The Fate of Hollywood by James Jaeger
I have been working in, observing and predicting the fate of Hollywood for many years now. Here are some recent developments and how they may be related to the global economy.
New Distribution Paradigm:
I just signed up for NETFLIX, a new paradigm of entertainment distribution (a paradigm that's one step removed from universal video-on-demand).
For something like $18 per month you can rent all the DVDs you want from NETFLIX's 25,000-title library (as opposed to VIACOM-owned BlockBuster's 4,000-title library). These DVD's are shipped out to the movie watcher by regular U.S. mail in a pre-paid mailer and you get them in 1 - 3 days. You can keep them out as long as you wish, 3 at a time, and there are no late fees (one of VIACOM-owned BlockBuster's largest revenue sources). Each time you send back a NETFLIX DVD, they automatically send you the next DVD you have cued up on a wish list you previously made over the Internet.
This nifty little system effectively by-passes the established TV, cable and homevideo distribution system dominated by the MPAA companies and BIG media.
But here's the ASTOUNDING news: One third of NETFLIX's revenue comes from unknown independent features and documentaries. This makes NETFLIX 33% LESS dependent on the MPAA studios for THEIR product. Sure RIGHT NOW they need the studio "hits" to attract the public to NETFLIX, but eventually enough people will know about it and come just because it's there. Eventually, attracted by the multi-billion dollar money flows to be had, others, like AMAZON and eBAY, will do the same thing as NETFLIX. See article called THE LONG TAIL in WIRED magazine or at http://www.wired.com/wired/archive/12.10/tail.html?pg=1&topic=tail&topic_set=
This very paradigm will eventually find its way onto the broadband Internet and soon: EVERY MOVIE EVER MADE WILL BE AVAILABLE FOR FREE EACH MONTH FOR A REASONABLE FIXED RATE - the EXACT paradigm we developed for MEC's HOMEVIDEO NETWORK (see http://www.homevideo.net) in 1997 as an application of Metcalf's Law. Way to go NETFLIX: We put ideas like this up on the Net so people like you can erode the Hollywood Mike Ovitz reveals in his current trial, such discussed below. Also see Matrixx Internet Distribution and PAY-PER-VIEW.COM at http://www.mecfilms.com/mid/inded.html and http://www.pay-per-view.com, respectively.
So if we at Matrixx Productions, an independent production company, are selling features on the NET directly to the worldwide movie-going public, as we are, why do we need to have a studio/distributor or ANY DISTRIBUTOR? We don't. We don't need to give away 30 to 70 percent of our revenue to an entity that will probably "creatively account" our profits away and/or tell us our product sucks just because they want to avoid paying us a minimum advance guarantee. You don't need this abuse either, Independents.
Thus, such distribution is on the way out. Put another way: Hollywood's days are numbered because Hollywood WAS the distribution center of the world. Again, since Hollywood's revenue depends on its distribution strangle-hold over theaters, video stores, cable networks and international sales offices and stars -- where is Hollywood when its services for such things are no longer needed? No where.
Add to this three additional factors: a) stars that will be created digitally, b) affordable LCD in-the-home-theaters and c) production in more cost-effective places, such as Canada, and you have recipe for the further erosion of Hollywood as any sort of a film center.
When the money leaves Hollywood because the distribution has left, the stars and other talent will also leave. When a star's likeness can be sold to any filmmaker in the world and re-created as a full-motion, digital image even better than FINAL FANTASY, stars will no longer need to kiss Hollywood's butt for their next gig and live in fear of a nasty, litigation-prone system that has little regard for creative artists.(1)
Speaking of creative artists, Michael Ovitz, co-founder and head of Creative Artists Agency and regularly billed as "The Most Powerful Man in Hollywood" says of the Hollywood-based industry in testimony connected with his current litigation with MPAA studio, Disney:
"From the time I started in the entertainment business, every network and every studio has threatened to sue every other company on a daily basis. Everyone rattles their sabers and says all kinds of nasty things, and then everyone shows up at the same charity events together. This is all just the way it is on both coasts in the media business." (2)
After reading in the New York Times what Ovitz said above, Martin Kaplan, director of the Norman Lear Center at the University of Southern California, chimed in with the following: "In terms of a Sopranos-like code of behavior, it is universal here (in Hollywood). Even the most powerful moguls look a lot like 12-year-old boys in the playground, hormones raging, setting the rules of the domestic jungle, all without adult supervision."(3)
Thus, the former "most powerful man in Hollywood," Michael Ovitz, has seen the light and should applaud him for revealing a morsel of truth about the predatory practices that have been going on in Hollywood too long.(4) Of course Mr. Ovitz is probably a "liberal, not-very-religious white Jewish male of European heritage," the demographic that dominates the control group of Hollywood, but if he is, it goes to show that one cannot stereotype this demographic.(5)
As LCD technology takes over PLASMA technology -- and it will because it's coming from the computer universe as opposed to the bozos in the TV universe -- HUGE, inexpensive, high-definition, 5.1 and 7.1 surround-sound, in-the-home theaters will SURPASS the theatrical-going experience. The old Hollywood adage, "Oh, people will always want to get out of the house and go to the movies," will no longer hold true. People will be getting out of the house to do OTHER things than watch over-priced, lowest-common-denominator, hackneyed, movies in crowded theaters via similar, or inferior, audio/video exhibition systems. When this happens, the use of first-window, theatrical exhibition as the kick-off for other windows (such as homevideo and pay-cable) will will erode and eventually vanish -- as is happening now with BIG media's network TV.
As more and more NETFLIXs enter the global broadband, soon-to-be-SEMANTIC Web, motion picture product will be served from (peer-to-peer) computers all over the world, not any central set of servers. Distribution -- augmented by fiber and greatly sophisticated META TAGS serving the new SEMANTIC Web -- will be personal and fast. The fact that the semantic web will allow computers to DIRECTY talk to each other, rather than tolerating the sloppy intervention of humans, will also make the distribution AND PAYMENT of movies (and music and books) easy, reliable and accurate to any and all producers of same. Thus middle men, such as studio and independent distributors, will eventually be CUT OUT of the equation. Everyone will get paid by a standardized set of global, automated accounting systems somewhat like the automated standard that now matches up DOMAIN NAMES with ISPs (something you used to find even THESE very words you are reading now). In fact, such DNS (Domain Name Server) firms may be the very ones that will maintain the accounting system as they will be arms length to the transactions and are already experienced. This would be firms like NETWORK SOLUTIONS and VERISIGN (formerly the InterNIC look- up tables). These firms would connect MONEY flows between producer and movie-watcher just as they are now connecting PAGE flows between HTML editors and web surfers right now. In such an artificially intelligent environment, Hollywood studio/distributors will serve no dumb purpose and, in fact, will be considered little more than suppressive vampires. No wonder vampires occupy so much of the "column-inches" of "entertainment" Hollywood has puked the past decades.
Three cities in Canada, Montreal, Quebec and Vancouver, have facilities that now rival anything LA has and Quebec has a state-of-the-art digital facility that SURPASSES anything Hollywood now has. Add this to the more favorable exchange rate in Canada, and the tax credits being offered there, and a producer will quickly see that a $30 million Hollywood movie can be made in Canada for $20 million dollars. This is the future upon us now.
As the fiat-driven Federal Reserve System continues to be the MAIN ENGINE behind the loss of jobs in the United States, one will see more and more runaway movie production. Since the U.S. is currently the world's reserve currency, it is the ONLY country that gets to pay its balance of trade deficit with money it creates out of nothing, i.e., fiat dollars, a.k.a. Federal Reserve Notes. But the world will tolerate this only for a little longer as the EURO and the Chinese Yuan are slated to be competing reserve currencies.(6)
Ironically, as the dollar depreciates, it may actually bring production back to this country, however, due to the other factors discussed above, movie production will not be centered (limited) to and one area. Such is the fate of Hollywood.
(1) If you don't believe that digital stars will someday be able to replace human stars, check out the photographs of the digital models in the digital model contest in the November issue of WIRED magazine. The article is called, PLEASE DON'T HATE ME BECAUSE I'M DIGITAL.
(2) See StarNewsOnline.com article entitled "There Really Is No Business Like Show Business" at http://www.wilmingtonstar.com/apps/pbcs.dll/article?AID=/20041107/ZNYT01/411070377/1002/Business dated 07 November 2004. Also see "Sue Us --The Studio Litigation Strategy" by John Cones at http://www.homevideo.net/FIRM/sue.htm
(3) The Norman Lear Center at the University of Southern California studies the entertainment industry, business and society in general. Other voices have chimed in on the liabilities of corporate consolidated big media and the lack of diversity. See what Ted Turmer has to say at http://www.washingtonmonthly.com/features/2004/0407.turner.html in his article entitled, MY BEEF WITH BIG MEDIA. Also see "Big Media & the MPAA" by James Jaeger at http://www.jaegerresearchinstitute.org/articles/bigmedia.htm for a related analysis.
(4) See http://www.homevideo.net/FIRM/bginfo.htm for additional information on predatory and illegal business practices of the Hollywood-based MPAA studio/distributors. See http://www.homevideo.net/FIRM/control.htm#execlist for list of executives who have controlled MPAA studios for the past 90-some years. See MOVIE PUBS at http://www.moviepubs.net for books on how to remedy some of the problems discussed herein.
(5) To Mr. Ovitz (or any of his friends or associates): If I have this demographic describing you wrong, please feel free to privately or publicly post a correction here at the FIRM discussion forum at http://www.homevideo.net/FIRM/dialogs.htm. And feel free to further enlighten us with your experiences in Hollywood, as well as any suggestions you may have for improvement or reform.
(6) For elaboration on the effect of fiat currency on global markets, see http://www.atimes.com/atimes/China/FJ23Ad06.html.
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