The Business of Media Distribution: Monetizing Film, TV and Video Content in an Online World

514 Pages·2009·3.16 MB·English

by  Jeff Ulin

Anyone who wants to know more about how films and TV shows are dis-
tributed and exploited can learn a huge amount from this book.
—Jim Morris,
Pixar Animation Studios General Manager, EVP,
Production, and Producer Wall•E
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, President,
Paramount Famous Productions
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,
President, MGM Worldwide Television
Jeff Ulin’s broad spectrum of expertise, spanning all aspects of motion pic-
ture and television distribution, from theatrical to home entertainment to
new media and television licensing, render him uniquely qualified to illu-
minate the business side of the entertainment business.
—Hal Richardson,
President of Paramount Worldwide Television
Jeff Ulin’s book is a must read for practitioners, academics and potential in-
vestors in the new media space. Having worked in all segments of the indus-
try, 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.
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 under-
stand the jigsaw of media distribution and in what ways the web is influ-
encing how, when and where money is made.
—Michael Uslan,
Executive Producer, Batman, Batman Begins, The Dark Knight
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,
Director, Strategic Partnerships YouTube
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Dedication
For Eve, Charlie, Teddy and the dogs
Acknowledgment
First, and most importantly, I would like to thank my family, includ-
ing my wife Eve and sons Charlie and Teddy. I spent many long hours
writing, and deeply appreciate their tolerance and patience.
As noted at the outset of the book, the business side of the enter-
tainment business is often apprentice-based in terms of learning.
Beyond family and friends, there are a lot of people I would like to
thank for their help, either for being willing to bounce ideas off of,
contribute quotes, or review sections, as well as educating me (and
serving as mentors, past and present) and simply offering encourage-
ment: David Anderman, Tonik Barber, David Barron, Eric Besner,
Chris Carvahlo, Ed Catmull, Alex Collmer, Jason Donnell, Mike
Dunn, Marion Edwards, Louis Feola, Jeff Fino, Bill Gannon, Alexander
Goethal, Lynne Hale, Jim Hedges, Michael Hoff, Carrie Hurwitz,
Barry Jossen, Jayant Kadambi, Jack Kennedy, Cathy Kirkman, Michael
xvii
Knobloch, Michael Kohn, Josh Kramer, Kevin Kurtz, Peter Levinsohn,
Michael Lopez, George Lucas, Rich Lyons, Gary Marenzi, Jamie
McCabe, Jim Morris, Sean McGinn, Jim Mullany, Ned Nalle, Daniel
Paul, Tom Quinn, Gordon Radley, Hal Richardson, Curtis Roberts,
Howard Roffman, Craig Sherman, Pablo Spiller, Eric Stein, Steve
Swassey, Michael Uslan, Pedro de Vasconsoles, Kul Wadhwa, Tom
Warner, Jim Ward, Tom van Wavern, Blair Westlake, Catherine
Winder, and Kevin Yen
And, of course, everyone at Elsevier/Focal, including especially
Elinor Actipis, Chris Simpson, and Paul Gottehrer.
Chapter 1
Market Opportunity and
Segmentation — the
Diverse role of Studios
and Networks
More content from this chapter is available on
www.businessofmediadistribution.com
1
Introduction
This book provides an overview of how the business side of the televi-
sion and motion picture industry works. By the end of the text, read-
ers will gain a practical understanding of how a film, television, or
video project moves from concept to making money. Stars make the
headlines, but marketing and distribution convert content into cash.
To explain how the system works, this book charts the path entertain-
ment content takes from development to financing to distribution,
and attempts to demystify the submarkets through which a produc-
tion is exhibited, sold, watched, rented, or otherwise consumed. In
summary, this book explains the process by which a single idea turns
into a unique piece of entertainment software capable of generating
over a billion dollars and sustaining cash flow over decades. I will
also attempt to put into context the growing array of Internet and
other new media opportunities for content, exploring the emergence
of digital-based distribution systems and the blurring of lines with
traditional outlets.
With the potential of generating great wealth also comes great risk,
and motion picture studios today can be seen as venture capitalists
managing a specialized portfolio. In contrast to traditional venture
capitalist investments, though, film investors risk capital on a product
whose initial value is rooted in subjective judgment. Valuing creativ-
ity is tough enough, but investing in a film or TV show often asks
people to judge a work before they can see it — literally a step back
from the famous pornography standard “I know it when I see it.”
Bets are accordingly hedged by vesting vast financial responsibility
over productions in people who have developed successful creative
track records. Focusing too much attention, though, on creative judg-
ment as opposed to marketing and financial acumen risks failure, and
managers who can balance competing creative and business agendas
often become the corporate stars. Analysts seeking trends may pro-
mote “content is king,” but in the trenches success tends to be linked
with marrying creative and sales skills.
As a result of this mix, there is no defined career path to breaking
into the business or rising to success within it. Unlike attending law
school and rising to partner, or business school and aspiring to in-
vestment banking, leaders in the film and TV world are an eclectic
group hailing from legal, finance, producing, directing, marketing,
and talent management backgrounds. Without a clear educational
starting point or defined career path, how do these leaders and
entrepreneurs learn the so-called “business”?
2
Beyond what I hope will be a “we wish we’d had this book” reply,
the simplest answer is that many executives learn by some form of
apprenticeship. As an alternative to starting in the mailroom, which
will always remain both a legendary and real option for breaking into
the entertainment business, this book will equip readers with a basic
understanding of the economics and business issues that affect virtu-
ally every TV show and film. Behind every program or movie is a
multi-year tale involving passion, risk, millions of dollars, and hun-
dreds of people. In fact, every project is akin to an entrepreneurial
venture where a business plan (concept) is sold, financing is raised,
a product is made and tested (production), and a final product is
released.
While this sounds simple enough, the potential of overnight
wealth, a culture of stars, and the power of studios and networks serve
to throw up barriers to entry that segment the industry and make the
entertainment production and distribution chain unique. The emer-
gence of online and digital distribution is changing the equation,
enabling cheaper, faster production and new ubiquitous and simul-
taneous access to content; whether sustainable business models
evolve to efficiently monetize content to launch on these new plat-
forms, or these outlets simply serve as a supplementary access point
for content is the question of the day.
the BuSINeSS Of MeDIa DIStrIButION: MONetIzINg fIlM, tV, aND VIDeO CONteNt
What is certain, however, is that to understand these new avenues
one has to understand the historical landscape. Traditional media
(film/TV/video) still accounts for over 90% of all media revenues and
the success of online/digital ventures will be tied to how opportuni-
ties relate to existing revenue streams. The exploitation of media is a
symbiotic process, where success is achieved by choreographing dis-
tribution across time and distribution outlets to maximize an ulti-
mate bottom line. Media conglomerates have developed a fine-tuned
system mixing free and paid-for access (TV vs. theaters), varying price
points (DVD sales and rentals, pay TV, video-on-demand), and win-
dows driving repeat consumption — a system that will generate far
more money (and therefore sustain higher budgets) than an ad hoc
watch-for-free-everywhere-now structure. It is because the Inter-
net offers the chance to dramatically broaden exposure, lower costs,
and target finely sliced demographics that the two systems are both
attractive and struggling to merge in a way that ensures expansion
rather than contraction of the pie.
Market Opportunity and Segmenting
3
the Market
A reference to the “film and TV market” is a bit of a misnomer, be-
cause these catchall categories are actually an aggregation of many
specialty markets, each with its nuances and particular market chal-
lenges. The rest of the chapters of this book detail exploitation pat-
terns common across product categories, such as how a property is
distributed into standard channels, while this chapter first outlines
the range of primary markets and niche businesses. I will also try to
highlight differing risk factors and financials that are explored in
greater detail later in the book, but here I want to focus on the diver-
sity of the market and how it can be segmented. In fact, the simple
process of segmentation illustrates the diversity of the business and
how studios can be defined as an almost mutual fund-like aggrega-
tion of related businesses with differing investment and risk profiles.
It is because of this range of activities and the way a studio can be
characterized that business opportunities tend to be “silo specific”; a
successful business plan in the entertainment industry is likely to
focus on limited or niche risk profiles and financials. Except for the
launch of DreamWorks (which ultimately retrenched to primarily
focus on film production), it is rare for any entity to try and tackle
the overall market from scratch.
Market OppOrtuNIty aND SegMeNtatION
Defining Studios by their
Distribution Infrastructure
There are a finite number of major studios (i.e., Sony, Disney,
Paramount, Universal, Warner Bros., Fox, and MGM), and the great-
est power that the studio brings to a film is not producing. Rather,
studios are financing and distribution machines that bankroll pro-
duction, and then dominate the distribution channels to market and
release the films they finance.
Accordingly, the most defining element of a studio is its distribu-
tion arm — this is how studios make most of their revenue, and is the
unique facet that distinguishes a “studio” from a studio look-alike.
Sometimes a company, such as Lionsgate or Miramax in its original
iteration (when run independently by Bob and Harvey Weinstein),
will have enough scale that it is referred to as a “mini-major.” This
somewhat fluid category generally refers to a company that is inde-
pendent, can offer broad distribution, and consistently produces and
releases a range of product; again, though, what largely distinguishes
a mini-major from simply being a large production company is its
4
distribution capacity. Any company, studios included, can arrange
financing: there are plenty of people that want to invest in movies.
In this regard, the film business is no different than any other busi-
ness. Is the production bank financed, risk/VC financed, or funded
by private individuals? (See Chapter 3 for discussion of production
financing.)
What is different with studios is that they will not invest (gener-
ally) in a film without obtaining and exercising distribution rights.
This is because they are first and foremost marketing and distribution
organizations, not banks. Sure, they buy properties, hire stars, and
finance the films they elect to make; however, to some extent this can
be viewed as a pretext to controlling which properties they distribute
and own (or at least control). If the project looks like a hit, it is cap-
tive and the studio through its exclusive control of the distribution
chain can maximize the economic potential of the property. If the
property fails to meet creative expectations, however, the studio has
options from writing it off and not releasing the property, to selling
off all or part of the rights as a hedge, to rolling the dice with a variety
of release strategies.
So beyond money, which anyone can bring, and creative produc-
tion, which an independent can bring, what is it about distribution
that separates studios?
the BuSINeSS Of MeDIa DIStrIButION: MONetIzINg fIlM, tV, aND VIDeO CONteNt
What Does Distribution Really Mean?
Distribution in Hollywood terms is akin to sales; however, it is more
complicated than a straightforward notion of sales given the nature
of intellectual property and the strategies executed to maximize value
over the life of a single property. Intellectual property rights are infi-
nitely divisible, and distributing a film or TV show is the art of maxi-
mizing consumption and corresponding revenues across exploitation
options. Whereas marketing focuses on awareness and driving
consumption, distribution focuses on making that consumption
profitable. Additionally, distribution is also the art of creating op-
portunities to drive repeat consumption of the same product. This is
managed by creating exclusive or otherwise distinct periods of view-
ing in the context of ensuring that the product is released and custom-
ized worldwide.
In contrast to a typical software product, the global sales of which
are predicated on a particular release version (e.g., Windows 98), a
film is released in multiple versions, formats, and consumer markets
in each territory in the world.
Figure 1.1 represents what I will call “Ulin’s Rule”: content value
5
is optimized by exploiting the factors of time, repeat consumption
(platforms), exclusivity, and differential pricing in a pattern taking
into account external market conditions and the interplay of the fac-
tors among each other.
Launching content via online distribution presents monetization
challenges because simultaneous, non-exclusive, flat-priced access
Four Drivers of Distribution Value
TIME DIFFERENTIAL
Immediacy to PRICING
see + Longtail Buy a ticket, rent a
DVD, see free on TV
Mix of
Factors
Drive Value
REPEAT EXCLUSIVITY
CONSUMPTION ‘only see it here’
Theater, Video, TV competitive effect
Figure 1.1
Market OppOrtuNIty aND SegMeNtatION