Some Economics of Digital Movie Distribution

From Reuters via Yahoo!: Coming to a Theater Near You: Digital Films [gotta make a PDF]

The biggest advantage for the moviegoer, says Peter Wester, project manager for Swedish cinema chain Folkets Hus och Parker, will be most visible not on the marquee — not necessarily the screen.

A cinema can download a digital version of the film on a computer hard drive and show it as long as the audience shows up. No longer are theaters bound to the major studios’ distribution schedule, he said.

“The average rise of income for us is 25 percent after one year,” he added.

It can cost thousands of dollars for a cinema to get a Hollywood blockbuster film at or near the release date. A theater operator, therefore, often has little choice but to show the movie as often as possible before returning it to the distributor.

A digital version, because it can be easily reproduced, shipped and stored, costs less than $20 per copy, according to cinema exhibitors. It also allows the cinema operator to free up their viewing schedule, perhaps opening up the odd week-night slot for an art-house title.

And, the build-out is expensive. It costs a cinema operator an estimated $125,000 for the equipment and installation of a digital projector and server. The costs are decreasing, with widespread roll-out expected to halve deployment cost.

The biggest obstacle though is Hollywood. The Walt Disney Co., through its partnership with Pixar Animation Studios Inc. (Nasdaq:PIXR – news), and Warner Bros. (NYSE:TWX – news), are the only studios producing blockbusters in digital film.

Slashdot’s Discussion of the Internet Law Year In Review….

… Has some pretty interesting comments. (see this FurdLog post for the original article URL.)

  • From One year is not enough. Look back at the last ten

    While everyone’s caught up looking at the trees, here’s what’s happening in the forest: We’re inching ever towards limiting the common man’s access to “intellectual property” (whatever that is). In doing so we’re walking away from the past five hundred years of intellectual freedom brought about by Johannes Gutenberg and Martin Luther.

    This is a huge, gigantic assault on the philosophy of the Enlightenment, on which (to some extent) our country was founded and our Constitution based. Yet my impression is that most comptuer geeks only see the tip of the iceberg –e.g. “I can’t legally play my DVDs on Linux” or “ROT13! WTF J00 AD0B3 LAM3RZ!” The strongest fight is coming from librarians. I think librarians are the only ones to realize that, were libraries to be invented today, they would promptly be sued out of existence by the RIAA for illegal filesharing.

  • Re:At one time

    It’s going to be really, really disturbing, though, when we all wake up and find out that we can’t run our “popup blockers”, use our blacklists, and filter responses through proxies anymore. It’ll be “made illegal” to alter the contents of packets that we receive from the Internet because of “intellectual property” bogosity.

    It’s going to be even more disturbing when we all wake up and find that none of us have “root” access on our computers anymore. All our packets on the Internet are going to be authenticated and cryptographically “secured” (i.e. “secured” from US), and the content publishers and distributors will hold all the keys.

    I may be overly pessimistic now, I guess, but I feel like we can’t stop it. The Internet, as we know it now, is going to be gone sooner rather than later. There will be “other internets” that will be similar to this one, but the age of a single, unified, global Internet is going to pass quickly, and idiotic legislation, content publishers and distributions, and “intellectual property” are going to be the forces that break it apart.

A Slowdown In Broadband Deployment

According to the latest statistics [pdf] reported by the FCC, the rate of broadband deployment in the US declined in the most recent reporting period (press release, InfoWorld report). From the InfoWorld article:

Monday’s FCC report doesn’t go into the policy implications of the rate of broadband growth, said an FCC spokesman. But the FCC and some members of the U.S. Congress continue to promote broadband to U.S. residents, and in April, the FCC’s Technological Advisory Council attempted to examine why more U.S. residents weren’t buying broadband. Among the reasons discussed then were cost and the lack of applications that needed broadband.

(I like the plot to the right, taken from the FCC report. You can see population centers, of course, but I really like seeing the formation of BAMA right before my eyes.)

The Question On Everyone’s Mind

And not just because of the DVD ruling — recall the words of the DC Court of Appeals in the Verizon decision: Will DVD acquittal mean tougher copyright laws? (Note that this is a VERY extensive writeup!)

Even before the Norway case was filed, however, entertainment industry lobbyists had been pressing lawmakers in that country and elsewhere to enact tougher copyright laws, modeled on controversial U.S. legislation that makes it easier for authorities to win prison terms for people who crack encryption schemes or distribute cracking tools. If enacted, proposed legislation in Europe, Canada, Australia and Central and South America would soon hand entertainment companies similar weapons against people caught tinkering with anticopying software.

That’s raising warning flags from some critics of the U.S. legislation, known as the Digital Millennium Copyright Act (DMCA), who contend the law protects content owners at the expense of consumers and software experimenters. Now, they say, that law is being exported around the globe with little debate.

“It is interesting that the court said Johansen had not broken any law, but the laws are changing,” said Robin Gross, executive director of IP Justice, a nonprofit group that opposes the DMCA.

Certainly legislation will be promoted — the issue will be how to mobilize to articulate just what’s wrong about the way they are framed.

It’s Not Just Music

As this article shows, the windfalls of digital distribution suggest a realignment of interests and economic power in the entertainment business — and there’s no reason that the artist can’t participate in that: A ‘Seinfeld’ Star Will Do the DVD but Asks for Pay.

“I’m not boycotting,” Mr. [Michael] Richards, who played Kramer in the series, said in a telephone interview late Monday night. “I’m involved. I was never called to do an interview. I am so for the DVD coming out that I’ll go on the `Tonight’ show.”

But Mr. Richards said he thought he ought to be paid for taking part in the DVD project, in part because the show has been such a windfall for its creators, producers and distributors: Jerry Seinfeld, Larry David, Castle Rock Television and Columbia TriStar Home Entertainment. They will all share profits from the DVD.

Actors do not typically receive residual payments for DVD’s, but this is quickly becoming a major issue in Hollywood, as DVD sales now bring in millions of dollars to those who control the rights to hit television shows and movies, far more than revenue from videocassettes.

Mr. Richards said: “I innocently asked a question. Is there some compensation? I don’t believe there is. There isn’t anything.”