1. The Entertainment
Industry in Crisis
An Examination of the Future of Online Media Models
Greg Zuk
2. In a State of Crisis
Introduction of the Internet
P2P File Sharing
Piracy
Current Business Models Failing
Milos Forman (Academy Award Winning Director): “Now, we all know the reasons
why we are here today. The most important one sounds very romantic: piracy. In my childhood
games I always wanted to be a pirate. Not his victim. I’d prefer to call it what it really is: a theft.
Internet thievery. When you think about it, Internet today is functioning as a dreamlike
supermarket where you can go, take anything your heart desired without paying for it.”
3. Business Models No Longer Cutting It
DVD and CD sales plummeting
Traditional Business Models not yielding enough
Home Video sales normally account for 50% of a
film’s process
CD Sales are primary channel for Record companies
to recoup their costs
5. Decline in DVD Sales Over Time
“Every studio is claiming, ‘We’re
O.K. so far, but we’ve looked at the
overall competitive sales data and
we have some concerns,’ ”-Amir
Malin, Qualia Capital
"Blockbuster films are generating
fewer DVD unit sales than in
previous cycles. Where a big picture
used to sell 20 million units, top
movies now struggle to reach 10
million units."-Alan Gould, Analyst
6. Where are We Now
Current Entertainment Business Model is Failing
Time to look to the FUTURE is NOW
Completely open field
Must act before situation worsens
Potentially Extremely Lucrative
8. Michael Rappa
Founder and Director of North
Carolina State University’s Institute
of Advanced Analytics
Former MIT Professor
Host and Co-Chair of the 19th
Annual World Wide Web Conference
Well Regarded for his work in
technology education
Pioneer in Internet Business Models
9. What is a business Model?
A Business Model “is the method of doing business by which a company can
sustain itself -- that is, generate revenue. The business model spells-out how a
company makes money by specifying where it is positioned in the value chain.”-
Michael Rappa
Same idea translates to the digital marketplace
Though philosophy same, web offers plethora of new options and
opportunities
Exchange rate of information and ideas almost unimaginable
12. Brokerage
Bring buyers and sellers
together to create a
transaction
Charge a fee for bringing
the transaction together
Orbitz, PayPal, Ebay,
Priceline.com
13. Advertising
Based around traditional business
model
Charge to advertise on website space
banner ads, pop ups, etc.
Sell advertising information
registering for a website like
nytimes.com
Favorable position on searches
google
14. Infomediary
Consumer or business habits are
of primary importance
Peoples tendencies can be
tracked on the web and this
information can be very valuable
help understand the market
DoubleClick (google owned),
Nielsen ratings
15. Merchant
Sounds like what it is
Wholesalers and retailers
sell goods or services in
web markets
Can either be purchased
outright or bid upon
16. Manufacturer/Direct
Web allows the actual
manufacturer to reach the customer
Eliminates need for middleman
Can purchase, lease or license
directly from the owner
benefits both the consumer and
manufacturer
Dell Computer
17. Affiliate
Websites that make deals with
larger websites to allow for the
larger sites to sell goods on the
smaller website or link themselves
through the smaller site
Pay Per Click
Percentage of the Sale
Amazon or Barnes and Noble
Hemingway Example
18. Community
Based around loyalty and high
user attachment
Revenue extracted from
donations or sale of
supplementary products or
services or utilizing an additional
model such as advertising
Open Source, Open Content,
Social Networks
19. Subscription
Pay a fee for access to the
content
Like a magazine on television
subscription
Normally utilizes other models
such as advertising to increase
revenue
Netflix
23. DIVX Disaster
Digital Video Express (2/3 Owned by Circuit City) invented a DVD rental system based around a special encryption software
Can’t copy or pirate the DVD due to the encryption
Came with Modem, Memory, and Encryption Chip
Pay with the modem and your account
Can watch for 48 hours after playing
$300-$500 to get the player attached to regular DVD player
Purchase the rentable discs from Circuit City locations
Massive Failure
Stopped After two years
Cost CC about $114 Million
People preferred to own
Was not popular with film studios
24. The Iron Hand of DRM
Digital Rights Management
Encryption Software attached to entertainment media to prevent consumers from copying it or pirating it
Supported by 1998 DMCA
prevents all circumvention of DRM locks
AACS Technology
Placed on HD DVD as encryption software 2006
Encryption key broken and distributed widely on the net
several times
Huge embarrassment to the film industry
Reaction
Many proponents of remix or free culture have come out very harshly against DRM technology
limits our culture
fair use
Failure
25. Radical Radiohead
Online Release of In Rainbows (2007)
Released without a label
Pay what you want for the first disc online
1.2 million people downloaded
Average about $5 paid
Several packages including actual CD and Vinyl form for a larger fee
$80 deluxe package
Massive Success
Appealed to the average listener as well as the fanatic
Many bands have followed in this fashion
Metallica who famously came out against Napster
26. iTunes dOminates dIgital
Digital media player created by Apple that is compatible with all current operating systems
Released in 2001
Plays video and music
Also has podcasts and live radio integrated
New Genius feature also a revolutionary technology in musical experience
iTunes store
Purchase tracks or albums of all artists agreeing
99 cents a track (increased on some songs due to record label complaints)
Typically $9.99 for an album (depending on the album)
Initially DRM attached to their sold tunes
As of 2009 no longer the case
Shows the power iTunes has over the record labels
Offers the music cheaper than the record labels would like, but the ease of the program and relative affordability
has made it a massive success
27. Netflix
Online movie rental house
revolutionized the home video industry
Founded in 1997 by Reed Hastings
Order all DVDs online and have them delivered to your house
Subscription model with a fee as low as $8.99
includes 1 DVD and unlimited streaming of films
Only certain distributors give their movies to Netflix
Takes away from their DVD sales overall
Competed directly with Blockbuster
formerly closely associated to Viacom
Keep revolutionizing
Deals with Sony and Microsoft to stream Netflix directly to the video game systems
Deals to get it through Blu-Ray Players
Deals with Tivo
Deals to stream directly to the TV
28. Pandora’s Struggle
Online Streaming Music Player that offers customizable song list based on what the consumer enjoys
Created by the Music Genome Project
Hugely innovate technology trying to break down musical taste
Available through both mobile phone and computer internet access
Two business models to choose from
40 hours Free Advertisement based business model + $.99 after that
or An advertisement-less model $36 annually
Special functions
Cannot skip more than 12 songs per 24 hours unless you have Vista or a paid account
Artists consistency is limited
Royalties
Got into royalty and copyright disputes in 2007
Almost went bankrupt had to go to a semi-subscription model to stay alive
Almost lost their fan base, who wanted free streaming music
While Pandora it sustains it is hard to consider it a massive success
it will continue to be fought by the record companies and as it becomes less and less free other more attractive models will take over
29. Innovative Artistshare
A website that facilitates the donation of funds to artists in exchange for
aiding in the creative process
Allows fans to feel a part of the process
VIP treatment and credit on all works
Good for small scale artists to have access to the funding they need
Small celebrities such as Rick Moranis
A definite positive step, but far too idealistic in terms of becoming
mainstream
31. Two Horses of Two Different Colors
Both the film and the music
industry are certainly in crisis
Require two different Models
Music Industry is 10 years
further worse off
Napster
Cinemas are still a
powerful draw
33. P2P Collective Societies
Voluntary collective licensing: Electronic Frontier Foundation
Music industry created collections of music that can be accessed for a monthly fee
fee is divided up amongst the rights holders based on popularity of songs
Can be integrated into the Internet bill to be less abrasive
download as much as you like and share with whatever program you want
Completely open to competition, which will allow for music labels to stay alive while
existing in a reasonable and updated environment
Promotes the industry’s involvement in digital music so that it can work to further the
business model
Resistance to the model will only hurt in the long run
34. In Exchange
There MUST be stricter enforcement of illegal downloading
If there is to be cheap legal file sharing then the illegal
must be eliminated
Since there is a strong possibility of the fee being
integrated into the Internet bill, the internet companies
must be stringent in their monitoring of all ILLEGAL
downloading
35. Follow Radiohead’s Example
Continue to release new albums as Radiohead did
Pay what you want limited quality downloads
Special packages to still sell CDs and Vinyls to fans
the better the packages the more money that can be made off of
them
Delay the release of the new album for a few months in the
Collectives
Market through social networks and the digital super highways
36. The Live Spectacle
Increase efforts in making the live show as profitable as possible
Try to achieve the consistency of movie theatres
Utilize the instantaneousness of the Internet
Stream Live shows on the web for free
Record all Live shows and offer them for immediate sale
or almost immediate
37. The Record Labels’ Demise
This plan spells only one ultimate end for record labels: DEATH
The majority of the focus in this plan is on the Artist and if the Artists can, like
Radiohead begin to detach themselves from the labels, the labels will no longer
exist
It will not be immediate, but with the success of social networking sites like
MySpace and Facebook in terms of marketing it is only natural
Moreover increased technology has made it easier and cheaper for musicians
to practice their craft, which further distances them from the labels
Artists have begun their move for control of their craft and the Internet is
affording them that opportunity
39. Continue to Maximize the Theatrical
Experience
Theatre sales have consistently managed to stay high through both good and bad economic
times
Must Continue to Capitalize on this one of a kind spectacle
More films into IMAX
More use of 3-D
James Cameron has called 3-D the future of cinema
Maximize the technology to create a truly AWEsome cinematic experience
Charge slightly more for the service, but deliver much more in the seats
Offer additional categories at the Academy Awards for innovation in technology
40. Cut those Costs
High Print and Advertisement Costs grossly limit the theatrical release of most films
Around $4000 per print of a film and you need a print for every single theater you want to
show the film
Convert to Digital
Large initial cost, but will pay off in the long run
Korea has had great success with this method
Highest quality
Opens up the industry for the smaller fish
Keep 35mm, but integrate digital to massively reduce the amount of prints needed
Do not ever have to actually have any prints made--choose only digital screens
41. New Distribution Window
With the waning sales of DVDs, it is time to restructure the distribution timeline by introducing a new or potentially several new windows
for films to be distributed
Producer of the Year Ryan Kavanaugh has been supporter of Video on Demand technology to create new Window
Must create a window shortly after the theatrical release of the film through VOD and Online Video Game Systems
Increase the revenue on the release of films, for people who don’t like to go to the cinema
Then Shortly after this window an additional window should be streamed online on websites run by the Studios
Product will be out there anyway, offer highest quality for a small fee and continue to attract those who did not want to go to the
theater
Studios can then offer the same service for their libraries and charge a larger subscription fee for access to these films
Studios need to make up for their lost DVD rentals and sales; Digital is the new platform
Continue to sell the latest technology physical copies of films, but make sure to load them with special features to attract true fanatics
Can charge slightly more and still attract a great deal of true film fans
Attacks the major competitors of Netflix and Piracy by offering quality content controlled by the content creators at a reasonably fast
distribution rate for an appropriate fee
42. Ultimately...
Ultimately, no matter how many new distribution windows
the film industry inserts to attempt to increase profits, the
Hollywood Hot Shots must learn to accept lower profits than
the times before the Internet
I am confident these models will succeed and boost the film
industry, but profits will not be as high
43. In Conclusion...
Unfortunately, no matter how close my assumptions and
presumptions have brought me to the future of the
entertainment industry’s business model, the model will
always be changing. What is right now may be trash
tomorrow. The Internet is a fluid marketplace and we must
always be on our toes to keep up with its evolutions.
