Monday, August 13, 2012

The Business of Media Distribution by Jeffrey Ulin

Jeffrey C. Ulin. The Business of Media Distribution: Monetizing Film, TV, and Video Content in an Online World. Elseiner: Focal Press, 2010.

Film studios make most of their revenues from distributing movies. A movie’s value, or content, is determined over time and is affect by market conditions, repeat consumption, price differentials, exclusivity, etc. There are multiple markets in theater viewings, home viewings (i.e. pay television, DVD, video, cable television, free television, paid online viewing, hotel/motel viewing, airline viewing, and non-theatrical viewing on cruise ships nd colleges. The product can be altered for extended versions, versions with commentary, etc. A movie may have 150 different versions, including different formats.

“Negative control” over distribution includes an outsider having rights of approval over a distribution element, such as an actor approving advertising.

Some studios engage in joint venture to reduce the cost of overhead each studio pays and to increase the number of films they can produce.

International box office revenues accounted for about 40% of all box office revenues in the 1980s and increased, reaching 50% in the mid-1990s, and were 64% in 2006 and 2007.

United International Pictures is a joint venture of Paramount and Universal and includes Dreamworks and once included MGM. This allowed shared managerial overhead which is more cost efficient. Revenues are not shared.

Russia has increased from being an insignificant market to becoming one of the ten largest foreign markets during the 21st century.

Spain fined major studios $15.3 million for price fixing and devising schemes against competition.

NBC, Fox, and ABC was Hulu to distribute on-demand programming.

It takes large organizations to distribute movies. Independent producers, sich as Imagine, operated by Ron Howard and Brian Grazer, released one film in 2009 while New Regency, led by Aaron Milchan, released eight films in 2008 and three films in 2007.

Fox created Fox Searchlight and Universal created Focus for distributing lower budget films.

Disney has Touchstone, which is mostly for releasing movies, Walt Disney Pictures, which releases family movies including animated films, Hollywood Pictures, and Miramax.

Sony has Columbia, Revolution, Screen Gems, Sony Classics, and Tristar.

Fox has 20th Century  Fox, Fox 2000, Fox Searchlight, Fox Atomic, and Fox Walden (which used to be Walden under Disney).

Warner has Warner Brothers, New Line, and Warner Independent.

Paramount has Paramount, Dreamworks, MTV / Nickelodeon, and Paramount Vantage.

Universal has Universal, Focus Features, and Rogue.

A high budget film is when its budget is over $100 million.

The average cost of a major studio budget in 2007 was $70.8 million.

A “tentpole” movie is one that significantly increases studio earnings, such as “Titanic”. Studios will place higher budges into expected tentpole movies such as the Harry Potter series for Warner Brothers, Spiderman movies for Sony, and Pirates of the Caribbean movies for Disney.

Many movies come fro real world events,books, or comics, sequels, or spin-offs.

Movies generally receive revenues for up to three months in theaters and hotels, from video releases usually beginning six months afterwards, residential videos on demand 30 days to three months after home video release, pay TV one to five years afterwards, and free TV for years after pay TV showings.

France has laws stating a movie may not be released on DVD prior to three months from when it was released to theaters, it may not be shown on pay TV for 18 moths or on free TV for three years after its theatrical release.

2929 Entertainment, owned by Mark Cuban and Todd Wagner, released their movies to 32 Landmark Theatres which they own and to DVD at the same time. Their philosophy is this reduces marketing costs as only one marketing campaign is required

Clickstar releases its movies for Internet download at the same time as their theatrical release. They fear Internet piracy and believes this prevents it.

Many successful movies emerge from books or comics. TV shows are usually origian ideals yet many are either about challenged marriages, hospitals, police, or sexual tension.

TV is testing different video on demand (VOD) markets. Some TV series off pay VOD upon showing the episode, some have free VOD for past episodes, and Europe offers pay VOD for next week’s episode.

Pixar attributes its success to its philosophy of approving people rather than approve specific projects. Pixar allows quality people to create their own ideas. A brain trust picks the best ideas.

Merchandising can be an important part of deciding which projects are approved. Disney gives large consideration to merchandising.

Some prospective TV shows have appeared first as several minute Internet shows. “Sophia’s Diary” in England is an example. “Quarterlife” went from the Internet to NBC but it did not last long on NBC.

Developmental costs are all overhead costs with no revenues.

Some proposed ideas are considered as storyboards and/or temporary voice tracks.

A copyright for a movie is the life of the author plus seventy years. If there was corporate authorship, the copyright is for which comes first: 95 years after being published or 120 years after being created. Extensions were created in 1998 for copyrights on films such as Mickey Mouse.

A copyright protects the whole while a trademark protects an element of the whole.

The MPAA estimates that Internet piracy accounts for about 40% of industrial financial losses (such as pirated DVDs). In 2006, it was estimated that hard goods piracy cost MPAA studios $3.8 billion while Internet piracy cost $2.3 billion. It is believe Internet piracy now costs more than hard goods piracy,

It costs a studio an average of over $70 million to produce a movie plus an average additional $30 million in marketing and distribution costs. Some moves cost over $200 million. Studios thus face great risks on a small number of investments. Sometimes risk is lowered by investing in other projects such as television shows.

The most common means of funding a movie is by the studio using its own financial resources. Studios will lower investment risk by taking on independent financing producers. Other financing means include bank loans, pre-sales proceeds, completion bond revenues, negative pickup structures, and debt and equity slate financing.

Some wealthy independent producers self-finance their films and use a distribution model. This occurs with Lucasfilm and Fox, as well as with Dreamworks and Disney, and used to exist between Pixar and Disney.

Some film obtain venture capital financing, as did “Polar Express” with Steve Bing.

Online productions are financed numerous ways, including self-funding, venture capital funds, company investments into websites, studio delivered services, etc. The advertising on these sites are used to generate revenues.

There is a poor correlation between awards and financial success. Those voting on awards reward artistic talents. Many financially successful films do not win awards. None of the top 15 commercially successful films in 2008 were nominated for a Best Picture Oscar. Only tow of the nominated for Best Picture in 2008 and 2009 had over $100 million in box office revenue.

Studios may reduce financial risks by creating an agreement with another studio to share financing and distribution rights. This is also done when two or more principals are connected to different studios, as in “War of the Worlds” where Steve Spielberg of DreamWorks worked with Tom Cruise of Paramount.

Fox was warned of risks in the high costs of making “Titanic”. Some believe Paramount purchased half the rights to “Titanic” at less than half the costs. This was very profitable for “Titanic” set box office records.

Studios with a strong brand such as Disney may obtain equity financing for a slate of movies. Hedge fund investments have partially financed some movies Their investments sometimes spread their risk by investing in multiple films.

Hedge fund investments have partially financed some movies. These investments sometimes spread their risk by investing in multiple films.

Some movies receive funds for producing films by pre-selling foreign sales. Some films receive 60% of their production budget from some presales.

Some films sell merchandising or video rights or advances for obtaining financing.

Some film distributors guarantee to reimburse a movie production for its production costs, which is known as negative costs. A distributor often has appraisal rights on budget production schedule, script, main cast, director, contingent compensation, film running time, and rating. A completion bond is often required, which allows a company to take control of a film if it goes over budget or over time schedule or defaults. The producer borrows financing using the guarantees as collateral.

Movies may obtain bank loans or a bank revolving credit. The bank will seek repayment and is not involved in a share of film film rights.

A studio may create a mini-studio that raises its own funds, as when Disney created Revolution Studios.and when Harvey Weinstein created the Weinstein Company. These mini-major studios often obtain financing from distribution deals and bank credit.

Marvel Entertainment, with $500 million from Merrill Lynch, created its own studios for films on its comic book characters. Marvel thus retains creative control.

DreamWorks SKG was created with a $1.5 billion in financing.

In rare occasions, a producer pays the production costs and receives a low distriibtuion fee.

Intelligent co-financers receive a share of the same revenues as do studios and receives them when they receive them. How net profits was defined and over which revenues streams they are from makes a difference.

Most TV shows cost more to produce then they receive in network licensing fees. TV shows become profitable from international licensing syndication and DVD sales.

Networks and studios produce several TV shows as only some receive enough in syndication to earn profits.

Cable TV networks obtain revenues from subscribers. Cable networks with higher demand may obtain a larger share of package fees.

Pay TV receives a subscriber fee and has the least risk financing. Free TV has the most risk financing.

There are few consistent models of profitability for Internet programming, despite low production costs.

Australia provide relatively significant tax incentives for movies produced in Australia. 12% of the “Superman Returns” budget was accounted for by these tax incentives. Europe and Canada also offer financial incentives for film productions. Canada has a point system where incentives are provide according to the number of Canadians involved in the production.

Distributors control the distribution process. The makers of the movie, the director and the producer, often have different ideas on how the movie should be marketed, which creates uneasy relations. Those involved in making the movie are often also part of the marketing.

Some films, especially those of Woody Allen, open in selected large cities. The marketing goal is to create interest in the film that takes it to other cities.

From 1988 to 2000, the number of theater screens in the US went from 23,000 to 37,000,  61% increase, while theater attendance increased 36%. Several theaters went bankrupt. As of 2004, there were 36,000 theater screens, Megaplex theaters that had revenues on concessions, coffee bars, and video arcades, drove much of the newly opened theaters. There were more screens at fewer locations. There were 7,151 multi-screen theaters and 5,629 in 2004. Major theater chains were bankrupt, such as Loews, Cineplex Entertainment, Carmike Cinemas, United Artists, Royal Cinemas, and General Cinemas as many were filling 10% to 15% of their capactity.

Digital cinemas present movies in good quality as film deteriorates and develops scratches. It cost about $100,000 for a theater to convert to digital film showings.

A theater may have a minimum guarantee deal with a certain payment over house expenses with guaranteed minimums that decrease each subsequent week. The splits between distributors and theaters are negotiated. A 90/10 split with minimums was once common yet remains in a minority of time.

A four wall structure is when a distributor rents a theater and keeps all the box office receipts.

Theaters receive increasingly larger shares the longer a movie appears in the theater. Distributors are more prone to seek to put new releases into theaters to keep their share higher.

Holiday periods are generally good periods to release new movies.: Batman: The Dark Knight” opened in mid-July and had the second largest theatrical gross ever.

Most films have two or four week deals to be shown in a theater, with six week deals appearing less often.

Foreign distributors often attempt to have the same person do voice overs for the same actors in all their films.

The biggest foreign markets are Great Britain, France, Germany, Italy, Space, and Russia. Due to demographics, the most prints are often needed for Germany, then France, and then Great Britain.

The U.S. Supreme Court agreed by 5 to 4 in Sony Corp. v.Universal City Studios taht time shifting by recording did not undermine a copyright value. Sony was supported by sports commissioners who favored people watching games they missed as well as by the Corporation for Public Broadcasting who wanted children to watch educational shows they missed.

By 1986, the combined movies rental and sales revenues of $4.38 billion was greater than theaters and office revenues of $3.78 billion. In 1988, rental revenues of $4.46billion were greater than theatrical box office revenues of $3.78 billion. An irony was Universal gained financially in losing the case while Sony’s Betamax lost financially.

In the early 1990s, a major movie title had 200,000 to 300,000 rental units.

From 1989, with “Little Mermaid” to 1999, with “Toy Story” Disney had annual animated hits with home use that children watched over and over. “The Lion King”, released in 1994, reached 30 million units.

Consumers liked DVDs over VHS because they did not have to rewind the DVDs.

Movie rental chains such as Blockbuster and Hollywood Video gave studios 60% of rental revenues. The movies were then sold usually for $5 to $15, with revenues split evenly with studios.

Studios made direct to video market sequels of major selling videos. Concert videos successfully entered the direct to video market.

DVD rentals surpasse VHS rentals in 2003.

Netflex marketed rental DVDs. It delivered 100 million DVDs to 1 million subscribers in 2003. In 2007, it delivered over 1 billion DVDs.

The average release to video after release to theaters period shrunk each year from 5 months, 22 days in 1998 to 4 months, 10 days in 2008.

In 2008, DreamWorks expected to sell 40 million units of “Shrek 2”. It only sold 35 million units which caused its stock to drop 12%.

Studios sometimes place a moratorium on a video. Disney markets this to increase sales. This also discourages retailers from returning unsold copies if they know they can’t later be reordered.

One entity may own the two TV stations in the same designated Market Area, as long as that at least one of the stations is not in the top five in ratings within that area.

It is estimated that 300 pitches for network TV series are made, from which 50 scripts are commissioned with 6 to 10 leading to a pilot.

4 Kids, which owns the merchandising rights to “Pokemon” and “Yu-Gi-Oh” paid from $25 million annually to broadcast their shows. 4 Kids made its profits in selling merchandising from those shows.

Stations may lower their costs of purchasing shows for syndication by ceding some advertising time.

“Baywatch” was unique in that it continued producing more shows for syndication after NBC canceled it.

Shows usually need at least 65 episodes and preferably over 100 to generate syndication.

“The Cosby Show” has earned over $600 million in syndication and continues earning more.

“24” cost $300 million to make at an average of $2.5 million per episode. The broadcasting rights produced $276 million and it took DVD sales to make the show profitable.

It is estimated that 35% to 40% of people watching T shows on DVRs skip through the commercials.

Hulu sells two minutes of advertising per half hour. Half hour episodes on TV usually have 8 minutes of advertising.

Pay TV channels create agreements according to runs on exhibition. They run often runs of primary and other channels. Sometimes there is a flat fee. There are rights issues on territory, foreign showings, formats, whether free TV and video on demand is included, any technical limitation, any carriage over delivery subscriptions, and if there are multiple feeds.

Some foreign countries have state broadcasters. In some countries, there are only state owned broadcasters This often means negotiating with a monopoly.\

International TV licensing has a high margin of fixed costs in creating different formats, dubbing subtitles, etc. as well as overhead costs in personnel and marketing.

There are over 50 foreign TV territories. The licensing fees for U.S. programs can reach into millions of dollars from England, Germany, France, Japan, Spain, and Australia

Canal is a pay TV network in Spain, France, Poland, Netherlands Sweden, Norway Denmark, Belgium, and French-speaking Africa.

Leo Kirch earned billions in Germany supplying and showing TV shows in Germany. He had a monopoly on U.S. programming, He also owns the rights to a library of old films, including 20,000 animation films.

Downloading media on the Internet is a growing market. Online advertising can be a source of revenues for showing films on the Internet.

In 2007, film marketing spent 22% on network TV, 14% on spot TV, 4% on trailers, 4% on online, 24% on other media, and 22% on other non-media.

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