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Friday, October 07, 2005

'The Future of Entertainment' at Web 2.0

“Why won’t Hollywood give us any of their content to play with?”

That was the major theme of yesterday’s “Future of Entertainment” panel at the Web 2.0 conference. Techies are eager to experiment with new ways of delivering content that will make consumers happy. But TV networks and Hollywood studios aren’t just reluctant to offer up their content for experimentation -- they’re often prevented from doing so by the long-term licensing agreements that underlie today’s business models. (The session felt a bit like a replay of a similar panel at the AlwaysOn conference back in July; Mark Cuban was the common denominator.)

The panelists were stellar: you had Cuban, former FCC chair Michael Powell, Netflix CEO Reed Hastings, and Evan Williams, a founder of Blogger and Odeo. (The photo at right shows Cuban, Hastings, and Williams, from left to right.) It would’ve been nice, though, to have someone representing a major TV or movie firm to explain exactly why they’re not ready to come out and play.

Some notes:

    - Reed Hastings contrasted the forces of control with the forces of freedom. The forces of control – players like the cable operators – “want you to have about 200 to 500 channels, and they’ll defend that model though exclusive content. On the other side, you’ve got the Internet, chaos, boot times, 404 [errors], but a lot of innovation.” Hastings said, “I’m sure the forces of freedom will win over time, but it will take a long time, because [cable companies] have got this exclusive content sewn up.” The forces of control worry about “eyeballs and time moving away from traditional television” – and of course, people moving away from the theater-going experience.

    - Hastings used Movielink of an example of how reluctant movie studios are to license their content for experiments in new ways of delivering movies. Even though Movielink is owned by the studios, “it only has about 600 titles from the studios, and another 1000 from other firms – out of a universe of 50,000 to 100,000 [total] titles,” Hastings said. By simply buying DVDs, Netflix doesn’t have to jump through the same contractual hoops that a company like Movielink does, trying to obtain new rights for Internet delivery that don’t conflict with those of existing rights-holders.

    - Cuban seems bullish about delivering movies on hard drives…it almost seemed he was suggesting the next Netflix model might be shipping movies around on hard drives (or perhaps keychain USB drives. Cuban indicated that he’s already viewing his own video content from drives plugged into his laptop or DVD player via a USB connector. “That’s how I watch all my media,” he said.) He’s not a big believer in delivering video over the Net – just not reliable enough – especially when you’re talking about delivering high-definition content.

    “We’ve all had this vision in our minds about delivery over the Internet – that it replaces all other methods. I’m still a big believer in the power of hard drives,” Cuban said, especially as their cost drops and capacity rises.

    - Hastings has a different opinion on that. He feels that NetFlix will eventually start delivering movies over the Net. “I’m more optimistic on bandwidth. If you could delivery [content] at night and cache it [on a home server, like a TiVo], you could actually get very high bandwidth, delivering multiple hours of high-definition to the home. It wouldn’t be real-time television. But for NetFlix customers, it’d be an improvement if they could get something in 12 hours [via the Net] instead of 24 hours [delivered through the mail.]

    - Michael Powell got some laughs with an anecdote about his son, who thinks music should be free (“Does he know who you are?” moderator John Battelle asked), but is willing to pay $60 for a videogame or $2.99 for a ring tone. He said his son’s monthly ring tone bill is about $40.

    - Battelle asked why the entertainment industry keeps suing its customers. Cuban gave a similar answer to the one he gave back in July. In the NBA, he said, “the number one job of a general manager is not to win a championship. It’s to keep his job. If I ran a huge studio, hanging out with the starlets, being paid a ton of money, you’ve got to have a bogeyman. [The threat of piracy is that bogeyman.] If they don’t hit their numbers, it’s not their fault. As long as there’s piracy, it’s not their fault. So it has to be there.”

    - Hastings predicted that video content on the Web won’t kill mainstream TV shows. “It’s going to extend [traditional TV] in the same way that blogs have extended the Wall Street Journal and the New York Times.” I like this idea, that Web video will fill in the cracks – supplying stuff that you can’t get on TV, cable, DVD, or satellite.

    - Another question posed: Why is everyone getting so interested in delivering Web video all of a sudden? Cuban said, “It’s purely in response to $20 CPMs [ad rates] for audio and video. Period. End of story. It’s not that there’s all of a sudden this mass consumption of episodic content.” Cuban’s skeptical that consumers want to see long-running series and soap operas over the Web. He mentioned the Spot, a 1990s experiment along those lines. “How do you create inventory [to sell those ads]? You get a kid with a light saber, or get a mock-up of a jet on the 405. Build it, and they will sell it.”

    - A questioner from the audience asked Hastings “what’s going on with the TiVo/Netflix deal?” Hastings said, “The fundamental issue isn’t technical. It’s really licensing. Traditional media companies, like TV channels, have exclusive licenses on much content. Even the studio-owned distribution service, Movielink, has a tiny fraction of the total content, and it’s not because they don’t want it.”

    “Consumer expectations are extremely high,” Hastings continued, “They want iTunes for video. Unfortunately, it’s going to be many years before that happens – but it has nothing to do with technology.”

    (After the panel, I chatted with Hastings a bit…and he said he’ll be watching what companies like Apple and Brightcove do in terms of delivering video – he just doesn’t think they’ll have a lot of blockbuster, brand-name content.)

    Cuban said with a grin, “The smart media companies will make their content available through Netflix for download.”

    “Well said,” Hastings replied.

    - Hastings and Cuban both talked about how the costs of making a movie have come down – Cuban mentioned the Sony HD camera, and Hastings mentioned Avid’s digital editing gear. The advantage that big players still have is in building awareness about new movies. They’ve got the marketing firepower. “Downloading isn’t the big thing that’ll change everything,” Hastings said. “The cost of distribution is tiny. Stamping out DVDs – it’s like 1 percent of the cost of a movie, when you spend $50 million for advertising.”

    “How do you do demand creation [less expensively]?” he asked. “It’s great that the costs of production have come down. But how do we create demand for long tail [aka niche] content, and get five million people who care about [the documentary] ‘Enron’ to know about it?”

    “Don’t talk about `Enron,’” Cuban said. “Talk about ‘The War Within,’ which just happens to premiere tomorrow.”

    That's smart word-of-mouth marketing.


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