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Robert McGarvey

Previews of Pirated Attractions

Written by Robert McGarvey
1/13/2010 11 comments
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Between piracy and the Internet, Hollywood executives are anxiously pondering whether their industry is going the way of the music business.

The music business's numbers are legendarily horrific: Album sales plunged 52 percent between 2000 and 2009, according to data from Nielsen SoundScan, and visible proof of the carnage has been the closure of whole retail chains such as Tower and Virgin in the U.S. Nobody thinks less music is getting listened to. The problem has been piracy, which has looted the business of billions of dollars. From 2000 to 2008, around $4 billion in sales vanished, according to Recording Industry Association of America numbers, and that represents a more than 25 percent drop in revenues.

"The movie business has not fared as poorly -- but it has enormous challenges ahead," says Tim Phillips, author of Knockoff, a book that charts the rise of counterfeits and how this has hurt legitimate businesses.

One proof of the peril: A few weeks ago a Los Angeles Times writer, Michael Hiltzik, was walking around that city's Toy District for a story and he happened upon a vendor selling copies of a District 9 DVD for $5 -- days before the official release date. When he viewed it at home, Hiltzik realized this wasn't a classic, low-quality bootleg, typically filmed in a theater with a handheld camcorder -- but "a high-quality digital copy with up-to-date trailers." Concluded Hiltzik: "The pirates have really got their act together."

No business has grown faster in the last decade than counterfeiting, according to Phillips, who has studied fashion, perfumes, music, hardcover books -- all popular items to counterfeit.

The industry also undermines itself with long lag times between a title's theatrical release and legitimate DVD copies going on sale. But pirates are not sleeping. Says Tim Kassouf, director of marketing for IT consulting firm G 1440, who tracks piracy trends: "Warner Bros. could only protect The Dark Knight from piracy for 38 hours, and Twentieth Century Fox's X-Men Origins: Wolverine was leaked to the Web months before its release."

One sliver of good news for film companies is that in 2009, for the first time since 2002, movie box office receipts ($9.87 billion) beat DVD revenues ($8.73 billion), according to numbers from Adams Media Research. Interesting, too, is that, while box office revenues rose 10 percent in 2009, DVD revenues fell 13 percent, quite possibly because counterfeits accounted for a growing market share.

That, says Jonathan Bailey, a copyright and plagiarism consultant and the manager of CopyByte.com, is an inevitable trend that Hollywood has to accept. Pirates simply are going to win: "[Digital rights management] efforts by the industry have been an abject failure."

Prevention gets tougher, too, as piracy shifts from a physical duplication-distribution business dominated by criminal cartels into a peer-to-peer download model, where friends share with friends. Traditionally, studios have fought pirates by following the money trail, but as counterfeiting shifts to P2P file sharing, "there aren't profits to track," says Paul Kocher, president and chief scientist at Cryptography Research Inc., a developer of copy protection schemes. And this will make stopping this kind of piracy so much harder.

That alone suggests studios need to re-think their business models. But don't write them off just yet. They have other possible ways to earn revenues, even if the disk and download markets collapse

Studios that accept that they are creating valuable content -- but that distribution models need updating -- will be primed to prosper, say the experts. For instance: Bailey says studios that make feature-rich films, involving heavy special effects, 3D, or Imax technologies, will prosper precisely because these films work much better on a big screen in a theater. Watching Avatar on a small screen at home just isn’t going to be the same.

Movie companies, to survive, will also need to diversify revenue streams, says Bailey. "They will need to earn more from video games and toys. Films like Avatar already are doing this."

Movie studios know what happened to music companies. The only question is whether they can adapt quickly enough, and broadly enough, to survive.

— Robert McGarvey is a widely published author and expert on social media.

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artfrankmiami
IQ Crew
Friday January 15, 2010 9:57:41 AM
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Yankees!?! You can't afford the $1200 per game seats? I mourn for you. (Yay Mickey Mantle!)


I don't think talking costs of sports are off topic, because piracy of movies cutting into studio profits will eventually cause the quality of the product to fall and eventually we will all start watching at home, no more theaters. If the Yankees didn't pay all of those huge salary's, would they still be as good? Remember, Wayne Huizenga spent $80 million to win the first Marlins world series and the following year fired everyone. The second win was sweeter because they were all low salaried players. I think some movies would benefit by having more money spent on them, but talking to a set builder friend, there is a lot of waste in the industry.

 

The Godfather was meant as a throwaway gangster movie in the likes of Capone and St Valentine's Day Massacre. Coppola and Gordon Willis raised it up to art. Coppola was after all, the James Cameron of his day and his proteges have rulled Hollywood ever since.

 

Of course knowing something about computers, you know how sometimes it does take a while to render an image. I'm working on a book cover right now and it's a good 15 minutes each time I save the file in PShop. Every dime spent on Avatar is up on the screen, remember, it's in 3D, so there are two frames for every frame of the movie that needs to be rendered and there is a lot of detail and depth in those scenes. A digital studio is being built up the road from us and the average salary is expected to be 65k a year. Multiply by 300 that's 19.5 million just for salaries. Not even the costs of the IT infrastructure and render farm that needs to be built to create the images for each frame (I remember they said the first Toy Story was 12 hours per frame). Most of these big movies are becoming CG Intensive, so this is causing the costs to rise (even though they were originally touted as a way to save on costs).


So one day you would say to your kids, I remember being able to see a Yankee game at the stadium (I did see Mantle in spring training). Maybe one day we would be saying to our grandkids, I remember seeing movies in a theater on a 40 foot screen. In reality, I have had movie nights with family and friends at home with a projector and a kickin' sound system watching a movie on 10 feet of blank wall. When HD projectors come in, I think eventually this is the way we will all go and theaters will die if enough people will tire of the costs and not care for the socializing of the crowd.

Mashka
Researcher
Friday January 15, 2010 4:07:06 AM
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Robert, you are very right.New technologies may be is the only way to keep these industries prosperous. As one of  my friends said: Cameron  beat pirates. To watch Avatar downloaded from torrents is like  to view paintings from Louvre  by Power Point presentation

So may be, the sound industry will find some technologies that will make pirate downloading  meaningless

Chris Poley
Thinkernetter
Thursday January 14, 2010 4:10:36 PM
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Hey Art, Movie don't have to cost $500 million to make, that's the studio's option.  Although it was over 30 years ago The Godfather cost $6.2 million.

Don't even get me started on the cost of sporting events, save that for another day, and besides its off topic.

My point is the movie industry although has a right to bitch and moan at piracy and lost revenues, but they have received tremendous attention from the U.S.  Government, and specifically from the Dept. of Commerce Secretary Gary Locke who only yesterday the Obama administration was addressing the recent challenges of piracy.  So they garner all this attention but most other industries get Zippo.

Other than that point Art we are speaking the same language, concerts, Broadway and my beloved Yankees have priced me out of going to any events.

 

 

artfrankmiami
IQ Crew
Thursday January 14, 2010 3:43:19 PM
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I'm not using anything to justify high ticket prices. I can't afford to go to the movies anymore, why do you think I go to the $4 show. I don't even buy DVDs anymore. I rent from the kiosks at my local grocery store.


My point is movies cost a fortune and there are backend deals with the director and actors that the public usually doesn't have a clue about. So when the public sees grosses, they think it's free and clear profit and it's not. Sometimes a third of the movie's grosses can go to the director and the actors. At least Cameron always puts his money where is mouth is.


Kevin Costner made a good point on a talk show after the Waterworld debacle (which did turn a profit), no matter how much a film costs, the ticket price is the same as any other movie.


I think you should be more pissed over the cost of a basketball game. Miami Heat are $40 for the nosebleeds. If I took my family to one game, that's $120 dollars, not including $20 for parking and whatever else they can squeeze money out of me for. They cry poor, make the cities pay for the stadiums and then take all the revenue they can because the cities can never make a proper deal. Movies are getting pricier, but still a bargain compared to anything else.


Speaking of ticket inflation, how much is 2010 $12.50 in 1979 dollars? The original Alien was the first $4 movie in my neighborhood. Minimum wage was $2.65, now it's over $7. If someone does that adjusted for inflation calculation, it's probably equal. But, I agree, when they do that calculation on the price of gas when it was hitting $4 a gallon and saying it was the same as when we paid $1 the first time 30 years ago, I say that's BS because it didn't seem to hurt my wallet like it does now. Yeah, a $9 ticket for me, a 12.50 ticket for you, that hurts my wallet. If I want to see a movie that bad enough in the evening, I'll pay it because that's the price. If you don't, then go to a matinee or wait for the DVD.


Chris Poley
Thinkernetter
Thursday January 14, 2010 8:02:13 AM

Art, you got to be kidding me.  You want to use James Cameron's $200 million contribution to his film as justification for the gross inflation in ticket prices and DVD rentals. Well, thank you for illustrating my point.

BTW, the movie Avatar has already has box office receipts that exceed $1.13 billion in its first month of release. That is 2nd only to Titanic ($1.8B) another Cameron movie.

Hollywood has far less to cry about than many other industries that suffers from piracy, knockoffs, or copyright infringement.

artfrankmiami
IQ Crew
Thursday January 14, 2010 4:32:19 AM

Before you say "boohoo", think about the numbers you use. You say ticket sales were $10 Billion. Well, Avatar COST $400 million and I've heard Cameron put in $200 million of his own money. That's almost 1/20th of those ticket sales went to making it. After marketing, the movie had to make $750 million to break even according to USA Today. Well, now we know it's past that, but realize that only every dollar north of $750m is profit which is then used to create the new product. But one movie could easily swallow that first $100 million of profit and return zip. (Pluto Nash anyone?).


One year, probably 1999 which was the last year I had HBO on a regular basis, I remember their promotion for their summertime movies as "The Billion Dollar summer." That's when I realized that the 15-20 movies they were promoting did total up to a cost of a billion dollars to make.


Recently, I looked at my binder of DVDs and shocked myself when I realized that the total cost of all of these films was around $5 Billion.


I can't cry for you because you complain over $12.50 tickets. We're only paying 9.50 for evening shows, but I go to the cheapest shows possible. I saw Avatar 2D twice for $4 a ticket. Not the greatest theater, but it's got a good sound system. IMAX is only $2 more than the premium Real3D showings, so I'm holding out for IMAX.


When the news reports grosses, that's just what they are, the gross from ticket sales. I'm not sure what the distribution is now, but say 20 years ago, opening weekend sales was 95%-75% for distributor and the balance for theater and the percentage would continue downward each week to about 50-50 during the first run. The theater doesn't make a lot from the ticket sales unless the movie continues to run for weeks, that's why you have $6 popcorn and $4 cokes. Movies used to run weeks in the old days, but now because of DVDs and rentals, I think average people wait around for the DVD for smaller films and movies are out of the theater in three or four weeks.


To see the true return for a movie, check out Variety's rentals list. When I first saw that in the early 80's, I was shocked to see how much money Star Wars hadn't made.

 

MShellC
IQ Crew
Wednesday January 13, 2010 3:05:08 PM

I agree, I have a hard time working up a tear over this, just like I did for the music industry.  I mean, the simple solution would be to lower the prices of your products to battle the pirated products because in the long run people would choose the actual item over the pirated item.  Why?  Because you get more, but instead it seems as though both industries are stubborn and expecting sympathy.  Sorry, I can't give any.  Honestly, everything that I own is legitimate.  I don't purchase pirated materials at all, but I can understand why others do.  Since they aren't going to give those who produce pirated products, why not give them a rum for their money?  Practice good business sense.  *shrugs*  Isn't that how business survive?

Or am I just talking gibberish here?

Michael P. Kassner
Thinkernetter
Wednesday January 13, 2010 10:40:11 AM

While watching Avatar, I realized something. The movie/theater industry has a window of opportunity here for a few years. I think they realize that 3-D is their ticket, at least until we all have 3-D televisions.

It will be interesting to see if and how they leverage that.

robjvargas
IQ Crew
Wednesday January 13, 2010 9:31:10 AM

BUT, that title has corollaries that the industry side of the equation has never, in my opinion, been able to acknowledge or to accept.

It's your work, music/video/entertainment industry, but it's the consumer's money.  You don't have a right to it.  You have to EARN it.  The $10billion+ that the movie industry earned in thaters, it EARNED.  Learn from that.

The music industry hasn't figured this out, and I fear that TOO much concentration upon preventing piracy will cause the movie industry to do likewise.

We as consumers have an obligation to respect copyright.  Artists and studios and even big, evil conglomerates have a right to profit from their own hard work.

But those same artists and studios and big, evil conglomerates need to remember that the money we're paying isn't theirs by right.  And treating customers like criminals with the silly DRM schemes they've implemented (and that I suspect are trying to be codified into ACTA), that's NO way to earn that money.

Chris Poley
Thinkernetter
Wednesday January 13, 2010 7:58:40 AM

Boo hoo Hollywood....deal with it.  And boy are they ever, pushing off their costs on the consumer in the tune of $12.50 a ticket.  Tough to cry about record ticket sales of ($10B) as the largest movie watching sector is mired in the worst recession in 80 years.

 Is the entertainment industry the only ones suffering from piracy?...I think they just cry the loudest.  Blaming the Internet seems to be just an opportunity to push unrealized revenues off on the consumer.

 This is a decade old phenomenon; what about all the products pirated for multiple decades, the handbag industry lose $20 billion annually, companies like Gucci, Coach, Louis Vuitton and Prada to name a few.  Or the sunglasses industry, where $18 billion yearly is forfeited to piracy with knock-offs of Juicy Couture, Oakley,  Bolle’, Versace  and Ray-Ban to name a few more.

 7% of the world trade is counterfeit merchandise accounting for $350 billion in lost revenues.

  So yeah, $4 billion is a boat load of lost revenue for the movie industry but maybe if they brought down the ticket prices, people may be more inclined to either go to the theaters or rent DVD’s rather than pirate them due to sheer economics.

 

 

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