Why the Studios Need to Get Serious About Online Movies Before it’s Too Late

Monday, April 27, 2009

On Friday I got the news that Caachi is closing at the end of this month.  The same day I read a report that Joost may be seeking a buyer.

Last year, five commercial online movie sites shut down : Wal-Mart, Morgan Freeman’s Clickstar, Starz Entertainment’s Vongo, BitTorrent’s (legit) Entertainment Network, and Movielink (sold to Blockbuster in 2007). A sixth, CinemaNow, was acquired by Sonic Solutions for $3 million dollars, after nine years in business (but is still open).

Why are people having so much difficulty making money with movies on the Internet?   

The obvious answer is that you can get movies online without paying for them.  But iTunes has proven that people will pay for music. There are a lot more people who would happily pay for movies, if we would only give them a product that they like.

But we don’t.  The MPAA spends most of its energy trying to stop people from stealing and not nearly enough to give them something they want to buy.  What we offer is a store that’s more about hidden cameras, anti-theft tags and detectives than it is about putting appealing stuff on the shelves. This would always be a lousy way to run a business, but it’s particularly ineffective when stores all over town have free products that are superior in many ways.

And this is the reason the five sites listed above have gone under.  

So why does the MPAA put “anti-piracy” first and consumers second?

The studios can’t get serious about online video because they aren’t sure they want it. Or at least not yet.  They have an existing model that works.  They move their movies through the various windows—theatrical, broadcast TV, cable, DVD, whatever, and they put online video into that existing system.  They can’t just tear up something that has been put in place over a long period and is extremely profitable—and  gamble on a business that brings in a fraction of what they’re earning now. Every step towards online video will be seen by the other media formats as a step away from their share. 

So an online alternative to file-sharing will definitely happen….someday.  Let’s not rock the boat.

On the other hand, the biggest profit center for the film industry is DVDs, and income from rentals and sales is plunging. Is this, as the MPAA says, all due to file-sharing?  Movies are available all over the world on the Internet as soon (or even before) they are released theatrically, and yet American box office is “off to a roaring start” in 2009 and “surging internationally, pushing past 28 billion for the first time ever,” according to MPAA Chairman Dan Glickman. (ShoWest, 3/31/09)  So…the films are available everywhere free and we have record profits theatrically?   It’s not a paradox—watching video at home is a different experience than going to a theatre and file-sharing cuts into the home-centered modes of watching movies.  We are in hard times and “free” is a price that fits neatly into any budget, but challenging periods like this also sharpen our desire to forget our troubles with a communal experience like going to the movies or a ball game.

The MPAA is repeating the mistakes of the record industry by blindly saying that file-sharing is the only reason DVD revenues are down. It’s more complicated than that, as the rising theatrical grosses indicate.  But file-sharers who claim that free movies on the web have no impact on DVDs are simply wrong. File-sharing is the most important reason why DVD sales are down.

All attempts to stem the growth of file-sharing have been an embarrassing mega-colossal failure.   In May of last year, the Torrent site The Pirate Bay had 12 million users;  by November they had 25 million users.  And the Pirate Bay is just one of many Torrent sites, including Mininova, which has over one million Torrent files on its servers. (Still,  no worries about the Pirate Bay,the operators have been given jail terms—except the site is still open and the judgment is currently in dispute.)

Will file-sharing get even more out of control in 2009?  Will DVD profits decline even more precipitously?  How will this impact the health—or even the survival—of the film industry?

I don’t think there is a way to compete with free movies on the Internet except with a paid product that is better.  

What do you think?