Rates of Change: Online Distribution as Disruptive Technology in the Film Industry

Transcription

1 Rates of Change paper 4-09 Page 1 of 13 Abstract Rates of Change: Online Distribution as Disruptive Technology in the Film Industry Stuart Cunningham, Jon Silver and John McDonnell Queensland University of Technology This paper looks at an aspect of the challenges to business models that have served established media industries like music, film, television, for decades: the eruption of digital distribution into the film industry in recent years. Much debate in film, media and communication studies about industry structure and change is based on exaggerated oppositionalism: overly enthusiastic optimism versus determined pessimism over the potential of new technologies; assertions of fundamental crisis in the strategies of the cultural industries versus re-assertions of the utter predictability that hegemonic capital will always already triumph. This is a depressing predicament and inhibits the discipline s claims to provide rigorous insight into industry change which is, after all, continuous. It is based on deep-seated values which often results in glass-half-empty/glass-half-full debates which manage the challenging complexity of universes of data by dividing them into selective portions that confirm previously established positions. Instead of having to decide one way or the other, we need to ask: how do we study the process of change? This paper will look to address the question of the rate of change? As an indicator of change and possible innovation, are there genuinely new players disrupting the established oligopoly and, if so, with what effect? Third, is there evidence of disruption to, and innovation in, business models? Has there been cultural change as, again, evidence of innovation? Finally, outside mainstream Hollywood, where are the new opportunities and the new players? The empirical data on which the paper is based comes from a database of 200+ websites which offer digital distribution of film (and other screen) content. At a preliminary stage of analysis, these sites have been classified according to the following criteria: Year founded Main Type of content Business Model Internet Traffic Rank # Daily reach peak as % / Internet Available success metrics Website User profile (countries of origin) Hotlink & speed rating Company HQ The paper will analyse these businesses and enterprises in the context of the historical structure and modus operandi of the film distribution industry, one of the most stable and profitable sectors over the long duree of the twentieth century.

2 Rates of Change paper 4-09 Page 2 of 13 Rates of Change: Online Distribution as Disruptive Technology in the Film Industry In February this year Variety reported that 2008 was a tipping point: London research firm Strategy Analytics claimed global revenues from digital media exceeded revenue generated by movie theatres and home video combined. This is a very bold claim indeed and is almost certainly wrong, depending on how you want to define digital media and thereby compare like with like. But the claim is dramatic: there is no more central issue in media and communications today than the proposition that we are in the middle of a rapid process of change which is seeing established or old media being challenged for primacy in audiences and users attention by new modes and types of production, dissemination and display. Reworking the famous communications dictum of Harold Lasswell as what s going on, why, by who, where and with what effect is what preoccupies us all today. The problem is that most debate in media and communication studies, and in critical humanities and social sciences generally, about industry structure and change is based on an exaggerated opposition between enthusiastic optimism versus determined scepticism or pessimism over the potential of new technologies like the Internet and web 2.0. There are assertions of fundamental crisis in the strategies of the media and communications industries versus counter assertions of plus ca change, plus la meme chose, that is, the utter predictability that hegemonic capital will always triumph. This is a depressing predicament and inhibits the discipline s claims to providing rigorous insight into industry change which is, after all, continuous. It is based on deep-seated values which often results in glass-half-empty/glass-half-full debates which manage the challenging complexity of universes of data by dividing them into selective portions that confirm previously established positions. At the industry coalface, the reality is much more confused and complex. The long term decline in newspaper circulation is seemingly irreversible. But, for example in Australia, the fact is that The Australian and the Australian Financial Review have managed to grow their circulations while all other major papers have declined significantly. This reminds us that a business model based on hard news targeted at specific, upmarket, demographics can work even in the straightened circumstances of the print media. There is surely no doubt that the exponential growth of the blogosphere and of amateur or citizen journalism can be argued to be a democratising trend, but the equally dramatic loss of employment prospects in public trust, or fourth estate journalism has as much potential for creating a democratic deficit through the loss of experienced journalists from the public sphere. The music industry has been turned upside down by the ease of which peers can download and share their favourite playlist. A major new player has come into the music distribution industry Apple itunes with a legal downloads business model, but it remains the case that this still represents a minority of the total download and

3 Rates of Change paper 4-09 Page 3 of 13 sharing activity via the net. But it took a computer company (albeit with a remarkable record of innovation) to develop this model. Meanwhile, the recording industry remains bitterly divided about the legalities of digital consumption, with the majors continuing to claim ongoing devastation while other evidence points to judicious use of the net as a promotional medium benefiting many music entrepreneurs. Film and television is now beginning to be significantly affected by digital distribution models after several years of defensive reaction as well as aggressive litigation against illegal downloading and the large aggregators such as Google (targeting its subsidiary YouTube). The majors are now seeing some success with their own digital distribution offshoot, Hulu (although this service is not available in outside the US at this stage). Seeing evidence of widespread illegal downloading (using platforms such as BitTorrent), numerous digital distribution initiatives are crowding into this opportunity space. The turbulence surrounding the emerging digital market place in film and television gave rise to the largest strike (in ) by the Writers Guild in Hollywood for 20 years. The fact is that change is continuous, but are we both witnesses to and participants in the largest, most fundamental transformation in the history of the media since the advent of typeface, the moving image, and terrestrial broadcast transmission (Levin 2009, p. 258) or is the evidence for the supplanting of old by new sparse and thin (Miller 2009) and ignores the way the new is folded into the old, adding to rather than killing it off? Instead of having to decide one way or the other, we need to ask: how do we study the process of change? This paper will look to address the question of the rate of change? As an indicator of change and possible innovation, are there genuinely new players disrupting the established oligopoly and, if so, with what effect? Third, is there evidence of disruption to, and innovation in, business models? Has there been cultural change as, again, evidence of innovation? Finally, outside mainstream Hollywood, where are the new opportunities and the new players? Using digital distribution in the film industry as a case in point, this is what I want to outline. The object of study Film was chosen as the focus of this work it has been the most stable of the main media content industries over the long term and relatively speaking the least affected to date in terms of digital technology undermining the market power of the major corporations that dominate the industry. A word first about terminology. VOD video on demand is used broadly in the industry but it could potentially include an analogue form of delivery such as Netflix sending the DVD in the mail based on online demand. Digital distribution could include distribution to digitally-enable cinemas. Online distribution (OLD) seems the best term to describe the following object of study.

4 Rates of Change paper 4-09 Page 4 of 13 We have studied 220+ websites of digital distribution enterprises focusing on sites that offer film distribution or film with other screen content and technology or software that facilitated content delivery. This corpus included both legal and illegal websites and a small number of websites that are now defunct. Content across the total sample of 220+ sites ranged from sites offering professional movies on demand (both Hollywood and independent films); to world cinema content aggregators; to sites offering user generated content in short and/or long form; social networking sites providing user uploaded video content and some with original web series; manufacturers of media players, set top boxes linking Internet movie delivery to television sets and games consoles that offer video on demand including movies; and finally video on demand portals on video search engines. All of this corpus, and the dynamics which gave rise to it, is subtended dramatically by video piracy, but I will only touch on this as a driver of change in the distribution itself. The question of video piracy is worth much more than a paper in its own right! History of online distribution Table 1 Timeline of key events distribution of films + TV content online Year Milestone 1994 First VOD trials (via cable) in New York offer Paramount and New Line movies, home shopping and sports PPV I-Film.com launched online offering short films and movie trailers Netflix offers an online movie rental service delivering DVDs to the home 1998 Atom Films launched online with short films and animated films 1999 CinemaNow launched first commercial online movie download service 2000 Steven Spielberg + partners launch $50 million Pop.com it fails within one year 2002 CinemaNow first VOD website to offer Major Hollywood studio content 5 Major Hollywood studios joint-venture to launch Movielink as an online VOD service Disney launches Moviebeam VOD service delivering movies via a set top box 2003 Ex-Disney chairman Michael Eisner founds VEOH.com 2004 CinemaNow first major VOD site to sell movies as download-to-own 2005 I-Film acquired by MTV Networks 2006 Apple I-Tunes begins offering movies & TV shows as downloads to rent or buy Disney s ABC.com first to offer free TV programming online Amazon.com launches VOD service Amazon Unbox Atom Films acquired by MTV networks Movielink is sold to Blockbuster for under US $ 6.6 million Apple I-Tunes releases Ed Burn s movie Purple Violet as first direct-to-vod release Disney sells Moviebeam for $10 million Joost launched as free online TV service also offers movies Forrester Research report declares the paid video download market is dead the future of the online video market is advertising supported free streaming. Online DVD rental store Netflix introduces Watch Instantly streaming movies online BBC I-Player catch-up VOD service launched gains rapid popularity 2008 Nielsen Survey in 2007 reveals movie content streaming accounts for only 1% of all online streaming activity Hulu established as a joint venture between NBC-Universal and Fox and within 10 months becomes #6 online video website using an advertising supported free content model achieves 12 million monthly users and 145 million video streams in Sept 2008 BBC I-Player million videos accessed online during first year vs ITV s 80 million streams annually November: Apple I-Tunes sells 50,000 movie downloads per day worldwide

5 Rates of Change paper 4-09 Page 5 of 13 CinemaNow sold for only $ 3 million November: You Tube adds old MGM movies to begin migration from short form video to long form content and also adds High Definition widescreen Online video-on-demand first emerged in 1997 but a decade later remains a relatively small but rapidly growing market we estimate (for the US/Canada only) at about US $1.9 billion compared to theatrical (US$10 billion) and home video (US$20 billion). Table 1 provides a timeline of key developments since the first online films became available for download and shows that the pioneers - I-Film, Atom Films, Pop.com and CinemaNow - either failed or were absorbed by larger companies after failing to establish sustainable business models. The second wave of expected market leaders emerged in 2001 with the backing of six of Hollywood s Majors Movielink and Moviebeam. However both websites were sold in 2006 after failing to establish themselves as dominant players. A third wave is now building led by Apple I-Tunes which rapidly emerged as the leading movie download site, Amazon, Veoh, Hulu, Netflix and Blockbuster (which acquired Movielink) and some others. Our research indicates that 2008 may have become a consolidation point in terms of shaping the digital distribution future of the industry as a limited number of workable business models gathered momentum. It witnessed the rapid emergence of Hulu as the preferred Hollywood model for online distribution of film and TV after the Majors had appeared to throw in the towel and withdrew from an active attempt to control online distribution when five studios sold their joint venture company Movielink and Disney sold its digital distribution platform Moviebeam a few years earlier. Also in 2008, a significant deal was struck to transform almost 50% of America s movie theatres into digital screens over a (X) year period. The emergence of major disruptors Apple I-Tunes as the dominant force left standing in the video download sector after Movielink and the introduction of Amazon VOD (and its subsidiary createspace.com) as new kids on the block with a different take on the best business models to use for online distribution. As an example of significant change in release trajectories, Warner Brothers released The Dark Knight to Video-on-Demand (VOD) online and via cable TV two weeks prior to its release on DVD in South Korea. Faced with litigation from Hollywood for pirated content and perhaps the waning novelty factor of user generated content (UGC), You Tube, the Internet s #1 site for user generated VOD, introduced long form video content, high definition with 16:9 aspect ratio and did a deal with MGM to introduce old movies for VOD. a number of online content aggregators began to show signs that they were gathering critical mass; smaller content aggregators increasingly partnered with other channel providers to provide online distribution opportunities for independent filmmakers; Netflix provided VOD free to its large subscriber base; My Space introduced video for mobile phones (was it 2008?); social networking site Bebo continued to enjoy significant success with it low budget made-for-the-web teenage soap operas engaging its 40 million subscriber base and enabling producers to retain 100% of revenues generated. Sezmi the first true all-in-one digital distribution box capable of providing video content from any source was introduced.

6 Rates of Change paper 4-09 Page 6 of 13 The state of play today In 2009, the main players in this emergent market are: Apple I-Tunes: paid downloads to rent/buy (streaming may be coming soon), Sales Model Hulu (NBC-Universal/News Corp): free programming paid for by ads Veoh (former Disney Chairman Michael Eisner): free programming paid for by ads Amazon VOD rent/buy paid downloads Sales model (Amazon owns Create Space and Withoutabox) Blockbuster (absorbed Movielink) rent/buy sales model Netflix: free streaming to DVD subscribers pay per view premium service coming (subscription model, with sales model coming?) Followed by Fancast (owned bycomcast); Joost (created by Skype creators); Vuze, Guba (Time Warner) and Crackle (Sony, which also owns Columbia, MGM-UA). Table 2: Top Ten websites Website Year Main type of content 1. AMAZON Amazon Unbox Amazon VOD 2. APPLE Apple I-Tunes 3. VEOH (Michael Eisner) Movies + TV on demand Computers Multi-platform distribution of Hollywood movies + TV + others 2003 Video Hosting Internet TV Business Model Rent/buy 29 n/a Sales Rent / buy downloads Ad supported Internet Traffic Ranking # daily 13/03/ ,158 Available success metrics 65 million monthly visitors to Amazon 249,491 other 143,805 other 50,000 movies downloads per day 4,158 other million visitors per month 16,618 other Website user profile (countries of origin) Data drawn from on 14/03/09 United States 61.9% India 4.4% United Kingdom 3.0% Germany 2.6% Canada 2.1% United States 37.2% Germany 7.8% Japan 7.1% United Kingdom 5.2% China 4.1% United States 69.1% Canada 3.5% United Kingdom 3.3% Russia 2.1% Japan 2.0% Japan 46.0% United States 19.3% Italy 4.7% South Korea 2.8% India 2.7% Location HQ Page download speed Speed: Very Slow (87% of sites are faster) Speed: Very Slow (86% of sites are faster), I-Tunes no data on speed of downloads available Speed: Very Slow (91% of sites are faster) 4. NETFLIX 1997 Online video store + WatchNow online cinema 5. HULU **Joint venture between NBC- Universal + Fox 6. BLOCK BUSTER (acquired Movielink, also distributed via 2008 Catch-up TV + movies Hollywood content 2004 DVD rentals online 2006 movies on demand also distributed via CinemaNow Subscription with free streaming Free movies + TV - Ad supported million subscribers 6,768 other million monthly streams 4,718 other Rent or buy 1,426 2,314 other United States 96.2% Other countries 3.8% United States 92.9% India 0.7% China 0.7% United Kingdom 0.7% Canada 0.6% United States 87.1% India 1.5% Canada 1.4% United Kingdom 1.2% Germany 0.7% Speed: Slow (62% of sites are faster), Speed: Slow (70% of sites are faster), Speed: Slow (74% of sites are faster),

7 Rates of Change paper 4-09 Page 7 of 13 CinemaNow) 7. FANCAST *** Comcast subsidiary 8. JOOST owned by Skype creators VOD since Movies + TV on demand Free movies + TV - Ad supported + downloads to rent/buy 2007 Internet TV Free movies + TV - Ad supported 1, other sites linkup 82% US users 3,695 4,950 other United States 86.4% United Kingdom 1.7% India 1.7% Canada 1.4% Pakistan 0.5% United States 53.9% United Kingdom 6.4% Germany 5.9% India 2.9% Canada 2.9% Speed: Slow (74% of sites are faster), Speed: Fast (69% of sites are slower), 9. VUZE 2006 HD platform Free with ads or rental 4,465 1,093 other United States 24.8% India 6.8% United Kingdom 5.9% Germany 5.8% Italy 4.0% Speed: Average (60% of sites are faster), 10. CRACKLE Owned by Sony 2008 All forms for multiplatform distribution _+ a gateway to other Sony products Free movies + TV - Ad supported ,252 other sites linkup United States 70.0% India 4.2% Germany 1.9% United Kingdom 1.9% Canada 1.5% Speed: Very Fast (95% of sites are slower) Table 2 carries various caveats which concern accuracy and sources of data. We have used Alexa.com which measures daily Internet traffic. This was done for one day 13 March For the top two sites Amazon and Apple itunes the usefulness of daily Internet traffic is problematic because it does not equate with paid downloads or with streaming activity. However, in the absence of hard data on advertising revenue on streaming sites and paid downloads, traffic volume gives some benchmark. The Amazon metrics are for the parent company, not for Amazon VOD itself (there are no separate metrics available). The metrics for Apple are for the parent company as well; itunes Alexa ranking is very low but that is because it does not capture download activity. One of the few pieces of hard data that we can rely on in this very turbulent sphere is itunes reported 50,000 downloads daily as of Why isn t YouTube included in the Top Ten sites? Clearly, it is the largest OLD/VOD site, but 97% of its content is UGC and its advertising revenue base is not linked to specific film streaming content so it is difficult to compare like with like in the battle for a commercial business model; although YouTube is also responding to the emergence of such business models, as we shall see. The most interesting players for independents are: Create Space and Withoutabox (both owned by Amazon); Jaman (world cinema online); EZTakes and i-arthouse (same owners focused on indie releases); Babelgum (web Tv platform focused on indie films + shorts); BSide (online indie content aggregator with supply deals to Amazon VOD, Netflix, Hulu and I-Tunes); IndieGoGo (online marketplace for indie production); Underground film (online indie film community); Indieflix (online indie distribution); Caachi (online self distribution platform); Dovetail.tv (online indie distribution platform); Heretic (may now be defunct online indie films on demand); Zoie Films (online film festival); etc

8 Rates of Change paper 4-09 Page 8 of 13 We will return to this. We now return to the analytical questions we posed at the start: what is the rate of change? As an indicator of change and possible innovation, are there genuinely new players disrupting the established oligopoly and, if so, with what effect? Third, is there evidence of disruption to, and innovation in, business models? Has there been cultural change as, again, evidence of innovation? Finally, outside mainstream Hollywood, where are the new opportunities and the new players? Rates of change: how rapid? The short answer to this is, compared to the impact of P2P on the music industry and the blogosphere and online classified advertising on newspapers, change in film has been slower and has had less disruptive influence, to this date. Rates of change in books and magazines have been arguably even slower than in film. These comparisons would seem to some extent logical given the nature of the content in each category. Key issues faced by OLD pioneers from 1997 to the mid 2000s were lack of a quality viewing experience because VOD requires high speed broadband which is only now beginning to diffuse and only in a few countries. 1 Combined with primitive video compression compared to today s standards, it meant that two hour movies took many hours or even days to download over a dial-up connection and very few websites offered a wide selection of box office hits. Most movies available as paid downloads online were at best only B movies, so product quality was perceived as poor. In addition, until large panel LCD screens for computers and large panel plasma and LCD TV diffused widely amongst the consumer base from the mid-2000s onwards, watching movies or TV shows on a small computer screen was not an optimal viewing experience. Consequently, there was a lack of consumer demand online for VOD movies and TV shows as paid downloads. Of course, downloading for free and pirated downloading was burgeoning throughout this period via reasonably efficient but also sophisticated platforms such as BitTorrent. The majors spent the best part of the last decade (a decade of experimentation and innovation) putting more energy into denial, threat and attempted litigation (and megaphone diplomacy directed at east Asia when most piracy digitally-enabled - is estimated to occur inside the US) while BitTorrentenabled downloading continued to create viable work-arounds of their business models and a parallel culture of consumption with its own innovation champions. But, as we have argued, there were strong indicators in 2008 to suggest that VOD is following how Baum & McGahan (2004) describe the classic four-stage industry lifecycle 1) fragmentation 2) shakeout 3) maturity and 4) decline. Developments in would indicate that VOD has now moved from the initial fragmentation 1 Even in 2008, high speed broadband is only widely diffused in a few countries in Asia and Scandinavia and generally, broadband in Europe, the and Australia is considered to be comparatively sub-standard.

9 Rates of Change paper 4-09 Page 9 of 13 stage of its lifecycle where industry structures are evolving, barriers to entry are low and new firms proliferate in search of customers, into the shakeout stage where market growth escalates, industry structures consolidate and dominant firms emerge through organic growth or via mergers and acquisitions. New players? Yes and no. Our best estimate based on sparse data is that I-Tunes dominates paid downloads and we believe that Amazon is primed to become a major player in an argument outlined below. Netflix and Blockbuster are online video stores that now offer streaming to customers and they can see the writing on the wall for real world DVD rentals so they are focused on making online work as their core business and have the resources and scale to remain leading players. Joost was established by the founders of Skype essentially as online TV that also offers some movies. The other three larger players among the top 10 are Veoh although movies look to be a small component of the site. This site was established by former Disney Chairman Michael Eisner a Hollywood insider. Crackle is owned by Sony and is intended as a gateway to other Sony products (Sony Pictures (Columbia, MGM-UA), Sony Music, Playstation 3, Sony Bravia TV etc) thus can also be considered inside the Hollywood tent. Hulu is the largest movie/tv program streaming site and is shaping up to be I-Tunes biggest competitor. Hulu is a joint-venture between NBC-Universal and Fox so it is also a Hollywood insider. Apple I-Tunes is a computer manufacturer but is now the dominant player in music, movie and TV downloads. Apple s preparedness to apply IT-innovation business principles (selling what the content industry calls premium content at pricepoints below the latter s acceptability threshold in order principally to sell devices - IPOD, I- PHONE, Apple TV set top box direct to TV at premium prices) probably tipped the Majors out of Movielink (downloads) and into Hulu (ad-supported streaming). Like all leading IT-innovation businesses (and perhaps the model for all of them), it is strategic marketing management- and customer-centred. Steve Jobs is the largest individual shareholder in Disney, sits on Disney board. Jobs has Hollywood-insider business intelligence. What does Apple do when streaming takes over? Crackle is owned by Sony. As an electronic whitegoods manufacturer, it has high visibility, and is a cultural icon as consumers first choice for quality and cool positioning. It is positioning itself for web-enabled television sets which may displace the Apple TV as the leader in this hardware segment. Amazon VOD is an Internet pure-play company. It is the biggest online retailer with an enormous range of titles, big brand equity, customer loyalty (with sophisticated customer engagement strategies: Amazon recommends, user reviews, wish lists etc) and unrivalled data mining expertise. After a decade developing know-how in online customer retention and engagement, revolutionising book distribution based on range,

10 Rates of Change paper 4-09 Page 10 of 13 price transparency and personalised 1:1 marketing, it is strategically primed. Importantly, as well, from the point of view of relations with Hollywood Majors, it is not Apple. The synergistic nexus of Amazon VOD, IMDB, CreateSpace and withoutabox will be discussed in the next section. Netflix offers a subscription model and, like Blockbuster, stands outside the Hollywood distribution mainstream but in an established, complementary position. Disruption to business models? Three categories of profitable business models have emerged. Our analysis was able to cluster each of the major commercial websites reviewed into one of three broad business model categories based on advertising, sales or subscriptions. Advertising supported sites that enable visitors to watch movies and TV programs free this is the commercial free-to-air TV model migrated to the Web (the most successful online site is Hulu); sales sites that offer e-customers the option of renting and / or buying individual movies or TV programs as paid downloads (Apple itunes is the leader among sales sites); subscription sites provide the opportunity for their subscribed customer base to rent or buy movies or TV programs typically this done on a payper-view basis; while others provide a value add-on in the form of free streaming movies or TV programs to their subscribers who pay a monthly fee to receive physical DVDs shipped to their home (e.g. Netflix). Three (and two partial cross-overs) of the top 10 employ rent/buy (Amazon, I-Tunes, Blockbuster) - Fancast and Vuze rent as well as show some free with ads. Blockbuster and Netflix are really virtual versions of a video store and so is Amazon. I-Tunes is similar but it is more like its music model because of its ultra-thin margins Apple is trying to sell devices and using movies and music as the attractive content loss-leader to get people to but IPods, ITouch, IPhones and Apple TVs. Netflix differs because until now it has let its large subscriber base that rent DVDs online and get them at home to access its online content via streaming free to subscribers. There is now some media speculation that Netflix will set up a premium service enabling anyone to stream a rental movie on a pay-per-view basis, not just their subscribers. Six of the top ten sites in our list do free movies with ads (Hulu, Veoh, Fancast, Joost, Vuze, Crackle). One of the top ten have free OLD to subscribers who rent DVDs (Netflix). As we have argued, I-Tunes and Hulu seem anecdotally to have had the most impact they lead in downloads and streams. The third wave market leaders in the online VOD sector - Hulu (free streaming with paid ads) and Apple itunes (paid downloads) have succeeded because their Hollywood content (movies and TV) has rapidly attracted a critical mass of customers now that the technology diffusion preconditions are being met. But there is a key differentiator and new element introduced by the forced entry of the IT-innovation model. Hulu is classically content-driven while i-tunes employs a device-led strategy i.e. consumers must own an i-pod, Apple TV, i-phone or other compatible media device to be able to access content at itunes. The rapid success of Apple itunes must be emphasised: since it began offering movies and TV shows as paid downloads in

11 Rates of Change paper 4-09 Page 11 of , it has dominated the paid-for online video download market and was selling 50,000 or movies globally daily in This a spectacular disruption and a great threat to standard business models because this is selling premium or near-topremium content at close to break-even with a view to profit from hardware device sales (ipod) (Screen Digest 2008). Meanwhile, Hollywood looks to have bet the farm on an ad-supported business model for VOD online with Hulu. The meteoric rise of Hulu in 2008 appears to have been a game-changer with powerful players within the US film and TV industries having clearly decided that the familiar content is king catchphrase still applies and that Hollywood can prevail in cyberspace. To that point, the Majors must have had a sense of deja vu. Apple was once again succeeding making money (despite widespread piracy) by offering a cheap price point for movie and TV downloads, just as it had done previously in the music industry with itunes selling individual music tracks at 99 cents each that resulted in itunes becoming the Wal-Mart of online music sales. History was repeating itself. Apple proved that paid downloads can work at the right price, the problem for Hollywood was that the Majors resented the super-thin margins offered by itunes while Apple made huge profits from ipod sales. It is fair to say that the paid download model is not an option for Hollywood because it is foreign to its business culture. Therefore the only other logical option for Hollywood was the commercial television model of free content model supported by paid advertising that the Majors have lived with for half a century and understand well. But, just as significantly disruptive has been the impact of UGC. There is now coevolution between the commercial/professional and household/consumer/pro-am sectors. In 2008, as market leader YouTube looked over its shoulder at the incredibly rapid rise of Hulu, it responded by committing to high definition video downloads; introduced 16:9 aspect ratios and negotiating deals with Hollywood studios (MGM, LionsGate) for high-end content like The Magnificent Seven to be placed on its site, supported by paid advertising. How much cultural change is required of incumbents, is new thinking replacing old thinking? Mass media mentalities are being challenged deeply by what has been described variously as more consumer-oriented, fast twitch, hacker-influenced, and blurred lines between professional and amateur computing and wider cultures what we are calling the IT-innovation model. But the irony is that this model is now at the service of the mass media content mentality. These journalistic accounts of the displacement of the Hollywood model by the IT innovation model in order to save the Hollywood model - are instructive (and remember that it is expected that Hulu's ad revenue will catch up with YouTube's this year. 8e fd18c.html): "[...] Perhaps the smartest move Hulu's founders made was looking outside for talent. They recruited a former Amazon division chief, Jason Kilar, to be Hulu's CEO, and a 28-year-old former Microsoft researcher, Eric Feng, to oversee development. Feng,

12 Rates of Change paper 4-09 Page 12 of 13 who was living in Beijing, assembled an eight-member team in China that banged out the initial Hulu code in two months, and the site went live four months later, in March Much of the code writing still gets done in Beijing, where Hulu employs 30 engineers. The rest takes place at headquarters in Los Angeles." Kilar showed up for work in LA to find his offices already teeming with people. Fox and NBC Universal had provided a couple of dozen employees on loan and brought in 40-odd consultants from PricewaterhouseCoopers and Avenue A/Razorfish. The plan was to outsource both the site design and the underlying computer code. Kilar was aghast. "Technology is the source of our competitive advantage," he explains the key to a service that would provide a high-quality videostream and support an ever-growing number of users and shows. "For us to design the company to last, we had to write every line of code ourselves." He sent the network people back to their old jobs and told the consultants they were out. Then he affixed whiteboard to three of the walls in his office and wrote out a mission statement and some basic design principles." Smaller, new players servicing indie, ROW/non-Hollywood, DIY cinema? There are a burgeoning number of sites which offer new services outside the Hollywood system. This is a short list of the most significant: Jaman: the Jaman player gives movies a cinema look ; it focuses on world cinema and indie movies and is partnered with Apple TV. Social features, chat, reviews. Create Space (owned by Amazon): upload your indie movie and DVD cover artwork, Create Space will place your movie on Amazon VOD where you can rent or buy (remember Amazon owns and also that can wire indies into thousands of film festivals). Create space sells indie movies as DVDs-on-demand, that is, no inventory is carried, but if I order your indie film they burn the DVD, put it in a DVD case and print off the artwork the indie producer provided, and mail it to you like any other DVD. Withoutabox (another amazon subsidiary) is an online marketplace for film festival buyers and sellers. BSide a really interesting online content aggregator download to own or burn to DVD, an online marketplace for 150 film festivals, with social features, audience feedback, blogs, reviews and ratings. Distributes BSide films via content supply deals to Apple I-Tunes, Amazon VOD, Hulu, and Netflix. Babelgum has a focus on Asian cinema; professional content, plus short form. I-Arthouse has a focus on world cinema; download to own / burn to DVD. Watch on any player. (I-Arthouse is the sister site to EZ Takes) Dovetail.tv: an indie distribution platform; ad supported free short form films, docos, plus the dovetail player.

13 Rates of Change paper 4-09 Page 13 of 13 Breakthrough Films: DVD authoring + artwork; a retail DVD distribution site that facilitates self-distribution and connects audiences and filmmakers ; builds an indie fan base; Amazon-style recommendations. Heretic Films: indie films, docos, social features, blogs, reviews and ratings. May be defunct. Caachi: online global distribution platform; some free films / ad supported; download to own indie short films, docos; uses Miro player for PC/Macs and mobile phones; DVD quality. IndieGoGo: crewing and financing via fans; build and engage a loyal fan base by involving them in projects from the beginning. The major non-us user bases are indicated by these data: Veoh has 46% Japanese users as of March 2009 why that might be is an open question. Voole is China s first movie-on-demand site and has links with some of the majors (eg Warners). Indian users are the next biggest on the web for movie watching after the US. They go to the big Indian sites (bigflix the indian Netflix); Eros; Rajshri; Saavn and then are biggest users of the interesting indie sites e.g. Jaman; I Arthouse; Hayden; BSide; IndieGoGo; EZ Takes. Conclusion There are some points to be made for summary emphasis. There has been significant convergence of different elements of the communications and content fields. The coming-together of what we have called the IT-innovation culture and the mass media content culture, a mainstream theme of past few decades, has a new twist: in the case of Hulu, it is now the IT-innovation model at the service of the mass media content model, and in competition with the purer IT-innovation model represented by Apple. There is significant co-evolution of the market and non-market sectors. This is clear in what YouTube/Google is doing to position itself the meet threatened litigation as well as the innovation challenges of a commercialised OLD field. But the degree to which the non-market sector and UGC is being integrated into a leading and innovative business model is clearest in the case of Amazon that is, if Amazon fully exploits the potential value of createspace and withoutabox, together with imdb.com. But there is also the question of those enterprises to which I have given least attention ROW and independent film and how substantively they may provide new affordances for non-hollywood product and distribution that will also be a key indicator of how creative this current disruption of Hollywood s established practices are.