Part one of this three-part series looked at the changing market conditions that might drive producers to actively seek new revenues and a broad outline of the need for fundamental change to adapt to audiences.
In this second section, we consider some of the factors affecting the development of new models and revenue sources for production.
SampoMedia has, and is gathering, much more material on the points raised here but criticial to its thinking is that there has been a one-dimensional view of digital business, based simply on reach…but there are other ways of looking at audiences that offer a more rounded and credible way to move forward.
1. THE ACTIVE AUDIENCE
The very word ‘audience’ is revealing in the context of the film debate. It has become a neutral word that allows us not to talk about that more loaded term ‘consumer.’ This lecture was not intended to discuss the art vs commerce debate but is perhaps useful to note that ‘audience’ is a passive term – ‘the people reached by a film, etc’, according to the Chambers Dictionary.
A consumer on the other hand is an active buyer or participant and that is a crucial distinction. The emphasis in the tradtional scarcity model of film has been all about reach but the challenge today is broader. (For more on the ‘active audience’, see our free Digital Revolution Cine-Regio sponsored report).
The lecture suggested that there needed to be a shift of emphasis. Film business models now needed to consider three connected but distinct areas of activity: reach, engagment and experience.
In the final part of this report, we look at ‘experience’, ‘engagment’ and the ‘experience economy’ as essential areas needing more attention.
Focusing solely on increasing reach, as we shall see, has dangers for film. The task is not to find a lowest common denominator to draw a crowd and even the worthy public support for distribution and marketing to push some titles has limits as a policy.
What is missing is that core information about consumer aspiration and engagment, and about consumption patterns that allow producers and film-makers to find ways to create uncompromising content that can make an impact.
The lack of real data that systematically and transparently feeds back information to producers on the performance of films, alongside other sources of consumer intelligence, has led to a lazy reliance on cliche and wishful thinking.
Any sentence that begins ‘the consumer will always want…’ should be instantly disregarded. Equally, research from technology analysts, such as Forrester’s work on ‘social technographics‘ proves that the belief that every consumer now expects or wants an interactive relationship is fanciful.
What SampoMedia suggests is needed, and what public funders and data entrepreneurs might be in a position to supply, is not just what films people watch but why.
CONCLUSIONS: The understanding of consumer behaviour lacks depth and credibility. More knowledge about how and why people watch films is critical to any serious revenue strategy.
2. THE ART OF THE POSSIBLE
This second part of the report will, however, concentrate on increasing reach to a bigger audience.
Perhaps the great disappointment of the digital revolution, however, is that reach does not easily translate into revenues. As other industries, including music and publishing, have amply demonstrated, is that it is possible to hugely increase the number of people who see or hear a piece of work, but much harder to get them pay.
In part one, we suggested that there was a fundamental incompatibility between analogue and Internet models. A business model based on windows and territorial sales cannot simply be grafted on to one based on immediate global acccess.
There are battles ahead over how far existing models should be protected and genuine tension between commercial value and consumer access.
These political arguments will be fought out to conclusions, and are likely to lead to unexpected consequences. Some producers will opt to test the potential of new forms of releasing with the financial muscle of funding and commissioning bodies as the deciding factor between the old and the new. Some producers will opt to work with new distribution channels, despite industry opposition, because those channels will invest in content as they fight for dominance in an emerging on-demand world.
For most producers, VOD funding will be scarce and there may in any case be strong disincentives. In Europe, public sector funding is often tied to traditional release patterns in terms of territory, windows and theatrical release. In many countries, film is one of very few creative and entertainment businesses to qualify for public funds, and so stretching the definition of film to experiment with new cross-media content or new forms of releasing may prove counter productive.
How to increase consumer numbers, and the controversies that now entails, will largely be played out in the distribution and exhibition arenas. These are areas which may require radical rethinking from public sector funders or they may be decided by the market as a wealth of experimentation begins to yield results.
As far as production is concerned, the argument of sales agents and distibutors is generally that producers can increase their revenues most effectively by making better films. That argument is based on a number of questionable premises: ‘better’ is a subjective term, defined by a small number of individuals in the value chain, and plenty of good films fail at the box office for reasons that have nothing to do with the intrinsic quality of the film (poor marketing, competition, bad luck, etc.)
In any case, the traditional big buyers of independent film historically, are not on the whole buying as big as they used to, for all kinds of reasons, including economic pressure, the crowded marketplace and a fragmented audience.
We are already in an era where access to film has greatly increased without giving back increased financial benefits to producers, and the talk offered numbers to prove the point. The SampoMedia argument is that those producing content need to understand and build offers that are informed by the realities of consumer behaviour, if they are to make a mark, in terms of commerce or art.
CONCLUSIONS: Producers generally have limited influence over the reach of their work but they could become much clearer about potential reach and make strides to engage audiences, using a range of consumer knowledge.
3. BUSINESS CHANGE
So if we accept that there are limitations to how far a producer can increase revenues, what can he or she control?
The most obvious step to improving the balance sheet is, of course, cutting costs. A wealth of tools have allowed for a decrease in the costs of production, though there are legitimate questions about how far access to public funds encourages artificially and unnecessarily high budgets – and indeed how far the cheaper cost of filming digitally has actually led to extravagance and lack of discipline that would never have been tolerated with expensive and all too finite film stock.
There are, however, fixed costs that inevitably grow with better talent behind camera and in-demand actors. And everyone now knows that the Internet and social media is not a free, and rarely a cheap, means to attract a crowd.
A second mechanism for increasing revenues is to grow as a company through merger, takeover or acquisition, or to create strategic partnerships. Scaling up has become an important part of independent production, particularly in smaller countries with limited markets with co-productions essential. The rise of ‘superindies’ in television and film production, such as Shine Group, Fremantle Media or Zodiak Media, have been a natural consequence of globalisation and digital technologies.
The creation of superindies is part of a more general shift towards taking control over more than one part of the value chain. Bringing content closer to audiences can be achieved by buying out ‘middle men’, operating more like the US studios. A number of European companies have been trying to recreate a European studio on the PolyGram Filmed Entertainment lines for years, though the economic downturn has hindered some.
In fact, integration along the value chain has generally taken place at the distributor/exhibitor level, with companies such as CurzonArtificial Eye. There has been a move to encourage more distribution-production relationships in Europe but there remain lines of responsibility and different economic models.
The other clear choice is diversification, making content that uses film skills but is not reliant on traditional industry models. This may be an area of real growth for film-makers. The talk offered a number of examples, but the expected dramatic market growth for Smart TVs, blurring the distinction between existing forms of broadcast programming and online content may create room for new forms of film.
As service providers seek to win viewers in a competitive market, they may begin to pay for experimentation in new kinds of filmed content. Innovation may create new demand, not for feature film scaled down to a small screen, but for new formats optimised for the way that audiences watch.
CONCLUSIONS: The need for sustainable businesses that are consistently working to develop skills and experience has long been a debate for public policy. An emerging audiovisual economy with a fight for consumer time may actually open up new profitable forms of content creation but, again, that may challenge traditional view of what constitutes a ‘film.’
3. TAKING CHARGE OF ONE’S OWN DESTINY
The most overstated and underexploited area of digital promise is self-distribution.
There is a powerful logic to the idea: producers should go straight to the consumer and cut out the ‘middle men’ of sales and distribution.
In a self-distributed world, so the theory goes, it would be possible to bypass industry norms and restrictive practices. Cross-media producers have been experimenting with interesting ways to finance films by going straight to audiences, through crowdfunding; creating online communities, story architecture and transmedia experiences; and using online tools, social media and even file sharing tools to market and distribute films. The talk offered a number of examples.
But the number of fully self-distributed films making a major impact on the market – and convincing revenues – has been limited, although new tools have been emerging to support it, such as Distrify. Perhaps the complexity and cost of distribution, and a realisation that so-called ‘middle men’ are often seasoned professional men and women adding considerable value to a film,has put many off.
Another option has been for producers to retain some of the digital rights to their work while selling on theatrical and home entertainment rights but this is understandably meeting resistance from distribution as VOD channels begin to start paying.
This again may play out in unexpected ways, perhaps with new forms of distribution becoming a services layer of specialist skills, between more informed and audience-centric production and the consumer.
In the short term, there are means of exploiting the intellectual property potential of any piece of work that might provide revenues beyond the existing value chain.
One of the recurring themes of SampoMedia is that the film industry throws away much of the value it creates. Part of the cross-media argument is that we create stories and characters and then use them in a single narrow context. The growth of fan sites, and of fan fiction, suggests that there is an appetite for delving deeper. The scope for exploiting more of the IP potential created in the film process might include books, games, fan sites, art, apps…
There are, for example, signs of a maturing apps market for the arts. The lecture cited an app based on T.S Eliot’s The Wasteland, which sold tens of thousands at a premium £9.99 cost. The possibility that other media forms might create not just revenues but depth to a work, rather than incidental marketing, is now being explored, particularly in the documentary field. SampoMedia lectures offer examples and more are being added seemingly every day.
The other value that is discarded is in data and metadata – all the data created in the production of a project that is not the film itself. This is a theme that we will return to in the final part.
This ability to extract value from a film might be most important in the critical need to establish visibility in an Age of Ubiquitous Media.
Of the top 100 hits in the international market place in 2012, almost 60% were adaptations of books and plays, remakes of previous films, or sequels to an already established franchise (Box Office Mojo). The vast majority of the rest were genre films or star vehicles.
Even among the top 20 European films, according to the European Audiovisual Observatory’s 2012 Focus report, more than half of 2011 biggest hits were sequels, remakes and adaptations, and the original content often featured locally established stars.
While pre-awareness has always been an important factor, there are legtimate questions about how far truly original content can find its way into user consciousness. While there are exceptions that prove the rule, Hollywood has certainly shifted to a more conservative position.
The theoretical democratisation of the ‘long tail’ does not easily translate into a workable economic model for independents. In music, there is an argument (albeit debatable) that digital has opened up the market to newcomers even if the industry has declined.
The cost of making and distributing music has dramatically fallen, even if the theoretical ability to reach paying customers has been illusory for all but a few. The argument that film will make less money immediately but have a longer commercial lifespan does not match the way that films are currently funded.
Visibility is critical to the independent, facing vast competition. For all the hype, social media is a necessary tool but can only get you so far. As with many of the most talked about digital tools, there value to an individual company diminishes when everyone else has the same tool.
Nonetheless, the ability to understand how your audience thinks and the tools to create value from that knowledge may be critical.
CONCLUSIONS: Producers may be able to exert more control over the material they produce but it might take a change of mindset and new skills. At least part of the issue is that some of these developments are being oversold, with transmedia held up as a replacement art form for a narrow old single medium rather than a means of exploiting value that already exists.
4. EXPERIMENTATION AND THE VALUE OF FAILURE
The SampoMedia lecture used a number of case studies, which there is not the space to carry here, but there are plenty of illustrations of new models.
From the Netflix release of House Of Cards to this year’s l‘ARP supported experiments in changed release windows, the world is packed with innovation.
The problem with film is that it has traditionally been thrall to what we might call the Myth of Genius – the narrative of film is one of a finite dividing line between success and failure, good and bad.
Exceptions are too often taken as rules in a process very well described by author Nassim Nicholas Taleb in his book The Black Swan. He said that when rare and improbable big successes in any field (such as major indie hits) happen ‘human nature makes us concoct explanations for its occurrence after the fact, making it explainable and predictable.’
Grand conclusions are drawn about why any particular film succeeded without genuine analysis, or at least without systematic examination to draw conclusions that might be applied to other films. And given the time from development to screening of a film, even sensible conclusions are quickly dated.
But more to the point, there is little analysis of what we dismissively call flops. In most walks of life, failure is a necessary part of learning and growing; in film, the learning is often lost from film to film. We are therefore cursed to repeat mistakes.
Given that so much film is funded by the public sector in Europe, it would seem logical for funders to demand much more information and data which can help inform and drive future policy but this is rarely the case.
Instead, the information that could be of such value to future production is lost under the guise of commercial confidence in the distribution system. SampoMedia’s argument is that there are ways of mining that value without undermining the business.
The alternative is lost value, lost revenues and a wasteful system in which even exciting new film-makers using innovative cross-media techniques are unable to share what didn’t work for fear of being stigmatised.
CONCLUSIONS: The best way to succeed in the future is to learn from the past and the best way to understand audiences is to learn why they made any particular choice. Somewhere in resolving that problem is the key to revenues, sustainable business and great film.
In the final part of this series, we look at the importance of engagement and experience in building successful content and sustainable companies.
SAMPOMEDIA 