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MARCH 24, 2003 COMMENTARY By Jane Black Hollywood Needs a Digital Story Line Consumers want the choice of on-demand delivery, and if that means Tinseltown has to rethink its business, the time to start is now
The champagne has been flowing all around Hollywood lately. Box-office receipts jumped 13.5%, to $9.5 billion, in 2002 -- the biggest year-over-year increase in two decades. DVD sales grew 71%, to more than $11 billion. That doesn't even include DVD rental revenues, which grew from $1.4 billion to $2.9 billion, according to DVD Entertainment Group, an industry association. You can't blame Hollywood for not wanting to rock the boat. NO STOPPING IT NOW. If the movie industry is to continue its blockbuster growth, however, it needs to risk getting seasick. The spread of fast connections to the Internet is just one sign that demand for digital distribution of movies is set to take off, just as digital distribution of music did half a decade ago (see BW, 3/10/03, "A Real Hollywood Horror Story"). What the music industry's battle against now-defunct Napster and still-prospering KaZaA illustrated was that there's no holding back the tide. Consumers want choice, and if that means a rethinking of how business is done in the Digital Age, the time to start is now. The first step is to realize that digitization of content isn't simply a matter of translating analog films into ones and zeros. It's a technology that plants the seed of the on-demand culture -- a desire by film lovers to see any movie any time they want via the Internet, through their cable or satellite box, or on a portable device. LUCRATIVE TIMETABLE. For this, Hollywood is unprepared. It says it's ready. And last October, five studios launched Movielink, an initial attempt to create a legal alternative to illegal Internet downloading. But Tinseltown's main effort has been to send master lobbyist Jack Valenti, president of the Motion Picture Association of America, on a traveling roadshow to preach the evils of piracy and to promote a new moral code. The subliminal message was that movie companies would rather not mess with a well-honed system than enables them to make good on some very big bets. In 2002, it cost an average of $89.4 million to produce and market a movie, up 13.6% from a year earlier, which was the biggest annual increase since 1997, according to the MPAA. To make its money back, the industry has developed a timetable that dictates a movie's march from cinemas to TV broadcasts. First, films are released to theaters. Three to six months later, they go out to the home market for sale and rental for about 90 days, after which they're withdrawn for sale but remain available for rentals. In months 10 to 12, films are available on pay-per-view or nascent video on-demand services. Finally, a year after release, films go to cable and free TV.
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