14 Dec Film Fund-amentals: Why Warner is Doomed in Albania

Everybody occasionally says something that proves to be really stupid. It is simply part of the natural cycle of life. The real question is: Did we just blurt out a big stupid or a small stupid? Small is OK and quickly forgotten, but the big stupid can really stick with people. Jeffrey Bewkes, the CEO of Time Warner, might be having this debate with himself right now. In a recent interview with The New York Times, Bewkes dismissed the rapidly emerging internet distribution system from Netflix as equivalent to saying that the Albanian army is going to take over the world.

To be honest, I didn’t know that the staff at Netflix were mainly peasants and sheep herders (which make up most of the Albanian army). However, I do know that the corporate offices of Times Warner have traditionally been staffed by a pack of nimrods whose track record in future forecasting has often been worse than a busted Ouija board. But Bewkes’ backhanded dismissal of Netflix does say a lot about the current (and very muddled state) of the Hollywood film industry. As Austin Carr explains at FastCompany.com, the old school boys at the major media companies are still struggling to understand the digital tidal wave coming at them.

The great power of the major media companies is rooted in their ability to control every form of distribution, especially DVD and cable TV. Actual theater distribution is often a mere promotional stunt for the DVD release. The real money is often made after a movie has left the theaters. Or at least that used to be the case, way back when lots of people spent way too much time watching TV.

According to a new report from ABC News, many Americans are now spending as much time online as they are in front of the boob tube. Likewise, American access to broadband internet has gone past the 63 percent mark (though I am still amazed at the number of people who cling to dial-up services – and not all of them do so for economic reasons). DVD sales have been dropping for many major titles (as reported by Nikki Finke). Cable TV subscriptions have gone into a steep decline as viewers increasingly access movies and shows by way of the internet. The entire distribution model has gone topsy-turvy.

So maybe Bewkes shouldn’t be so focused on the Albanian army. Instead, he should keep in mind that the average Albanian drives a Mercedes even though the official Mercedes dealership in Albania sells very few cars. Seems that the Albanians are accustomed to using “alternative” methods for vehicle purchase. Much the same is happening in media distribution.

Of course, Bewkes knows this already. After all, every media company in Hollywood is trying to cut various deals with digital distributors while simultaneously attempting to block the process. The new owners of Miramax are busy negotiating a deal with either Netflix or Google for download access to the company’s film collection. Viacom has entered the appeals process in an attempt to, once again, go after YouTube for digital copyright violation. Meanwhile, Paramount Digital Entertainment (a division of Viacom) has a deal for digital distribution with iTunes for mobile phone downloadables. While the CEO of Time Warner scoffs at the Albanian hoard, Warner Bros. Digital has pursued video on demand distribution for its collection of recent indie films.

The real issue is all about control. The majors are accustomed to a very heavy-handed top-down structure in which they tightly control most of the process. The digital universe is extremely resistant to this type of monolithic hierarchy. The major companies have proceeded with a strategy in which they not only want to own the digital universe, but are attempting to take hostages wherever possible. Deep in their heart of hearts, most studio executives would love to see the internet simply go away. But first, they want to profit from the dang thing.

Too bad the reality is much closer to the way Albanians drive their Mercedes. There are traffic laws in Albania (or so I am told). Nobody pays them any significant attention as Mercedes’ go careening every which way. Since the average Albanian driver travels armed (gosh, they’re almost like us Americans), minor issues tend to be handled personally. After years of repressive totalitarian government, the average Albanian is not much into the top-down management thing (any more than they are into road repair). It all floats somewhere between anarchy and a Hobbesian State of Nature. Ironically, this is a reasonable metaphor for the information superhighway.

So Bewkes can quit worrying about the Albanian army. He needs to be on the lookout for all of those spiffy second-hand Mercedes’ that are roaring down the road. Every major media company in Hollywood is in the process of getting plowed, and they obviously don’t have either a clue or a road map.