For anyone generally interested in how networks and studios make money and put money at risk, from the TV shows and movies they produce to the novel challenges they’re facing today, this book provides a unique overview and a glimpse into the future. —Blair Westlake, Corporate Vice President Media & Entertainment Group, Microsoft Jeff Ulin brings his practical experience and academic understanding of today’s complicated media world together to provide us with a comprehensive guide to navigating a world that changes almost daily! —Marion Edwards, President, 20th Century Fox International Television It's very difficult to find a text that gives both a comprehensive overview of the history of the entertainment industry as well as informed insight into its future landscape. Nothing out there does it better. —Judd Funk, Former Head of Legal Affairs, Universal Pictures; Associate Professor, Lawrence and Kristina Dodge College of Film and Media Arts, and School of Law, Chapman University Anyone who wants to know more about how films and TV shows are distributed and exploited can learn a huge amount from this book. —Jim Morris, Pixar Animation Studios General Manager, EVP, Production and Producer, Wall•E; Former President, Industrial Light & Magic Jeff Ulin’s broad spectrum of expertise, spanning all aspects of motion picture and television distribution, from theatrical to home entertainment to new media and television licensing, render him uniquely qualified to illuminate the business side of the entertainment business. —Hal Richardson, President of Paramount Worldwide Television The entertainment industry is an industry with ongoing challenges with constant change. Jeff provides a road map to see where you are going by understanding where you started. —Louis Feola, Former President Universal Home Video, and Paramount Famous Productions This is the book that everyone in the business has been waiting for—Jeff’s seen it all, and has written a must-read book for those wanting to understand the jigsaw of media distribution and in what ways the web is influencing how, when and where money is made. —Michael Uslan, Executive Producer, Batman, Batman Begins, The Dark Knight Jeff Ulin’s book is a must read for practitioners, academics and potential investors in the new media space. Having worked in all segments of the industry, Ulin brings together a unique combination of experience and analytical rigor to deconstruct the driving forces of an industry in dynamic change. —Pablo Spiller, Jeffrey A. Jacobs Distinguished Professor of Business and Technology, Haas School of Business Ulin expertly depicts the fluid nature of content creation and distribution in a concise and understandable way. There’s never been a better insider’s look at the choices and challenges that studio executives face every day. —Gary Marenzi, Former President, MGM Worldwide Television Every Silicon Valley start-up working with Hollywood needs to know what Jeff knows. With his knowledge, you’re better able to fast forward the future of online video. Without it, you risk being stuck on pause. —Kevin Yen, Former Director, Strategic Partnerships YouTube The Business of Media Distribution Monetizing Film, TV, and Video Content in an Online World Second Edition Jeffrey C. Ulin First edition first published 2010 This edition first published 2014 by Focal Press 70 Blanchard Road, Suite 402, Burlington, MA 01803 And published in the UK by Focal Press 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN Focal Press is an imprint of the Taylor & Francis Group, an informa business © 2014 Jeffrey C. Ulin The right of Jeffrey C. Ulin to be identified as author of this work has been asserted by him in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this book may be reprinted or reproduced or utilized in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Notices Knowledge and best practice in this field are constantly changing. As new research and experience broaden our understanding, changes in research methods, professional practices, or medical treatment may become necessary. Practitioners and researchers must always rely on their own experience and knowledge in evaluating and using any information, methods, compounds, or experiments described herein. In using such information or methods they should be mindful of their own safety and the safety of others, including parties for whom they have a professional responsibility. Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. Library of Congress Cataloging-in-Publication Data Ulin, Jeff. The business of media distribution: monetizing film, tv and video content in an online world/Jeff Ulin.—2nd ed. pages cm 1. Motion pictures—Marketing. 2. Video recordings—Marketing. 3. Television broadcasting—Marketing. 4. Digital media—Marketing. I. Title. PN1995.9.M29U45 2013 384.06’8—dc23 2013017336 ISBN: 978-0-240-82423-9 (pbk) ISBN: 978-0-240-82454-3 (ebk) Typeset in Giovanni and Optima by Florence Production Ltd, Stoodleigh, Devon, UK Bound to Create You are a creator Whatever your form of expression — photography filmmaking, animation, games, audio, media communication, web design, or theatre — you simply want to create without limitation. Bound by nothing except your own creativity and determination. Focal Press can help. For over 75 years Focal has published books that support your creative goals. Our founder, Andor Kraszna-Krausz, established Focal in 1938 so you could have access to leading-edge expert knowledge, techniques, and tools that allow you to create without constraint. We strive to create exceptional, engaging, and practical content that helps you master your passion. Focal Press and you. Bound to create. We'd love to hear how we've helped you create. Share your experience; www.focalpress.com/boundtocreate Focal Press f Taylor & Francis Croup This page intentionally left blank For Eve, Charlie, Teddy, and the dogs This page intentionally left blank Contents Foreword xix Acknowledgments xxi 1 Market Opportunity and Segmentation: The Diverse Role of Studios and Networks1 Introduction 1 Market Opportunity and Segmenting the Market 3 Defining Studios by Their Distribution Infrastructure 4 What Does Distribution Really Mean? 5 Range of Activities—Distribution Encompasses Many Markets 9 Relative Size of Distribution Revenue Streams 12 Overhead 13 Pipeline 14 Need for Control 14 Joint Ventures 16 Demise of Historic Joint Ventures 19 Branding and Scale Needs: Online Giving Rise to a New Era of Joint Ventures? 22 Studios as Defined by Range of Product 22 Quantity 23 Range of Labels and Relationships 24 Pipeline and Portfolio 29 Brand Creation versus Brand Extension 31 Windows and Film Ultimates: Life-Cycle Management of Intellectual Property Assets 35 Film: Primary Distribution Windows 36 Film Revenue Cycle 36 Shifting Windows 39 Television: Channels Defined by Range and Quantity of Product Plus Reach and Specialization 43 Defining Networks by Product, Reach, and Range of Budgets 43 CONTENTS Product Portfolio Strategy: Brand Extension versus Brand Creation 46 Television Windows and Life-Cycle Revenues 49 Internet and Other Digital Access Points 53 2 Intellectual Property Assets Enabling Distribution: The Business of Creating, Marketing, and Protecting an Idea 56 The Development Process 57 Development in Stages 57 Development in the Context of Distribution 58 Is Online Different? 61 Development Guidelines 66 Development Costs 66 Optioning Properties 68 Efficiency of Options 68 Marketing Ideas (aka Pitching) 69 Rhythm of the Story, Walk Me Through the Story 70 Toy Story as an Example 70 Protecting Content: Copyright, Piracy, and Related Issues 71 x Copyright 72 Streaming Live TV—the Threat of Enabling Cord-Cutting 80 Trademarks 82 Piracy and Fighting Illegal Copying and Downloads 82 3 Financing Production: Studios and Networks as Venture Capitalists 91 Overview 91 Principal Methods of Financing Films 92 Principal Methods of Financing Online Production 93 Variety of Financing Methods as a Response to Difficulty and Risks in Predicting Success of Experience Goods 98 Challenge Exacerbated in Selecting which Product to Produce 101 Studio Financing 102 Classic Production–Financing–Distribution Deal 102 Studio Financing of Production Slate; Studio Coproductions 103 Independent Financing 113 Foreign Pre-Sales 113 Ancillary Advances 115 Negative Pickups 115 Third-Party Credit—Banks, Angels, and a Mix of Private Equity 116 CONTENTS Crowdsourcing 120 Leveraging Production with International Coproduction Financing—the Wachowskis’ Experiment with Cloud Atlas 123 Rent-a-Distributor: When a Producer Rises to Studio-Like Clout 124 Reduced Distribution Fees are Key to the Deal 126 Funding Ensures Tapping into 100 Percent of Revenue Streams 127 Television: How and Why Does it Differ? 127 Network, Cable, and Pay TV Financing 128 Deficit and Risk Continuum 130 TV and Online’s Relatively Lower-Risk Profile 131 The Wrinkles of Coproduction 134 Case A: A Party Invests in Production in Return for an Equity Stake 134 Case B: A Party Invests in a Production in Return for Distribution Rights 135 Case C: When There is Creative and/or Production Collaboration Between Parties with Respect to a Production 136 Online’s Relatively Low Coproduction