Tuesday, January 1, 2008

From Rights Management to Rights Manipulation

In a perfect example of old-school economics gone South, the AMPTP( Alliance of Motion Picture and Television Producers enters its 9th week with its writers(represented by the WGA...Writers' Guild of America).

Two key issues at hand:

1) The writers were promised a percentage(0.36%) of gross sales per home video unit sold in 1988. Those days, home video came to us on Betamax tapes, and retailed between $40-$100 per tape.
Now that movies go out on DVDs and VHS tapes(retailing between oh....say...$8 and $20 per unit), the writers feel a little screwed that they're still getting 0.36%.

WGA claim: double that amount. From 4 cents per unit sold, to 8 cents per unit sold.
AMPTP claims: production and distribution costs are rising.

2) The 'new media' issue is looming over as the larger one, of course.

WGA claim:

  • For paid content, whether streamed or downloaded 1.2% of each sale
  • For content that is free to the viewer, but is ad supported:
      • 2% for post 1984 content
      • 2.5% for pre-1984 content
AMPTP claim:
  • For paid content: 0.3% of sale(just like home video..)
  • For content that is free to the viewer, but is ad supported: $0.00

OK. Those are the facts.

I can't say much about the 4 cent to 8 cent increase request for DVD sales(because it'd involve digging up some numbers that are going to be useless in a few years from now), except that we're talking about an impact of less than 1% in earnings per share for media companies, according to Bear Stearns.
And if that small a margin makes 12,000 workers that drive a key American industry get back to work, then Hollywood should be embarrassed about not stepping up and pushing the AMPTP to back off on that front.

But I don't think this is about DVD. In fact, I saw a list of about 25 proposals from the WGA and I think the only one that's obviously under everyone's radar is the 'new media' proposal.

For the next 3-5 years, it's very hard to imagine content sales driving Internet video revenues.
Broadband needs to enter more households, pricing models need to be worked out to address the fact that it's cheaper(in the long run) to offer content on the Internet than it is to distribute via DVDs, and most importantly, I just don't see a lot of people paying $3.99 to watch 500 Kbps video streams(hint..they're shit) on their 17 inch LCD monitors, when they could be paying exactly the same for a high quality DVD (which they've downloaded off some file sharing network, borrowed from a friend, or rented at Blockbuster).
And before the "convenience of the Internet" argument comes up, remember that there are people like me who wait a good 6-9 months for a movie to come out on HBO and even pay $4.99(a whole dollar more) for the convenience of my Home Box Office.

Ahem...I also hear that "Jackass-The movie" goes for $9.99 on iTunes and it's a 983 MB download-to-own. Which sucks because I might pay $3.99 to rent it but will never pay $9.99 to buy it(not unless I've seen it already and really love it...especially unlikely in this case because I can't stand Whatshisname Knoxville)

Anyway...two words. Ad sales. Ads sell. Let's not forget that this is premium, top of the line content we're talking about. This is the stuff that runs Hollywood- the most profitable movie industry in the world. So my bet would be that if advertisers are paying $60 per 1000 views on VideoEgg for relatively crappier content, then they'd pay a lot more for this stuff.
And we know 'this stuff' sells, so it'd be fair to say that we'd see a fair bit of downloads/streaming if it was made free.

I bet you anything that the AMPTP has this all figured out. And it's really not about setting a precedent for collecting bargaining....no, sir. I think Bear Stearns has the 1% estimation wrong. Ad revenues will form a major chunk of Hollywoods overall revenue pie in the years to come. Marketing drove mass markets....ads will drive the micro-markets.

My recommendation to the WGA: take the 0.3%(not 1.2%) of gross sales from content, and ask for a 1.5% of net revenue from streaming/downloads AFTER costs of content delivery(hosting/streaming) has been accounted for.

Why? Two reasons:
  • This isn't a market of diminishing returns...it's a market of cumulative returns, and you will realize your effective revenues over time.
  • Don't repeat the home video mistake. Costs of production, especially in the digital world, decline very rapidly. So ask for a smaller percentage, but also ask for visibility in edge delivery costs.
Basically, don't count on the valuation of content. It might tend to zero. It just might.

Focus on the real $$$$$ value that everyone talks about(and pays very good money for) in the Internet world: eyeballs.

Good luck.