Film Fund-amentals: Bumper Cars

Predication about the immediate future of the film industry is a lot like watching a pack of ten-year-olds go careening through a round of bumper cars. Lots of theories and ideas are whizzing around out there, wildly colliding into each other until somebody gets a case of whiplash.

Take for example Hollywood’s war with Netflix. Hollywood hates Netflix because… well, didn’t Netflix have something to do with the Fall from Grace (or was that Apple)? OK, the rapid success of the Netflix internet streaming distribution system is blamed for the equally rapid drop in DVD sales (though the drop in DVD sales started way before Netflix went into the streaming business). Netflix is also making deep cuts into movie distribution on cable TV (though the drop in cable viewing started before Netflix and really has to do with a lot of other issues).

But the real reason they hate Netflix is because the company is an upstart that operates pretty much out of Hollywood’s control. So it’s no wonder that Hollywood has no choice but to start cutting deals with… Facebook? OK, lots of folks in Hollywood are not very fond of any social networking site, but war makes for strange bedfellows, and The Dark Knight is jumping into the sack with Mark Zuckerberg. Within 24 hours of Warner’s announcement of this arrangement with Facebook, Netflix stock took a heavy hit. Hollywood is happy except for the fact that they don’t particularly like Facebook either. Oh sure, they feel they’ve been more capable (at the moment) of dictating the terms over at Facebook, but heck, that ain’t gonna last, and then they’ll have to cut a deal with Netflix to screw Facebook and so on and so forth….

All of this is compounded by the other 800-pound gorilla in the room, digital piracy. A quick look at the current top ten list of pirated movies (provided by Peer Media) presents a pretty scary picture. To make it even scarier, I’m willing to bet that the figures presented by Peer Media are probably on the low side. Even more wild is the way these figures compare to the current sales figures for DVDs of the same titles. Some of these movies have fared better as illegal downloads. Officially, Hollywood is still complaining about people sneaking into theaters with video cell phones. But let’s be honest, the minute the material goes online, it is hackable. Oh sure, everybody is taking extensive steps to maintain tight security, but often that only weeds out the lower-skilled hackers (some of whom are still using dial-up).

This is one of the reasons why a lot of folks in the film industry really wish the whole digital issue would simply go away. But it won’t, and besides, they’re already so deeply invested in these new systems that they cannot afford to abandon them. Sure, they know that at least some of the piracy is taking place right under their noses (for example, the Academy members who apparently allowed wide access to the digital screenings of this year’s nominated movies). By now, the mysterious stranger in the theater using his cell phone is the least of their worries (though the recent wave of security checks of patrons at advance screenings have certainly been a hoot – there’s nothing like a thorough pat down while you’re holding popcorn and a drink in each hand to make a person feel safe).

However, the audience is moving in this direction (remember, Netflix has more than 20 million members), and Hollywood has no choice but to follow. But they’ll do almost anything to take as much control as possible. A strong push is on against Google, Amazon and other online providers as a step against piracy. Ironically, there is a major study on this issue by the Social Science Research Council with data showing that heavy-handed enforcement does not work. Instead, the evidence strongly suggests that lower prices and easier commercial access are more viable against online piracy. But extremely oppressive enforcement is what Hollywood wants US Congress to pursue, and the Feds have already started moving in that direction. Even such search terms as “bit torrent” have become suspect online.

Gee, what a hard decision. Unworkable and costly enforcement policies that are doomed to fail, or viable economic business practices geared toward creating a rational and competitive market? Tough call, but I guess we’d better pick the billy club over the profit sheet. Well, this is basically what the Hollywood establishment is doing. Fear (especially the fear of losing control) is the driving force behind the Hollywood view of the digital universe. Since fear is a lousy way to make decisions, it’s no surprise that the mainstream digital strategy is basically oppressive, costly and most likely doomed to failure. Like those bumper cars, Hollywood is moving every which way at once and smashing up all over the place.

The upside is the rapid growth for online distribution of indie material. Last Wednesday saw the launch of Fandor, an online company that hopes to create an indie version of Netflix. It is one of a rapidly developing field of digital providers. These venues offer an important opportunity for movies that otherwise are getting shafted in the increasingly marginal mainstream distribution system. In turn, they’re creating the basis for a more rational and competitive system.

And that’s the real reason why Hollywood hates the digital universe. It threatens to make sense, and basically, the major companies really prefer their game of bumper cars. As long as they own all the cars.