A conference organised by the British Screen Advisory Council BSAC FILM CONFERENCE
MARCH 2007
FOREWORD
The British Screen Advisory Council is an independent advisory body to the government and policy makers at national and European level and to the audiovisual industry. It uniquely brings together the widest possible range of UK interests, experiences and contacts in the screen industries.
Members include senior management from television, telecommunications and new media companies, international film producers and distributors, cinema exhibitors, technical experts, business people with media interests, media lawyers, communications consultants, TV producers, trade unionists and the heads of training and trade organisations.
BSAC regularly commissions and oversees research on the audiovisual industry and uses its research to underpin is policy documents. In addition to regular monthly meetings, BSAC organises informative events including seminars, conferences and industry briefings, all of which provide valuable networking opportunities.
BSAC relies on industry funding for its activities and we are therefore particularly grateful to Time Warner for sponsoring this event. BSAC also wishes to express its gratitude to all the speakers and panellists at the conference for their interesting contributions. The Chair of the conference was John Howkins, Deputy Chairman, BSAC and Director, HandMade plc.
Please note that the speakers’ presentations and panel sessions in this report are edited transcripts. Presentation slides are available on request, or on BSAC’s website (www.bsac.uk.com).
1 TIME WARNER
Time Warner Inc. is a leading media and entertainment company, whose businesses include filmed entertainment, television channels, interactive services, publishing and cable systems. In Europe, Time Warner’s businesses include Warner Bros. Entertainment, New Line Cinema, Home Box Office, Turner Broadcasting System, Time Inc. and AOL.
Warner Bros. Entertainment Warner Bros. Entertainment is a global leader in the creation, distribution, licensing and marketing of theatrical motion pictures, TV programming, animation, video/DVD and related products. In Europe, Warner Bros. is also committed to producing and distributing local productions. Films currently being produced in the UK include: Harry Potter and the Goblet of Fire, Sweeney Todd, Fred Clause and Batman - The Dark Knight.
New Line Cinema Celebrating its 40th anniversary year, New Line Cinema is the most successful independent film company in the world. Its mission is to produce innovative, popular and profitable entertainment in the best creative environment. In 2005, New Line partnered with HBO to form Picturehouse, a theatrical distribution company that releases independent films. In 2006 – just a year after the company's inception – Picturehouse released Guillermo del Toro's Pan's Labyrinth, which won three Academy Awards and three BAFTA’s.
A pioneer in franchise filmmaking, New Line’s Oscar-winning The Lord of the Rings trilogy is one of the most successful film franchises in history. Upcoming New Line releases include Hairspray, the film adaptation of the Tony Award-winning musical, Rush Hour 3, and Fracture starring Oscar-winner Anthony Hopkins. In addition, New Line will release The Golden Compass, based on the first book in Philip Pullman’s trilogy “His Dark Materials” and starring Nicole Kidman and Daniel Craig, in 2007 and Inkheart, starring Helen Mirren and Brendan Fraser in 2008, both of which were produced in the UK.
Turner Broadcasting System Turner Broadcasting System is a major leader in news and entertainment around the world. In Europe Turner delivers cable and satellite television channels and Web sites, including CNN International, Cartoon Network, Turner Classic Movies, Boomerang and Toonami.
2 Home Box Office HBO is America’s most successful premium television network, whether measured by subscribers, profitability, viewers, awards or critical acclaim. HBO sells its original programming such as The Sopranos, Entourage and Sex and the City to broadcasters throughout Europe. HBO’s film division is involved in local productions such as Longford and Tsunami and the distribution of such acclaimed HBO Films as Gus Van Sant’s Palme d’Or winning Elephant and 2007 Sundance winner for Best Director Rocket Science. In 2005, HBO partnered with New Line to form Picturehouse, a theatrical distribution company that releases independent films. In 2006 – just a year after the company's inception – Picturehouse released Guillermo del Toro's Pan's Labyrinth, which won three Academy Awards and three BAFTA Awards. HBO Central European ventures offers basic and pay television channels throughout Central Europe.
Time Inc. Time Inc. is the world's leading magazine publisher. Its more than 130 magazines reach total audiences of more than 300 million worldwide. In Europe, Time Inc. offers readers the best in serious journalism, including Time and Fortune, as well as popular consumer magazines. Time’s IPC Media is the UK’s largest consumer magazine publisher, with over 100 titles including Country Life, Loaded and Marie Claire.
America Online AOL is a global Web services company that operates some of the most popular Web destinations, offers a comprehensive suite of free software and services and provides a full set of advertising solutions. A majority-owned subsidiary of Time Warner Inc., AOL LLC is based in Dulles, Virginia. AOL and its subsidiaries also have operations in Europe, Canada and Asia.
3 CONTENTS
CONFERENCE CHAIRMAN’S WELCOME AND INTRODUCTION 5 John Howkins, Deputy Chairman, BSAC and Director, HandMade plc
KEYNOTE ADDRESSES 6 Casey Harwood, Senior VP of Digital Media, Turner Broadcasting System Europe Ltd
Patrick Walker, Head of Content Partnerships, Google Video, EMEA FILM INDUSTRY PRESENTATION 10 Ben Keen, Chief Analyst and Director, Screen Digest DIGITAL CINEMA 13 Panel Chair: Patrick von Sychowski, Consultant Anders Geertsen, Head of the Commercial Module, European Digital Cinema Forum and Director, Distribution and Marketing, Danish Film Institute Rob Kenny, Operations Manager, Curzon Cinemas Tom Cotton, VP of Business Development, Technicolor Digital Cinema, Europe Alex Stolz, Distribution and Exhibition Executive, UK Film Council Gerald C. Buckle, Digital Development Manager, Odeon & UCI Cinemas ENTERTAINMENT ON THE MOVE 22 Panel Chair: Ajay Chowdhury, General Partner, Acacia Capital Partners Stuart Collingwood, VP EMEA, Sling Media Peter Walker, VP of Strategy, Bango Dominic Strowbridge, Marketing Director, BT Movio Damian Mulcock, CEO, Mobix Interactive Ltd Graeme Oxby, Marketing Director, 3 Tony Pearce, CEO, Player X PRICING FILMED ENTERTAINMENT AND THE IMPACT ON 34 FINANCING MODELS Panel Chair: Mark Devereux, Senior Partner, Olswang Cameron McCracken, MD, Pathé Distribution UK Ltd Paul Grindey, Head of Commercial Affairs, Film4 Neil Martin, Corporate Development Director, Sky CRYSTAL BALL GAZING: FINAL ROUND UP SESSION WITH LEADING 45 INDUSTRY FIGURES Conference Chair: John Howkins, Deputy Chairman, BSAC and Director of HandMade plc Bob Pisano, President and COO, Motion Picture Association of America Michael Kuhn, Director, Qwerty Films Sophie Balhetchet, Co-founder, Cougar Films Peter Carlton, Senior Commissioning Executive, Channel 4 Jane Wright, Head of Rights and Commercial Affairs, BBC Films Adam Singer, Consultant, Cordelia UK Ltd
4 CHAIRMAN'S INTRODUCTION
John Howkins, Deputy Chairman, BSAC and Director, HandMade plc
The Chair welcomed guests to the conference, and said that the discussions during the day would explore the effects of new technologies on film companies and their strategies going forward.
He said that rather than focusing on the technologies John Howkins themselves, the presentations and panels would focus on how producers, distributors, studios and also consumers are reacting to the changes taking place – and where this was expected to take the film industry over the next few years.
Consumer expectations are changing - in terms of how they watch, when they watch, whether they want to watch in a cinema or at home, and whether they want to watch on a TV or a computer. This of course has profound consequences for film companies and their business models.
The Chair thanked Time Warner for its ongoing support in sponsoring the event for the fourth year running, enabling BSAC to put together a first-class programme.
5 KEYNOTE ADDRESS
MEDIA FRAGMENTATION Casey Harwood, Senior VP of Digital Media, Turner Broadcasting System Europe Ltd
Digital Media is a new group within Turner, which has a remit to bring Turner into the digital age, without turning the old business upside down. As we all know, life has changed quite significantly in the last few years. Things used to be simple – Casey Harwood either content was provided free, reliant on advertising sales – or it was provided via pay TV, which relied mainly on licensing fees and perhaps some advertising. Movies and sports were generally regarded as the main drivers of platform growth.
But then digital came along, which significantly lowered the barriers to entry. Looking at the number of channels on Sky now – there are 14 news channels, 24 kids channels, 26 movie channels – and 55 Sky Box Office channels.
And then just around the corner for TV is the Internet. The Internet really does democratise content, to the extent that the supply chain is collapsing – and this collapse is not unique to media. We’ve got telcos selling TV, the BBC is launching its own satellite platform, I can buy a sandwich at Boots, I can bank at Sainsburys, and I’ve got Thames Water trying to sell me electricity. So everything has gone a bit mad as the entry barriers for new businesses are removed.
Dick Parsons, the CEO of Time Warner, was in town a few months ago. When asked, “What is Time Warner going to look like in 5 years time?”, he answered with a great analogy. He said, “Imagine 1000 buckets on the floor all catching little raindrops of revenue – that’s what Time Warner is going to look like.” Looking at Turner’s revenue streams as a result of this fragmentation, this analogy seems to be holding true.
So this begs the question – what will the model be for movies? Currently we have a familiar and well-defined business model - box office, DVD, output deals, merchandising etc. Everyone in this room has had some big issues to get their head around – piracy, HD, windowing etc. From an outsider’s perspective looking in, you seem to be an industry that is coming to terms with a lot of those issues – which is just as well, as there is a whole set of new challenges and opportunities coming over the hill. The fact of the matter is that, from a distribution point of view, movies have been shielded from many of these disruptive technologies due to the limited bandwidth and storage that exist today. But that’s going to change very quickly. Apparently, storage capacity on computers grows 13 times every 2 years. What that means is that by 2010 you will be able to store one year’s worth of content on your iPod. By 2019, you will be able to store 85 years of video. Imagine what the world will look like when that amount of content can sit on a small device. Equally, the increase in bandwidth (or `Next 6 Generation Networks’) is going to force long-form media (like movies) to face some of the issues being confronted by other shorter forms of audiovisual content. I guess in years to come filmmakers are going to be picking through the thorny issue of user generated content, media on the move (mobile or podcasts), online consumption (when it doesn’t take 4 hours to download a movie to your pc, and when your Sky+ box has got a terabyte of storage on it etc).
You cannot ignore the desire to social network. You are having to compete for eyeballs with services like MySpace and Second Life. There is going to be a real demand for community-based activities around movie watching. In addition, all your distribution outlets such as Tesco, HMV, Virgin Megastores etc. won’t just be the outlets for DVD, but for digital media as well.
So, what are your reference points? How do you plot a course through what my boss likes to call “a time that is high on paranoia and very low on clarity”? I think news and animation offer useful case studies. I will share some of the thoughts that Turner has had in regard to non-linear. We ask ourselves, on a daily basis, three questions. Firstly, what are our new routes to market? They seem to change week to week. I think it is going to be a balance between direct to consumer, and servicing the responsibility we have to our pay TV platforms (which is something we obviously want to do because it’s worth a huge amount of money to us).
The second question is: how we format and deliver content moving forward? How do we actually get our content to a platform that does not necessarily want a 24 hour channel? There are two examples of those in the UK – BT and Top Up TV. They don’t want the 24 hour linear channel – they want the same content but delivered on an on demand basis. This has huge ramifications for how you move that content around – and this takes a lot of investment.
The third question is: how much control do you hand to the consumer? This is a difficult question. What we don’t want to do – and I would imagine you don’t either – is to unravel today’s revenue streams. But at the same time, we need to trigger some of these multiple secondary revenues. The difficulty for us is that Turner has a $6 billion revenue stream – dismantling that is a massive risk: you don’t know what it’s going to look like on the other side. Having said that, we know we have to do something – but what?
So, I look to our spiritual leader, Ted Turner – and ask what he would have done? The great thing about Ted is that he never lets you down. I only met him three times, but he always says something fantastic. One time he said, “Lead, follow or get out of the way”. Sometimes we lead, sometimes we follow, and sometimes we say this isn’t for us. That’s fine; at least we have got a strategy.
The point is: there is real evidence that there is big money outside our traditional service area. I have three examples: firstly, quiz telephony. I know it’s been in the press recently, 7 and that ITV have suspended their activities in this area – however, last year this industry was worth £20 million profit to ITV. Quiz telephony is not going to go away forever; it will reinvent itself in hopefully a much more consumer-friendly way. The second example is text to TV. In 2006, text to TV (e.g. Big Brother and X Factor) was worth £450 million in the UK. In the year 2000 that figure was zero – so there has been huge growth in six years. Cartoon Network has been running a games channel on Sky for the last four years – we are now up to 20 million `pay for plays’ at 50p a go. The growth of mobile has been surprising. Turner has in excess of 100 deals with mobile operators across Europe. It’s very complicated with all these little tributaries of revenue, but it’s a profitable business. Sky now has about half a million mobile subscribers as a result of their partnerships with Vodafone, O2 and Orange - that is a big subscriber base. There are some TV platforms with fewer subscribers than that.
Another thing to consider about mobiles is that the majority of them have cameras – enabling consumers to participate. CNN and other news organisations have actually been key beneficiaries of this – the 7/7 bombings, the tsunami and other events have seen the public provide footage. There is a lot of huff and puff about citizen journalism – but giving someone a digital camera doesn’t mean that they instantly become Stephen Spielberg. Ignore this whole thing at your peril – there is money in communities. People are social animals.
Adult Swim is a grown up animation brand in the Turner stable which relies on advertising sales and merchandising DVDs. It is worth about $200 million to us. I would argue that the future of Adult Swim is probably on the mobile and online platforms. It is a vital touch point for us to get to the consumer; the challenge is to generate a profitable business around it.
So, in my view, the best route to success is a marriage of platforms – that platform could be Google, it could be Sky, it could be Tesco. My advice is to find a company that understands the consumer and understands content and packaging, and do a deal with that company as quickly as you can. It’s not necessarily going to be a straight output deal or a licence deal. In this marriage you should explore and exploit every revenue stream that is generated together.
The first point of my summary would be that the distribution partner is your friend. Having said that, it’s a balance between free and pay.
The second point is a message to content owners – don’t throw anything away. Believe me, there is a viewer for absolutely anything – you just need to figure out how to monetise it. And it’s not just about video – data is as important as video.
My third and final point is on regulation. I would urge at this early stage only light touch regulation of the sector.
Thank you. 8 VIDEOCRACY Patrick Walker, Head of Content Partnerships, Google Video, EMEA
Regrettably, due to the speed and scale of new developments in this industry, Google company policy is not to make speeches or presentations available post-event. We are therefore unable to include the content of Patrick Walker’s presentation in this report.
9 FILM INDUSTRY PRESENTATION
Ben Keen, Chief Analyst and Director, Screen Digest
Let’s start with the most traditional outlet for movies – cinema. Last year, admissions were down about 5%. It’s worth noting that the number of tickets sold decreased by about 20 million from the recent peak in the UK in 2002, and that box office revenues were slightly down at about £762 million. Compared to other major markets, the UK was a little out of step last year Ben Keen – but, in fact, a number of the other markets had been through bigger falls in the previous year, when the UK held its own more. In the longer term, we think the outlook is pretty positive for box office. We anticipate that it will move towards the billion pound turnover mark, and part of what is driving that will be digital cinema. We are expecting about a quarter of screens in the UK to be converted to digital by the end of the decade. In fact, the UK is leading the charge for digital on the cinema screen in Europe, and is currently third in world rankings in digital cinema screens.
DVD is of course a massively important outlet for movies. The standard definition version of DVD that we know and love is now beginning to flatten off, and slightly fall. Last year, the market was down just a little bit – we are expecting that to continue to fall away over the next few years. But this year will probably be the first year that an impact will be felt from the new high definition formats for packaged media. As you know, there are two formats fighting it out, BluRay and HD-DVD. We are expecting these to begin pushing up the market again, and to keep prices for packaged media up. The industry has, to some extent, been shooting itself in the foot by depressing prices too quickly for DVD.
Let’s stand back and look at all the outlets for movie product in this country, and look at the profitability of each window in 2005. These figures take into account the costs involved in distribution as well as revenues. Compared to other windows, there was a slight negative for the cinema window – but of course the cinema window is massively important in promotional and marketing terms to extract the revenue from each of the other outlets. Compared to all the other windows, DVD retail is massive, much more important than any of the outlets for studio revenues.
So, let’s now look at the value chain in the digital domain. There is a lot of interest in maintaining that successful ownership retail business model in digital. A retail window is beginning to emerge - the download-to-own model is similar to the home video retail model. Digital rental is similar to the pay per view business model. And subscription VOD is akin to the pay TV window.
There are now more than 20 different internet movie download services across Europe, a few of them are in the UK. Some of them are also starting to operate some kind of retail download-to-own proposition. But, things are not moving very quickly on that front
10 at the moment. The download-to-own proposition is still not looking very compelling to consumers – we’ve already heard this morning that it’s not so easy to get that video content from the pc to the place in the home where people actually want to view i.e. the TV set. So, measures are coming to help that along. Amongst these there will be a solution enabling people to download content on a pc and burn it to a DVD that can then be played on a normal DVD player. There are also devices like the video iPod/Apple TV combination and consoles like Xbox 360 and PS3 that make it easier to view downloaded movies on a TV or portable viewing device. A sensible device strategy is critical to making a download-to-own strategy work.
And hopefully, the owners of that content will begin to be rather more competitive in their wholesale pricing of this content, which for the moment is not really on a par with the DVD product. Again, the pricing is holding back the market, as well as download times - despite the fast growth of broadband and maybe a slightly slower than expected move to next generation networks. For those who have tried to download full length movies on the internet, it’s not always straight forward and the software applications can still be rather fiddly.
But we do think that these kinds of obstacles will be slowly overcome, and that the revenues will start to appear. So, what we’re expecting is that download-to-own, the retail business model for movie content, will start to really kick in and drive that business as we go forward.
The revenues to 2010 will still be relatively low, and certainly very small compared to the DVD revenue stream. By 2010, we think that European consumers will be spending 1 billion Euros less on DVDs than they did in 2004 – but that new revenues from digital retail and high definition discs will more than compensate (over 3 billion Euro revenues). So, that’s good news – but a lot needs to be done in order to get there.
The Conference Chair thanked Mr Keen and opened up the session to questions from the floor.
Tim Richards, Vue Entertainment: In one of your earlier slides it showed that the exhibition sector lost money. In 2006, the UK was the second largest market outside of the US, with £1.6 billion revenues gross. I appreciate that’s top line, but I’m trying to understand how you get from £1.6 billion to a negative number.
Ben Keen: The figures I provided were from 2005 – and they were looking at major studio figures and taking into account the cost of distribution. So they were net theatrical distribution revenues and not referring to the exhibition sector at all.
Conference Chair: When do you expect UK revenues from online distribution of movies to exceed traditional DVD and high def DVD?
11 Ben Keen: After 2010. Quite a long way after!
Jonathan Davis: You talked about the benefits of the theatrical window, further down the value chain. What will be the benefits of digital distribution to right holders? How much of the revenues will go to rights holders, and how much would be captured by the intermediaries?
Ben Keen: The benefits of a digital retail business model are the same as they are for the packaged media DVD market, provided the same kinds of margins can be maintained.
Fiona Clarke-Hackston: I was fascinated by the emphasis you put on download-to-own. We have a BSAC Working Group looking at this issue, and one of the issues we have been wrestling with is whether people will download-to-own audiovisual product. Our Group believes that it is more likely that the download-to-rent model is likely to prevail for film. I would be interested to know what the assumptions were behind your research, and how you reached that conclusion.
Ben Keen: The assumptions are based on download-to-own propositions and uptake today. The obvious example is Apple iTunes – and I think there has been close to 20 million video downloads of Disney content on the iTunes platform. Of these, about 1.5 million are movie downloads. What needs to happen is for the other pieces of the chain to be put in place to make it a straight forward proposition for the consumer to get the content onto the TV set. Also, if you look at what’s been happening on Xbox Live in the US, there have been very significant numbers of downloads, including download-to-own, given the limitations of that platform. By comparison, download-to-rent propositions have had insignificant traction in the marketplace – and we do not expect this to change significantly.
Ben Keen’s PowerPoint presentation will be made available on the BSAC website: www.bsac.uk.com
12 DIGITAL CINEMA
Panel Chair: Patrick von Sychowski, Consultant Anders Geertsen, Head of the Commercial Module, European Digital Cinema Forum and Director, Distribution and Marketing, Danish Film Institute Rob Kenny, Operations Manager, Curzon Cinemas Tom Cotton, VP of Business Development, Technicolor Digital Cinema, Europe Alex Stolz, Distribution and Exhibition Executive, UK Film Council Gerald C. Buckle, Digital Development Manager, Odeon & UCI Cinemas
The Panel Chair introduced the panel members and began with a short presentation.
Panel Chair: Patrick von Sychowski, Consultant: You are shortly going to hear about the most important trial for digital cinema in Europe today, which has been undertaken by Odeon in the UK. But first I’m going to take you back to 1938, when Odeon conducted a similar trial with regard to electronic pictures and distribution in cinemas. I found an article from Time Magazine, entitled `Double Stretch,’ published on Monday, 27 June 1938. Patrick von Sychowski It begins: “Two of television’s irksomely narrow dimensions were stretched last week in England. A group of independent radio engineers established a new distance record for a reliable picture reception. Others began installing a 6 ft. by 5 ft. cinema screen for public projection of larger sized television pictures.
The big screen is the work of Scophony Ltd., owners of a new process of projecting television pictures as though they were films. The method of freeing the picture from the limitations of the cathode tube is Scophony’s secret, but they have a screen going into London’s new Monseigneur News Theatre in Baker Street. Scophony’s Director, Solomon Sagall, has promised full-sized cinema screen television for all theatres of England’s Odeon Circuit by year’s end. Test showings of Scophony projections have excited televisionists.
Seven year old Scophony is the lusty baby of British television. Guided by squat, bespectacled Russian refugee Sagall, it weathered five years of bailiff dodging, grew from a room and a half in a house in Soho to $1,050,000 capitalization, and achieved financial association with Odeon. Competitor in large screen television is Baird Television Ltd., partly owned by Gaumont-British Picture Corp. Ltd. They report several
13 orders for theatre television screens, do not specify which theatres, and might offer BBC loans of Gaumont British stars in exchange for programme.”
In 1939 Scophony put on some demos to show audiences and exhibitors the capabilities of their technology – in one they showed a boxing match. British Gaumont were also planning to install hundreds of Scophony systems in the theatres. Unfortunately, the Luftwaffe began raining down bombs on London and these plans were put on hold. After the war, the Baird Television company was incorporated into Rank, and Scophony was picked up by EMI. And that was the end of that for them. However, moving forward to the present day, we are being continuously told that digital cinema is the greatest change in the theatrical business since the invention of sound. That is not correct. The average cinemagoer won’t be able to tell the difference between digital and 35mm in the way that they could tell the difference between black and white and colour film, or between silent movies and `talkies’. 1909 is probably one of the most significant dates in the history of cinema. This was when a meeting was held in Paris by the International Film Publishers’ Congress (now known as Les Editeurs de Film). At this meeting, the decision was taken that films should not be sold – they should be rented. Previously, reels of films had been sold to cinema owners, who showed them to audiences until no one would pay to come anymore, or until the reel fell apart. Sometimes the reel would be taken on a tour of the country and showed in every town and village… until the reel fell apart. The radical decision to rent out films represented the most significant change in how the cinema business was conducted, and it laid the foundation for the cinema business as we know it today.
Today, digital cinema is also a significant change because, for the first time, the distributors and producers are being asked to contribute to the cost of the exhibition equipment in theatres. It’s very expensive still to install digital cinemas – and the cinema owners would like what is called a `virtual print fee,’ which is a levy on each digital copy. So the money saved from making a digital copy, instead of a 35mm copy, goes towards contributing to the cost of projectors and equipment installed to make this all possible. This deal between exhibitors and distributors is unprecedented, which is why it’s not without problems (and we are going to hear about them from the panel a bit later on).
Between 1999 (which was the kick off year for digital cinema – this was the year that Star Wars: Episode 1 was shown digitally in 4 cinemas in the US, the first mainstream film to be shown in a normal cinema, on a normal basis) and 2004/5 we had what I call the cocktail years of digital cinema. This is where we would all get together, talk a lot about digital cinema, and we’d have drinks sponsored by the hardware manufacturers; but there wasn’t much deployment happening. We didn’t have mature technology that was affordable. We didn’t have content, as there were few films being made available on digital. There were no universal standards in digital. And, above all, there was no business model. That started changing in 2005, when the Hollywood studios published their
14 specification for what they would like digital cinema technology to be. You have probably heard of DCI (the Digital Cinema Initiative). Things started to move significantly after DCI. We started getting business agreements, we started seeing more films released on digital, and we saw the costs of the technology come down as it became more mature. But, having moved on from the cocktail years, we are now in the ugly years of digital cinema where the situation is still very messy. There are 2000 digital screens in North America alone – but it’s all down to one company and, almost, one cinema chain: Carmike Cinemas/Christie Digital Systems. All the other US companies are holding out, but they are going to have problems down the line: for example, technical issues (like having to change the circuit boards of the service for security, because they are not what is called `FIPS compliant’). Plus, the device encryption solutions will have to be applied for projectors and so on. But the same applies to Europe. The biggest deployment in Europe is XDC - in Germany they have over 100 screens. However, 90% of those screens will not get titles from studios like Fox and Sony because they are based around MPEG broadcasting – no JPEG digital cinema technology. Even in the UK there have been some minor setbacks. For example, Arts Alliance, the contractor for the UK Film Council, are currently having to take out all the servers that they have installed because the QuVis server has fallen out of favour of the Doremi. So, these are still the ugly years, and they are going to last until 2009/2010. We will see deployment, but it’s going to be messy and difficult at times.
So, let’s look at the future now. [Mr von Sychowski then showed a picture of the first train called `The Rocket’]. How does The Rocket train tie in with digital cinema? Some people think that digital cinema is simply the replacement for 35mm film. I think they are mistaken, because every time a new technology comes along, people are unable to accurately anticipate what that technology is going to be used for. Alexander Graham Bell thought that the telephone would be used for transmitting operas to people’s homes. He couldn’t foresee the Richard and Judy phone scandal for sure. When John Logie Baird invented television, he saw it as a medium for global education and for world peace. He did not foresee Jade Goody causing the whole of India to turn against her. Some technologies have caused big social change – for example, air conditioning. It has not only brought cool air into US homes, it also caused 100 million people to move from the Northern to the Southern states - California, Texas, Florida etc. It caused an enormous demographic shift. As for the train - not only did it enable faster travel, and the transportation of goods around the country, it also (along with the car) encouraged the development of suburbs – people living outside the city centre and commuting into work. It changed society. So, when we now talk about digital cinema as a replacement for film – sure, that may be so; but it is likely to usher in new and more significant changes affecting society. Next week I’m off to Las Vegas to see people demonstrating live 3D sports on the big screen. You may laugh at this, but they probably laughed when anyone suggested that telephones could also be used for picture messaging. So, with that snapshot of the past, present and future for digital cinema, let’s hear what the panel has to say.
15 Tom Cotton, VP of Business Development, Technicolor Digital Cinema, Europe: Technicolor’s activities in this space can be divided into two main areas. Firstly, the rollout of digital cinema, i.e. systems integration - a new area for Technicolor. We’ve been testing the equipment for its interoperability and reliability, two key factors that Patrick has touched on already. From there, we are going into beta testing in the United States, and from there to a 5,000 screen rollout. We are also rolling out across Europe and looking at activities in Asia and the rest Tom Cotton of the world. Secondly, the other part of our business is distribution (our traditional business). So we are looking at content mastering, encoding, replication, distribution and key management. A third area for us is screen advertising, an important area for exhibition, and one that will change dramatically as we go from 35mm to digital. Technicolor has developed a system for digital screen advertising.
Gerald C. Buckle, Digital Development Manager, Odeon & UCI Cinemas: Odeon has been involved in digital cinema for about 8 years. We were one of the first companies to deploy the original digital units from Texas Instruments – and since that time we have been experimenting, as all the other cinema exhibitors have been, with the running of digital film content. We’re also experimenting with what we call `alternative content’ i.e. other forms of entertainment, such as sports events, music events, educational programming, etc. Patrick alluded to Gerald C. Buckle the way the business model is anticipated to work: that the studios will pay a portion of the costs to roll out digital cinema to the screens across the US, Europe etc. They will do this through a VPF (a Virtual Print Fee). Odeon has utilised this model in developing our digital programme into a Beta Test at two of our cinemas in the UK – in Hatfield (which is a 9-screen cinema just north of the M25), and at Surrey Quays (another 9-screen development in South London). We’ve installed every screen with a digital projector and server, and we have networked those screens to a Theatre Management System, that manages all the content played digitally in the cinema. We anticipate the Test will run for between 6 and 12 months. During that time, we will be taking a closer look at the business model for digital cinema to see if it actually makes sense.
Currently, Odeon has six studios/distributors participating in the Beta Test and contributing to the VPF financial model. We anticipate that other studios will sign up during the course of the Test.
To date, we’ve been running the programme for about 4 weeks. We started out with about 25% of our total screenings for the week being actual digital film content. This week we are up to about 50%, so we have a little way to go before we are showing all
16 of our content completely digitally. There are also other elements that we need to look at, e.g. the screen trailers, and our advertising programme – so we are asking Carlton Screen Advertising, and the studios, to supply us with that material so we can play out completely digitally at both sites.
There are some other angles we need to explore as well. We are trying to find ways in which we can bring a broader variety of programming into the cinemas, to see if the consumers will not just come to visit our cinema to watch a movie – but also to perhaps watch some other events. Hopefully over the next 6-12 months we can refine this model, as technology costs drive prices of projectors and servers down, and as more and more content becomes available. We can then start to have some serious discussions with the chief stake holders in this business, particularly the studios, in terms of coming up with a formal business proposal to actually roll out digital cinemas starting in 2008. Hopefully by 2010 we will become completely digital across Europe.
Rob Kenny, Operations Manager, Curzon Cinemas: We operate five cinemas in central London. They specialise in what the UK Film Council calls “specialised film.” We absorbed Artificial Eye into our group last May, so there’s also a distribution arm to our company, which may be relevant to our discussion today. The cinemas are 1, 2 or 3-screen cinemas. Six out of the 9 screens across all five sites are now digitally enabled. Because there are slight programming problems, we are also looking to install the other three screens with digital Rob Kenny projection facilities as well, which will be funded by ourselves. The other six are funded by the UK Film Council.
Anders Geertsen, Head of the Commercial Module, European Digital Cinema Forum (EDCF) and Director, Distribution and Marketing, Danish Film Institute: As you might know, the EDCF was created a number of years ago, as a counterpart to the US Hollywood-based DCI initiative. We are a forum for debate, taking a European perspective on digital cinema. We are not anti-Hollywood – I want to make that very clear. We strongly advocate just one global standard for digital cinema world wide. Of course, this should be based Anders Geertsen on the DCI specs, which are now being turned into a standard. But we do focus on questions related to the introduction of digital distribution and exhibition in Europe. We also strongly believe that digital cinema will and should bring about a number of very good things. People tend to talk about digital cinema as a very problematic area – but we should keep in mind that it will open up for a wider supply of film. It should enable easier access to copies, bringing about a new boom for cinema- going, thanks to a wider choice available for the audience.
17 But I would like to raise just one concern that I hope, perhaps, we can discuss this morning. That is the predominant model for financing: the Virtual Print Funding model already mentioned. This model has been constructed to fit mainstream, first run American cinemas. There is nothing wrong with that, because it was invented for the cinemas in the US. But, the landscape of European distribution and exhibition is very, very different. We have a large number of smaller venues, and a large number of cinemas which are not first run theatres. So, any financing model based on production companies and distributors contributing each and every time a cinema is screening a first run copy is not appropriate for Europe’s second run theatres. Therefore, I would hope we could perhaps discuss some other alternatives to this model – more European-based. I will not suggest a solution; but perhaps we could consider a model where there is a per show fee instead of a per copy fee? Or even a per-minute fee – or something similar? I won’t even mention the idea of a rent-based model!
To me, it seems obvious – why don’t we just agree that, in the European market, for a certain number of years, the film rent will be lowered. The money saved would be enough to finance the equipment. I have learnt one thing – namely, that this is something one cannot discuss. We are not allowed, in this market, to discuss the level of the film rent. So we have to figure out some other very complex solutions called Virtual Print Fees. But we cannot just adopt the American solution; we need to find a solution that also fits the European cinema landscape.
Alex Stolz, Distribution and Exhibition Executive, UK Film Council: The UK is currently the European leader in digital cinema. Let’s flashback to a couple of years ago, when UKFC first introduced this scheme. Basically our remit in distribution/exhibition at the UKFC is to provide a wider film choice for audiences across the UK. We struck upon the idea of using digital cinema technology as a tool to do this. That is a very important point – we didn’t do the Digital Screen Network because we were interested in digital per se. It’s very Alex Stolz much a tool for broadening film choice. The 35mm model is not particularly effective at delivering to all consumer demand, because prints are so expensive. We have rolled out about 170 digital screen network cinemas – cinemas of all types and sizes from multiplexes, to commercial independents and specialists. Delivered by Arts Alliance Media, the total network will be 240 cinemas and we anticipate that will be completed by the end of April.
The Chair opened the session to questions from the floor.
Tony Ballard, Field Fisher Waterhouse: What are the benefits of digital cinema for the audience? Is there a noticeable increase in quality – is that a selling point? Or are we talking simply about saving distribution costs, and maybe having a bit more choice of what is projected? 18 Rob Kenny: I’m perhaps not the best person to talk about this because our cinemas are all first run cinemas, so we are getting mint copies of 35mm films. However, I would like to speak on behalf of colleagues that don’t have that benefit. By the time a 35mm copy gets to Gateshead or to Blackburn, the quality has obviously deteriorated. So the advantage of digital cinema to an audience member outside London is that the quality of that film is going to be so much better than what they are used to. Having said that, in some of the Curzon cinemas we run Sunday rep shows which are films from the 50s and 60s – people love all the scratches, and actually complain if the films don’t have scratches on them.
Alex Stolz: I agree. The other point is that people actually get to see the movie – or at least they can get to see the movie in a reasonable amount of time after the initial publicity. So, from our perspective, the benefits are mainly about access.
Gerald Buckle: We have asked our customers what they think of the Beta Test. The research has thrown up a couple of interesting issues in terms of what the benefits are of digital cinema. Firstly, about 60% of the customers said they could see a noticeable difference in the quality of the film print, though we also noted that consumers didn’t seem particularly interested in paying a higher price to watch a digital film (unlike in some European markets, where a digital film commands a premium over analogue when both are showing at the same cinema). But perhaps something else that may be of interest is that quite a number of people (about 35% of regular cinema-goers and around 20% of the total audience) said that going to a digital presentation would encourage them to go more often to the cinema.
Tom Cotton: One of our clients in Belgium, Kinepolis, has adopted digital quite early. Everywhere they show a digital feature they will also show it in 35mm. They have been charging 1 Euro more per admission for the digital version – and they have generated significant additional box office. It may not work in every market – but there are examples of markets where people are being prepared to pay more to see films in digital.
Jonathan Davis: I wonder whether Kinepolis passed on that euro to the distributor? I suspect they didn’t – such is their market power. Going to Anders’ question, i.e. why can’t this problem be resolved very easily by lowering film rentals? I think we all know the answer to that. How is it possible for Technicolor and Deluxe to invest so much money in developing and improving the speed and the quality of duplication? And the reason they were able to do it, as we all know, is that the studios entered into 7 year exclusive agreements with them – which meant, on the one hand, that the benefit for the studios was very low cost – but they guaranteed to the labs these hundreds of thousands of prints that would be made over that year and in return, the labs paid an upfront payment to the studios that they wouldn’t have to pass on to other people who were sharing in those revenues. It’s a brilliant system. The question is: how is that synergy, or symbiosis, going to be maintained in a digital environment? Other than a system like the VPF, how are we going to pay for it?
Panel Chair: Good point. I remember when I was working for Deluxe and this whole discussion was going on about VPF. I suddenly felt I was back at school and listening to 19 bigger children talk about how they were going to spend my lunch money. I always felt like saying, “There’s not that much money in it really!” Tom - the VPF model, in terms of cannibalising what money there is being spent now on print – is that enough? And what are the other problems in Europe?
Tom Cotton: In terms of the US model, the approach we’ve taken is to have all the stakeholders in the chain committed for an equal length of time, to ensure that everyone has the same interests over the life of the project. We’re financing the rollout of the equipment in this model. The situation in Europe is slightly different because there are a lot more players in the studio and distribution space. There are also other factors where the economics aren’t quite the same, e.g. second run prints, etc. In the US, 6 or 7 deals can cover 95% of box office. Somewhere like France, the US majors cover about 45% of the box office – and I think there are about 200 distributors that count for the remaining 55% of the box office. So, for a company like us, where we are trying to sign studios up and act as the integrator, that’s an awful lot of contracts. The other underlying fundamental in Europe is that the equipment costs the same – so somehow we have to make the model work in Europe, and we are going to have to take into account the factors that Anders has mentioned.
Anders Geertsen: I’d like to add one comment to Jonathan’s observation - namely, that there’s an inherent danger of majors, labs, hardware manufacturers, distribution companies and cinemas locking themselves into deals for 5 - 7 years. That might work for some of these players, but there is a danger that it will take away other players’ independence. Some cinemas could simply become an output shop for the products that the companies further up in the line want to channel.
Rob Kenny: I think there is a lot of truth in what Anders says. I agree with him whole- heartedly – the challenge with the VPF model for Curzon cinemas is to retain independence, because that is the way the business has always been run. Alongside many other smaller operators, we cannot afford to have that independence compromised.
Gerald Buckle: And there’s quite an interesting economic issue going on here if you look at the way the VPF is calculated. From the studio/distribution side, they’ll look at their throughput of the film content into the cinema channel – as we saw earlier today there are a lot more channels becoming available to the consumers. In the longer term, we’ve got to consider what this means regarding the number of film prints coming into the cinema channel. And that’s going to have a dramatic impact on the VPF model.
Alex Stolz: I agree with Anders and Rob that there is an issue for smaller theatres in particular. And what I would say is that one cinema on its own is not going to have much chance negotiating with a studio – but collectively, there are a lot of screens out there which are independently run. If there was a way that they could form themselves into an alliance, there would be an opportunity for them.
20 Kimberly Ferguson – Honest Buck Productions: Odeon, UKFC and Warners were involved in a very early test of digital cinemas when I worked with Digital Theatre Systems (DTS). One of the ways I thought would help the financing of the entire rollover to digital cinema was accessibility in cinemas for the blind and the hard of hearing. The idea was that Government might get involved in helping to cover these costs. Thanks to you guys it’s all obviously come a lot further. Out of interest, what is the VPF average cost?
Gerald Buckle: The interesting thing about discussions with the studios is that there are variances in the approach to the VPF model; so we are finding that, in order to get everyone engaged in this digital rollout, everybody is going to have to be on the same page in terms of the approach to calculating the amount they would pay as a VPF. I think this is where we have to ask whether the VPF model, in its current iteration, is appropriate. There may be some other approaches that could be appropriate, such as a ‘pay per play’ model, that may give more access to the smaller studios and distributors – particularly in Europe, where some content has a more limited release pattern. It’s not really fair, or economic, to have them paying the full VPF. Potentially, all the cinema operators in Europe, big and small, will need to look at ways in which we can engage with the studios and Hollywood.
Ben Keen: To date, digital cinema has meant digital exhibition, not distribution. On Monday, in the US, there was an interesting joint venture announced between Warner, Universal and two exhibitors to evaluate and deploy some form of digital distribution - whether via satellite, broadband, or by some other means. I would be interested to get a reaction from anyone on the panel to that development.
Gerald Buckle: We were engaged in digital distribution, by satellite, about 4 years ago in seven European territories, where we hooked up 7 different sites with digital projectors and servers, and delivered the content via satellite. We were trying to test the business model and see now many cinemas we would need to hook up in order to make it viable for distribution. We came to the conclusion that it would only be worthwhile at some point in the future. We estimated that one would need to have 1,000 screens to make it viable for a distributor to do this on a regular basis.
John Wilkinson, CEA: I think that we in Europe have too often got ourselves over excited about the VPF. We think it works for the US – but we don’t know. All we hear is that different studios are paying different amounts. If we go back to May 2006, Dan Glickman of the MPA stated he wasn’t sure if a VPF would be paid in Europe. Only Universal and Fox, to my knowledge, have actually stated publicly that they will pay a VPF. I believe that the international studios in the US have got a very strong moral case to argue that European producers/distributors must also make a contribution. All the theatrical trade associations throughout the world came together and said there must be a contribution to help us get digital projection for theatres. That hasn’t been withdrawn, and I think that that drives every exhibitor throughout the world. There are other way of doing this - and Anders quite rightly says we can’t talk about rental rates – but there are systems, such as top-slicing, which could be helpful, especially for European products and markets. 21 ENTERTAINMENT ON THE MOVE
Panel Chair: Ajay Chowdhury, General Partner, Acacia Capital Partners Stuart Collingwood, VP EMEA, Sling Media Peter Walker, VP of Strategy, Bango Dominic Strowbridge, Marketing Director, BT Movio Damian Mulcock, CEO, Mobix Interactive Ltd Graeme Oxby, Marketing Director, 3 Tony Pearce, CEO, Player X
Panel Chair: Ajay Chowdhury, General Partner, Acacia Capital Partners: Bob Dylan once said, “If you’re not busy being born, you’re busy dying.” This morning we have seen a bunch of businesses that may well be busy dying. We’ve also seen a bunch of interesting new businesses, such as YouTube which has gone from birth to brash adolescence in 15 months. And now we are going to talk about entertainment on the move, a business that is just being born – and we will try to work out where it wants to get to. Ajay Chowdhury
I would like to start by giving you some context. The devices and content for entertainment on the move have arrived – the iPods, the Slingbox, the PSP, the mobile phones. Content can be downloaded, streamed, broadcast, and it can now be slung around the place. Games and music are now pretty mature industries for users on the move – but video is what we are going to talk about today.
The market forecasts are uniformly bullish, predicting that this is going to be a multi- billion dollar industry over the next 4-5 years. But, the operators seem wary of the entertainment on the move market. A recent survey of various operators around Europe revealed their attitudes and ideas about the potential for various products. According to them, SMS has huge usage and still has huge potential, while mobile TV, video sharing and video calling were not seen as having huge potential. That seems slightly at odds with the market forecast we have been seeing.
The problem is that the customers are not there for playing video on mobiles yet, according to Olswang’s recent survey. The research also revealed that of the few people who did use mobiles for entertainment it was for music videos, movies etc – but 90% do not do any of these activities. When asked if they would want to watch video/TV content on their phones, some said that the appeal would be being able to stream or download at any time, some said it would be to ensure they didn’t miss their favourite programmes, some said because it’s cool. When asked why they wouldn’t want to, the answers were: they just weren’t interested; they were happy watching their TV set; it might be too expensive; they might need to buy a new phone. When asked how much they would 22 spend, the vast majority said…‘nothing.’ But if they were going to spend, what would they watch? Interestingly the answer came back, overwhelmingly, as live stuff: - live concerts and sporting events; but also some adult movies and TV.
So, the market forecasts say this is going to be huge, the devices are all here – but consumers seem to be saying this isn’t really happening. I’d be interested to hear the panel’s response to this prognosis.
Tony Pearce, CEO, Player X: Player X has two strands of business - we publish and develop mobile phone games and sell them to over 110 operators around the globe, and we are pioneering VOD mobile TV specifically made for mobile users.
I would say that in the next eighteen months to two years, people will be watching content on their mobile phones. Player X are making, developing and publishing content that is fast, edgy, quick, shocking, funny, and silly - aimed specifically at Tony Pearce 16 -30 year old guys. We are seeing incredible uplifts in downloading 30 second to 3 minute videos through certain operators in certain countries. It’s certainly not mass market globally yet, but believe me, these countries are picking up at a huge rate. More and more carriers and operators are looking at this as a key revenue driver in the next couple of years.
Our entry into mobile video started about 18 months ago, and it was really at ground zero. We acquired the Premiership football rights for China, Scandinavia and Holland - the same rights that Vodafone and 3 currently have for the UK. Actually China and Scandinavia are the second third biggest fan bases for Premiership clips. But it was still tiny – and even in China, where there are 485 million mobile subscribers, the amount of people downloading these clips is still very small. That’s simply because China still hasn’t really launched 3G. In fact, I don’t think 3G will launch in China until the Beijing Olympics. So, you are looking at carriers and operators that have a 3G network - and where we do sell content (and 3 is a good example here in the UK), the numbers are fantastic. So you have to be very specific at the moment, and make content for the consumers that a particular operator is targeting.
We started to look closely at where the demographics were for the Premiership content – it was mainly 16-24 year old guys watching this kind of stuff. So, we’ve now got a huge catalogue with exclusive content, some of it premium, some from the US. We have a deal with Fox for `American Dad’ and `Family Guy’ – the two animated series that work very well on mobile – through Airbourne. We also have a new concept, which has started to go down extremely well – we call them “retro soaps”. Retro soaps comprise episodic clips of between 1-2 minutes, which will cost 1 Euro per download on average. The first one we came up with was with Universal, based around the Miami Vice licence, whereby Player X had the exclusive rights to make that game. We approached Universal 23 with a new concept of creating an animated series around the brand. At first they were not sure, because being a movie studio, they wanted to do it themselves and not give it to a third party – but because it was a new idea, they allowed Player X to go away and create 10 episodes that were animated. We had the brief to be very daring and to take it to the edge - targeted at 16-24 year old guys. Universal’s reaction was extremely good – the cartoons were funny, very well produced and very catchy. Since then we’ve now licensed Magnum PI and Knightrider – bringing some retro brand back to the forefront. We have also now signed up a number of titles from Paramount for similar retro classic mobile content deals.
Miami Vice has probably been the most syndicated in terms of selling to operators around the world. This style of content is extremely popular with the operators because they want to try something new. In some cases we are seeing 50% increases in downloads month on month. Other content that sells extremely well is the sexy content – like FHM and Benny Hill. The operators can take that in front of the pin. I wouldn’t want adult content behind the pin because it’s really hard to get to. We don’t do adult content, but we do fun, Benny Hill style stuff. We have experimented with other content, for example, ‘Teach Yourself Yoga,’ which sells about 5 per month.
We got approached by a number of big carriers, including 3, to package all of our mad VOD content into a TV channel. Back in December, we launched the first real made-for-mobile TV channel. It’s called GeekTV. The idea behind it is that Geek is the new cool – no-one’s geeky enough any more. The longest programme is three minutes. 25% of the content is user-generated, but we only broadcast what we feel is good enough for the channel. As far as I am aware, since the launch of the 17 channels that are currently live on 3, GeekTV is one of the most clicked on channels. The reason for that is that the key brands 3 have on offer (e.g. FHM, CNN, ITV) are pulling consumers into the TV section. And when they click on GeekTV it’s fun, it’s quick, and it’s exactly what someone on the move wants to watch. I think that has hit a nerve with kids.
Peter Walker, VP of Strategy, Bango: Bango was formed in 1999, at about the same time that the first web enabled mobile phone was introduced. Bango’s mantra is to make the mobile internet extremely simple for everyone to use. We basically support a technology that allows anybody in any country, with any phone that is web enabled, on any network, to reach any content – and to pay for that content if they need to. So we are agnostic to content and agnostic to operators. Our ambition is to make mobiles extremely simple, and to distribute content Peter Walker globally. We currently have users from about 170 countries world wide, and about 200 operators. The maximum payment we’ve seen in a day is $250, and the maximum run rate is around 8,000 payments per minute from around the world, all through Bango. We work with 200 different kinds of handset, so we have a
24 pretty good idea of what content is being used on which handsets/devices, by which people, how much money they are spending, and what they are doing on their mobiles.
Stuart Collingwood, VP EMEA, Sling Media: We are a two year old American company. We started off making a product called Slingbox, which we launched recently here. Slingbox is a device that you plug into your TV at home, your DVR, your TiVo, any video source (it may even be a webcam). It allows you to watch that video source from anywhere else – a different room, a garden, a different country etc. I spent most of the World Cup watching BBC1 coverage in California because I happened to be working there at the time. We won Stuart Collingwood our most treasured award recently, which was the Good Housekeeping gadget of the year. I didn’t realise that we were big with 35 + women readership. Maybe geek is the new cool, but we are very proud of that award.
More seriously, we have some investors who you will be familiar with, e.g. Discovery Channel, via the Liberty Media group. Other shareholders are Echostar, Goldman Sachs, Allan and co, and various others. I think that illustrates to you that they saw an opportunity in our business – and that there’s a way of reshaping the industry. We have come along and challenged some of the pre-existing rights and viewer behaviour/usage models. But what it boils down to is the consumers - people like our products. We’re breaking new ground in the same way that TiVo did. TiVo enabled people, for the first time, to watch content whenever they wanted to. Sky+ is a fine example of how they took that concept and implemented it on a mass scale. We have introduced the concept of “place shifting” – a phrase that was coined on the back of our technology, which allows you to watch content, not only when you want, but also anywhere you want.
Last year, we launched a service for mobile handsets in the US – we brought that over here last December, which we launched with 3. Interestingly the most common request we have for watching content is on the Blackberry. I think this is really illustrative of where our business is, and where I think the industry is going generally. People want to be able to watch what they are familiar with on any device.
Back in January of this year, we announced a new service called Clip+Sling – which enables Slingbox users to clip content and share it in the same way that YouTube clips are shared. CBS is our launch partner for this in the US. We are also in discussion with various bodies in Europe.
So, it’s a cool toy, it’s a great product – and it satisfies a clear need, which is to watch content in this non-linear, on demand world, on their own terms, where they want to watch it.
25 Dominic Strowbridge, Marketing Director, BT Movio: We launched our service in the UK last October - Virgin mobile is retailing it to the public. We currently take 5 of the most popular channels in the UK and broadcast them in such a way that compatible mobile phones can pick up the service. You might wonder why on earth people would need to broadcast the service, rather than use networks like 3 or other cellular networks to pick up the channels. The reality is that if one person is trying to watch a particular programme, using a Dominic Strowbridge cellular network or another point-to-point network, it is fine; but if you are trying to watch a big event – if more than six or seven people are tuning into the same programme – the quality over a cellular network, or another point to point network, goes down dramatically. These kinds of programmes, therefore, need to be broadcast.
We’ve done many things differently to other operators in this field. There has been a lot of discussion in the industry about mobile TV. Unfortunately, it has been hindered by a focus on technology, rather than what consumers actually want. During our major trial, almost 18 months ago now, we discovered that people like the idea of mobile TV, but that they have far more occasions during the day to use mobile radio. The great thing about mobile radio is that it can prompt you to then consume video content. We decided to go with a service which delivers both mobile radio and TV. That’s why we’ve based our technology on the DAB network, the digital radio network in the UK. So, the BT Movio service actually combines all the DAB digital radio stations out there, plus five live TV channels (BBC1, ITV1, C4, E4 and a made-for-mobile ITN 24 hour news channel).
I strongly believe that, at the end of the day, consumers are all individuals – and that they want to consume a variety of types of mobile entertainment, whether it’s non-linear or linear. I think live TV is just one of the important components of mobile entertainment. It’s an essential component because it is one of the ways, along with live radio, that people discover new content; and through that discovery they may well then go on to consume/purchase content on demand elsewhere. But there needs to be that discovery element, that live element, to spur on consumption throughout the rest of the spectrum of mobile entertainments.
Damian Mulcock, CEO, Mobix Interactive Ltd: Mobix Interactive has been around for over four years and is a specialist in mobile video, delivering solutions to Network Operators and also creating and developing consumer propositions for brands and media networks. Judging from the comments that we’ve already heard today, suffice it to say, mobile video is here. The focus has been on the audience, and how they are interacting with mobile video – we are still very much in the learning phase of understanding consumer Damian Mulcock 26 behaviour. In the early days, video services were created using the on demand download and streaming model, but during the last 6-12 months mobile TV has become increasingly important and it has been very interesting to see the consumption patterns that are evolving. I totally agree with Dominic – every user is unique and will choose whether they watch live or on demand - but what’s clear is that there is a desire to consume video content on the move.
There are so many different commercial models – some are driven by operators and their relationships with content providers, whilst some are connecting directly with the consumer with their own services. It’s still very early in the market to determine which modes of consumption will prevail. To provide some insight into what we are expecting: for Mobile TV, we see average consumption times of around 4-7 minutes in any one session and when we do engage the audience with a proposition which has been retailed and packaged effectively, we see customer loyalty above 20% on a month by month basis.
Graeme Oxby, Marketing Director, 3: We have spent four years trying to build an entertainment on the move market. I am pleased to say that I don’t recognise many of Ajay’s numbers; otherwise I would have been wasting my time.
Over the last few years, we have learnt that customers do like to download entertainment products and services. They like games, music audio, music video, mobile TV, and they have shown a propensity to download a whole range of other Graeme Oxby entertainment content (news, weather, comedy clips, animated clips). They have also shown interest in making their own clips. Our most popular services include: X Factor (3.5 million downloads over the last series); Big Brother (in January over a period of three weeks there were 1.2 million downloads; CBTV (our user generated service – between 1.2 and 1.4 million downloads every month). So, people want this content, and they will also pay for it. They will pay: 99p for a music clip; £5 per month for a TV subscription; 49p for a day pass on entertainments content; 10p for their own user- generated content. Of course they also like free stuff (i.e. advertising-funded). There is a growing opportunity for advertisers to associate themselves with mobile content, which will be downloaded in very big numbers. Brands like Adidas, Unilever and Canon have already invested in advertising on mobile networks.
So, what works? We’ve found that, generally, shorter duration content works – music videos work fantastically well. Our average, TV screening is 5-7 minutes depending on the channel. Some customers use the service several times a day, some will even tune in at certain times to watch the ITV news. Will they watch very long films on their mobile phones? I’m not convinced that they will. You can certainly buy films on discs or memory cards, and pop them into your mobile phone and watch them in their entirety – but 27 generally people don’t do that. Half the downloads happen at home, so people are not necessarily on the move. It’s been interesting to learn that many people use our service because perhaps they don’t have access to a TV channel, or the broadband connection at home. Short films might work on mobile – a lot of companies are looking into providing short films, but I don’t think that consumers will pay for them – unless they were advertising funded. Do they like clips of movie trailers? Yes, they love them - they are downloaded in their tens of thousands. We see massive spikes with big releases. Will they pay for mobi soaps? I’m not sure they are compelling enough. Would they watch them if they were advertising funded? I’m absolutely certain they would.
Our biggest TV product is our made-for-mobile TV product - unfortunately it’s not GeekTV just yet, but maybe its time will come. More than half of our streams on our own dedicated mobile TV channels are pieces of short duration content that are refreshed everyday and available for free. The advertising-funded model is emerging quite nicely.
So, we are right at the beginning of mobile entertainment – games are currently in the lead, and music has followed really nicely. We believe that mobile video content has got a lot of potential, but it is not expected to really take off for another 3 – 4 years.
Panel Chair: I’d like us to talk about what the main inhibitors are to the market. What needs to change before mobile entertainment becomes a mass market proposition?
Graeme Oxby: The market is far from perfect right now. Everyone in the value chain has got their bit to do. In the UK, there are probably one or two operators who are really promoting 3G – we really need all 5 operators banging away at 3G, as they are in Australia. The supply side is quite backwards from a mobile point of view. Rights clearances are really quite a nightmare for us. Not enough content is cleared for delivery over mobile. There are also a lot of formatting issues – I’m dealing with a screen that is 4 centimetres by 3 centimetres (at best), and there’s a lot of content that just doesn’t work well on a mobile screen. Content owners can tend to be arrogant, insisting that mobile operators are reliant upon their content to sell mobile phones, which isn’t true. There is a partnership opportunity here – I don’t need content to sell mobile phones. The UK has sold millions and millions of mobile without content. But there is an opportunity to generate a lot of money from these new services. We write the music industry very big cheques every month as a consequence of working in partnership with them. Other drawbacks are fundamental issues like handsets not being good enough. So, there are little chinks in every part of the value chain. But they are all slowly, but surely, getting dealt with. And that’s where the opportunity lies.
Damian Mulcock: I think Graeme has covered some of the technical inhibitors, but in addition to this I think pricing and packaging need to change. We need to be much more retail focused. 3 do a much better job than anyone else, but a lot of the operators really don’t have the retail and marketing experience to be able to package products to the consumer. There needs to be more focus on mobile as a medium for repeat and 28 habitual usage – which is really where we see this playing out over the next 3-5 years.
Dominic Strowbridge: There’s one big thing which is missing – and that is a simple consumer experience. I say that because the Slingbox approach is right for one part of the experience, i.e. going through your browser and having access to live TV etc, but the consumer has to go here to one application, there for another … it’s very confusing. It will take a partnership approach, as opposed to lots of big egos, to try and put all of those components together in a nice, simple, consumer experience.
Panel Chair: Will the iPhone do it?
Dominic Strowbridge: We’ll have to see.
Stuart Collingwood: In the absence of 3G, I’m not sure the iPhone is going to do it. It’s a great GSM device but without 3G there is a limit as to what it can offer. I would add to the list of inhibitors, tariffs. We’ve seen a tremendous uptake on the mobile side of our product business in the US because of the ubiquity of cheap daily tariffs. That doesn’t exist in Europe. There is also an awareness factor – not enough people yet are aware that it is possible to watch TV shows on the move etc.
Peter Walker: I think it basically comes down to two things - one is the availability of rich and suitable content, another is the availability of technology with which to deliver it, in a form that the user can be happy with and is simple to use. Only in the last couple of years have we had a broad coverage of broadband in the UK, and broadband is absolutely vital for rich multimedia content. It’s taken 14 – 15 years to reach maturity in the industry. The mobile phone industry is still way short of the bandwidth and the richness of content to reach the kind of maturity that the web has reached. Many in the industry would say that mobile is travelling at about twice the speed. Moore’s law in computing said that technology would double every year. That’s a pretty good guide. I think we’re at the start of 2x4 = 8, 2x8 = 16 - we’ve been through the 1x2 = 2, 2x2 = 4 stage. We are just about to see this doubling take off.
Tony Pearce: In my view, there are two main issues. One is the technical development – but most of these issues will be sorted out very quickly. The other area is consumer experience. I still go back to my belief that it has to be made-for-mobile content. I’ll give you two examples – we helped distribute the VOD clips of the best and worst X Factor singers last year. There were different cameramen in the studio filming the judges and the singers, specifically for mobile content. The filming was cut close so that you could see the judges’ faces when you watched it on your mobile. This shows that production companies are thinking differently about content for mobile. Mobile content has got to be quick, and it got to be aimed at people on the move. We are also working with Dom Joly, the comedy actor from Trigger Happy TV. He made ten new comedy sketches, just for mobile, for us to distribute. On the back of that, he’s had a new Trigger Happy TV episode commissioned by Sky. So, actors and production companies are looking at mobile as the 29 key to moving on with their careers.
The Panel Chair opened the session to questions from the floor.
John Wilkinson: What is the average age of your consumers downloading programmes? And what do they spend on an average monthly basis?
Tony Pearce: We are specifically targeting 16 – 30 year old blokes. But everyone has a phone, and you can’t just stick with that demographic. Certainly for games there is a potentially much wider bracket – but at the moment it’s younger kids that get mobile entertainment, certainly on the video and TV side.
Graeme Oxby: 40% of people who download content on 3 are women – so for us it’s only slightly male dominated. The market seems to be mainly 16-35 year olds – but this does not mean that over 35s are disinterested. You have to look at the market in terms of segments. In fact we have quite a lot of people downloading sports who are a lot older than 35 – but they are not generally downloading material like GeekTV.
To get new customers in an already penetrated market, I need to target customers who are going to switch – and these customers tend to be younger because they want a new phone and they want new stuff – so my profile is quite biased as it is. But even among my customers, a good many of them are over 35.
Panel Chair: And how much are people spending?
Graeme Oxby: I’m not going to tell you, but it’s a very appealing amount.
Panel Chair: From a Bango perspective, how much are people spending?
Peter Walker: As I said, the most anyone has ever spent in one day is $250 – but I would estimate an average spend of about $2 per day. There is a massive difference between the sales motion on the web and the sales motion on the phone. There is much less resistance to buying things on a phone – because people have always been charged for everything on the mobile anyway. We see a massive amount of small value expenditure on almost any type of content – and very little free downloading activity on the phone. The majority of entertainment on the move users are under 25, and this market is prepared to spend money. Mobile is a pay-for environment.
Panel Chair: Dominic - is Movio a subscription based service?
Dominic Strowbridge: BT Movio has a wholesale business model. Therefore, it’s up to our retailing network operators as to how they charge for the service. On some networks the data charges can rack up. One customer at O2 was charged £950 for watching TV on their mobile for two hours via the 3G network and a SlingBox. Others, however,
30 charge just a one-off monthly tariff – for example Virgin Mobile.
Panel Chair: So, Virgin is using BT Movio as a marketing tool to get people to switch to them, and then they pay for the service separately?
Dominic Strowbridge: Virgin charge £5 per month for pre-pay customers – but for their contract customers the service is all included.
Panel Chair: What is the Sling perspective on this?
Stuart Collingwood: I have to say that we have not released the product to retail in the UK yet for precisely that reason. We want to ensure that people don’t get a shock with the bill – this is why we put flat rate tariffs in with 3. That particular person I thought was quite quaint – reportedly he was an IT watching CSpan for hours during the mid term elections on an O2 XDA. We are actively trying to encourage the operators to introduce flat rates.
I’d like to address another issue that Dominic raised. He has five channels in his service – five very popular channels. We firmly believe that in the DAB, DMB, DBBH media flow world – when spectrum becomes available on a national scale to provide these services, probably around analogue switch off – there will be a segment of the market that will be very happy with an aggregated channel line up. And this will improve, over time, with compression. What you can’t do on any of these services is watch recorded content from a DVR or set top box at home. Our customers specifically want to choose content that is familiar to them, in an environment which is comfortable for them.
Panel Chair: Can you watch a different channel on your handset to what’s being shown on TV?
Stuart Collingwood: You can in the UK. We put a Freeview tuner in the European product. So, if the main channel is being dedicated to one feed, you can watch your own Freeview line up from within the box anywhere. It’s interesting – a lot of our Slingbox customers are far older than 35. My mother is one of the most active silver surfers I’ve come across, and she’s fully up to speed with using the Slingbox. Some of our customers have teenage children who don’t have TVs in their bedroom, but they are allowed to watch TV on their pc, which they use for schoolwork and games.
Peter Walker: I’d like to come back to the point on inhibitors. We are now seeing a nosedive in flat rates, or subscription-type rates for data. I think Vodafone are just about to go to £1 per day for data, regardless of how much you use. That is a massive removal of an inhibitor. £2 per minute is a lot of money for somebody under 25. The good news is that these kinds of charges are on the way out.
Panel Chair: From a Mobix perspective, in terms of how much people are paying and
31 the demographics of users, does this chime in with what you are seeing?
Damian Mulcock: I totally agree about the flat data access – it’s easily understood by consumers as being analogous to broadband, and the per megabyte charging that has been in place prior to these “all you can eat” data packs has proved a real barrier for users. In terms of other inhibitors, the quality of service is important for video and we believe that the experience 3G delivers is the base level for video to be consumed on a mass market scale.
Audience Member: This is a question for 3. Do you think a fully ad-funded mobile operator - perhaps like Blick which is about to launch - will help mobile TV to take off, as customers will not have to worry about data charges?
Graeme Oxby: Well, I think data charges have already been dealt with. £5 per month for as much as you can use is pretty low. As for ad funded, I think it depends on the extent to which those ads are intrusive. My own personal view is that although there is a segment of the market that will respond to this kind of a model (i.e. they will listen to an ad before they make their voice call or send their text message), I don’t think that’s necessarily applicable to the mainstream of the market. I think most people want to make that call or send that text instantaneously – not in 30 seconds time. I don’t think operators are quaking in their boots about ad funded services. One way or another they will make their money from voice calls/texts as they do now. But, it is certainly an interesting development.
Panel Chair: At what point does the panel think that 70% of this audience will be watching video on their mobile phones – which year can we expect this to happen?
Tony Pearce: By the end of this year. If you’ve upgraded to a new handset you will watch video because it should be easy to use.
Peter Walker: I’m just trying to work out the average age of the audience!
Panel Chair: I mean, when will entertainment on the move go mass market?
Peter Walker: Probably when the viral mobile market takes off – the way that YouTube triggered this to happen on the Internet. It’s actually surprising how few under 25s have a phone that is 3G. I think it will be two years, the Christmas after next. By then, the affordability will be there, which will spur the market.
Stuart Collingwood: I’d say the end of 2008. Sky+ grew by word of mouth. The difference with mobile is that you can take it out of your pocket and show someone straight away. So, give it time to grow this year - I think Christmas 2008 will be a bumper season.
Dominic Strowbridge: I’m going to take issue with your question. I think it is a terribly 32 rash assumption to put everyone in this room into one segment. There are a lot of people who only want to make phone calls, or use their devices as a communications device. People will actually get turned off if you try and push the same propositions on everybody. There is, we think, a large segment that will enjoy this kind of mobile entertainment – but it’s not for everyone.
Panel Chair: So, what percentage of mobile phone users will want to watch video?
Dominic Strowbridge: If I can turn the question around the other way? There is a very large segment, probably between 30-40% of mobile users, who currently are very communications-centric, and who are not interested in mobile entertainment. Now there’s always a spread of sophistication, and over time that segment may get slightly smaller – but at least 30-40% will not be interested. I would probably agree with Stuart; it’s probably going to take another couple of years before a lot of these issues are sorted out and mobile entertainment goes mass market.
Damian Mulcock: If we assume that mass market means a penetration of 30%+, as an average rule of thumb, I would say end of 2008/2009. I’m specifically talking about consumption of video on mobile. Entertainment on the move is such a broad topic.
Going back to the agenda of the session, an issue that we have not yet discussed is the implications for licensing rights. Currently, everyone is trying to define what a mobile right is and what it covers (i.e. GPRS, EDGE, UMTS, WiFi etc). I think in the longer term, looking forward 3 – 4 years we will be looking at a converged right, spanning multiplatforms (i.e. TV, internet and mobile); so rather than consumers paying for TV content, and then separately paying for the same content on the internet, and then again for mobile, there will be one charge for use across all platforms. We are already starting to see dual downloads, i.e. where a customer pays for content on their mobile, which also allows them to get access to it online. The evolution of this kind of cross-platform access will, no doubt, have implications for the entertainment industry over time. But, to answer the original question, I’d estimate that mobile entertainment will go mass market by end 2008/2009.
Graeme Oxby: I remember predicting that the mobile phone market would reach 10 million when I was at Orange. I also remember trying to sell SMS for three years and I ended up with about 10,000 customers. I’ve seen more encouraging signs in mobile entertainment than I’ve seen in mobile generally, and in SMS specifically. 90% of my customers have downloaded video already – 80% browse every month. When do I think the mobile entertainment market will become mass? It’s purely a function of mobile handset sales, and 3G handset sales. We sell about six million contracts per month, it’s going to take 3 years to get to 18 million – that is the point at which it is a mass market. That assumes that all the operators will sell only 3G handsets during this time, which at the moment they are not. So, I would estimate that it will be about 3 years before the market goes mass, by your definition. 33 PRICING FILMED ENTERTAINMENT AND THE IMPACT ON FINANCING MODELS
Panel Chair: Mark Devereux, Senior Partner, Olswang Cameron McCracken, MD, Pathé UK Paul Grindey, Head of Commercial Affairs, Film 4 Neil Martin, Corporate Development Director, Sky
Panel Chair: Mark Devereux, Senior Partner, Olswang: The value of DVD markets is generally perceived to have plateaued and, possibly, to be in decline. There is very aggressive pricing in the stores. Four months after a theatrical release a DVD might sell for £20 in a shop – but a month later, the price will probably be reduced quite dramatically. Against this, there is the advent of high definition. HD-DVD and Blu-Ray technologies are, potentially, going to make a positive difference in terms of revenues from the two new formats. There Mark Devereux is a very significant growth in on demand services. LoveFilm has 300+ titles available for download rental and download-to-own. Download rental rates are at about £2.99, while download-to-own prices range from £19.99 to as low as £2.99. Channel 4 is also beginning to provide downloading services. BT Vision launched at the end of last year. Their 24 hour rental of films is currently priced at £2.99 on a pay per view basis for current titles, and £1.99 for older material. BT also provides TV packages for as little as £9 per month on a subscription basis. Virgin Media has 500+ titles available on demand (24 hour rental). It charges £3.75 for top end material, and £1.50 for older material.
Business models for the consumer vary widely – from subscription VOD for a monthly fee, to more conventional pay per view models. Indeed there are also some free models beginning to appear with advertising. In relation to the pay per view models and/or subscription models, there is a revenue share going back to content owners and distributors who are licensing this material. Not uncommonly, some of these deals are generating small amounts of revenue for content owners. Generally, rights deals work out at 50:50 between the operator and content owner, minus costs off the top. This means that returns to content owners for this type of on demand material can be as little as a pound, or indeed a matter of pennies for certain types of content. Currently, deals are generally done on a non-exclusive basis, while new platforms and services are emerging. The trend is undeniably moving towards getting earlier access, to as much material as you can get your hands on, for cheaper and from a multiplicity of sources.
So, I think the importance of on demand rights is growing very significantly, but I’m not sure yet that they are providing a significant enough return to content owners. In the future, of course, there is the promise of the famous long tail, which the panel will look at later.
34 In terms of the fight for subscribers’ eyeballs, what is this going to do for the pricing of film and other content to the consumer? And, with the shrinking returns from DVDs, while we are waiting for that long tail to actually appear, are we going to see a hole in the finance plans for films, as distributors and other rights owners begin to feel the squeeze? Paul, what is Channel 4’s view?
Paul Grindey, Head of Commercial Affairs, Film4: Channel 4 is rapidly evolving into a multi platform media business: 4 On Demand (4oD) was launched last year; we are currently bidding for a radio network; and we are making other media acquisitions in order to strengthen Channel 4’s multiplatform presence and brand. This is crucial in a fragmented market.
In terms of pricing, Channel 4 charges 99p for downloading Paul Grindey TV on a download-to-rent basis, and £1.99 for movies on a download-to-rent basis. These kinds of price points were arrived at after surveying consumers and ascertaining what most consumers would be prepared to pay.
Panel Chair: With regard to the film model, when you are investing in a feature film, what rights are you actually looking to acquire? And how are you valuing those in terms of your contribution to a finance plan?
Paul Grindey: The model for valuing these rights on a financing basis is different from an acquisition basis. Film4’s brief is to help sustain the British independent film production sector – so we develop most of the projects and also break in new talent. For us, there’s a process of engaging writers, breaking in new directors, overseeing the production process, and then distribution. In terms of the rights that we acquire, we look for a mixture of exclusive TV rights, sometimes after a first run Sky window, sometimes after a Sky output deal (in respect of studio co-financing partners). We recognise that, in order to really give the film the push in the theatrical markets, some distributors need the possibility of a first run sale to Sky if a film performs very well. On the other hand, there are some films for which we would buy television rights outright, and we would pay more for that. And then, in addition to our TV rights, which are usually paid for on a licence fee basis, we take VOD rights on a non-exclusive revenue basis. At Channel 4 we believe that we have the brand, packaging, marketing and editorial flair to drive people to our platform in a non-exclusive VOD environment.
Panel Chair: How do you think on demand services will impact on the traditional values of free TV?
Paul Grindey: I think it will affect traditional TV severely. What’s quite interesting is that, in the past year or so, the prices that are being paid for film on TV on secondary channels have actually held up. I think this is down to the proliferation of buyers in a 35 digital multichannel environment – i.e. the same supply of films and an increase in buyers. But, going forward, it’s much harder to see how the value for free TV rights, or any form of TV rights can be sustained. In a couple of year’s time, traditional TV services will have to compete head to head with VOD services on EPGs.
We therefore have to look at other ways of assembling a TV proposition, whether it’s branded film channel like Film4 going free to air (which maybe has a reputation for editorial consistency) – or producing films for a particular market. A strong brand is essential. You have to rely on these sorts of things to build audiences - rather than simply through the monopoly power of being the only electronic distributor of film, which is what broadcasters used to be.
Panel Chair: Neil, could you talk a little about Sky’s view of on demand services, and in particular your understanding of where download-to-own begins and ends, and where Sky’s rights start.
Neil Martin, Corporate Development Director, Sky: On demand is obviously important to Sky. We have certain technological constraints that make it more difficult for us to have on demand - but we do believe that on demand is a very important part of the Sky story. Our initial starting point with VOD was to make it an enhancement to our movie subscription service. We pay the studios and other distributors a fair amount of money for the privilege of creating a Sky movie service. We thought that in a world in which there is a proliferation of Neil Martin access points for movies, it was appropriate that our starting point would be to shore up what we had as a business model, i.e. our Sky movie service (which has about 5 million subscribers). It’s a value add, something that helps create value and give more choice and flexibility over usage. We think more generally though that, while the key for us is to retain the value in that pay TV window, it’s also to build and generate new business models. Paul said that in the old world the broadcaster had all the cards - all forms of distribution were held by the broadcaster. I think we are trying to keep hold of some of those cards. We are trying to do that in a couple of ways. One is that we have a brand that is associated with high quality aggregation. Also, from a presentation perspective – we are very good at presenting new services that harness new technology. In the pc world we believe that we’ve done that.
To answer the second part of the question – we are currently buying rights exclusively. We pay a lot of money to distribute a movie on an exclusive basis, and we are going to find it increasingly difficult, over time, to sustain the same levels of money, if it will be possible to get content from any number of other places. Therefore, we want to ensure that we are able to control access to that content in a sensible way.
36 Panel Chair: So, just to clarify. Many people view download-to-own as the successor to DVD packaged goods. Obviously the DVD sell through market will continue, but the Sky proposition is that when their window kicks in (i.e. 60-90 days after first video release), the download-to-own market should cease. So, we have a possible truncation of some of the value chain. From a distributor’s point of view Cameron, how do you feel about that?
Cameron McCracken, MD, Pathé UK: Well, obviously very miserable. It’s an incredibly difficult time right now – I understand exactly where Paul and Neil are coming from. I understand the pressures that the broadcasters are under in terms of trying to understand the future and how they are going to get revenues out of the programmes in which they invest. The problem for a distributor is that whilst, in relation to rights, a territorial land grab is going on (with broadcasters acquiring the right to exploit on as many platforms as possible), we are Cameron McCracken being paid less because the cost of launching the new VOD services is very high. The financial impact is already being felt by the distributors, which will inevitably be fed through to the content creators. Until now, the focus of the distribution community has been the impact of VOD on DVD – DVD is where our profit margins have always been. In very broad terms we’ve been taking about 80% of quite a substantial retail price for packaged goods. But VOD pricing changes all that – we have a smaller share of a much smaller base price. So right now the hope is that, with VOD, we will replace the collapse in margins with huge volumes of sales – the long tail. Everyone is talking about this fabulous great brontosaurus-type tail. But we have no idea – what if it turns out to be a Manx cat?
With respect to TV values - in terms of the packages of films we present to the broadcasters, we are already feeling the impact. The economic model is changing. We’ve had a wonderfully comfortable period where exploitation has happened in readily understood, sequential periods of time. But people outside of our industry have been saying, “Are you mad? You are the only industry that doesn’t give people what they want when they want it. Wake up!” So, now that all films are digitised and rapidly end up on the net (whether through piracy or otherwise), there is intense pressure on windows. The more these windows collapse, the more we are in unknown terrain, and the less we can be sure of our sources of revenues.
Panel Chair: Obviously, piracy has been one of the key arguments for collapsing the windows. Do you buy into that Cameron?
Cameron McCracken: I sort of buy into that argument – I genuinely don’t know how you can stop piracy. As soon as anything is digitised, it is on the net. Through a French company, we are monitoring when copies of our films are being placed on the net - and we are trying to protect our content, by using a peer to peer technology that blocks 37 illegal BitTorrent networks and the like. But as long as there is a world full of young kids devoting themselves to cracking DRM technology, we are never going to be able to really stop it. So, in terms of pricing having to come down because of the pressure of piracy, I acknowledge that pressure. But I am also aware that the video business has added to the devaluation of content by putting on special sales and promotions for DVD content rapidly after release. Now that such content is so clearly available for free over the net, it’s perceived as being even less valuable.
Panel Chair: So if we can foresee that there could well be a shortfall in film finance plans, Paul do you think this is going to result in a rash of smaller scale filmmaking, perhaps more like the TV film model?
Paul Grindey: Yes. There’s been a long standing debate in the film industry about theatrical films being too expensive. Costs have been driven up by a combination of high physical production costs, because crews expect the same pay on independent movies that they get on the big studio films – and marketing, and big up front fees for talent.
Channel 4 has a sort of model whereby we commission a film under our TV terms of trade for the UK, and the film is theatrical outside the UK. The producers who have done films for us through that model have made a lot of money, and also really enjoyed the experience. It’s a case of looking at the value of the primary broadcast window, and maybe emphasising that, in order to generate a much greater pre-sales licence fee. I think there probably does need to be a new business model. There needs to be much more transparent and direct accounting, possibly talent will take revenue shares, rather than big upfront fees – this is already happening.
Panel Chair: Neil, what do you think this is going to do to the financing landscape? Is Sky interested in the non-blockbuster, or the smaller TV-type movies?
Neil Martin: Absolutely. We have recently gone into business with Odeon to create a small business with them. We’ve done that for a number of reasons. We absolutely believe in the value of new content and bringing it to new audiences. We are also looking at the UK audience in terms of 10-30 different segments, rather than just 2-3 target markets. In terms of the product, we are trying to give more certainty to the filmmakers themselves by telling them, upfront, broadly the amount of money that they can make through theatrical, through VOD, pay per view, or TV.
Panel Chair: Is the deal with Odeon a precursor to seeing the exhibition sector getting involved in the food chain? There have been some thoughts kicked around generally about whether or not (bearing in mind a significant part of the UK exhibition chain is owned by private equity houses) they may have an appetite for involvement in the financing chain, i.e. participation downstream, rather than just in the cinema.
38 Neil Martin: I can’t go into the specifics of the deal, but they are happy that we know that end of the market place, and they are leaving that bit up to us – just as we are pretty much leaving the theatrical side to them. I think, from both of our perspectives, we want to learn about everybody else’s business – because as business models and windows shift, part of what we are all trying to do is evolve with the times and retain value.
Panel Chair: In terms of the current practice of licensing all these rights on a non exclusive basis - Cameron, do you think that’s a good thing to be doing, from a strategic point of view? Is it right to try these services out and see how the economics work – or would it be better to hang on to the rights until the market develops slightly more?
Cameron McCracken: I think our policy, so far, is based on the fact that we don’t really know how the market is evolving. So, we are doing as many short, non-exclusive licences as possible, across all the platforms, with a whole number of providers, and just seeing how it works. The truth is, it’s a tiny market at the moment, but we are all expecting VOD to morph into something much more important.
There now seems to be a consensus that subscription video on demand is probably the future, because it’s much easier for customers to handle (i.e. they make one payment and then get a whole bunch of services “free” within the context of that one payment). But unless the size of that payment is very significant – which seems unlikely – then the real revenue that we need to be tapping into as distributors and content creators is the advertising and sponsorship revenue that will gather around those services. Maybe, for the content providers and the distributors, it will be important to get away from the financial model which really came in way-back with pay per view. The revenue split there was a straight 50/50 (sometimes with costs off the top). Now, when I look at VOD, the 50/50 split doesn’t make sense. Why are you leaving 50% of your revenues with a VOD service provider? Distributors should have a much bigger portion of that to share with the content provider.
Panel Chair: Paul, traditionally broadcasters have been very careful never to share advertising revenues with content providers. Do you think this all could change with the advent of services, such as YouTube?
Paul Grindey: Actually, I think free TV broadcasters do share advertising revenue, but it’s not a direct relationship. Maybe the deal one might get for an ad supported VOD service would be based on usage. It would be up to the broadcaster to take a business risk of whether the advertising sold for that usage is sufficient to fund the advance that has been paid or not. It’s all about assumption of risk, and who should pay to assume the risk. Insofar as Channel 4 takes advertising revenue, pays for an ad-selling and commissioning overhead, and then commissions programmes, based on its tariff (itself based on genre and time slot, which are generalised predictions of advertising revenue), with some cross-collateralisation of revenues, then that to me looks like a passing on of 39 ad revenues, but with the necessary adjustments to allow Channel 4 to take on the business risk of running an advertising sales business. I think that what is interesting in TV right now is that the independent production sector is becoming more powerful. Those companies may be prepared to share some of the risk involved in financing a programme, and also to lose money if advertising revenue is not sufficient to pay for it.
Panel Chair: Neil, there has been talk of the long tail, which could generate significant revenue. How important is it to be able to direct consumers to find material in that context. Is this where brands and key brands are going to pay a critical role in making this happen? Sky is a strong brand, and Google is a strong brand. How important do you think the role of the search engine is going to be?
Neil Martin: It will probably come as no surprise to you that I’m going to say it’s going to be very important. With potentially up to 20,000 hours of VOD at one’s disposal, the choice is overwhelming. About five or six years ago, we started running a football club on demand video service, where people could search back and look at Manchester United archives for the last 25 years. We found that less than 1% of people bothered because it was too difficult. All they wanted to watch was the last match highlights, and the stuff that was pushed towards them. So I think that, to a degree, consumers need handholding. And that handholding needs to be done in an editorial way, or it needs to be done in terms of great and very simple functionality. Sky is fortunate in that it has brands that are associated with high quality content. We are also associated with high quality technical solutions. Search interfaces and means of discovering content are going to become increasingly important. We spent £6-7 million building a recommendation engine that is going to go across our TV, pc and mobile platforms.
As for the long tail, well there are some pieces of content which just don’t sell. But, I wonder if there is a way of creating a new window - another free window that sits further down the food chain, where you can put content, a bit similar to YouTube. But, the difference would be that a third party could sell advertising around that content on your behalf. Perhaps the content could exist on that platform for a limited period of time, say, three months.
Cameron McCracken: Yes, that sounds interesting. It’s true that there are certain films in our catalogue which people don’t really show any interest in. But we say, “The long tail’s coming – surely someone out there in the universe is going to be interested in this title.” I’m just not sure that that is actually going to come to pass. So, I take your point that it may be that you can try and do something, e.g. pool all your films and seek advertising around them.
For the record, I don’t want to appear to be in despair, but I think we are going through a particularly hideous period right now - with all the VOD brands hunting in the market place to establish themselves. Everyone is on a subscriber land-grab. This means that
40 prices are going to be driven down, which of course makes it very difficult for us and the content providers. But there will inevitably be consolidation, and hopefully there will be a time when there will be fewer players competing with each other. This will be when we can start getting value and prices back up, and get the model to work better. However, I don’t think we’ll ever get back to the halcyon days of sequential windows.
Neil Martin: You said, five or ten minutes ago, that you were very happy to do some short term deals on a very non-exclusive basis and that you’ll essentially licence to everybody. By doing that, aren’t you just proliferating the myth that this is going to force prices down over time?
Cameron McCracken: The problem is that nobody is offering a better deal, e.g. a substantial MG. I think we need the market to move on a bit. I’m sure we’ll get to the stage when we can do exclusive deals, but at the moment the business model isn’t stacking up.
Panel Chair: Neil, do you see some consolidation? I think there will be some winners. Naturally, if you are in a market where there are 10-20 providers of services, in the end, 3-5 will emerge as the market leaders. But, what is interesting about Sky is that you have a different model. You are going for exclusivity, which is directly opposite to what we’ve been talking about in this context.
Neil Martin: The exclusivity that we are after is only against certain things. We don’t have exclusivity with transactional VOD, but we do have exclusivity with subscription VOD, because we are a subscription based business. I think that our colleagues at Virgin Media would probably have a similar view over time. Certain content will have to become exclusive, because we are all going to need platform differentiators.
Panel Chair: I think the hope is, as Cameron says, that consolidation will drive some exclusivity of deals, which therefore increases the prospect of raising prices again, and possibly some advances or guarantees, which could therefore supplement some of the film budgets. Neil, in terms of visibility, how critical will marketing spend be for providing a differentiating factor?
Neil Martin: I think that marketing absolutely should form a part of any deal that a distributor does – there has to be some commitment to marketing the service properly. At the moment, VOD is an intrinsic part of our business, as we are able to deliver the service to our set top boxes in the same way that BT Vision and Virgin are. Over the last couple of months, we have invested £2 million marketing ‘Anytime’ as a brand, which is going to become our multiplatform brand. When the technology catches up, we will continue to market that very heavily, just as Channel 4 have done with 4 On Demand. That’s where we will get to in terms of consolidation - the means of on demand distribution that film distributors know will do a good job will emerge as the winners.
41 Panel Chair: Paul, there is a slightly heretical view that download-to-own may be a thing of the past, with streaming services such as Joost probably eliminating the need for download, and that VOD rental or monthly subscription models will prevail. What is your take on this?
Paul Grindey: There are several potential arguments. But, the case against download-to-own is quite strong. It will become easier to access films that are stored on a central web location. But also worth considering is that hard drive memory will become incredibly cheap - in twenty years time it may be possible to put all the content you could ever need in a life time onto a cheap media player. Maybe another potential inhibitor for download-to-own is that every device will have a USB port – you’ll be able to plug in the memory stick and watch anything you like. Perhaps studios will create hard drives which contain all the movies they’ve ever made. This could be their way of monetising the long tail in a one-off gift presentation.
As for the long tail, I think that original article was written about Amazon. Amazon is a very particular website, where you can see the structure of the store on the home page and your personal recommendations. There is no top 100 and top 50 function. iTunes does have that function, and – anecdotally – I have heard that iTunes has a much shorter tail than the average music retail store. But it’s a fundamental question: are people going to use the Internet to find stuff they already know? Or are they going to use it to get access to stuff they didn’t know. If it’s the former, then the future lies in the top 50, top 100 films on the home page. This would be a terrible thing for the independent film business, because obviously the studios would dominate. So, how the long tail works, i.e. for or against the current film industry, depends on how people consume/use the internet. It’s all still up in the air.
The Chair opened up the session to questions from the floor:
Kimberly Ferguson, Honest Buck Productions: As an international sales agent, I look at these rights and I’m very nervous exactly as to how to define them. In some cases they’re free, in some cases they’re pay. In this new world how do I sell these rights properly to you guys?
Cameron McCracken: Pathé is a sales agent as well as a distributor. All the contracts have had to be totally revised and updated. I think the reason distributors wanted to call everything video on demand was because we were trying to make people accept accounting on a royalty basis. Whereas, in reality, I think it’s clearly a pay TV right. As to how you treat the derived revenues, that all depends on what you want to do. Incidentally, BSAC’s working group, chaired by Mark, has been spending a lot of time trying to create a matrix to clarify definitions.
Panel Chair: Yes, BSAC’s On Demand Rights Working Group is very much looking at the ways of simplifying rights definitions – by trying to identify the moving parts in 42 licensing arrangements from a licensing out perspective. It is confusing: the amount of mistakes made in the market is fairly significant. We will hopefully be coming up with a recommendation as to a practical way of trying to differentiate these rights, so that people don’t end up licensing the same thing twice inadvertently. It’s always going to be a problem for historic material, with old contracts which did not contemplate these issues. However, at least, going forward, we should be able to provide some guidance to prevent license overlap.
Audience Member: What impact will on demand have on established formats – will people want to watch shorter films, for example? Is audience demand changing?
Paul Grindey: Everyone has been wracking their brains about this. Film4 is a commissioner as well as an end user. We are concerned with long term value of films, and finding ways to incentivise people to make films and bring in new talent. Distributors tell us that consumers want to pay less for content. Well, I think most consumers want to pay less for anything if you actually ask them. For example, if you were to ask shoppers in Harrods what they want, they’d probably say they would prefer the products to be half price. I think the answer lies in more transparent accounting. Also, Channel 4 is currently working on a MyMovie mash up with MySpace and Vertigo films. In that project we are taking the user generated experience that has built so much value in so many sites and businesses over the last couple of years, and we are applying that to filmmaking. I also agree that we should be looking at the cultural behaviours underpinning all this, because I think that unless you understand them, you can’t plan for your business. If people only want to watch 10 minute films, going forward, then we’re all in trouble. Any business that relies on a heavily crafted, high quality product, is in trouble. Maybe people will go to short form content for a while, but then they might miss the long form content, and then that could make a big comeback. Who can say? Who would have thought that written communication would become so big now? Five years ago people said that no one would write letters any more, people would be using video phones etc, but now everyone has a blog. No-one has the answers.
John Wolstenholme: Do you see an opportunity arising whereby film producers release films themselves, and retain all rights by having their own destination websites (where that would be the only point of access for that movie)?
Cameron McCracken: Well, of course my immediate answer will be, no you’ve got to have a distributor. But the truth is that everything will mutate, and I suspect that more people will decide to get their product out to the public in their own way. But, I would say that in a sense you have always been in a position to do that. The reason a distributor is there is because you do need someone with marketing and publicity nouse, to actually raise the head of a film above the parapet of everything else – so that it has visibility and will be seen. And I suspect that there may well be a shift towards publicity and promotional value of distributors, because obviously physical distribution is going
43 to change. In the chaos of the net, maybe you will need the distributor to find your audience for you. But I agree – the whole industry is wrestling with this question right now.
Alex Stolz, UK Film Council: It would be interesting to hear the panel’s views on licensing. Currently, licensing is done on a territory-by-territory basis – but surely, this is problematic, as the world wide web has no territorial barriers?
Neil Martin: Sky uses geo-filtering technology for all its online video services – we use a US-based company that maps the world wide web. Five years ago, when I used to work in the sports industry, we tried to buy some global internet rights for a sports event – this was when geo-targeting technology did not exist. The cost was astronomical. It’s far easier now that the geo-targeting software is there.
44 CRYSTAL BALL GAZING: FINAL ROUND UP SESSION WITH LEADING INDUSTRY FIGURES
Conference Chair: John Howkins, Deputy Chairman, BSAC and Director of HandMade plc Bob Pisano, President and COO, Motion Picture Association of America Michael Kuhn, Director, Qwerty Films Sophie Balhetchet, Co-founder, Cougar Films Peter Carlton, Senior Commissioning Executive, Channel 4 Jane Wright, Head of Rights and Commercial Affairs, BBC Films Adam Singer, Consultant, Cordelia UK Ltd
Conference Chair: John Howkins, Deputy Chairman, BSAC and Director of HandMade plc: I’d like to ask the panellists to say whether they feel more or less optimistic after having listened to the sessions today? Earlier today, there was a quote from Ted Turner, “You should either lead, follow, or get out of the way.” I’d like to hear who people believe will be leading and following – and who, in their view, should be getting out of the way. John Howkins Peter Carlton, Senior Commissioning Executive, Channel 4: If I came in a pessimist, I think I’m going out the corpse of a pessimist. Cameron was the undertaker presiding over the death of the British film industry in the last session – and I’m not sure if life support from Jane and I is going to revive it. But perhaps the other end of the table might manage to do that.
I thought, at times, particularly during the last panel, we Peter Carlton seemed to be entering an almost Dickensian universe of hard times and two nations. One is made to reflect that when people talk about free markets and democracies, almost certainly the rich are going to get richer, and the poor are going to get poorer. And if I wanted to make one prediction, banal as it may be, it would be that. I have a horrible feeling I know which side of that divide I’m going to be on.
I think that in this country, weirdly, we’ve always had two types of British films. We’ve had those that have been monumentally successful at the time, and which ten years later, we are at a loss to quite remember their titles or why we liked them so much; and then we’ve had those we all cherish, which appear in all the 100 greatest British films lists (such as ‘Withnail and I’ etc.) and that we all have in our DVD collections - the makers of which, on suspects, have died penniless along the way. And perhaps the brave new world that we enter is simply going to ensure that that great tradition continues! 45 I think that is probably what was originally known as the long tail. And if I can add to the very strange analogies for the long tail and lack of tail – I suppose the great fear now of the independent producer is that, in fact, it’s going to be the lizard’s tail (i.e. if there is some value in it, then someone much larger than you is going to pluck it off at source, and you will be left rather exposed in an area you’d rather not be exposed!
So where does this lead us? On a more serious note, I think one of the big issues is how is this damn stuff going to get funded? It is going to be hard times for all of us - broadcasters, distributors, producers. Working within a broadcaster that has seen the change to multichannel over the last decade – the realisation is that it’s all very well having 100 different points of view and 300 different points of consumption – but who the hell is going to pay for premium content? And the answer, fairly and squarely, has been big American studios and public service broadcasters. The fact is that, when exclusive bandwidth for Channel 4 comes to an end – and we are all thrown out into a brave new digital multiplatform future – that protected revenue for public service broadcasting outside of the licence fee will vanish. Therefore, one of the guarantees for financing British film will very quickly be in jeopardy. So, decisions have to be made about whether, during this time of transition, Government is in a position to step in and actually support diversity of content – particularly premium content and, perhaps, culturally specific content. Because otherwise there is a grave risk that some of the places, such as Channel 4, that have been bastions of such content will have to make the decision that they can only produce content based on maximum return, relative to outlay.
The other thing that I thought was missing from today was a discussion of what content is. Weirdly, we keep talking about users and consumers, but we’re not really talking about audiences – and I don’t mean just the people who watch or listen – I mean actual people out there, with taste, who care about what they are consuming. My other thought was that we are probably entering a very fragmented market – maybe we should be looking at other sectors that have previously managed that step well. Perhaps we should be looking at the music business, where you have the very large multinational bands for global audiences, as well as the niche bands for targeted smaller audiences - which occasionally break out and cross over. Channel 4 is getting involved with Warp Films, which is an off-shoot of Warp Records. They have the notion of making and distributing content differently, and of building very different, direct relationships with an audience. Maybe we need to think about taking movies “on the road” in a similar way that you would take an independent band and gig it for several months in the college circuit. This way you could test the audience, not in a focus group way, but in a much more organic way – by letting an audience not only have a say, but also allowing them to feel some ownership over what you are doing. That is the reason why we got involved with MyMovie Mashup. Who knows what that will turn out to be like! So, things have to change. We have to start respecting our audiences and our users – and we have to start working in partnership with them. The companies that win will be those that do that and who take risks. 46 Sophie Balhetchet, Co-founder, Cougar Films: I think that I’ve got to find a portal and come back as a young, geeky guy - and make content that’s very short, very funny and very rude. Otherwise, I think I will have to move over and get out of the way.
But seriously, I do think that from the point of view of long-form content maker, it’s going to get harder before it gets easier. I think the reasons for that were very well outlined in the Sophie Balhetchet previous session. The financing gap looks to be getting larger. The fiscal uncertainty of the new Government ruling last Friday, the depression of advertising revenues, the fragmentation of the digital future – all this would seem to make it much harder to raise the cash to make long-form content. What the presentations this morning clearly indicated was that if we are lucky enough to make long-form content, there are interesting ways to market, exploit and maximise potential revenue streams. But I think it’s going to be difficult aggregating all those little tributaries of revenue to put together enough finance to fund films. However, some outlets have strong brand value, and will be able to aggregate in a really imaginative way, which will put them in an extremely strong position. I think, over time – which is where I think it might become easier again – there is going to be a resurgence of need for premium product that is going to drive those brands forward; but I think this will take a long time to happen.
I think that there will definitely be a short term impact on the kind of content that people like myself are making, because as we start to put together a finance plan, we are going to be encouraged to think about how we can exploit this content, in different ways, up front. I think this is going to start impacting on the kinds of films that we make.
I don’t much look forward to a future where consumer product is the tail that drives the certain types of content into fashion – but I think it would be foolhardy to think that you can completely ignore that. I think we should be looking at the different means of promoting content, and taking people back to the enjoyment of the long-form.
Essentially, today I heard some grounds for optimism, if you can stay the course. But I must say that I’m pretty pessimistic about being able to do so, certainly with regard to how we will finance independent feature films in the future.
Conference Chair: Sophie mentioned last Friday’s announcement. I just wanted to announce that, in the last few minutes, Government have confirmed that sale and leaseback has been excluded from the new conditions announced last Friday.
47 Bob Pisano, President and COO, Motion Picture Association of America: First of all, you might notice that I am the token American on the panel. I guess I should proceed to verify the stereotype of the American by saying things that are provocative. I should also say, upfront, that my deliberately provocative views don’t represent the views of my member companies: they are my own personal views, so they can’t fire me for what I say! Bob Pisano You asked the question, who is going to lead the market? I think the answer is very clear – it’s the consumer. What we are struggling with now is the change in terms of distributor control of the industry. Before the internet, we decided what you were going to watch, when you were going to see it and where. If you look at the history of our industry – it started out with movies in movie theatres only. But then broadcasting came along, and we said we’ll let you watch it on broadcast TV, but you’ve got to watch ads. And then, along came home video and pay TV, which gave the consumer slightly more control over what they were going to watch. But you still had to watch it in your home, and you still had to watch it when we said you could have the window to watch it. Then, in the 90’s came the digitisation of movies and the Internet. I believe that we’ve got to stop thinking about trying to control the consumer; because if we don’t give content to them, in a legal monetisable way, they will simply take it. So, point one is: the consumer’s going to lead.
Point two (and I say this bearing some of the guilt, because I’ve been in the industry for over twenty years): we in the creative industries have done a horrible job in making people understand that copyright theft is a moral issue – and that in all developed societies it is a criminal violation. We simply have not done our job to make people understand that. To call it piracy trivialises it. We need to reframe the message, and challenge ourselves to come up with a better way of communicating our message that intellectual property needs to be protected. But, unfortunately, we’ve allowed this to happen and so we, as creators and distributors, have to give the consumer what they want – and that means we need to re-think the notion of temporal windows and geographic exclusivity. We also need to think about ways that we are going to deliver our product.
Does this mean that, for example, cinemas are going to be a thing of the past? I absolutely don’t believe that. I think that the out-of-home experience will always be there, if the cinema operator learns to get back in touch with their customer. One of the biggest problems is that cinema operators have lost touch with their customers. They don’t understand what will make their customers want to get up out of the chair and go to the movie theatre. We need to do something about that because those of us in the movie business rely on that launching platform for our movies. Then, once it’s in the cinema, we’ve got to figure out a way of getting it to the consumer, in the home, at the same
48 time. I believe in today’s windows system, but I’m telling you that if we cling to the temporal window system for too much longer, we are going to have the very same type of problem that our brothers and sisters in the music industry have had. That is to say they completely lost control of the ability to give the consumer what they want. They have created this new generation of consumers, and we need to be careful about that.
My third point is that I am quite surprised by the pessimism here today. I think the democratisation of content, and the availability of content, puts a premium on creativity. Consumers are going to find what they want. If the product is creative, and resonates, they will find it and reward the creators for its propagation. I was associated with a company, before I joined the MPA, called Netflicks in the US. Netflicks enables the consumer to find a movie that not many people want to see, and then makes it available through a very clunky system called the US postal system. Ultimately, the movies will be made available through electronic delivery. Therefore, to the contrary, I don’t think that the movie business, or the TV business, is going down the tubes. I think that the traditional models for distribution are going to change, and it’s going to be a bloodbath to get there! But ultimately, this has got to be an exciting time, because more people are going to see more of the stuff that we create. We just have to figure out a way of getting it to them in a way that they are going to pay for it.
My final comment is that I find it ironic that the delivery platform like this: a mobile phone – upon which frankly, at my age, I cannot even see the text, let alone watch a movie or piece of content – nobody thinks you should get this for free. And yet, people somehow think that you should be able to watch content on your 60 inch high definition TV set at home for free. We have failed to help people understand that intellectual property is a resource, and that creativity needs to be compensated.
So, are we going to change? You bet. And if we don’t change with it, we’ll go the way of the buggy whip industry. There used to be a great business in buggy-whips – you don’t sell a hell of a lot of them now. I don’t want our industry to go the way the buggy whip went.
Michael Kuhn, Director, Qwerty Films: Having been around for a while, I think that if I was in charge of a record company now I’d ask them for a plan that would enable me to sell albums on the internet for £2 in five years time. And I’d want them to explain to me how to do it. The size of the organisation, instead of being the size of this room, would be the size of this table. If you gave your kids £2 and told them to go to the corner shop, they wouldn’t bother leaving the house – you can’t buy much with £2. But £2 multiplied by the number Michael Kuhn of people on the internet who are interested in music is a huge business – and that’s where I would want to be. It wouldn’t make any sense for them to download content illegally, if they could get it cheaply with all the bells and whistles. 49 If I was running a studio I’d do the same. I’d tell them I wanted a five year plan which would enable me to sell a movie on its first release date, in any way, to the public – differentiated by price depending on the duration of time after its initial release. The other thing I’d say to both organisations is that they should get rid of all this DRM stuff, because it’s not helping piracy and it’s not helping home copying – it’s just keeping Apple in their dominant position, which is harming the industries. So, instead of being able to have any film, or track, bought from any store, for any player, you’re stuck with the dominance of Apple. The music industry has lost control of distribution pricing, and the film industry will go the same way.
There has to be a vibrant new model. The bigger studios have certainly got the staying power to see them through the transition that is about the take place. It will be tricky, but they’ve managed to survive through the introduction of TV and video, etc.
As far as the UK film industry is concerned, the harsh reality is that we are part of Europe. We can’t fool ourselves that we are part of America. The reason that we’re in the crapper is that broadcasters haven’t been forced to pay their due share of film financing costs, as they have been in Europe. However much Channel 4, BBC and ITV moan, if you said to them, “Either, you pay to subsidise those film industries or you don’t have your license,” there’d be a quick answer wouldn’t there? And, in the short term, some version of that has to happen. In the longer term, there are a couple of solutions for us. One is to make much smaller budget films – which I think we are perfectly capable of on a different model. That is entirely within our control, and there are various experiments going on at the moment. We’ll see how they turn out. I think that’s the way of solving the inevitable problem – which is that, in order to get a £5 million film made (if you are lucky enough to raise the finance) you have to sell your upside. But when you have a hit, the money doesn’t come back - it goes into the hands of the distributors (usually the studio distribution system) and thus we don’t have a sustainable industry: whereas, if you fund that film entirely out of the UK yourselves, and you have your requisite amount of luck, then you should be able to get the upside and have a sustainable business model.
And finally, as far as the new media players are concerned, it was very interesting listening to the last panel. One of them will realise that having undifferentiated content will not be enough. They are going to have to raise that marketing budget and put money into movies to obtain exclusive rights. And the sooner we get our act together and are prepared for that, the better. I think that will be much sooner than later – and for that reason, I am quite optimistic for the British film industry.
50 Adam Singer, Consultant, Cordelia UK Ltd: This morning we were presented with a wonderful image from Time Warner of a thousand buckets all collecting individual drops of revenue. So, it’s a content world where the only economic scale is in bucket buying: a world devoid of all mass revenue drainage. This sounds about right, but the question is, can all those businesses (Time Warner, ITV, EMI) whose lifestyle is based upon these huge soak ways of revenue, really adapt themselves to a multiplicity of buckets? Probably not. Adam Singer
Today has been more about surf boards, not the underlying economic waves. Surfboards are things - like mobile screens, iPods, Zunes, Slingboxes, PVRs, digital film distribution. They all surf the digital wave - but they are not the wave. It’s so easy to get distracted by the things. For example, mobile content is just another access point. In a converged world it is not a separate thing, it’s just part of a choice about where you access your content - on your mobile, or on your 80 inch plasma screen that in a few years will cost less than £500.
It’s funny how we talk about the impact of the tiny screen and ignore the impact of these cheap and large screens. In the end, it’s all just devices, all fishing in the same stream of converged ones and zeros. If you can buy in 2020 an iPod, or equivalent, that can store the whole recorded canon of world culture, as a pre-loaded device, what do you think the individual price per item would be?
As you know, bundling is what happens to things when they can no longer command an individual identifiable price. Just like the calculator on your phone. So what would be the price of a music track, or a movie, on this preloaded death iPod be? A 10,000th, a 100,000th, a millionth of what it is now?
Prices are beginning to fall faster than the countervailing take up – as the music industry knows. In my view, the underlying economic wave that all these things are surfing, the wave that we should be worrying about in this world of almost zero cost storage and distribution, is that there is no scarcity in recorded content. Recorded is a crucial word and covers books, TV music and film.
The values in recorded content were maintained by the frictions of the distribution system; we are entering a frictionless world, thus the values decline. Copyright in recording will be increasingly hard to maintain, as it too is a subset of yesterday’s technological reality. As prices fall, the effort of legal redress gets less and less worthwhile, and piracy is just life's way of telling you that your pricing model is wrong.
If you want evidence of falling values then look at the real fall in the cost of CDs, the fall in the price of a DVD after a few months, on its way to being given away free with the chip wrapper that is the Daily Express. What form of value does the long tail have when it’s given away free to support other business models? 51 Don’t get me wrong - old media never dies it just loses its primacy, and media that is dependant on recording and one-way transmission is losing its primacy and value. The values are shifting across to where there is scarcity. Live music and sports are doing well. And massive multiplayer online role playing games like ‘World of War Craft,’ with its 8 million subscribers paying about $8 a month, does well because it is non-recordable. If you weren’t online when your companions stormed the place of Zarg, then you missed it. These games are at about the same place as Hollywood was in about 1912. Give them 10 years and that's five doublings in speed, and graphic quality, and you have the beginnings of an industry that eclipses the current primacy of one-way recorded content.
What is the difference between new media and old media? Traditionally, media has been defined by the latest platform - cinema, then TV, then satellite, then internet. But old media is that which is recorded and to which the audience make no difference. New media is not defined by platform, but is where the audience is an integral part of the programme - and I don’t mean blogs or user-generated snippets. You Tube films are old media. The difference between a YouTube clip and a major motion picture film is not necessarily creativity, but budget. YouTube is a platform that makes us all broadcasters, that lets us all into the game.
One last thought: I think it was Joe Kennedy who said that he knew to get out of the stock market, just before the Wall Street Crash, when his shoe shine boy started giving him stock tips. He realised that if his shoe shine boy was playing the market, every one was in it – and if every one was in it, then there was no more upside. YouTube means every one is in the recording business.
There are significant values in recording for quite some time, but the values are inexorably failing. My advice is that if you are looking for major future revenue streams – and that, in the long term, there is no scarcity here: move on.
Jane Wright, Head of Rights and Commercial Affairs, BBC Films: I tend to be very optimistic about the future – I’ve been in this business for a long time. There have been many ups and downs along the way. What the downs tend to produce, in the long term, is innovation and new forms of content.
I think we have finally reached the time where the consumer is king. I think that in the past there has been a lot of arrogance Jane Wright in this business, where people have presumed that we knew what the consumer wanted, and that we knew how to give it to them. I can remember seeing value chains produced for businesses where there would be the sales agent and the distributors, etc., but you would never, ever get to the consumer. It would stop somewhere around video in those days. I think we took our eye off the ball by forgetting
52 about the consumer and what they wanted. Now, that being said, the other end of the consumer experience is that they don’t always know what they want. And that’s where innovation, creativity and premium content can grab the consumer again in an unexpected way. So, I think there are lots of opportunities that can come out of that – and passion, along with innovation is what can really surprise us all.
I loved the 1,000 pots of revenue idiom. I thought it was interesting in a couple of ways. This is where accounting becomes really important. How do you find a way of capturing all of those pots and making sure that they don’t have massive leaks? I think that is going to be a huge challenge for those of us in business affairs. Clearly, windowing and brand building are also going to be very important in the future.
Finally, it also emerged today that partnerships are important. I think we have to start thinking about them in different ways. I think there are huge opportunities in exhibition here. Exhibitors need to sit up and find new ways of attracting customers – rather than thinking of cinema as being purely for long-form traditional media content. We’ve got to start imagining, and perhaps supplying, cinemas with different kinds of content that will bring in new audiences and keep that outlet vibrant. I think that this could be good for society too – to pull in people, to physically congregate and talk together, so it’s not just a bunch of geeks on their computers with their ethereal network of friends. That’s a different way to envision partnerships; but obviously partnerships are going to become more and more important as we try to find new ways to finance the movies we’ve traditionally made.
The Chair opened up the session to questions from the audience.
Julian Friedmann: I want to pick up a little on the question that was raised much earlier about why we don’t talk about content. Adam quite rightly made the point about scarcity. If there’s scarcity, there will be value. There is a huge scarcity, in our film industry, of really great scripts. Jane mentioned that consumer is king. Well, up to a point – but actually, in my opinion, we don’t really solve the problem if we treat the consumer as king, because, in fact, long-form content is king. We need to start investing in better script development, and better training - the training in this country for the last decade or so has been lamentable. It’s beginning to get better though – the Screen Academies is a move in the right direction.
I talk to other agents, and all agree that since the media programme started in 1990, and since the Film Council was launched, there has been a very small increase in great scripts. There has been a huge increase in not-as-bad scripts, and fewer really atrocious scripts, but the cost of a movie is so great that we need to fast track the really talented people. And when you look at the difference between the cost of hairdressing on a big movie, and the cost of the script, you realise we simply don’t value the script enough. I think we need to look much more carefully at why people watch movies, not just who watches them. It’s no good doing a post analysis of who watched certain movies, because very few people ever then
53 extrapolate that into the future. In fact, with the help of the Film Council, Take, and others, we are going to be publishing an annual volume on who watches what, and why; but I think, unfortunately, the scarcity is in the scripts – and it’s sad to me that a whole day can be spent without discussing what it is that you are going to actually use to base the programmes, or the films, you make on. Without doing that, we’re never going to get out of the hole we’re in.
Carole Tongue, Chair, Independent Film Parliament: I would like to address my remarks to Michael Kuhn. He was refreshingly quite hard-hitting about those who might contribute more to the UK film industry: in particular, the broadcasters. I think he should have dinner with Gordon Brown quite soon because it would involve some new legislation. Back in the nineties, the European Parliament and European Commission came forward with a proposal that all TV channels should be required to contribute to their nation’s, and Europe’s, film industry. It is possible that this idea could be revised – some countries still do it e.g. France. It’s something that we’re perhaps not looking at sufficiently in this country.
And finally on video on demand, there are some players entering that market with massive resources (i.e. the telecoms companies, with resources up in the billions: £26 billion turnover, for example). Interestingly, France Telecom has taken the initiative to say, without legislation, that it will put 10% of its video on demand turnover into the French and European film industry. I say to BT, who are in this room, would you not consider doing the same?
Leon Morgan, Davenport Lyons: I think Adam was the only panellist who used the word ‘copyright.’ I think, for some years now, traditional copyright law has looked increasingly creaky in the digital age. Can any members of the panel think of any changes that could be made – and in particular, in some circumstances, is there a case for compulsory licensing as we have in music?
Conference Chair: I’m going to ask each of the panellists for their responses to these comments in their final remarks. I would also like to ask them to say what they think is going to be the most important trend or development within the next year, and within the next ten years.
Adam Singer: I think the next most important piece of technology to emerge will be the flexible non-back-lit screens – which will do unto print what iPods have done to music. In other words, you will able to download any book you want and read it off the screen. It will not be like reading off a computer screen, it will look like reading off a piece of paper. When that arrives, at some point within the next year, it will have a profound impact.
The need to tell stories will probably go on for ever, but the way we do it will keep changing. What we are dealing with is mortality. You always know when a sector is getting middle aged. Forgive me Bob, but as soon as one raises the buggy whip, you know you’re in trouble, because new, vibrant sectors would not even know what that is.
54 In terms of all the new entrants coming in to subsidise production of various forms – it’s an interesting point; but actually the whole media industry is essentially following the book publishing model. And we ain’t going anywhere where print hasn’t already been. And if those economics do not exist in print, it’s going to be very hard to create those economics elsewhere.
And finally, on copyright, my own view is that the current situation is very creaky. It is an absolute reflection of an essentially late 19th to 20th Century phenomena. As the technology changes, so you’ll see copyright change to reflect the economic model. Copyright existed to bolster an economic model – but as those models change, copyright will have to adapt. It’s not the other way round – and that is the really shocking thing that’s affecting music. It’s very hard to see it that way.
Michael Kuhn: In 10 years, I’ll be under the sod – so I won’t bother with that question! I’ll keep to the practical stuff, because I’m not a great one for all this crystal ball gazing. Having been involved in implementing two worldwide standards (CD audio and DVD), I know what’s involved in that kind of thing, and I’ve had enough of it! I’ll let someone else have a go, because it’s an horrendous thing to get involved in.
But, just sticking to the practicalities and looking only at the UK and independent producers – unless I’m very wrong, in 12 -18 months, one of these players (whether its Sky, BT Vision, Virgin Media or whatever) is going to realise that there is an opportunity to acquire exclusive rights in British films which have a high profile in this country. This way, they will differentiate themselves in a modern way – akin to the way Channel 4 did when it started up under Michael Grade – and they are going to grab themselves a really advantageous place. They will direct some of their marketing budget towards investing in British movies and closing the gap that we need. That to me is a very exciting prospect.
Bob Pisano: In terms of the script question: absolutely! Movies generally fail because the story sucks. When I was responsible for the American Screen Actors’ Guild, my members used to say, “We’re the ones that make the movies”. And the answer is, “No you don’t. You read the script.” I absolutely agree with your point about the need for better script writing. But I’m not sure that you can teach it.
I think that kind of creativity comes from the heart. Maybe I’m wrong – but I think you’ve either got a gift, or you haven’t, in the same way that great actors have a gift. I’m not sure you can learn it.
I agree absolutely that copyright is creaky. As for the compulsory licence idea – if you want to destroy the creativity in this business, go to the compulsory license. The universal experience around the world is that when you take the risk out of a business – and you mandate what people are supposed to do – you will destroy creativity. I am flatly
55 opposed to it, as is the American industry (I am speaking for the industry in this case), and we will oppose any efforts to do it.
I also question the use of subsidies and support. This is a risk business – make no mistake about it. When you take the risk out of it, sometimes you destroy the very creativity that is the defining and differentiating factor. So I always get nervous that what’s going to come out of subsidies are products that don’t have the creative edge. And in this society, where the customer or consumer is going to decide what they want to watch more and more, and marketing will become less and less a factor, I think subsidies could hurt the business.
Twenty years from now, I think there will be a clearly defined model which will be defined by pricing. I think there will also be general decline in piracy over the next few years.
Sophie Balhetchet: It would be really ironic if, by Government obligation, broadcasters and the telecoms were forced to re-invest in long-form content, and then found themselves having the market advantage. That’s something that those inclined to lobby might be thinking about. I think we’ll see the big brand advertisers coming into finance of long-form content in order to have that premium exclusivity.
Peter Carlton: I have some sympathy with Bob’s point – that too much subsidy often doesn’t help. Nevertheless, I think some subsidy hugely does. But I think you can only effectively tax people if you can ensure that they’ve got the income to be taxed. It’s quite difficult to tax people whose income is dropping outside of their control (i.e. broadcasters). If you are going to go in, and effectively require people in the media business to subsidise film, you have to do it right across the media business – you can’t single out individual players. Perhaps the licence fee would be the appropriate means of doing this – but Jane might want to speak about that. I think there is a role for subsidised public service content; but I don’t think that broadcasters should be the sole supporters of this. I think it’s a much bigger question about how we value culture, how we value cultural production, and how Government and private commercial enterprises work together.
A quick word on scripts – I wouldn’t disagree that there aren’t enough killer scripts. But I think one of the reasons is because we are working in an industry, certainly in the UK, that has in some way lost touch with its audience. And one of the reasons we don’t get good scripts is because people are really at a loss as to the stories that they want to tell, and the stories that will have resonance. It would be a huge help if writers listened to stories on the street and stories exchanged online. Who knows, maybe it won’t be scripts in a few years – maybe we’ll be making movies in a completely different way.
Where do I think we’ll be in a year’s time? I think one of the things that will happen is that somebody, somewhere will find a different way of connecting with an audience. I 56 think it will come from some form of exclusive content. It may come from an existing major maker – or it may come from a very independent source, rather like a Blair Witch. The other day, I discovered my teenage kids simultaneously watching a movie online connected up on their MSN with about 30 friends who were all watching the same movie, at the same time. So they were recreating the cinema experience, but online. I think the future lies in paying attention to people’s watching habits, and their desire for community and sharing stories. The smart people are going to be those that are on top of those new movements.
In 20 years time, we’ll probably be sitting in a cave with a log fire watching somebody doing a shadow play – because we’ll have run out of oil!
Jane Wright: I agree with Peter, you have to be very careful about putting all your subsidy eggs in the broadcaster basket. About this time last year, we did a study of the UK films that were made over the last five years. We took out minority co-productions, and studied films that had broadcaster financing in them – about 15%. So, if you are really counting on broadcasters to be the major drivers behind film, it would be such a seismic shift. I think you need to be looking at a broader base of media for providing support for film.
That being said, we are very hopeful that the BBC does put more money into feature films over the coming Charter period. I can honestly say that the BBC is very supportive of British filmmaking. We want a healthy producer-based, financer–based, distributor-based system that works.
As for the script question: of course we believe very much in strong storytelling, and we work very hard to train writers. Because we deal with quite large volumes of films per year, skills do get honed, and we have a development team that works hard with producers and screenwriters to help make their projects go as far as they can, and in some cases reach the global stage. All the BBC has, at the end of the day, is eyeballs on the screen. We don’t have advertising, so we really do need films to perform in such a way that we can show that people are watching them. That’s our connection with the consumer.
As for what the future holds. In the longer term, I think we’ll probably see a greater mix of professional and amateur content being made available to consumers. Within the next 12 months – if there’s some new gadget or technology that comes on board, I’ll probably find out about it from my kids first.
Conference Chair: I’d like to make one final comment. I am currently advising about twelve independent TV companies at the moment, ranging in turnover from £500,000 to about £8-9 million. These companies are working in the area of factual entertainment, drama, and children’s programming – and each one of them is making their own feature film, with a cash budget ranging from about £20,000, to about £40,000. I’ve seen 57 some of these films. They are not bad at all, and the end result is worth watching. And yet these are made for sums of money, and in ways, that some people in this room would not even look at, or recognise. So there is, in the undergrowth, a stirring that is making me feel quite optimistic about the film industry’s future.
The Conference Chair thanked the panel and all the conference participants for their fascinating contributions and insights. He also thanked Time Warner for sponsoring the event.
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