American Film Market 2011 conference: unofficial notes
Nov 8, 2011 9 AM: Distribution Conference notes part 2, "Monetizing New Global Platforms"
Notes by B. Hahne
The original blog location of these notes is: http://2011afm.blogspot.com
This is day 5 of a 5-day series.
Clarifications or pithy comments by the note-taker will generally appear in [square brackets like this].
These notes are copyright (c) 2011 by Bruce Hahne. Noncommercial, nonprofit redistribution and/or pointing people to the blog is permitted and encouraged.
Disclaimers: "Free notes, you get what you pay for!" There notes are a summary, not a transcript, and represent my best effort to capture the panel discussion plus Q&A. They also probably contain errors. I'm not in the film industry, nor am I affiliated with AFM / American Film Market or with any of the firms associated with the panelists.
Moderator: Brad Kembel, Executive VP for International Distribution, Summit Entertainment.
- Erik Brannon, Analyst, IHS, Screendigest
- Dan Cohen, Executive VP for Pay TV and Interactive Media for Disney/ABC Domestic TV
- Elisabeth Costa de Beauregard Rose, Executive VP for International Sales, Lakeshore Entertainment
- Jon Ferro, SVP for Program Sales, EntertainmentOne
Brad: we're the studio that does Twilight.
Dan: In English, I license the TV shows that ABC makes and some of Disney's content for subscription, digital, etc.
Elis: We finance and produce films.
Jon: Licensing TV rights.
Brad: This panel is about digital future, or maybe it's the "digital now" - mostly VOD here. Complicated new business model and the marketplace is a mess. We've asked Erik to give us a 10-minute primer.
- IPTV: TV content delivered through the internet
- Pay TV on demand aka VOD: transactional rental of movies via closed networks
- EST, electronic sellthru: sales via open internet [I think he means like buying a digital download - he doesn't mean buying a DVD online.]
- Digital rental: rental via open internet e.g. Xbox and Amazon
- Digital subscription: CinemaNow, StarzPlay, uses open internet
"Pipelines": a content distribution method including IPTV or cable or open internet or satellite.
"Platforms": device-specific reference such as an ipad or PC or IPTV.
"Cloud-based": like UltraViolet: content you purchased delivered any time to any device of yours.
We predict $48B consumer spend on home video in 2011. 2007 was $54.6B. So slight declines, but not the end of the industry. Physical disc sales and rentals will remain predominant form of film consumption in near future.
There are challenges everywhere:
- Physical: pricing and piracy
- PayTV and VOD: pricing and sticker shock
- Internet-based solutions: interoperability
"Redbox society": consumers expect to be able to rent for very low price, very close to home.
Internet solutions not compatible with each other, e.g. iTunes content can't play on your TV unless you have an Apple TV. [Yes, Apple does closed ecosystems buddy, that's how they play, it sucks.]
Physical: 83% of all home video transactions in 2011.
All electronic transactions growing to 25% by 2015.
iTunes, Xbox, and PS3 stores dominate for internet sales.
Pricing is hindering internet and payTV pipelines.
Sticker shock: cost to rent an SD title is $5 on your pay TV system. So 4 titles is $20.
Internet EST: interoperability is really curtailing EST.
South Korea: Government mandated broadband upgrades for the whole country, and people shifted away from buying HD content (disks), now they pirate it. [Shifting towards EST here?]
- Less sellthru, more rental.
- Less total revenue for the business. We see 4% declines YoY.
- More electronic, less physical
Social media can offer a stopgap measure.
Brad: Streaming / VOD, please comment.
Jon: Netflix has proved to be a good rerelase platform for old content. Library revenue matters for a studio - it's an underlying economic engine. The CW did a deal with Netflix. At the highest level, maybe this is the same thing as the consumer going to the video store. With video store you'd often rent 3 titles and only watch one. With VOD you make the buy decision on the spot, you don't rent 3 titles like that. And people can also walk away from the VOD web page, but they don't usually walk away from the bricks-and-mortar store emptyhanded.
Dan: VOD used to be pay-per-view and started at a fixed time. VOD you can watch any time + rewind. For our catalog, we always keep it out there where people can rent it via VOD. I do all digital licensing for Disney movies, i.e. iTunes downloads. We've had more people get copies via Digital Copy / Digital Download (where you buy the DVD in the store and it comes with a coupon for digital copy) than people who are using EST. Netflix has changed the TV landscape in the past few years - they're a new platform for us.
Dan: I think the pie is growing, that Erik's opening remarks aren't right. Shift from ownership to rental, shift from physical to digital. VOD is a big growth business for us. But the VOD isn't offsetting loss of DVD sales, so for movies it's true the pie is NOT growing. Disney sold Miramax and reduce the number of films we make, focus on big franchise movies for us.
Elis: I deal heavily with non-US, not US. Fall in DVD revenues is significant in Europe, Asia, etc. The drops are much more than in the US, which is weird since there's not a proliferation of big brand-name VOD companies. We have independent VOD players though, smaller. The revenue isn't there yet. Yes, it's an alternate form of revenue but the levels aren't there. Big impact of piracy. Korea, piracy very rampant, you're lucky if you can sell 500 to 2000 units. Maybe Disney can get 10K sales, I don't know. DVD sales decimated by piracy. The one upside of piracy is that people are learning how to download films on the internet - it builds awareness, it's training people to get used to downloading films, no more discs. Next re-education is to teach people that they need to PAY for that content. In the future, VOD has big potential.
Jon: Indy perspective is different. We have Margin Call and Trespass doing day-and-date with theatrical, price $7 to $10 on VOD, slightly higher pricepoint. Those films are changing the economic model. DVD component might not be as important. Blockbuster rental situation is changing - if Bbuster had died it would have hurt direct-to-DVD industry. VOD isn't helping direct-to-video industry much due to movie saturation, so everybody earns less per film. Margin Call and Trespass did OK due to the theatrical releases.
Dan: Re "Redbox World": the major studios have treated them differently. Warner + Universal are windowing Redbox by 28 days. Paramount + Sony did rev-share deals with Rbox. I have an out put deal with Starz and I was crying about Redbox and Overture said "we love it, we get more distribution through Rbox than through traditional means." For an indep film, Rbox might be a great thing, or a similar kiosk player in an international location. Treat them as part of the sales ecosystem for your movie.
Brad: Elis, you and I represent the high end of AFM sellers here, it's a well-understood model, we sell our own films and other people's films, foreign presales, and you use those presales to get financing to make your movie. We're removed from this new revenue since we sell to the distributors, we don't do VOD directly. This is 1st year that I'm hearing $100K+ VOD reported from our distributors, no longer $10K's, but not millions yet either.
Elis: DVD has fallen so much in many territories that VOD doesn't work as "additional" financing, we're just trying to get back to where we were. The thing with VOD is you can micro-target the customer, you know who they are. I think that in the future this approach will pull a lot of ad dollars away from traditional TV due to the ability to micro-target the customer. That's 10-15 years out, but it will take away from free TV and pay TV revenues.
Brad: US exploitation / rights management issues, please comment.
Jon: Difficult to manage these days, they're complex. Take a TV series - who has the right to put something on iTunes? Who has the right to put it on Xbox? [I think his point is that the internet is doing its thing by blurring the concept of national boundaries.] These are turning into complex negotiations because they impact the basic value of the series to the studio. We're now holding back rights, or charging more for full rights. Negotiated country by country. Rights management systems are a pain point also - there are solutions out there but they're expensive.
Dan: There's also clearance issues. Sometimes your music isn't cleared for putting the stuff on the internet. We spend a lot of time on rights + clearances. Disney sold the Miramax library earlier this year -- some of that is governed by a Starz output deal from 1999! The buyer is starting to distribute through Lions Gate but there are there governing rules from 1999 when most of the technology didn't exist. It all had to be interpreted + negotiated. And Netflix wasn't doing pay TV back when we negotiated some of these deals.
Another example: TV show airs on ABC, then it's on iTunes the next day, what do we do with Hulu, what about Hulu+, what do we do for NetFlix? Right now we don't give it to NetFlix the next day. VOD: movies are different results. Cars2: VOD same day as DVD. Pirates 4: windowed for VOD, not same-day.
Brad: What's the future of some of the big players like Google, Amazon? Amazon bought LoveFilm in the UK but didn't rebrand it.
Jon: Google + Youtube are huge but they have a lot to prove. Youtube hasn't yet proved that they're efficient at delivering audience for premium content. They're great for viral video, 20M hits on some viral thing, but not efficient at selling VOD. We're watching them closely, partnered for VOD, using them for anti-piracy, monetizing clips on Youtube, like if a user makes a clip with one of our TV shows, there's a revenue share. If one of those clips goes viral and get 10M views, we get some of the ad money. Youtube has to convince people who have been watching for free to start either watching massive amounts of ads, OR pay for the program. How do you convince a Youtube person to pay $4 to consume a product when they used to get stuff for free? That's a big jump for the consumer. Youtube has good management and good engineering, but the engineering is difficult to make its way through right now. 5 years from now they could become the equivalent of Comcast, it depends on who has the rights. If ESPN glues itself to the satellite distributors, Google probably can't get the rights. But for NFL you can watch those on your Playstation now. The cable operators are looking 10 years out and knowing it will be a big fight for the consumer dollar.
Elis: How will consumers find what they're looking for, how do they even know what they're looking for?
Jon: Netflix and Youtube aren't programmers. They're using a different algorithm. But we're reliant on "programming" for people to discover our content. Example: Comcast, we have a deal and maybe we want to be on The Barker channel. But Netflix + Youtube have been anti-program in the past -- "if you like product X then you might like product Y". If Google isn't going to promote our content then it falls to us at Reliant to market the content more ourselves, which changes the relationship to our broadcaster.
Dan: I handle VOD and e-sellthrough. Youtube has been modest in its success for me so far. They launched a small store last year and I'm OK with that. Our first movie deal was with Xbox 5 years ago. My guy came in and said "we're going to offer the movie on Xbox" and I said "huh, Xbox is a game console, say what?" Xbox has been good at the technology: you can watch it on any of their screens, and also doing good things with discovery. You're going to see some voice-activated discovery coming out soon, and Kinect. If you can speak "pirates of the Caribbean" and everything related to that movie comes up, that's great for us. Also these companies are becoming global players: iTunes, Xbox, more. So for Disney we have to coordinate a lot - my Xbox guy will want to do a deal in Japan, and that's not my territory.
Brad: Elis, can you see "rights for Google" being sold separately in the future?
Elis: Not really. I think there will be less ad revenue for TV in 10 years. For next 5-10 years we can do [legal] holdbacks. NetFlix was trying to launch in Spain but recently put that on hold due to recent NetFlix issues. This was a big hit to us, they were going to do a lot in Spain, there's no competition for pay TV and Netflix was going to compete, so our distributors were actually getting negotiating power since the monopoly was about to not be a monopoly. So once the major players go internationally there might be more leverage [for some players]. But we won't be carving out special revenues very much.
Dan: Consumer electronics companies are starting to pay attention to content now too - Samsung etc, they put NetFlix onto their TVs. But the CE firms are starting to look at their own content also. Anecdotally, I have a lot of people say "yes I have netFlix" and I say where, and they say "it's on my TV" - NetFlix has been really smart about getting their application onto all of these devices, and the CE firms are thinking "well, maybe we should have our own movie store online."
Brad: microbudget, low budget, can you sell your product directly on the internet, cut out the distributors, everybody on the panel?
Jon: Difficult to believe you can earn back your production budget by selling on the internet today, if you spend $100K to millions, we've never seen anybody make that kind of money [by selling on the internet]. iTunes doesn't want any more deals now, they want to deal with aggregators. NetFlix has been pretty good about sharing the money, but NetFlix distribution won't cover your production costs, and NetFlix is going to start pulling the money back in. People with a film need to look at all the opportunities: do you do theatrical, VOD, go directly to Comcast, something else? You need expertise. What are the Netflix windowing rules? You need somebody who knows that.
Brad: Jon + Dan created new platforms: Epix, and FearNet through Lions Gate. Please talk about complications in creating platforms etc.
Dan: We launched Disney Family Movies a few years ago. We took an opportunity to release some older titles on VOD: Dumbo, the original Alice in Wonderland. Made it available just for 1 month via Comcast VOD, and they took the top slots. So we created an SVOD (streaming VOD) service, subscription-based, monthly fee. We have to constantly market this to overcome churn, but it's revenue, it's growing. Consumers do like subscriptions - this is something that works well for NetFlix. Cable operators not good at selling transactions but they know how to sell subscriptions.
Jon: FearNet was for horror films, but not the greatest advertising platform obviously. Did a partnership with Sony which also has a good horror library. Build an ad-supported VOD platform. We wanted dynamic ad insertion, which hasn't been available through Comcast. FearNet relaunched as a linear channel - like you break up the movie into TV chunks [and show ads like commercial breaks?]
Epix was Paramount, MGM, Lions Gate, all finding their output deals expired at the same time. Realized that they'd have more market power if they worked together.
Brad: About the "digital file owned in a cloud locker", please comment.
Dan: Will be a few years before consumers get that and can use it effectively. It's about interoperability. If I buy a DVD, I can watch that anywhere. With digital, that doesn't happen. But if I buy it digitally, I should be able to watch it anywhere - that's the goal of UltraViolet. Consumers have had storage issues, so the cloud stuff helps. Apple hasn't launched its cloud movie product yet, there are licensing issues WRT output deals that will get resolved.
Apple has dominated the E-sellthru business so far, but if it stays that way it's not good for the industry. We need more stores AND interoperability.
Brad: Why is UltraViolet attached to the sale of a physical DVD?
Dan: We're not part of UltraViolet so I can't speak for them. You could in theory put in a piece of paper with a code, but our marketing people believe that the consumer wants a physical disk - we sell "E-copies" which are just "digital copies" and we could just put in a slip of paper, but right now that's not what we do.
Dan: We do our deals nation by nation. With iTunes we have an overarching agreement on ground rules, but still negotiate territory by territory.
Jon: Amazon has done well selling books digitally, consumers do get it.
Q: Re windows, do we the filmmakers have anything to say about them?
Elis: If you want to be involved in the process you can, we give you your options.
Brad: But frankly you want us to do this for you.
Elis: Right, there's a lot of product out there and if you're slow, the buyers will just move on to some other product.
Q: Re social media and targeting, for independent distribution models, can that approach work?
Elis: I think so, there are fan bases on the internet. Youtube, Fbook, if you get enough views it can take off.
Brad: Yes but you have the discoverability problem, how do you drive eyeballs to your film?
Jon: There are firms starting to look at this, I haven't seen anybody succeed well, but people are looking at the question of low-cost and social media to reach niche audiences.
Elis: There are a lot of internet talk show hosts out there who have >1M subscribers each, and it's growing.
Q: I can imagine VOD displacing everything. What will that do to film budgets + distribution?
Elis: I don't think that will happen, movie theaters aren't going away, which is good since if theaters go away it hurts the industry. DVD will go away, very small in the future, like LPs.
Q: So won't that impact budgets?
Elis: Yes, maybe positive, maybe negative.
Jon: VOD has better margins.
Dan: I'm the digital guy at Disney. The physical DVD business is still enormous and will be big for at least 10 more years. So don't forget that there will be a lot of DVDs sold.
Q: Re data cap [Comcast stuff], this is impacting cloud model, what can you/we do?
[Nobody on the panel is savvy in this area.]
Dan: There's more competition today and there's a desire to sell bundles. Comcast wants to sell you a bundle including voice and internet. What you're raising is a big issue - it's not what we on the panel do, though.
Q: Re VOD, can that help short film business? Short films become more popular?
Elis: Large demand for short films over the inet - see Youtube. In TV that hasn't worked, the advertising deals haven't worked out well
Q: But could it become transactional?
Elis: Advertising. [No panel support for transactional revenue model for short film.] You can get awareness, use it for marketing.
Dan: For Tron, and I Am #4, we made the first 10 minutes for free on demand. A lot of people sampled this content and we got a lot of rental from these.
Q: How can I protect against consumers recutting my film?
Dan: We don't allow that, and in our deal with Amazon we don't allow them to allow the customer to do that. We're just barely now getting the idea that people might want to do chat around the movie.
Elis: Our agreements are that people can't air in a non-linear format. The only cutting you get is for censorship reasons.
Q: Virtual worlds, virtual environments?
Jon: You could do avatars, Sony is sort of in this space, Fbook has been seen as being a way to do this, but not taking off right now.
Q: Re piracy, how much is it impacting the bottom line and what resources are being put into defense?
Elis: Used to sell 2x or 3x as many DVDs as theatrical. DVD still OK in Australia but sales still down. Lots of distribution companies went out of business, though QwikFlix has started in AU recently.
Q: What's the safest form of protecting the content?
Elis: There isn't. There are firms that will do takedown notices for you.
Brad: There's a huge industry around this: MPAA, AFM, many players working the piracy issue. But international is UP across the board, up 20%/year overall, multiplex buildouts happening. [Really?]
Q: All this streaming - shouldn't the film industry be getting a cut of data streaming revenues? We should get a cut of the cable revenues etc.
Dan: In the early days, Comcast etc. said "why should we allow internet VOD, we have our own VOD service already, maybe we'll block that content". Thankfully better business heads prevailed, Comcast is starting to say maybe I don't care if my customer buys from iTunes.
Q: About 3D, how will that impact bandwidth issues etc?
Jon: It doubles the file size, one for each eye, it's not as bad as SD to HD transition. 3D demands a fully-engaged experience - is that how you watch movies? Most people don't watch that way, they're getting up, moving around, talking to people in the room. Sometimes 3D will be a great experience but I don't think it will become the norm.
Brad: Can stay as a novelty in theaters since the screens and gear are there. International was booming, but starting to wane now. Will probably be specialized, like Imax movies, you go pay more for a specialty experience.
Q: If you have $500K marketing budget in the US, how are you allocating for theatrical vs. VOD?
Elis: Depends on the film, the genre, the audience, the demographic. If you're going online, who is the online community.
Q: Is there a minimal spend in the VOD arena? [He really seems to mean "what does my internet advertising budget look like for a small indy film?]
Jon: I've seen success with $0 and with well under $500K.
Q: Do you envision in the future that projects will be driven by content, not by A-list stars?
Brad: No, star power will still matter.
Elis: But concepts matter, ultimately it's about the script, your foundation, the story, most important thing. You can do well even without a star, but everything else has to come together.