Thursday, September 28, 2006

The film industry hates you, and everyone you know, and they hope you die in a fire

Seriously. Movie labels - what dicks.
The key issue is pricing. Apple wanted all movies to sell for $9.99, just as it pressed for all music singles to be sold for 99 cents. The studios would not stand for that, though, because they sell DVDs for a lot more than that... So Jobs compromised just a bit...

The studios still hate that, because they think digital movie downloads should be priced higher than physical DVDs, even though there are no physical production, distribution or inventory costs. They should cost more, the reasoning goes, because of the added convenience to consumers.
The cost of downloaded movies, while not exactly zero, is pretty damn close. In any case, it's orders of magnitude lower than DVDs, which themselves have production costs lower than VHS. (The "cost" for the bandwidth and server space for a DVD-quality movie is, for the movie label, on the order of pennies, not dollars.)

Despite this - and despite the fact that the labels stand to capture more profits, per-film-sold, through downloads - they still want to rob you blind. Nice. Just to be clear, a new release DVD usually runs about $25, and the film studios want to charge you more than that - so you could be paying more than triple what Jobs is suggesting for a movie, when the product costs are less than 5% of the physical variety. These people have no shame.

This is the fundamental problem with copyright today - in place after place, it isn't serving it's explicit purpose. The whole point of intellectual property is to encourage invention and innovation, and here we've got a classic example of copyright-holders doing their level best to hurt a business innovation by pricing it out of the market. If movie execs were capable of anything resembling collective action, we'd actually be in trouble. As it is, we'll just be paying too much for movies.

Anyway, once Jobs gets this going - and I have no doubt he will, despite movie label's truculence - it will be just another blow against the movie theater industry. Good riddance.

9 comments:

Alberta Report said...

Talk to people who work in film about what they think. If a film cannot generate the revenue, it either will not be made, or many talented people will not be capable of earning a living because the company can't make enough to support production, location and post production costs. The distribution of a film after theatrical release is often where the film breaks even, if at all (in the case of rep titles).

Movies aren't just about stars recieving obscene amounts of money for their appearance, or the movie execs taking their big slice. Its also about the grips, accountants, camera operators, and peripheral industries that support film projects. Not all films are made by big fat cat studios either, they are often mereley the distribution or promotional arm. So the perception i think in this situation is a bit myopic.

You cite the issue of copyright to protect creative endeavor, and you are correct. But... how do you reconcile this with the fact that if nobody pays for your movie (due to pirated copies) or pays too little (eg. 9.99 etc.) will the movie be made at all? How does that foster creativity? If nobody can benefit financially from filmmaking then we'll all be watching skateboard videos soon - real creative "and the best movie about a guy grinding a rail and hitting his nuts goes to...."... but i digress.

Also, you have to understand that a rental copy of a DVD movie goes for a significantly higher price. (they don't simply pay $9.99 for a rental copy - it can range from 25 -75 dollars per copy). You assert that media cost is zero, which is correct - and in regular physical retail it is also near zero (a replicated, packaged DVD poses a cost of about 2 bucks per disc) and contains macrovision controls to protect digital rights. The 20-30 dollar price range, versus what Apple is charging is pretty dramatic. I would guess that the studios have made a lot of concessions already to access this market,and rightly so - if done well it will be huge and will certainly help the industry get with the program technology-wise. However, they can't simply toe the line for Apple when there are so many other distribution agreements and players in film projects.

I'm not condoning the actions or the way the movie industry is handling this deal with apple, but it does bug me when people who've never made a film, been in one, or had to deal with copyright on one begin to prosylitize about how outrageous it is to be paid for something a lot of people dedicated their time, money, and skills to produce. To assume that this art form doesn't deserve the money being charged, well it speaks quite clearly for how our society values art.

john said...

1) I do talk to people who work in the film industry, frequently. Believe me when I say I'm not ignorant of the financial pressures filmmakers are under, or the reality of film distribution.

2) I buy lots of DVDs, and books, and am happy to do so, so also believe me when I say I understand the value of art and culture and the need to support artists. (As it is, I ran out of bookshelf space 48hrs after I moved in to my new place.)

3) Neither 1 or 2 gets in the way of the argument I was making, which is this: There is no possible rationale for downloaded movies to be more expensive than DVDs. Moreover, you missed what I think is a rather critical point - perhaps I didn't emphasize it enough:

"Despite this - and despite the fact that the labels stand to capture more profits, per-film-sold, through downloads - they still want to rob you blind."

If the history of iTunes is any indication, the movie studio's sales - on a per-film basis - will be more profitable than physical media sales, which should (in theory, though I doubt it will in fact) mean more money for filmmakers. Better still, small artists have benefited most from Apple's flat-price system on iTunes, and it's not unreasonable to assume small filmmakers would benefit in the same way.

Let me put it this way: Every time media has become cheaper for the consumer, Hollywood has First: screamed bloody murder about how dangerous this was to the industry, and Second: Ended up more profitable afterwards.

I find it odd that you would write:
"but it does bug me when people who've never made a film, been in one, or had to deal with copyright on one begin to prosylitize [sic] about how outrageous it is to be paid for something a lot of people dedicated their time, money, and skills to produce."

Sure, and it bothers me that people assume just because I'm angry about copyright law, I don't know anything about the culture industry. This despite spending years at University specializing in the economics of media. You couldn't know that. Still, it bugs me.

Nowhere have I said - ever - that filmmakers don't deserve to be paid for their work. And I also understand that films - moreso than most other media - are incredibly labour-intensive and time-consuming works.

The question is a very simple one: To what extent should copyright be used, not to encourage and protect innovation and creativity, but as a cudgel to protect old and obsolete business models? My answer is not at all. The film industry's leading lights say, "As much as possible."

Feel free to stake out a position somewhere in between. But please don't assume I'm ignorant of the issues.

wonderdog said...

"There is no possible rationale for downloaded movies to be more expensive than DVDs."

Well, there is, John: they're going to charge the price that they think the market will bear, not the price that reflects their cost. So if people are willing to pay for convenience (consider ticketmaster's convenience charges for online purchases, when cost there is certainly lower), then they're going to be able to charge for it. And make a mint -- if the public is willing to pay.

(Which I wouldn't be; I would regard a downloaded movie as being of less value than a DVD. No cover to stare at, no pretty booklet, etc. I like those things.)

I also have to take issue with your bit about copyright stifling progress. Copyright isn't stifling progress here. It's stifling Steve Job's ambition to fix prices at an arbitrary level, regardless of the wishes of the copyright holders. That's one of the things it's intended to do.

john said...

"Copyright isn't stifling progress here. It's stifling Steve Job's ambition to fix prices at an arbitrary level, regardless of the wishes of the copyright holders. That's one of the things it's intended to do."

Obviously, I disagree. Nobody can seriously argue that $10 (give or take) is an unfair or arbitrary price, considering that you can already have access to a vast library of DVDs for that much or less. (I agree with you in one sense - this is why I won't be downloading movies.)

Nor is Jobs' counter-proposal (read the linked-to article) unfair or arbitrary, given that it accepts a spectrum of prices for movies of different kinds.

Jobs is making a perfectly fair proposal - he has a proven service, with a record of success, and a reasonable pricing scheme. And make no mistake - the studios desperately want in. But they want in without actually having to give customers anything of value.

As for this:

"John: they're going to charge the price that they think the market will bear, ... And make a mint -- if the public is willing to pay."

A fair point, but we've already seen this game: The record companies originally demanded a premium for CDs, claiming (correctly, in 1984) that the convenience and improved quality came at increased price. Then, they phased out tapes and LPs so people had no choice to pay the premium. Then they maintained the $10 premium on CDs for more than a decade after it was relevant, eventually leading to a massive antitrust settlement.

A data point to consider: Every single major record label and movie studio (or their parent company) has been criminally investigated for either antitrust violations or financial misconduct in the last decade. At least once. Some more than twice. (See GE.)

wonderdog said...

I don't disagree that the studios want to inflate prices in unreasonable and even dishonest ways, John.

But Jobs's compromise isn't reasonable, either. It's not up to the retailer to dictate prices to the supplier. In general terms, a supplier is wholly within his rights to refuse to be dictated to in that way, so I can't grant your point that copyright is stifling creativity here.

john said...

"But Jobs's compromise isn't reasonable, either. It's not up to the retailer to dictate prices to the supplier. In general terms, a supplier is wholly within his rights to refuse to be dictated to in that way, so I can't grant your point that copyright is stifling creativity here."

Jobs made a proposal, the studios rejected it. He came up with another one, and the studios may accept it yet, but only after much gnashing and wailing of teeth about how Jobs is trying to ruin the movie industry. (See Jobs' adventures with TV studios, c. 2005) Or they'll reject it too, and Jobs may be force to capitulate (though I doubt it.)

Of course the movie studios have a right to withold their product and look for a better buyer. In this case, you could legitimately argue that Jobs is a monopsonist.

But - and this is crucial - the studios aren't trying to find another buyer, they want iTunes, for obvious reasons (80% of the market.) But their first instinct is to refuse to deal, and insist that the retailer change his business practices, which have worked for both music and television just fine now.

We have a new form of distribution - the iTunes store - and a new form of retailing - variety all at the same price - that's been fantastically successful for both sides of the arrangement, supplier and retailer.

I would define both of these successes as "innovation", and the movie studios are trying to stifle both the single-price practice and at the same time have the tightest possible control over another company's Internet retail. That qualifies for stifling innovation, and goes way beyond what copyright should do.

If the movie studios want to set up their own Internet sales, they're free to do so - and they have. But they suck at it, so they're trying to get Steve Jobs' brand on their side. But they're actively hostile to any compromise, and that's where we are now.

wonderdog said...

I think the fundamental disagreement here is that you see this as a copyright issue. I don't. It's just business negotiation.

It's no different, really, that Wal-Mart attempting to impose some kind of price structure for DVDs.

Are you familiar with Tasini vs. NYT, an important copyright case? The big lesson out of that is that it ain't important what the copyright holder's rights are under the law. What matters is what you can negotiate, which is a matter of who's the bigger gorilla.

Coming at this copyright thing from the perspective of a copyright holder, I'm not much amused at the idea that someone should be able, on principle, to dictate prices to me in the name of innovation. My work is not the same as the next guy's, and you can't have it for the same price. You have to pay the price I can command.

I view Apple's iTunes as the next MS Windows, to be quite frank.

john said...

I've actually made the same argument about iTunes here, but you can't deny it's an innovation in business practice. And I have argued - monopolistic worries aside - that it's a good one. Besides, iTunes is facing increasingly stiff competition from MySpace.

More than that, there's serious argument made by serious, non-me people that - as a small copyright holder - you are better served by the iTunes model than the conventional one (large-selling artists effectively subsidize small ones) but I'm not sure I can convince you of that.

If you want to use the book world as an example, there simply isn't that big a difference between the price of one new fiction hardcover and another, regardless of author or genre, so there's already a history of retailers setting standard prices. It hasn't hurt the book industry, which continues strong growth. I suppose I'll defer to you as to whether it's hurt authors.

You are right that this is a negotiation issue. Like I say, the labels are free to walk away at any time. They're even free, should they choose, to walk away from Internet retail altogether. What's bizarre is the constant demands that a) iTunes sell their products, but b) do so only at their bidding.

The Wal-Mart analogy is incomplete: Yes, Jobs is trying to set prices, but it's also as if all of Wal-Mart's supplies came from 5 companies, and they were all trying to force Wal-Mart to change it's practices. (In the real world, something we might welcome!)

But it's also a copyright issue. One one simplistic level, the movie studios are only "worth" negotiating with because copyright law allows unreasonably long (double-lifetime) terms which can only conceivably benefit large corporations with huge libraries. With a more reasonable copyright law (like what existed pre-1976), much of what Jobs (and you and I) have to pay for would already be free. (Mickey Mouse, Casablanca, etc.)

At a deeper level - and it's relevant in this issue - is whether the largest copyright holders (effectively 5 or 6 companies, globally) should be given the right to dictate things that go way beyond their product, like the conduct of other companies. Their "product" is one that mostly exists because of copyright law, so it's reasonable to question what the extent of their rights are because of that law. There's plenty of case law (and I am familiar with Tasini) of rights-holders being asked to surrender certain rights, too. (The early history of Cable TV is a good example.)

I don't know if you're getting bored of this yet - I'm loving this - but I think at this point I've said about everything I can, so if you'd like the last word it's yours.

wonderdog said...

We aren't that far apart, John. My disagreement is solely with the notion that this isn't what copyright is for. My counter is that this is exactly what it's for. It's "for" making intellectual property into a commodity, more or less.

With that principle firmly in place, this isn't about copyright; it makes no difference whether I build a birdhouse or made a film. If I refused to let Steve Jobs sell birdhouses in some new and innovative way, we wouldn't have copyright to blame.

The outcome of Tasini is (was?) a big lesson for writers, who invested all kinds of hope in The Law. Woo-hoo, they declared. We won. And then they got the contracts that took all rights for the same low fee.

I suggest a new strategy, R2, said their lawyers: let the wookiee win.

Oh, and I never get bored of this subject. :)