Yet Another Post On SOPA

[Ed. Note: Cross-posted in part from my tumblr blog. See the additional note at the bottom of this post.]

I generally don’t blog politics. It can be bad for business. However, the SOPA/PIPA legislation, which pitted new tech against old media, requires a response.

Piracy is a serious problem that may or may not need additional attention (we already have the DMCA to protect copyright interests). However, the legislation as drafted is bad law. While hardly scientific, most if not all of the entertainment lawyers I discussed the bills with agree – even the ones who work at the studios.

If these bills became law then it would be legal for the government to shut down sites without due process. In effect, fair use can be ignored and sites are guilty until proven innocent. Litigation can be costly and few would opt to fight in the face of substantial legal fees and an unprofitable victory.

The clip above is a parody using someone else’s copyrighted work. It’s likely that such works – notwithstanding what you think of this particular parody – could survive on the net.

That’s not how our country is supposed to work and that’s certainly not how this law should work. This legislation can be redrafted to stem piracy without sacrificing our core values.

If you haven’t already, I urge you to read the current drafts of SOPA and PIPA and tell me if you still support these bills.

[Ed. Note: Prior to posting here and on Tumblr, a music executive friend of mine and I debated the merits of the bills on Facebook. Much of what I wrote above was part of that debate. After I blogged about it, my friend posted a link on Facebook to a blog post in favor of the legislation. You can find that here. In essence, the post in support argued that those in opposition - even those that took the time to read the bills - were misinterpreting the language and intent of the legislation. However, the fact that the language may be open to misinterpretation or, as many believe, exposes the true intent of the legislation, proves my point. If this legislation is broad enough to be misinterpreted by so many people, including intellectual property/entertainment lawyers, law professors, media executives and politicians, then they certainly can be and will be used for unintended or nefarious purposes if they become law. As I write this, I am sure my friend is formulating a response. I will keep you posted.]

Broken Windows

Fred Wilson wrote a piece on his blog today complaining about the film business’ distribution model. Fred wrote in part that:

denying customers the films they want, on the devices they want to watch them, when they want to watch them is not a great business model. . . . [Studio executives] insist that they need their windows. They argue they need to manage access to their films to extract every last dollar from the market. That just doesn’t make sense to me. If they went direct to their customers, offered their films at a reasonable price (say $5/view net to them), and if they made their films available day one everywhere in the world, I can’t see how they wouldn’t make more money.

While I have no allegiance to the current business model, I understand it. Producers of any new film hope to see it distributed in a number of distribution windows starting with an exclusive theatrical release and continuing through to wide release on multiple distribution platforms typically over the course of 12-18 months.

Wilson advocates simultaneous “streeting” across all distribution platforms. As technology improves, the lines of each traditional distribution window are blurring and will be replaced with something more akin to what Fred is advocating.

Even so, I can’t help thinking that audiences might lose something valuable in the process – maybe even movie theaters themselves. That would be ironic since movie execs sounded similar alarms when television was the disrupting technology in the 1950s. Then as now, movie theaters survived – but for how long?

What follows is most of what I wrote in response to Fred’s post with grammatical tweaking and references to other commenters omitted:

There are two . . . significant obstacles to simultaneously “streeting” movies across all distribution windows.

1. Movie theaters are a limited high-value distribution channel. There are only so many movie theaters and so many seats in those theaters. Only a small fraction of the movies produced each year get a theatrical release in the US. Foreign distributors look at a US theatrical release as a quality marker (this, despite the fact that international revenues generally account for 70% of a film’s budget). So a domestic theatrical in it of itself drives the value of foreign distribution rights up. This kicker in international revenues could not exist in its present form under a simultaneous street paradigm.

2. Allocation of marketing dollars. Movies and virtually every other product with novel elements have a distribution cycle, with demand for a well regarded/well marketed product highest at or near inception (e.g., the latest incarnation of any Apple product or Star Wars sequel). The costs of striking prints of the film – which are coming down as more theaters use digital projectors – and advertising (also called “P&A”) on a typical domestic release of a 1,000 screens or more are substantial. Studios/producers require millions in marketing dollars, sometimes in excess of the cost to make the movie, to theatrically release a movie in the United States.

The goal is to fill each and every seat of every screen in which the movie is shown to justify these marketing expenses (which, if successful, drives up the value of international revenues as noted above). That would not be possible if consumers had other, possibly more convenient choices that might dilute audience share at movie theaters. Although each exploitation window requires additional marketing spend, a successful US theatrical release can have a halo effect on subsequent windows (e.g., Titanic, the Twilight movies).

3. History of Industry Resistance to New Technologies. Lastly, the industry has always been hostile to new technologies. Silent movies were adverse to talkies which were against television which bristled to home video and so on to the present day.

The advent of on-demand viewing of movies in theatrical release is already part of an evolving theatrical release window. The industry needs time to adapt its model to the new demands of its audience. Change in the film business is inevitable even if it won’t come fast enough for the Fred Wilsons of the world.

Patching Up Negotiations Redux

[Ed. Note: This is a reprint of my 10/31/09 post.] Last year, procrastination got the best of me and by the time I got around to the annual pumpkin purchase on October 30th, the supermarkets were out of all but the most damaged pumpkins. I was left with no alternative than to deal with the local Pumpkin Patch Guy (a/k/a the Christmas Tree Lot Guy).

Some might say I was merely on the wrong side of supply and demand. But sitting on his throne of hay bales, Pumpkin Patch Guy went beyond aggressive deal making. He was ripping me off.

I should of walked away but it was late and the kids were tired. Feeling like a rube, I pulled out my wallet and gave him forty bucks for a couple of sad looking pumpkins plus another ten for the carving kit. This year, I got smart and didn’t go back. I planned ahead and procured my pumpkins at a substantial discount.

Like Pumpkin Patch Guy, a rep has a fiduciary duty to maximize value. But does that always result in doing what’s best for the client? Maybe so if it’s about short term value (it’s about the upfront money, stupid!).

But what about over the long term? Pumpkin Patch Guy lost me as a repeat customer by gouging me simply because he could.

Effective negotiation and deal making often require more than selling to the highest bidder. In many cases, the parties involved have to be able to work together over the long haul (e.g., SAG and the AMPTP).

Good will and occasional restraint by the stronger party can go a long way to salve the pain of accepting unpopular deal points by the weaker player. You’re not looking for a love fest here; merely a path towards building trust over subsequent negotiations.

Pumpkin Patch Guy might have earned my continued business if he’d thrown in the carving kit or a coupon for future discounts; something, anything to make me feel better about being gouged. SAG and the studios might have been able to change the discordant tone of their negotiations by simply finding more common ground through the exchange of ego nickels. Now, months after SAG sealed its deal with the studios, there continues to be profound polarization between the two camps and their supporters.

Does negotiating an arguably more fair deal really create momentum and good will for the next or does it betray weakness in your position? Does aggressive negotiation help, hinder or have no effect on the next deal? Whatever your approach, it pays to consider whose ox is ultimately getting gourd.

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[Update: Whether it was the recession or bad business practices, Pumpkin Patch Guy was replaced by Pumpkin Patch Guy 2.0.
This year's pumpkin purchase went without a hitch.
They even threw in the carving kit!]