The Future is Free (long)

(If this post is too long, there’s a much shorter version.)

 

    Most people say that good blog posts should be around 300 words. But, there’s just too much good information to share with this and it’s not going to be that short. You might find it interesting because I’m trying something I’m pretty sure has never been tried… at least, not the way I’m doing it.

•          •          •

    There’s some major shifts going on in Hollywood right now because file sharing is the norm, and it’s only going to grow. The reason is, however good a product is, it’s impossible to compete with the same product when it’s free. People will always choose free. Free also solves the problem of art being something only rich people can enjoy.

    It started with music programs like Napster and, as of the writing of this, has progressed to programs like Popcorn Time (it’s like Netflix, but with a better selection, and without the subscription fee). Popcorn time is illegal in just about every country in the world, and it’s spreading without any sign of slowing down.

•          •          •

    I’ve been having a lot of discussions over the last few months with the Pirate parties, the file sharing people, the hacking community, and fans of ALGORITHM around the world. Those conversations have led me to believe that a new distribution model is needed. 

    The new model has to do all of the following: 1. Make a good movie; 2. Make it easy to buy;  3. It must be available everywhere in the world at the same time; 4. It must be viewable on every device: TV, computer, mobile, tablet, etc.; 5. It must be affordable (read: as close to free as possible).

    I’m going to break down each point because it’s important to understand why each point is critical to the new model.

    1. A good movie can be anything. And, I mean anything, as long as there are people in the world who want to see it. The more specific it is, the smaller the audience usually becomes. The more general, the less potent the movie, the more it’s in the “mere entertainment” category, the more people will watch it, enjoy it, and probably forget it.

    The great thing about this is that it allows artists to make any kind of movie they want, within the constraints of what their story will economically sustain. If it’s a movie that can only be enjoyed and understood just after smoking pot, but while holding your breath, that’s gonna be a pretty niche group, and a short movie. Maybe a bunch of experimental stoners will like it. Maybe 100 people, maybe more. Assume that you’ll make at most $3/view. That’s $300. So making of the movie must cost less than $300. Otherwise the creators are just pouring money into the garbage.

    Hollywood studios pours $100 Million or more into a movie, plus another $70 million into promotion and advertising. Because they’re usually a subsidiary of a publicly traded company, that movie must make money. So, it must appeal to enough people who will pay to see it.

    2. Points 2 and 3 are very related. Something that’s not everywhere in the world isn’t easy to buy. Something that is hard to buy isn’t accessible by everyone in the world.

    Hollywood takes this a step further in the wrong direction by participating in something called “Windowing”. They divide the world into regions and each region is given a time period for the release of the movie, called a window. That’s why, if you’re living in the U.S. and you buy a European DVD, it won’t work in your player. They are encoded to play only on DVD players sold in a specific region. This is called region encoding

    Those regions are further divided into the various platforms that the movie could be experienced. The first is theatrical. Many Hollywood distribution models view a theatrical release as advertising for the various other platforms because, at the budgets they spend, it’s really hard to make their money back on only theatrical.

    After theatrical release, comes DVDs and Blu-rays. Again, region encoded. Next is VOD (Video On Demand). This is pay-per-view on the various cable and satellite providers. After that, iTunes, Amazon, and Hulu. Finally, there’s the library movies, or Netflix. Netflix is the last stop for studio movies because after it’s on Netflix, no one watches it anywhere else.

    4. For a movie to be viewable on every device means that it’s either streamed through a service like Netflix, or its encoded to play on the many different sized screens, from 1080p of an HD TV, to the strange and varied aspect rations of the mobile world. It’s not any easy thing to do, not for the studios. It’s nearly impossible to do for an independent.

    5. This affordability question comes back down to the size of the audience. If the audience is small, and the movie cost a lot to make, the price has to go up to equalize. Gimmicks are often used here (think Avatar being in 3D) to raise the price. 

    Another idea that’s gaining traction to price raising is bundling the movie with something that’s in more demand than the movie itself. This can be a trinket like the flying car in the 30th anniversary edition of BladeRunner. Or, it can be a signed DVD or Blu-ray in the case of The Frame. The idea is that the car or the signature changes the value of the package.

•          •          •

    The great thing about technology, and the Internet, is that it’s given many of the tools that used to be prohibitively expensive, it’s made those tools affordable and accessible to people like me who can’t bankroll a major movie. This includes distribution too. 

    Naturally, Hollywood is trying to limit that, or at least limit the exposure of the much smaller budget movies because it infringes on their business. It’s not a war they’re going to win. There are simply too many people who love the freedom they get when they can express their ideas without a studio executive telling them their movie doesn’t reach a large enough audience.

    Another attempt the studios make is to buy the creative people off, eliminating the competition by owning the competition. This has enormous cultural implications.

    The democratizing nature of technology poses a threat to all established businesses, and the infrastructure that holds them up. File sharing is a direct attack on the digital distribution arm of that infrastructure.

    File sharing has made such a dent in Hollywood that the studios have had to totally change their business model, from relying on DVD sales (DVD sales pretty much don’t exist anymore) to prop up the failing theatrical model, to constantly increasing the price of a ticket to the theaters, to firmer and firmer windowing models. 

    The fact is that the studios are legally required to respond because of laws like due diligence. They are required to make a profit, by law. There is no functioning model and they’re basically scrambling, trying everything they can to find a model that works.

    When all of those other techniques fail, because they don’t fundamentally address the desires of the audience, which are the five points I mentioned above, the studios default to their legal arm the MPAA (Motion Picture Association of America). That’s the group that got started by creating the ratings system, but has since morphed into something far more powerful.

    The MPAA is responsible for helping to determine region encoding. The MPAA is headquartered in Washington D.C. because it is also the political lobbying arm of the movie studios. They attempted to pass laws like SOPA (Stop Online Piracy Act) and when that was shot down, attempted to create far more intense, and often secret, trade agreements with the various countries of the world.

    The MPAA does a lot of well-intentioned but socially and technologically ignorant things as to make them a danger to society and the future at large. They have essentially become a tax on independent movies, if those movies want to have a theatrical release. Most theater chains won’t release a movie if it doesn’t have an MPAA rating. Most major retail stores, like Target, Walmart, etc. won’t sell DVDs that don’t have an MPAA rating. And, the MPAA charges for those ratings. In the case of ALGORITHM, it would cost more to get an MPAA rating than it cost to make the movie.

    As if that tax wasn’t enough, the MPAA is radically inconsistent with their rating system. Somethings get a PG-13 rating, while a different, more independent movie with essentially the same content would get an R rating. That rating radically changes the size of the audience who will pay to see the movie. It makes a big difference.

•          •          •

    Another major subset of the Hollywood machine is the Academy of Motion Picture Arts and Sciences. You know this group for their annual awards, the Academy Awards, or the Oscars. To win an Academy Award makes a big difference in the way people see a movie. It adds a level of credibility. It says, of all the movies that were put out this year, this is the best because of cinematography, acting, directing, script, etc.

    There are several problems with the Academy Awards system, but they both come down to money.

    Because Hollywood buys the most talented people by paying them the most, in order to have the most talented people in an independent project, you have to work with the Hollywood unions. In the cast of ALGORITHM, I wanted the best actors, which meant I had to work with SAG (the Screen Actors Guild). 

    Make no mistake, SAG, like most Hollywood unions, is run by the mafia, and it’s run like a typical mafia organization. They have large men, enforcers, who will visit a set to make sure it’s run according to SAG regulations. This happened to a friend of mine. They showed up, were threatening and had to be dealt with in a way that appeased them. My friend said they were big and scary.

    However, SAG is one of the few groups in Hollywood that tends towards the new model. They still have the expensive contracts. But, they also have the New Media Agreement. The NMA allows independent producers like myself to work with SAG actors without the standard big-money required by the rest of Hollywood.

    The SAG NMA states that the movie must premiere online, which is fine because that’s the future of distribution anyway. The problem is, the Oscars state that to be eligible for an award, the movie must premiere and screen for a week in theaters in both Los Angeles and New York. That movie must also have industry-standard level advertising. In other words, it costs about $35,000 per city, or $70,000 to qualify for submission. If the movie premieres online, it is automatically excluded.

    But, the Academy gets much worse than that. 

    Once a project is submitted there’s campaigning for a movie. It’s a series of screenings and parties for Academy voters. And, those voters have very high entertainment standards. No Charles Shaw allowed. These campaigns can cost up to $70 million, and often keep movies that have won Oscars in the red. That means, the movie still loses money, even after winning one or more Oscars.

    To say that those “entry fees” are unattainable to independents like me is an understatement.

•          •          •

    And then there’s distribution. The current method of distribution is corrupt. Even insiders like Tim League, the Founder/CEO of Alamo Draft House admits that they are greedy and not to be trusted. Most independent movies fight hard to get the attention of a distributor because that’s the model that everyone believes in. Once the miracle of getting a distributor interested in a movie happened, the distributor offer an advance to lure in the producers. That advance is often the only money the producers will ever see. 

    Hollywood is famous for not making profits on movies. It’s considered standard operating procedure. It’s a lie, and it’s stealing. But, should the producers take the distributor to court, what usually happens is the distributor has more money and will bankrupt the producers. The second common tactic is that the distributor will itself declare bankruptcy and sell off it’s assets to another company, owned by the same people, so the producers have no one to sue.

•          •          •

    Hollywood is broken, from the basic way its run to the way it interacts with the audience. This is an interesting problem and forces the question, can movies continue to exist in a sustainable way. Again, in that same speech, Tim League said that anyone who says they know what the Hollywood landscape will be like in 5 years is lying.

    As an independent creator, I have to ask that question. I have to think about it and see if there is a viable model. My livelihood depends on it, as does my creative future.

    There are several models that are being attempted right now. Joshua Caldwell made a movie called Layover, which he claims only cost $6,000. He has put his movie up on Vimeo Pay-per-view (read: VOD), and also on another new, smaller and more independent site called Seed & Spark

    But, Caldwell’s pricing model doesn’t include sweat equity. It can’t. The time it takes to do things, the money it takes to pay crew? The only way that model is affordable is to have everything done based on exposure or from favors. I know this because I did it with ALGORITHM. ALGORITHM cost me just under $8k and no one got paid. For fun, I ran the budget of what it would have cost paying union minimums for every job. The legit budget was $700k. And, even that is a barely sustainable living wage for everyone.

    I have to believe Caldwell knows this because his next movie Assassin has a public budget of $26k. What he’s doing is slowly building his fan-base and increasing his budget proportionately. This makes sense. It’s a good model. It doesn’t satisfy the 5 points mentioned above, but I’ll get to that.

    The next model is being tried by Double Edge Films. They are among the best independent filmmakers around. Jamin Winans pushes every edge with his projects. And he does it well. So, point 1 is certainly met.

    He bundles is DVDs with various other things, increasing their marketability. It’s not possible to buy a DVD or Blu-Ray of The Frame, his latest movie, off his site without getting a signature. As such, the Blu-Rays cost $19.99. There are other packages. I don’t care about the gimmicks. I’m going to be buying a copy of The Frame because I want to support good art and Winans makes good art.

    However, in an interview, Winans admits that his model is barely sustainable. He makes enough to keep making movies, but that’s it. It’s unclear whether that’s enough to pay rent/food/clothes/etc.

    In that same interview Winans talks about one of the corrupt distributors he worked with who failed to get him any money for his amazing movie Ink.

    The third model I want to talk about is that of the benefactor. The argument is that plays, like on Broadway, don’t make money. The investors know this going in. But, they invest anyway, for the prestige of putting on a Broadway show, or the belief that art makes the world better. Some just do it for tax purposes.

    But, whatever the reason, that benefactor model is based on the idea that movies aren’t worth enough for the public to pay money to experience.

•          •          •

    For the above reasons, I have a natural distaste for all things Hollywood. I hate lying, I hate stealing and cruelty and elitism. Hollywood does all of those things. However, the above alternatives, other than Winan’s, don’t sit well with me either. They don’t scale very well. That leaves me asking, what’s the next model?

    This is going to come as a bit of a shocker to most people in Hollywood. It was a revelation to me when I finally ran the numbers. But, it’s too elegant not to try. Youtube. More specifically, ad supported Youtube. That’s what we’re doing with ALGORITHM on Sunday December 7th, 2014, at 12:01am (Pacific). It satisfies every single one of the 5 requirements and takes the price away as a deciding factor, while still paying content creators.

    There are quite a few people who make a living by putting content up on Youtube, paid for by ads. These ads can either be through Google directly, or they can be product placement. The fact that the model works isn’t the argument. It works spectacularly for what I call short-form content. The question is, will it work for longer movies?

    In order to understand if the Youtube model will work, it’s important to understand how the standard model works. Here are some real numbers:

    I texted my brother James. James owns an advertising agency. I asked James how much TV networks get paid for advertising. The way they measure payment is by cost per thousand, CPM, or, $/1k. The networks generally get $10/1k views. That means, a show like Mad Men, which gets about 5.7million viewers per week gets $10 x 5,700, or $57,000. Now, keep in mind, that’s not per episode, that’s per 30 second commercial. 

    A typical 30 minute show will have 22 minutes of actual show, leaving 8 minutes of commercials. Mad Men is an hour long, so just double that to 16 minutes. That’s $57k x 32, or $1,824,000 per episode.

    That money gets divided a lot of different ways. But, ultimately, it does go to the show, and all the executives, all the ad men, the actors, the crew, the cast, the various writers, and the general costs of production.

    Now, to Youtube:

    Here’s where things get a little weird: Youtube charges $1 for a video ad to play before legit content, per complete play. When someone clicks to skip it after the first five seconds, there’s either no charge, or a much lower charge. The video ad will play every single time the video is played for a unique IP address, or a unique user. If you watch a video over and over, generally, the ad won’t keep repeating. Sometimes it will, but mostly not.

    Now, for a bit of guess-work. Let’s assume that 99% of people skip the ad. From my own experience, and from everyone I talk to, that’s a reasonable number. That means that 1% of the views, or 10/1k pay. So, for every 1k views some legitimate content gets (lets say I post ALGORITHM, then ALGORITHM would be legit content), it would be making $10. Which, is exactly what the networks would be making. 

    However, the bulk of the digital work is being done by Youtube. It’s easy to discount the amount of work Youtube does. Don’t. However hard making a movie is, hosting video content for the entire world is more work, a lot more!. I’m not sure it’s 80% of the work, but it’s most.

    Youtube will generally pay content creators $2/1k views. That seems like a really low number, and it is. In other words, if ALGORITHM gets seen 1 million times, I get $2k, per ad. The numbers actually begin to make sense.

    But, here’s the real secret: AMC gets 5.7 million views per Mad Men episode because they are limited to cable distributors. Youtube has no such limitations. Remember, it satisfies every single one of the 5 criteria (assuming I’ve made a good movie, which is point 1). It’s on every device, everywhere on the planet, at the same time. For free, or at the cost of 30 seconds, which most of the world can afford far more easily than $9 at the theater.

•          •          •

    No one knows if this model will work. It’s never really been tried. Hollywood can’t do it because they have a business model and legal obligations. There’s just too much risk, and it would set a very dangerous-for-them precedent if it did work. But I have no such obligations. I have no investors. Everyone who worked on ALGORITHM is more interested in exposure than they are in ALGORITHM making money. They’ve all told me that. And ALGORITHM’s already gotten way more exposure than any other project they’ve done.

    Now, it’s about experimenting. It’s about pioneering, to see if I can make a sustainable model for the future of movie making… or at least my future in it.  That experiment starts on December 7, 2014 at 12:01am Pacific time: at www.thehackermovie.com.