your TiVo content (see post where I think Google will buy TiVo - and are waiting until they do a few more deals to become the first screen on services like Comcast).

Microsoft Man and Boy Yahoo

You know when you sit back sometimes and watch what you think could be an unfair fight, turn out to be so one sided that you think that someone should step in and stop it ? That is how I felt while watching this Microsoft/Yahoo game go down.

Microsoft have achieved one thing. They have delivered a knock out blow to Yahoo. Yahoo now have no hope of going it alone solely because Microsoft have convinced everyone that without a merger of some kind - either with them or with Google or News - that they have no long term prospect. And the share price is reflecting that. Do not forget that Google, Microsoft and Yahoo battle it out on the keyword search guerilla war that is going down. So if at the least, Microsoft have just tainted the Yahoo brand in the eye of investors and perhaps even media buyers. Couldn't be fun walking around as a Yahoo sales rep.

Here is why I think it all went down this way. All of the companies are media companies. Yahoo is being led by Jerry Yang - who is not a media guy. Imagine if Rupert had of been in this fray - the referee would have to blow this whistle for mercy. Yang just does not appear to be a media guy. Its a game of theatrics and he went down this garden path without a backup plan. Hostile or not, this was a big offer and no one cared that Jerry Yang thought it was hostile - all that means, is that Yahoo was asking first. I feel Yang was focusing on that, while everyone else was looking at the money. Which brings me to my second point.

Jerry Yang has made his money. Yang has cashed out enough to be super wealthy and even if Yahoo went down a lot, he has a fortune in Yahoo. Not including all the money he would have made in investments. So, I feel that Yang was not as motivated by the dollar in this deal - I feel that he was more concerned with winning the deal. He founded Yahoo and didnt want to just become a unit of Microsoft after all that hard work and accolade - don't kid yourself, the valley is a sub culture of tech guys who have suddenly become media guys. He wanted to be seen as making Microsoft pay BIG.

So, the outcome ? I think this deal will get done. And it will get done at a much lower price because shareholder faith in Jerry Yang is gone. He has been outsmarted at every PR post by Microsoft. I think shareholder like Legg Mason (2nd biggest yahoo shareholder) will start breaking ranks. Because I tell ya, they care about return on investment 100% - as do most shareholders. When it comes to the guys like Yang calling the shots on this go around it was probably 50% money and 50% ego.

I think this deal is a symbol of something bigger - Silicon Valley is known for tech plays - not media plays. Microsoft is in Seattle and have been playing the acquisition game long enough to know how to play it like a media company. So as tech companies become more involved in media - Google/YouTube, Yahoo, Facebook - I think you are going to see media guys like Murdoch and Moonves (if he wakes up to new media) school these guys. I mean look at what Rupert did to MySpace. If Facebook is worth $15bn now, what is MySpace worth????

Like any war, financial or battefield, its a PR game. Who would you put your money on there ? Silicon Valley or New York ?