Film Fund-amentals: Redbox Storm and the Rising Tide

As far as Hollywood is concerned, the red menace is back. Last week, the Los Angeles County Economic Development Corporation released its report on the impact of low-rent DVDs through the Redbox system, and guess what – Redbox will result in the complete end of civilization. Like a biblical plague, the pesky little vending machines are in the process of unleashing death, chaos and total economic collapse across the land.

Yes, it’s the worse red menace since Stalin. Odd, those little kiosk machines look so, well, benign (I often confuse them for Coke machines). Never mind that the basic issue involving low-cost movie rental applies to Netflix, Blockbuster and every other DVD system, and that the actual business model used by Redbox is nothing new (much the same was tried years back with videotapes – these rental systems come and go like the ever-changing seasons). The core economic argument against Redbox applies to every emerging system out there. But Redbox has gotten under the skin of many of the major companies for reasons that actually defy rational explanation. And I suspect that the irrational issue is what it’s really all about.

Let’s just look at the big picture for a moment. The economic system is already in a state of near collapse. Unemployment is officially over 10 per cent (unofficially, it is closer to 20 per cent). Hunger and homelessness are now so widespread that even in Los Angeles every campground for 100 miles is packed with people who have nowhere else to go. We’re living through the single worse economic crisis since the Great Depression. Virtually every business in the country is being gutted and changed. Fear has become the common currency.

Except in Hollywood, where senior executives manage to walk around with their heads up their derrières and insist that everything is fine. The entire world is changing and they think they have it all in hand, despite all evidence to the contrary. They may even think that the tent cities surrounding Los Angeles are just people waiting to see Avatar.

At least that seems to be the gist at the Variety Future of Film Summit held last week in Santa Monica. The keynote speaker was Paula Wagner, who half gets it and half doesn’t. She emphasized the need to rein in development and production costs, then argued that more money needs to be spent on marketing for mid-size productions. OK, to be honest, every marketing rule known is currently being thrown out the window (along with most distribution models), and it’s highly unlikely that throwing more grease onto a broken wheel is going to do any good. But that’s the direction Wagner is talking about. Obviously, Paranormal Activity took off with a marketing strategy that still defies description, while The Blind Side fell back on the lost art of word-of-mouth publicity. In neither case was increased spending an issue. Most likely, increased spending on a more traditional marketing campaign would have failed in each case.

Wagner noted that the film industry was in the midst of a “revolution, not evolution.” Again, she’s half right. It’s actually both. As the technology evolves, there is a complete revolutionary change within the business that is moving everything toward a digital domain of non-centralized production and distribution, which increasingly operates in total indifference to the traditional top-down management structure of the business (Rupert Murdoch: Please take note). That is why the studios are losing control and they don’t know what to do about it. Which is also why — I suspect — they’re in attack mode against Redbox. They can’t even slip out of their supermarkets without that evil machine thumbing its nose at them.

Which is also why the hype surrounding the release of Avatar has become such a surrealistic dance of the dead. It’s big, it’s expensive, it’s loaded with more technology than it took to get man to the moon. It is the movie that many people in Hollywood hope will be the game changer. Not everyone shares that view. Amy Miles, CEO of the Regal Entertainment Group, took a more rational wait-and-see attitude when interviewed by New York Magazine. Her rough estimate of what the movie will make ($250 million) should prove to be pretty accurate.

Since Avatar has a production cost greater than the GDPs of most Third-World countries combined, the only thing that might bring in a profit is the video game version, and that is already getting negative reviews from the gamers.  It’s possible that the only game change will be folks switching back to another round of Halo. The rest of this debate is simply gibberish.

And once again we are reminded of how Redbox is threatening to destroy the American way of life. After all, a movie like Avatar can only begin to recoup its bloated costs through massive DVD sales (first the theatrical, then the extended play, and finally the director’s cut). Since DVD sales are down (like everything else), it will still be a pitched battle for this movie to hit the profit mark. An extremely bloated budget requires a ludicrous, and near impossible, amount of profit. So anything, no matter how small, that threatens this beast must be crushed.

To be honest, I suspect that if the Redbox business model were simply left to its own progression, it wouldn’t last too long. None of the previous attempts at this form of rental system has ever lasted long. Besides, even Redbox is being rolled over by the continuous state of change within the industry. These operations tend to be effected by many of the same forces that are driving Blockbuster into the ground. But Hollywood has to have something to blame, even though the only red they truly need to fear is the color of the ink in the ledger book.