Why The Movie Industry Can’t Innovate and the Result is SOPA

This year the movie industry made $30 billion (1/3 in the U.S.) from box-office revenue.

But the total movie industry revenue was $87 billion. Where did the other $57 billion come from?

From sources that the studios at one time claimed would put them out of business: Pay-per view TV, cable and satellite channels, video rentals, DVD sales, online subscriptions and digital downloads.

The Movie Industry and Technology Progress
The music and movie business has been consistently wrong in its claims that new platforms and channels would be the end of its businesses. In each case, the new technology produced a new market far larger than the impact it had on the existing market.

  • 1920’s – the record business complained about radio. The argument was because radio is free, you can’t compete with free. No one was ever going to buy music again.
  • 1940’s – movie studios had to divest their distribution channel – they owned over 50% of the movie theaters in the U.S. “It’s all over,” complained the studios. In fact, the number of screens went from 17,000 in 1948 to 38,000 today.
  • 1950’s – broadcast television was free; the threat was cable television. Studios argued that their free TV content couldn’t compete with paid.
  • 1970’s – Video Cassette Recorders (VCR’s) were going to be the end of the movie business. The movie businesses and its lobbying arm MPAA fought it with “end of the world” hyperbole. The reality? After the VCR was introduced, studio revenues took off like a rocket.  With a new channel of distribution, home movie rentals surpassed movie theater tickets.
  • 1998 – the MPAA got congress to pass the Digital Millennium Copyright Act (DMCA), making it illegal for you to make a digital copy of a DVD that you actually purchased.
  • 2000 – Digital Video Recorders (DVR) like TiVo allowing consumer to skip commercials was going to be the end of the TV business. DVR’s reignite interest in TV.
  • 2006 - broadcasters sued Cablevision (and lost) to prevent the launch of a cloud-based DVR to its customers.
  • Today it’s the Internet that’s going to put the studios out of business. Sound familiar?
Why was the movie industry consistently wrong? And why do they continue to fight new technology?

Technology Innovation
The movie industry was born with a single technical standard – 35mm film, and for decades had a single way to distribute its content – movie theaters (which until 1948 the studios owned.) It was 75 years until studios had to deal with technology changing their platform and distribution channel. And when it happened (cable, VCR’s, DVD’s, DVR’s, the Internet,) it was a relentless onslaught. The studios responded by trying to shut down the new technology and/or distribution channels through legislation and the courts.

Regulation/Legislation
But why does the movie business think their solution is in Washington and legislation?

History and success.

In the 1920’s individual states were beginning to censor movies and the federal government was threatening to do so as well. The studios set up their own self censorship and rating system keeping most sex and politics off the screen for 40 years. Never again wanting to be at the losing side of a political battle they created the movie industry’s lobbying arm, MPAA.

By the 1960’s, the MPPA achieved regulatory capture (where an industry co-opts the very people who are regulating it,) when they hired Jack Valenti, who ran the studios’ lobbying efforts for the next 38-years. Ironically, it was Valenti’s skill in hobbling competitive innovation that negated any need for studios to develop agility, vision and technology leadership.

Management of Innovation
The introduction of new technology is always disruptive to existing markets, particularly to content/copyright owners whose sell through well-established distribution channels. The incumbents tend to have short-sighted goals and often fail to recognize that more money can be made on new platforms and new distribution channels.

In an industry facing constant technology shifts the exec staff and boards of the studios have lawyers, MBAs and financial managers, but no management skill in dealing with disruption. So they rely on lobbying ($110 million a year,) lawsuits, campaign contributions (wonder why the President won’t be vetoing SOPA?) and Public Relations.

Ironically, the six major movie studios have a great technology lab in Silicon Valley with projects in streaming rights, Video On Demand, Ultraviolet, etc. But lacking the support from the studio CEOs or boards, the lab languishes in the backwaters of the studios’ strategy.  Instead of leading with new technology, the studios lead with litigation, legislation and lobbying. (Imagine if the $110 million/year spent on lobbying went to disruptive innovation.)

Piracy
One of the claims that studios make is that they need legislation to stop piracy. The fact is piracy is rampant in all forms of commerce. Video games and software have been targets since their inception. Grocery and retail stores euphemistically call it shrinkage. Credit card companies call it fraud.  But none use regulation as often as the movie studios to solve a business problem. And none are so willing to do collateral damage to other innovative industries (VCRs, DVRs, cloud storage and now the Internet itself.)

The studios don’t even pretend that this legislation benefits consumers. It’s all about protecting short-term profit.

SOPA
When lawyers, MBAs and financial managers run your industry and your lobbyists are ex-Senators, understanding technology and innovation is not one of your core capabilities.

The SOPA bill (and DNS blocking) is what happens when someone with the title of anti-piracy or copyright lawyer has greater clout than your head of new technology. SOPA gives corporations unprecedented power to censor almost any site on the Internet. It’s as if someone shoplifts in your store, SOPA allows the government to shut down your store.

History has shown that time and market forces provide equilibrium in balancing interests, whether the new technology is a video recorder, a personal computer, an MP3 player or now the Net. It’s prudent for courts and congress to exercise caution before restructuring liability theories for the purpose of addressing specific market abuses, despite their apparent present magnitude.

What the music and movie industry should be doing in Washington is promoting legislation to adapt copyright law to new technology — and then leading the transition to the new platforms.

The U.S. State Department has been championing the Internet Freedom initiative across the world. Secretary of State Clinton said, “…when ideas are blocked, information deleted, conversations stifled, and people constrained in their choices, the Internet is diminished for all of us.”

It’s too bad the head of the MPAA – an ex Senator - made a mockery of her words when he wondered “why our online censorship can’t be like China?”

We wonder, “Why can’t the film industry innovate like Silicon Valley?”

Lessons Learned

  • Studios are run by financial managers who lack the skills to exploit disruptive innovation
  • Studio anti-piracy/copyright lawyers trump their technologists
  • Studios have no concern about collateral damage as long as it optimizes their revenue
  • Studios $110M/year lobbying and political donations trump consumer objections
  • Politicians votes will follow the money unless it will cost them an election

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172 Responses

  1. Hm, makes me wonder if there’s any research on how human biases influence corporate decision making.

    This just looks like an exemplary case for “People will do a lot of things to get a million dollars, but they’ll do next to anything not to lose a million dollars”.

  2. Good piece. Should probably be “short term revenue” in the third lesson learned.

  3. Great image of the Grand Lake theater in Oakland! They pride themselves on maintaining (not innovating) their 1926 theater.

    • Nick,

      I was looking for an image of a theater marquee and found a site which auto-generated custom signs. See here.

      Didn’t realize it was a real theater.

      steve

      • It’s not only a real theater, but the owner uses that particular part of the marquee to express his own opinions, which generally aren’t kind to big business or local government. Better to find a pic of a corporate-owned theater than an independent one. (And check out the Grand Lake’s web site, too.)

        • I’m with z! and Nick above; I saw the theatre image as part of the TechMeme blurb, and smiled – I used to go to it growing up. A great independent theatre; the kind that has mainly shuttered and been converted to other things. I actually had presumed that it was a *real*, not auto-generated or photo-shopped, sign.

          I completely agree with, and like, the rest of the post.

        • Zachary,

          Perhaps someone can get the theater owner to put up a “Stop SOPA” marquee sign.

          steve

  4. It’s always cheaper to stand still than it is to move forward. Big businesses like the entertainment industry are smart to maximize profits while minimizing potential losses from competitive risk. It sucks for everyone who ISN’T them, but it’s the shrewdest way for them to build their empire.

    Innovation within massive industries happens only when it’s A) proven to be more profitable than existing practices — and even then it takes years to properly implement — or B) when the panic caused by disruption — and which first manifests itself as litigation — necessitates a wholesale change in business practices for fear of being torn apart by smaller, faster, more agile competitors. Either way, it doesn’t happen quickly… but it usually happens after all other intransigent options have been exhausted.

  5. “When lawyers, MBAs and financial managers run your industry and your lobbyists are ex-Senators, understanding technology and innovation is not one of your core capabilities.”

    I think that is the tip of the iceberg. Is not one of the core capabilities, worse than that, is believed not to be needed because at the end of the day they use the law as a way to bully, they just need to strength the armament. Technologist, they believe, would be subdue by sheer legal (and its ramifications) forces… in other words, the perception is that there is no need to understand how the egg feels if you hold the pan by the handle. There is no need to establish a rational talk with someone that you are looking down at. Arrogance justified by titles (academic, monetary, and work positions held).

    But history has proven that to be delusional. There is always something new created for which they were not prepared. That is the advantage of being in the creation side of the equation, as opposed to be in the destructive side.

    The problem at hand is how to prevent the inmates from running the hospital.

  6. Most of these arguments can be applied to the music industry as well — it’s bizarre how they continue to cannibalize themselves yet somehow still manage to stay alive.

    The business model needs to be made more coherent in order for artists to really be able to survive. The “do it yourself” thing will be very important but it’s not going to be a long-term solution unless it can be institutionalized somehow…

    • The fact that they can cannibalize themselves and still live just shows how gigantic and monopolistic they are. People keep expecting them to die overnight, but they have the resources to keep going (and fighting) for years and years.

      • If you look at the history of hip-hop, the whole genre started with people using turntables and computers to “remix” existing works — it’s a prime example of how artists have used technology and “stealing” as means of advancing the medium. The industry resisted until they realized that it was an opportunity, not a problem…the style now is arguably the most popular genre in the world, since it has proliferated everywhere at this point.

        You’d think they’d wisen up by now, but history has a tendency to repeat itself. Part of the problem is the counter-productive copyright laws that perverts the incentives that keeps these institutions running. (I think the tech sector face similar issues regarding patent laws as well.)

        • It might help to look at the video game industry, since it’s the tech sector’s “entertainment” branch in a lot of ways. There’s a huge difference in the way they treat innovation — unlike the music and movie industries, they don’t attempt to clamp down on user-made derivatives. In fact there are whole communities dedicated to “modding” existing software — a lot of best-selling games that are on the market right now, in fact, originally came from these practices.

          I wrote a little bit about this a few days ago — along with an “Angry Birds” remix.

          http://ryangtanaka.com/musicology/angry-birds-sopa-and-music-copyright/

          Rovio Entertainment and its composer both gave the public permission to lift their ideas, yet they’re doing extremely well. And this attitude is extremely common among companies that use software. I don’t think it’s a coincidence that video games are currently fairing much better than the entertainment industry as a whole…there needs to be a change in attitude.

    • How long should it take to work out a sustainable business model? Remember the DAT wars? CD burners? The warning signs were there years before Napster. Even in an alternate reality in which the Internet didn’t exist, nothing would stop widespread piracy of music once it entered the digital domain with lossless duplication, and storage became plentiful and cheap. If there were no Internet, people would just get together at regular swap meets and bring their portable 2TB hard drives, trading 5,000 tracks at a time instead of 5.

      This is the industry that made the mistake of giving away music videos for free — and once that horse was out of the barn, it would never go back in. The Internet is a scapegoat. Yes, it made piracy more frictionless largely because of Napster, broadband connections and the innovation of P2P technology. But the best thing of all about Napster was the instant gratification, getting virtually any recording known to mankind almost instantly on demand. For free, yes, but Apple proved most people really don’t sweat the 99 cents a track. The real failure of the music industry is that you STILL can’t get everything on one platform. Up until a year or two ago (?) you couldn’t even get the freakin’ Beatles on iTunes. It took the arm-twisting of Apple to finally get rid of DRM that made the product MORE inconvenient for PAYING customers. The fundamental idiocy of that is self-evident.

      Also, how quickly we forget that the Internet enabled individualized music discovery and promotion on a scale never before available. An unsigned band that would have had to toil through blood, sweat and tears of nationwide touring for years to build a following of a few thousand fans could amass ten times that many in a few weeks on MySpace. A little creativity could have driven monetization in a whole host of other ways if the labels and publishers actually gave a damn instead of pursuing litigation as a business model. My favorite example of all has to be publishers suing lyrics sites. Hands up all who ever paid a dime to buy LYRICS to a song? Talk about a pyrrhic victory — alienating fans who might spend good money to buy sound recordings or sheet music (with actual notes and chord charts!) or concert tickets or band merch to avoid the loss of imaginary revenue. Unbelievable.

      I worked at MySpace from 2004-06. By the time I left, over a million bands had MySpace profiles; we passed 100 million registered users, were getting a couple billion page views per day, and surpassed Yahoo! shortly thereafter to become the second-most-trafficked site on the entire Internet. (Oh how the mighty have fallen, but that’s another story.) What was drawing a quarter million new registered users per day? Socializing of all kinds, to be sure, but for the core 15-30 demographic, it was shared enthusiasm for, and discovery of, music acts in a way that had never been possible before. By clinging to a defunct business model that relied entirely on a couple unsustainable revenue streams, and threatening its fans instead of courting them, the recording industry blew the once-in-a-generation opportunity to shape the media consumption habits of young people in ways that could have been profitable for labels and artists alike. (I guess twice-in-a-generation if you include that music video thing.)

  7. It isn’t a great technology lab; it’s largely dedicated to idiotic projects like using cyberlocker page scrapes and things like Compete and Alexa data with a rudimentary statistical model to determine the overall size and spread of piracy for a certain asset and other such poorly modelled nonsense…all so they can largely send out more DMCA notices and little else.

    The Big Content players are truly, out to lunch.

  8. “The music and movie business has been consistently wrong in its claims that new platforms and channels would be the end of its businesses”

    huh?

    Steve, I love your writing, and we agree on so much, but this is out in left field as it relates to the recorded music business which is indeed almost dead and has shrunk by almost an order of magnitude in the last ten years or so. So this statement is just factually inaccurate. The music industry may have been wrong in the past, but their fears of the internet proved to be 100% correct

    As far as equating music piracy to credit card fraud, the big difference is that the FBI doesn’t get involved when your 13 year old kid pirates a song. Try that with “pirating” a credit card. With friends like the FBI, The credit card industry doesn’t need SOPA.

    And while pirating music is somewhat analogous to pirating software and games, the truth is that software and games are and have always been much harder to pirate. There has never been effective music copy protection, but software and games have always employed a variety of methods (from actual copy protection, to mere size, to installation issues, to support requirements) that make software and game piracy much harder than downloading a 2mb song. You also have a much more constant relationship with a piece of software or a game than you do with a song, which makes piracy of songs seem more “reasonable”.

    And finally, the idea that music producers, marketers, and tastemakers (yes thats what most senior staff at record companies are) should be expected to “innovate” in the way you suggest is about as inappropriate as suggesting that you are a dummy because you’ve never written a hit song. Yes, the music business has not been focused on technological innovation. Because people like you have told them that they should, they have tried, but failed, just as I would expect. Just as most startups fail, there was no reason to expect *technology* innovation to come out of an organization of music lovers and music geeks. Its not a rational expectation.

    when Daniel Ek writes a hit song, then we’ll have something to talk about.

    • +1

    • While I agree with your statement about Daniel Ek, and find Spotify to be the wrong model of innovation for content creators, I must respectfully disagree with your assessment that the music industry shrunk because of piracy.

      My history of 30 years in the music business ranges from being an A&R rep to commercial recording studio owner and music producer. I was at the label during the straddle from vinyl to CD. It was the music industry dictating ‘death of vinyl’ and making a king of the “new” CD format that had already been in existence for 10 years. Re-releasing old content on new formats has been the only kind of innovation the labels were interested in… and even then, it was only after long an exhaustive studies of “implementation and cost of destruction” had been measured.

      Spotify is old and another example of the major labels (who are partners) coming to the innovation table late.

      Bootlegging has been in existence for centuries. Every industry need to have a plan to battle the issues of copy cats. Innovation is a way to battle that.

      Before Napster and mp3, was the first download company, Liquid Audio. They had a copy protect plan for downloads in place from the start. The major labels could have embraced and helped educate the public at that time, but instead, they ignored the consumer’s desire for downloads. With no downloads for sale, the consumer chose the ‘free is good’ model or piracy. The smart one business was Apple computer who saw the opportunity and recreated the music industry with iTunes, innovation and giving the public what they wanted. Now, Apple dictates price and distribution–which is much more painful to me than piracy.

      It’s time that we content creators stop looking back and start looking forward to do the innovation… or at least be involved in the early development stages.

      Cheap recording combined with mp3 sound did more to destroy the industry than piracy. I wouldn’t want to pay for most of the crap that’s out there, but I will pay for quality. There’s a movement for people buying higher quality products and putting the value back in music… it’s got to start with the content creators putting value back in their products.

      Thanks, Steve, for a great article. Hank, contact me if you want to be part of a movement to put value back in music. We’ve already started.

      cookie@downloadsnow.net
      (in beta, but selling content with value and innovating)

      • This is not responsive to what I said. You said:

        ” I must respectfully disagree with your assessment that the music industry shrunk because of piracy.”

        but I didn’t say that.

        I said:

        “The music industry may have been wrong in the past, but their fears of the internet proved to be 100% correct”

        The internet eliminated all scarcity from music. This was irrefutably not good for the music business.

        • Thank you for the clarification, but I respectfully still disagree that the internet should be ‘feared’, if that’s what you’re saying. We have build an ecosystem for music where we’re selling our downloads for $3-5 per single and $30-50 per album worldwide. Without the internet, this would not be possible.

          The labels were good for marketing, but I would say that for the last 20 years, unless you were the one of a thousand blockbuster acts that triggered mass appeal, the artist was still making money on touring over music sales. The rest of the 999 were door stops to keep the revolving doors of physical distribution open. Selling direct to customers without a middleman is a relief.

          I think the ease of home digital recording (protools, etc) is the real crime for over saturation of bad products. In the end, the labels did nothing to support higher quality recordings, nor did AES. They were all out to make a buck.

          Time to pull out the analog tape machine and sell high rez downloads. It works. Contact me anytime. Be part of the innovation.

        • Maybe not good for the music *business*, but definitely good for music creators, artists, and other people who are nominally supposed to benefit from all this egregious legislation.

          But then again, the music business has never really cared about the artists anyway…

        • I made more money in 3 years as an A&R rep than 1 out of 1000 artists signed to the label I represented. Occupy the Music Business.

      • Cookie,

        I can’t quite tell if your version of “crap” is audio quality or ‘quality’ of music, but both are tired arguments that have little to do with piracy.

        There will always be a small group of audiophiles that apparently can tell the difference between an mp3 and a lossless format on their high-end stereo system (I’m sure that these are the same people that keep Monster Cable in business). But for the majority of people, an mp3 is more than adequate in terms of audio quality.

        Now, if you are talking about “crap” is in is the music good or bad, well that’s completely subjective. Pop music has been around for centuries. Some people may despise Nickleback or Black Eyed Peas or what ever is the flavor of the day, but the fact remains that lots of people like that music. And that is what the major labels will focus on.

        However, the Internet has made it possible for the so-called fringe or not-so-mainstream bands to create a business model that doesn’t require a record company. And that scares the ‘crap’ out the record companies.

    • well said. while i’m against SOPA, it is lunacy to act like the creative industries don’t have a legitimate complaint here.

      maybe they are guilty of trying to use and axe to kill a fly, or millions of flies, but that doesn’t change the fact that we have a fly problem…

      • They would have a legitimate complaint if they were UNABLE to innovate or change their business model to respond to the threat of piracy.

        Choosing not to change should not result in additional protections and powers of the government. Did the government protect the buggy whip makers when Ford introduced his new-fangled product?

  9. Recently, we were marvelously entertained at a private dinner in Tiburon by the vernerable head-of-studio who has made Nick Cage into a commodity production instrument. Very formulaic ( known writers + Nick Cage + cost of production = cost of product. Cost of product – European distribution rights = 0. American market equals profit. ) Hmmm, that would be Case 1, a new product into an existing market, no?

    Very thought provoking.

  10. Excellent piece, thanks

    One quibble:

    You write:

    “The fact is piracy is rampant in all forms of commerce. Video games and software have been targets since their inception. Grocery and retail stores euphemistically call it shrinkage. Credit card companies call it fraud. But none use regulation as often as the movie studios to solve a business problem. And none are so willing to do collateral damage to other innovative industries.”

    But, “shrinkage” and “fraud” are clearly criminal activities — shoplifting, hijacking, robbery, credit card fraud etc — and there is no industry or movement a la Silicon Valley arguing that such should not be criminal (eg, the way piracy is shrugged off or elevated to “disruption” status.) Moreover, perpetrators of “shrinkage” and “fraud” are aggressively prosecuted by law enforcement, and aside rom the occasional Bonnie and Clyde and Tony Soprano, are not celebrated as heroes (eg, as hackers are celebrated.)

    I’m not arguing your basic point — that the entertainment industries are suffering from Innovators Dilemma myopia, magnified by huge amounts of money and influence, and so fight any new distribution technology despite decades of proof that such innovations can and usually do improve their businesses.

    I’m just saying, the entertainment industry does have a point when they point out that the very real damage from “shrinkage” in their industry is often tolerated, ignored or dismissed in ways that other industries do not have to suffer…

    • +1 here as well (in addition to Hank’s)

    • More music is being recorded and released than any time in history.(115,000 cd length releases in 2009 vs 35,000 in 2004) File sharing makes it possible for small timers to find an audience. Give me 100,000 people sharing my stuff this year and if I can’t turn that into a living, then I don’t deserve the audience.

      File sharing is not theft – that’s why they call it “infringement” instead, which basically means “horning in on my market.” Rearranging the one and zeros on my machine doesn’t not deny you the use of anything.

      The fact that world wide distribution is virtually instant, and virtually free for any creator is better for almost everyone – EXCEPT the gatekeepers who have made money because they could use their monopoly on radio play and distribution channels to keep non-major label artists off the air, at least in terms of major markets.

      The article was spot on – John Philips Sousa ran a campaign to Congress trying to outlaw the phonograph, because it would destroy the sheet music and live performance business.

      So now major label players can’t make as much by forcing people to buy their format – it’s a singles market and there is no reason to buy the other 9 crappy tunes for the one good one and all of us have replaced our record collections for the third and last time.

      Recording software that duplicates studios that are far better than what the Beatles recorded Sgt Pepper on are pretty much free. Good mics and good ears means that every kid that can play three chords can put out stuff that is as good as the Rolling Stones and any kid that has a Sgt Pepper in him can get that done too.

      The big labels are losing out, but far more people have heard my music without me being signed than in the old days. The ONLY creative losers on the music end are major labels. Artists don’t need them anymore.

  11. This is but one symptom of the dominance of the entertainment industry by bean-counting dullards. Look at all the smash hit movies that had trouble getting made, Star Wars being the prime example.

    In the 1986 book “Reel Power”, iconoclastic director Robert Altman memorably deconstructed his industry’s plodding reliance on market research in choosing projects, saying (approximately) “If you ask people what they’d like to see, they can’t tell you…what they’d really like to see is something they’ve never seen before.” Or, as former Apple engineer Glenn Reid said “It’s hard to visualize things that don’t exist.” As has often been remarked, Apple’s genius was to create products that people didn’t know they needed until they saw them.

    I didn’t know I needed Beatles records until I heard them. Isn’t that the spirit of all great entertainment?

    • Any industry really. Henry Ford said “If I asked people what the wanted they would have said ‘faster horses’”

  12. Industry overall benefits but existing monopolies and castles are broken.

    Hence, these existing companies want status quo, so that they avoid new entrants from making money and keep their high margins.

    They want to keep the cost of entry high and these technologies are making it easier for others to bypass existing big businesses.

  13. I’d just like to point out that you cannot state that the reduction of the music industries revenues must be caused by piracy, and there have been studies done that show that piracy has had little to no effect on the decline of the music industries revenue. I think the real culprit, is that the barrier to market for the music industry has been completely obliterated. Production costs are next to nothing, and distribution costs are now next to nothing, this means that there are more competitors (recording artists) in the market and with production and distribution costs being all but non-existent with an increase of competitors, prices were sure to drop while the market size has remained the same. The big labels can claim that piracy was the cause of the fall, but in truth, it was apple, both with their garage band software and their itunes store.

  14. Google’s revenue alone exceeds that of the movie industries box office receipts. Why aren’t they spending $110mil/yr in lobbying?

  15. I spent my PhD exploring Hollywoods strange relationship with technological progress. Nothing seems to have changed in the 5 years since. In fact, it’s getting worse as the desperation of SOPA attests. For those who want to read my work, check it out here:

    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1097970

    http://ideas.repec.org/a/taf/indinn/v14y2007i4p359-384.html

  16. “hyperbola”?? I don’t think that word means what you think it means. Try “hyperbole”, perhaps?

  17. It’s easier to stop innovation then it is to create. With that said you have to find common ground.

  18. [...] An awesomer Steve tech blogger comments on SOPA, the media industry, and innovation in this well art… Piracy [...]

  19. This is a great metaphor for the architecture of crony capitalism and how it punishes our consumers, citizens and economy, all under the guise of protecting our interests. Brilliantly conceived. Thank you.

  20. All I can say is we in NZ appear to be the beneficiary of this thinking by your film industry – thank you!

    It certainly keeps our ‘valley’ of artistic talent gainfully employed and growing, with a steady flow of funding, so once again, thanks. :-)

  21. To be fair, movie businesses are in the content-making business. For these people, market risk is the biggest issue. Taking on technical and business-model risks makes for a very shaky boat.

    In addition, most places outside of SV are more averse to failed entrepreneurs. This makes innovating business models difficult for individuals. Moguls like Murdoch have no qualms in taking riskier approaches, and as much as I don’t like it – I see paywalls as a business model innovation in action.

    Thirdly, relationships are cultivated on the basis of delivery medium, e.g. DVD, cable, CDs, rather than on the basis of viewing units. This makes it difficult for fledging technologies to edge in on the action. I believe the movie industry needs to introduce mechanical licenses – especially for low resolution reproductions – and lower the friction so that newer business models can be found.

    • Except there are a ton of tech companies that would be willing to share the risk with the content-making businesses. But that means losing control and reducing per-unit profit, though possibly increasing overall and/or long-term profit, something the idiots at the movie and record companies can’t get past.

  22. There may be things I don’t know about the industry but it sure does look like one big example of chasing after something and missing much bigger opportunities. Maybe in the end we’re just lucky more industries aren’t run like this. And it’s a good cautionary lesson.

  23. You forgot to mention the original hypocrisy of the movie studios. They are in Hollywood because the distance from New Jersey made it harder for Thomas Edison to enforce his patents on movie making equipment. They are the original movie pirates.

    http://en.wikipedia.org/wiki/Motion_Picture_Patents_Company#Backlash_and_Decline

    • Greg,

      Thanks for the link. I learned something new. Too bad Edison didn’t have the MPAA or he could have gotten a bill through congress.

      steve

    • Don’t forget that Disney used public domain content to create content that it wants to control forever. It was good for them in the beginning, but today, they don’t want anyone creating content based on the stories of Mickey Mouse, Daffy Duck or Pluto.

    • Edison’s patents were ill-acquired and ill-enforced only to be later declared invalid under Sherman. Such a situation has little if any correlation to today’s piracy profiteers (thepiratebay, megaupload, google et all) trying to keep their ill-gotten riches free from any regulatory oversight.

      Furthermore, there is no possible industry-sustaining “new business model” for the film industry that will enable it to compete with rampant, unfettered piracy as the de facto standard. It’s been ten years since Napster and such a thing still can’t even be faintly glimpsed. That particular canard is well past its due date.

      The idea that what the majors in their respective industries REALLY fear is the internet-enabled DIY upstarts…is laughable. Creative Commons musicians, self-published authors and Kickstarter-funded indie filmmakers are for the most part combatants confined to the junior leagues, fighting over their diminishing scraps. The major labels, studios, and publishers have little to fear from any of them. The DIY success stories are as inconsequentially few as ever. Meanwhile, tech companies and their assorted pundits continue in their tireless hamster wheeling efforts to make mountains out of molehills.

      “What sways lawmakers is voters and money. What is turning SOPA / PIPA around is that people are beginning to understand what the abuse of copyright enforcement means in their lives.”

      No, you had it right the first time. What is turning SOPA/PIPA around is Big Tech’s own lobbying efforts. As much as I despise them I also can’t help but be impressed. They have been astoundingly successful in disguising their own corporate self-interest as a broader crusade for “free speech” and innovation. It just goes to show you underestimate the stupidity of the general public at your own peril. Everywhere you go now you see idiots parroting Big Tech FUD, speaking as if they’d actually read the bills they were commenting on.

      “Then there is more competition. We work in a saturated market where there are over 115,000 cd length titles released every year – compared to 35,000 in 2004.”

      Except most of that “new competition” isn’t actually competitive. 2% of albums released in 2011 accounted for 90% of the sales. The vast majority of CD releases were competitively irrelevant.

      “The majors want us to ignore things like the return of the singles market – meaning people are buying one song instead of ten.”

      And yet the precipitous decline in album sales post Napster predates the arrival of the Itunes singles market by years. But don’t let mere facts sway you from your parade of rationalizations…

      Given that the author of this article is basically saying the content companies have a long history of crying wolf I think it bears remembering how that story ended…there are many of us who believe the real wolf has finally arrived with the current largely unregulated, anarchistic internet.

      It would also be smart to remember the tech industry has its own chicken little tendencies. It seems like just yesterday Silicon Valley parasites were proselytizing that the proposed DMCA legislation would undoubtedly “KILL THE INTERNET”. The more things change…

      As for the author’s ridiculous concluding postulation “Why can’t the film industry innovate like Silicon Valley?” It should go without saying that it’s much easier to innovate on the backs of other people’s property as web 2.0 tech companies do than it is to innovate off your own creations.

      Freeloading has never been more widespread, lucrative or championed than it is today and you should be ashamed of yourself for insinuating that its simply a lack of “innovation” holding content creators back.

      • “Except most of that “new competition” isn’t actually competitive. 2% of albums released in 2011 accounted for 90% of the sales. The vast majority of CD releases were competitively irrelevant.”

        Only if you measure it in dollars. So it sounds to me like what you’re saying is that to ensure that the two percent of recording artists (roughly 2500 people) that are grossing about 9 billion dollars continue to rake in dollars, we should give them the power to compel the federal government to shut down top level domains on speculation?

        We should make it harder for the 100,000 plus releases to be heard? ASCAP runs around charging coffeehouses 1200 bucks on the off chance that a songwriter might throw a Dylan sing into a set and decides that it’s not worth having live music, cause they just got a call from BMI demanding the same.

        Given where the music “industry” has gone over the last several decades, I don’t have any compassion for their problems. the same people who brought us payola, and price fixing OUGHT to go the way of the dinosaur. I can tell you that the people who put their blood sweat and tears into getting those supposed competitively irrelevant records out – and the fans who helped them – don’t think of their work as irrelevant.

        “The idea that what the majors in their respective industries REALLY fear is the internet-enabled DIY upstarts…is laughable. Creative Commons musicians, self-published authors and Kickstarter-funded indie filmmakers are for the most part combatants confined to the junior leagues, fighting over their diminishing scraps. The major labels, studios, and publishers have little to fear from any of them. The DIY success stories are as inconsequentially few as ever. ”

        The business models are evolving, fans are getting educated and learning to find what they like outside the usual sources.

        “And yet the precipitous decline in album sales post Napster predates the arrival of the Itunes singles market by years. But don’t let mere facts sway you from your parade of rationalizations…”

        And yet you can’t claim it’s irrelevant NOW – and for the last few years. Maybe napster had an effect – it isn’t doing much now. It’s been a few years since digital sales eclipsed physical sales.

        As for innovation – nobody works in a vacuum. Everyone is “freeloading” on one idea or another – that’s how we progress. jazz was built on musical dialectic. Improvisation starts with a structure and then moves on from there. Maxwell’s equations laid the ground work for thousands of things we take for granted, yet if he were alive today some corporation would be making a claim – and keeping anyone from building on his work until they were paid. Hell, if Disney had been around in ancient Greece, we’d be paying rolyalties on basic scales.

  24. Great post but I think this is about a collection of executives in individual companies in an industry that cannot innovate. Industries innovate all the time – the examples that Steve uses demonstrate clearly that the movie industry has evolved despite the reluctance of the largest businesses in it at any one point.

    This seems to be as much about a failure of business models and compensation structures for executives. This is something that is happening in all industries – this is an overview of the semiconductor industry that picks up on the same theme. http://thebln.com/2012/01/it-isnt-the-industry-that-cannot-innovate-it-is-the-companies-operating-in-it/

    Thank you for helping us think!

  25. Steve Blank I love your insights. Best read of the day.

  26. Great piece steve.

    You could also mention an earlier (and my favorite) example of this behavior. In the 1900′s the sheet music industry – aka Tin Pan Alley – was a large business and they lobbied hard against the introduction of the player piano (where the term ‘Mechanical Rights’ actually comes from). John Philips Sousa (of Sousaphone fame) wrote an article in 1906 entitled “The Menace of Mechanical music” (http://explorepahistory.com/odocument.php?docId=1-4-1A1). The rhetoric sounds eerily familiar, with the stand out quote:

    “[F]or the life of me I am puzzled to know why the powerful corporations controlling these playing and talking machines are so totally blind to the moral and ethical questions involved. Could anything be more blamable, as a matter of principle, than to take an artist’s composition, reproduce it a thousandfold on their machines, and deny him all participation in the large financial returns…?”

    Remember, this is from 1906. Fun to think that this hang-wringing in the music industry has been going on for over 100 years :)

  27. [...] to access, crap-free form. The best thing for the movie industry would be to learn their lesson and focus on innovation instead of policing the [...]

  28. I passionately oppose SOPA. But I don’t feel bad for any of my fellow technologists who are non-libertarians and are crying foul on this. Are you actually surprised the pro-big government officials you elected are about to act entirely irrationally and overstep their constitutional constraints? You can’t be okay with the government meddling with the banking industry and auto industry and then be surprised when they meddle with your industry.

    • Actually, it was the removal of restraints that bit us all on the ass vis-a-vis banking. We need to bring BACK regulations on the banks. If Congress hadn’t removed them, we never would have had the problems we’ve seen recently.

      Libertarians are too ideological. They think everything boils down to one simple rule. It doesn’t.

  29. Oh just to add something — I’ve noticed that nobody really talks about performing rights organizations (PROs), even though in my opinion it’s really in that area where I a lot of the problems can potentially be solved.

    The idea here is that there’s a third party who monitors and records play-time in public spaces and pays the artist royalties depending on how much air time they get. In exchange for a flat fee, institutions and commercial endeavors get to play pretty much whatever they want without having to worry about infringing on people’s rights. Both parties get what they want, and everyone’s happy. It’s really a great system when it actually works.

    ASCAP, BMI, and SEASAC are the major PROs at the moment — they’re more or less based on old-world models so unfortunately the system is pretty much a mess right now. (Plays don’t get tracked properly, people.) My guess is that they’ve gotten overwhelmed by the internet phenomenon and the multitude of emerging acts out there, so they don’t quite know what to do. How are you going to keep track of everything playing everywhere all over the world?

    There’s a new PRO called SoundExchange that I’ve signed up for — it’s got its problems but this system is much more internet friendly and I think it has a greater potential for long-term survival. The key is, if done correctly, technology should be able to automate a lot of the tracking tasks that were previously impossible to do by human beings, and as a result, bring back PROs back into the forefront of the music business.

    Otherwise I’m afraid we’re probably going to go back to gouging each other in the eyes again.

    • The “tracking problem” was a ruse from the beginning – Europe has been logging every play all along. The difference is that if you get only one play, you get your 7.5 cents – it doesn’t get funneled into Lady Gaga’s publisher instead.

      On top of that, the PROs shake down small venues for $1600 a year – all three each. They come into a coffee shop with a legal complaint already filled out saying “Sign now or we’ll see you in court.” If you don’t and they can get ONE artist to play an affiliated song on your stage (and they won’t give you a list of affiliated artists) then you’r on the hook for statutory damages.

      Next time your looking for a room to play in, think about what it’s like to have an additional $4800 a year to pay to have some kid play Dylan covers.

      After 30 years in it, even though I’m pulling a decent stipend out out of Sound Exchange and I think of myself as a composer as much as a performer, I’m convinced that copyright is doing us more damage than helping. Certainly with the current rip off scenario, it’s not doing almost all composers ANY good. Unless you’re getting airplay on the 50 – 100 station sample on which the PROs base their distribution, you’re not getting squat. Oh, sure – you can apply for “grants” from ASCAP. BMI, but they’re basically in bed with the major labels.

      The coin we have as artists is our ability to say “get it from the source and support the art you love.” The possibility of making the internet a level playing field is far better in the long run than the benefits of copyright monopoly. We’ll either figure that out, or let big money turn the internet back into broadcast model cable TV.

  30. [...] movie industry’s latest attempt to block piracy represents a failure of innovation, argues entrepreneur-turned-writer Steve [...]

  31. $110M seems like not much lobbying expense for an industry making $30B (or $87B).

    My question is why this industry has chosen the political/regulatory route to compete. Other than the censorship item you highlighted, is the movie industry highly regulated?

    Dan

  32. Nice, concise overview. Thanks. I especially liked the perspective on piracy near the end. I never really thought to expand my view of it to industries with non-digital assets, as you tend to hear about the digital stuff a lot more. Also, as you noted, other industries use different terms for essentially the same thing.

    Thumbs up!

  33. The whole SOPA idea seems to rest on two assumptions:

    1. The customers are all thieves who will happily steal instead of paying for product. When I see stuff like that, I want to ask “Why do you think so? Is it because it’s what *you* would do, and you assume everyone else is *just like you?*

    (Given the way the entertainment industry has historically treated *creators*, that may well be the assumption.)

    2. That if it’s impossible to steal, the thieves will buy instead.

    I simply don’t believe that. Pirated content isn’t “lost sales”, because the downloaders wouldn’t have bought it in the first place. It’s worth taking a flyer on if it can be gotten free. It’s *not* valuable enough to the downloader to *pay* for.

    The market will still pay for value. The trick is to *provide* value, price appropriately, and make it as easy as possibly to give you money.

    The folks behind SOPA have no clue about doing the first two, and aren’t a lot better at the third, either.

    • So true. I wish everyone could understand that as soon as entertainment shills start talking about “lost sales,” they’re lying. No, the kid that downloads the entire internet would not have paid for it, if he couldn’t have gotten it for free. Obviously there’s some fraction of pirates who WOULD buy it if they couldn’t get it for free, but it’s probably pretty small.

  34. I am an Australian who is horrified by the global ramifications of this announced American legislation. While such impacting legislature can be found being enacted by other countries, America has the reputation of creating the most severe interference because it’s legislative body[s] do not seem to ”care” about the said impact[s].

    If any other country enacted law that had the capacity to radically disrupt global communications, impinging strongly on the American Citizen, it would in all probability be viewed as an act of war or terrorism.

    But it is most acceptable for the United States Government to act in exactly this manner!

    I am disgusted… U.S.A.. Legislate for your own country… not mine!!!

  35. That’s about greed, not Innovation. The industry just need an excuse (no matter how naive or FUD) to impost tax and rid on the new Innovation. They have the muscle power to make the goverment/congress to pass those regulation.

  36. [...] If you’ve been following the developments around SOPA as close as those of us in the blogging community, you will find Steve Blank’s article Why the Movie Industry Can’t Innovate and the Result is SOPA. [...]

  37. [...] Why The Movie Industry Can’t Innovate and the Result is SOPA This year the movie industry made $30 billion (1/3 in the U.S.) from box-office revenue. But the total movie industry revenue was $87 billion. Where did the other $57 billion come from? [...]

  38. Such a great post. I’ve recently moved to LA and been having this conversation, a lot!

  39. Wxcellent analysis. You should look at the beer and wine industry next!

  40. Steve:

    Your post is a great start at a worthy discussion. However, allow me to offer a filmmaker’s perspective:

    Please keep in mind, everyone, that the studios are being lobbied hard by the artistic community to protect OUR works – the Writers Guild and the Directors Guild, especially.

    Writers, actors and directors are losing the most, as we rely on our residuals from DVD and other ancillary sales to sustain us. Without residuals there’d be no middle class in Hollywood.

    That’s why Guilds accompanied Studios and Network representatives in December to lobby Washington, in the words of DGA President, Taylor Hackford:

    “…to lobby for the passage of essential legislation to fight foreign rogue websites that traffic in stolen content and counterfeit goods. We went to our nation’s capital as part of a concerted effort by the entertainment industry – guilds, unions, studios and networks – to press our case.”

    What our industry is fighting for is already the law of the land. We just want it enforced. We are spending so much money lobbying Washington, because there is clearly opposition (spending far more than us), and that’s the tech industry.

    Google, Yahoo and AOL stand the most to lose if SOPA (by the way, one of the few bills that currently has bipartisan support – imagine that) gets passed. That’s because these tech companies, in the words of the DGA president:

    “…are making huge profits from selling advertising on these foreign rogue sites – sites run by criminals who are selling stolen product – films and TV shows made by our members.”

    “Our request is simple. Foreign sites are currently beyond U.S. jurisdiction, and many U.S.-domiciled sites have moved offshore because the domestic enforcement program has been so successful. We desperately need legislation that will allow us to apply the same laws to foreign-based rogue sites that are already applied to domestic sites. That’s the message we carried in our D.C. meetings…”

    To say that the “movie industry can’t innovate” is quite laughable. I realize that you don’t mean to say TINTIN wasn’t a work of unquestionable innovation. But, your attempt at irony was only clever because you left out so much.

    Our industry has already developed ways to take the delivery costs of a movie like HARRY POTTER from $45,000 (what it costs to create and ship a 70mm print to an IMAX theatre) to $150 (what it costs to copy and ship a key-encrypted 4K version onto a hard drive and FedEx to an AMC theatre).

    However, the folks who lag behind — the real non-innovators — are the exhibitors. But, I’ll save that post for another time…

    • Interesting comment Joe. I can understand how many people who expect to earn an income with their work could have concerns with the way it’s managed. But unfortunately this raises another issue that may point to why the industry is different from others.

      When the direction is set by a large number of people who don’t have the time to truly inform themselves and research policy, it might prevent the breakthroughs that would benefit all of them. It may be that movie executives are more like politicians than executives and we know how creative and farsighted politicians are.

      I’m not saying that concerns should be silenced or that there’s a simple solution to everything. But I work in a business where competitors in other countries charge 1/10 as much and it’s possible to do well without turning to political regulation. I’ve learned that directly fighting lower-value alternatives isn’t as productive for me as finding new ways to be indispensable and innovative ways to deliver things at a lower cost.

      Now when I see the low-cost competition it’s not a challenge to me because customers who have experienced that find it much easier to understand the value I create. And I don’t even have the advantage of being in an industry where it’s standard practice to make money by being cool and exclusive, things that can’t simply be copied online.

    • “Writers, actors and directors are losing the most, as we rely on our residuals from DVD and other ancillary sales to sustain us. Without residuals there’d be no middle class in Hollywood.”

      Why are you relying on those type of residuals? You later state that the studios saved almost $45,000 in delivery costs, but I guess that all goes back to the studios? So they’re still making their money, but you blame piracy? And yes, I fully realize it’s not that simple, but it’s always frustrating to hear the “little people” complain about piracy when the big corporations are making record profits (and not sharing them with those middle men).

      And to say that Google, Yahoo, etc. stand to lose the most from SOPA is laughable. Do you really think Google cares if they don’t get advertising from a few “rogue” sites? Google is standing up for the tech industry as a whole because SOPA essentially gives corporations the right to regulate the internet with a “guilty until proven innocent” mantra. And don’t think for a second that this affects only foreign sites; yes, laws are in place now in the U.S. to take down unlawful content, but SOPA changes the law to allow take down of entire websites (foreign or not). That may not be the “intent”, but it’s certainly possible under that regulation.

      And I don’t think Steve (or anyone else) thinks that the film industry can’t innovate (using your TINTIN and delivery costs example); I think they’ve done an excellent job in that regard. We’re referring more to the business model related to the distribution to consumers.

      • “Why are you relying on those type of residuals?”

        We must rely on them because the DIY culture is not going to capitalize LORD OF THE RINGS anytime soon. There’s no such thing as independent television production, either, because it is too expensive and too risky.

        Tim, those residuals are our life blood. If the movies and television shows that we write and direct and produce and act in are financed by the studios, then we are entitled to a small, but crucial cut of those net profits, which are driven by ancillary revenue streams. Our Guilds have fought enormously hard for these residuals.

        The studios and networks are the distributors of the content we create, and therefore they are our stewards.

        Simply put, in 2010, according to DGA President, Taylor Hackford: “…residual revenues earned from the reuse of film and television productions in secondary markets…funded 73% of (DGA members’) Basic Pension Plan and made up an average of 21% of (DGA members’) compensation.”

        “The cost of global digital piracy…accounted for almost 24% of all global Internet traffic…is conservatively estimated to be worth $75 billion.”

        This is not an assault on Washington, as Steve has characterized it. Earlier this summer the Senate Judiciary Committee unanimously passed the PROTECT IP Act.

        The second piece of legislation, SOPA “…makes it possible to prosecute as a felony websites that illegally stream stolen content for commercial advantage.”

        This is a bipartisan bill.

        There are two sides fighting for and against this bill: the Entertainment Industry and the Tech Sector.

        I did not say that Google and AOL have the most to lose, I merely stated that they are, in fact, the opposition. And, it’s naive to assume they aren’t spending at least as much time and money lobbying to make sure SOPA doesn’t get passed.

        Neither the Entertainment Industry nor the Tech Sector have the moral high ground here. Both are in it for profit, naturally. If SOPA doesn’t pass then the studios continue to miss out on lost profits. If it does pass, then the search engines begin to miss out on lost profits as the illegal sites on which they are advertising get shut down.

        The folks who stand the most to lose are the content creators — the ‘little people’, as you put it. But, fortunately stories can’t be mechanized, so we are vital.

        Tim, we need to protect our work. Otherwise, we won’t be able to afford to do what we do, and then everyone is screwed.

        • Lost profits? That’s the problem. You believe that you are entitled to make a profit on your content, regardless of the quality of the content.

          Interestingly, you completely ignore good old ‘Hollywood Accounting’. How do movies that make $500 million or more at the box office alone ‘lose’ money and not be able to pay people involved with the movie?

          “The cost of global digital piracy…accounted for almost 24% of all global Internet traffic…is conservatively estimated to be worth $75 billion.”

          And you know that those figures are unverifiable and triple- or quadruple-count a single transaction:

          From Tim Lee at http://techliberation.com/2006/10/01/texas-size-sophistry/

          “In IPI-land, when a movie studio makes $10 selling a DVD to a Canadian, and then gives $7 to the company that manufactured the DVD and $2 to the guy who shipped it to Canada, society has benefitted by $10+$7+$2=$19. Yet some simple math shows that this is nonsense: the studio is $1 richer, the trucker is $2, and the manufacturer is $7. Shockingly enough, that adds up to $10. What each participant cares about is his profits, not his revenues.”

        • “There’s no such thing as independent television production, either, because it is too expensive and too risky. ”

          No such thing? THE WORLD is doing independent film and TV. They’re just not paying YOU every time they see a re-run of Ozzie and Harriet.

          I’m a composer. I’d love to sit on on my hands and collect rent for the work I did in college. But I never had a corporation pay a dime to publish my work – I did seven records from donations from fans and I’m working on number 8 as well as unrelated orchestral works.

          Why do content providers get to re-sell ideas, but carpenters don’t? Shouldn’t some portion of the rent we pay go to the carpenters who built out houses?

          YOU might have gotten writing work in television. The 95% of writers that aren’t working for the MPAA are maybe able to eke out something like a living by getting fans to support the work. For US, we finally have a chance.

          Technology has made it possible for pretty much anyone to have virually instant world wide distribution of any set of ideas – and films, musical scores and writing are all part of that. There is no inherent value in the way the ones and zeros are arranged on my hard drive. It’s up to me and you as the artist to connect with fans and give them a reason to buy. No one is “stealing” your work, because no one can own an idea. (If you could I’d be sending “It’s a Small World” back to Disney.)

          Give me 100,000 people file sharing my stuff this year and if I can’t make a living out of that, then I’m missing the boat.

          The Writers Guild wants to live off the old gatekeepers, force the internet into a one way broadcast medium with a few fat cats taking the majority share and screw the rest of us who are making an honest effort (and sometimes living) by putting our stuff out there and doing the actual work. I have NO sympathy for rent collectors who complain..

    • Scott,

      The point the post tried to make is that 1) piracy is a fact of life in all forms of commerce, 2) no other industry is so willing to use legislation to destroy adjacent industries to solve a piracy problem that 3) can be mitigated by platform and channel innovation.

      Instead the MPAA has rounded up the usual suspects (DGA, IATSE, IBT, WGA, SAG, and AFTRA) to push legistation which will destroy the very industries responsible for 21st century new job creation and American technology leadership. All to support an industry that lacks management leadership and vision.

      The studios believe that having their lobbyists and DGA issue press releases with unsupported and unsubstantiated spin (which you liberally quote) somehow will obscure the fact that SOPA puts governmental authority into the hands of commercial interests.

      It’s unwise and unwarranted.

      Steve

      • Cosmicrat – I respect the Utilitarian argument. Tough to swallow, though, when you are on the short end of the stick and the majority seems to condone the blatant theft of your work.

      • Okay. Points taken.

      • Vincent:

        “How do movies that make $500 million or more at the box office alone ‘lose’ money and not be able to pay people involved with the movie?”

        Take 2011′s PIRATES OF THE CARIBBEAN: ON STRANGER TIDES. It cost $250 million to make. And, rule of thumb for blockbusters like that is P&A expenses (Prints and Advertising, aka Marketing) is roughly an additional 50% of the negative cost — domestically. Add another 50% to market internationally.

        So, Disney’s maximum exposure on PIRATES: OST was approx. $500 million.

        According to IMDB the movie made $1 billion, worldwide. So, Disney got half of that (the other half went to the exhibitors).

        Of the $500 million Disney took in, they must have paid at least 20% of first-dollar gross income to the movie’s star, Johnny Depp (who surely made over 10%), producer, Jerry Bruckheimer (who surely made over 5%) and director, Rob Marshall (5%), so that’s $100 million out the door.

        The $400 million left over — pre-tax, mind you — is what Disney probably made, theatrically, off it’s $500 million investment.

        $100 million needs to be made up in ancillary sales (surely more than that because I didn’t account for ticket sales taxes on the $1 billion gross revenue, or Disney’s corporate income tax) before Disney makes a profit.

        Disney’s got a hundred million dollars to go and so you bet it’s going to put pressure on Washington to shut down illegal sites selling pirated copies of PIRATES.

        Meanwhile, the hundreds of actors, artists, musicians, etc who worked on the film — the folks who make up the industry’s middle class — they are rooting for their guilds and employers to do the same, because they are entitled to residuals from legal sales of the movie they worked so hard to make.

        And, Vincent, no one feels entitled to make a profit on the quality of their content. Paramount bought a marginal indy horror movie that was universally panned (DARK WATER) and grossed $34 million with it over the weekend. Conversely, Terrence Malick’s masterpiece, THE TREE OF LIFE, was in theatres for 22 weeks and it’s worldwide gross was $32 million. The point I’m illustrating is that no one is under the illusion that quality = entitlements.

        Respectfully, streaming and downloading of the movies we make entitles us to make a profit on our work. It just doesn’t get any simpler than that.

    • “Google, Yahoo and AOL stand the most to lose if SOPA gets passed.”

      No, they are not the ones who stand the most to lose.

      The ones who stand the most to lose are sites like Wikipedia or reddit, which risk getting shut down completely if SOPA or PIPA gets passed.

      • Cesar – that’s just not true. SOPA “…makes it possible to prosecute as a felony websites that illegally stream stolen content for commercial advantage.”

        Wikipedia is a non-profit encyclopedia project — and, anyhow, its core group of editors (“Wikipedians”) go out of its way to make sure the pictures and videos maintained on the site are in the public domain.

        A perfect example of the positive results of tighter policing is the NinjaVideo.net case that just handed down its sentence, yesterday.

        Hollywood Reporter: “A founder of a website that allowed millions of people to illegally download movies and TV programs was sentenced Friday to 22 months in prison, according to a press release by the U.S. Attorneys Office.”

        “The NinjaVideo site operated from Feb 2008 to June 2010 and featured pirated movies (some of which were still in theaters). Beshara was known as “Queen Phara” on the web and served as the public face of the site, which is said to have taken in more than $505,000 in revenue. ”

        See the article here: http://goo.gl/Fodve

        The point Steve makes about the Entertainment Industry needing to be more innovative does not have to be mutually exclusive with our industry also being justified in cracking down on people who are stealing our works for illegal profit right now.

        Surely you agree with the NinjaVideo case case, right?

        • Since when has the RIAA / MPAA care about the accuracy of their accusations? Since there is no adversarial hearing, if they want a site down it comes down – effecting everyone who might use that site regardless.

          The problems of piracy are both vastly overstated and NOT a problem for artists and film makers who are in touch with their audience.

    • @Joe the filmmaker guy:

      You are making an underlying assumption I don’t think is tenable. You are assuming piracy = lost sales.

      I don’t think so. I don’t think the folks who pirate your content would have bought it in the first place. They’ll take a flyer on it because it’s free. It’s *not* valuable enough to them to *pay* for.

      If SOPA becomes law (and I profoundly hope it doesn’t – it has implications *far* beyond your concerns), I’m willing to bet you’ll see little if any gain in revenue. The folks who are pirating won’t buy – they’ll simply do without. You will attempt to impose potentially crippling restrictions on Internet usage for no purpose.

      (And the attempt will fail because the people pushing for this have no understanding of the underlying technology. You *can’t* simply block stuff you don’t like.)

      The customer will still pay for value. Your challenge is to *provide* value, *price* appropriately, and make it as easy as possible for the customer to give you money, so that customers will *want* to buy your stuff.

      If you cannot do that, perhaps you *shouldn’t* be in business.

      • All good and valid points. It’s not clear how many of these folks would actually pay for movies if they had to.

        However, the Napster/Limewire/Kazaa crowd seems to have gravitated pretty aggressively to iTunes, no?

        And, in any case, does that make it right? I wouldn’t buy a Ferrari, but that doesn’t mean I’m going to steal one.

        Just, please keep in mind that we are the content creators. We are not in the business of distribution. We are storytellers, not businessmen. We don’t have the time or the training to be able to innovate the distribution chain. We’d just like to see our work protected.

        There is the spirit of the law and the letter of the law, and I respectfully submit that folks need to consider the spirit of the legislators’ intent.

        • During the hey day of Napster, physical music sales were increasing.

          “Just, please keep in mind that we are the content creators. We are not in the business of distribution.”

          Why not? The Internet has given you a cost-effective and easy-to-use tool for distribution. Couple that with cheap hardware and many more content creators can earn a decent living than at any point in history. How much did Louis CK – a content creator – make from Live at the Beacon Theater show?

          You are just looking for excuses to not innovate.

    • You state that the technology companies spend more than the content industry. Politico had an interesting story about just that on 11/16/2011.

      Their figures clearly show that the “Tech” industry (Facebook, CCIA, CEA, eBay, Amazon, Yahoo, Google, and the NetCoalition) spent a total of $14.2 Million on lobbying in 2010, $15.1 Million in 2011. The content industry (MPAA, RIAA, U.S. Chamber of Commerce, ESA, National Amusemens[a Viacomm company], Sony, News Corp, BMI, Comcast/NBC, Disney, UMG[Vivendi], Warner Music Group, and Time Warner) spent a total of $185.5 Million on lobbying in 2010, $94 Million in 2011.

      Since when are 14.2 and 15.1 greater than 185.5 and 94 respectively?

      I find your canned statement and arguments inaccurate at best, outright deceit at worst. The figures the MPAA and RIAA rely on are seriously overinflated. They assume the sale of a $10 DVD, where $2 goes to the manufacturer, $7 goes to the transport company and retailer, that is pirated costs the industry and economy $19 (10+2+7) when that $10 just doesn’t go to the same places it does wind up in the economy.

      I understand this is your chosen profession and I don’t begrudge you that. But please do more research than to spew out grossly inaccurate information as handed down to you by your superiors.

      • How about this, then: Stealing is bad.

        If I stole a painting of yours and made a bunch of copies and then invited you into my store where you could have them for free, while I made money by selling the wall space as advertising, I submit people would not condone it.

        And they wouldn’t charge the defender of you, the painter, as being deceitful, at worst, because an assumption he made about political lobbying money was off.

        Joe Gillis, above, has it right: ““shrinkage” and “fraud” are clearly criminal activities — shoplifting, hijacking, robbery, credit card fraud etc — and there is no industry or movement a la Silicon Valley arguing that such should not be criminal (eg, the way piracy is shrugged off or elevated to “disruption” status.) Moreover, perpetrators of “shrinkage” and “fraud” are aggressively prosecuted by law enforcement, and aside rom the occasional Bonnie and Clyde and Tony Soprano, are not celebrated as heroes (eg, as hackers are celebrated.)”

        “…the entertainment industry does have a point when they point out that the very real damage from “shrinkage” in their industry is often tolerated, ignored or dismissed in ways that other industries do not have to suffer…”

        Why the double standard? I think we’ve given up expecting empathy from the Tech Sector, but why the anger?

        • The “stealing is bad” scenario is for tangible products — things that loses its value when used. Ideas don’t work the same way simply because they can be replicated and distributed for almost no costs. (This is especially true now, in the age of the internet.) The former’s traditional line of thinking often gets confused when dealing with cultural objects such as music, software and entertainment, which I believe is at the core of why the issue is usually framed incorrectly.

          I mentioned above about how Hip-hop first started as a form of “piracy”, i.e. remixing and rapping over pre-existing recorded material. By the industry’s definition of “theft”, what they were doing was “illegal” and therefore subject to prosecution. (Which many of them tried to do, incidentally.) Ironically, the medium is now one of the most popular styles in the world right now, and is immensely profitable. They’ve done the same thing with electronic music artists (sampling) in the 90s and are now doing the same thing with the internet.

          Do you see what’s wrong with the picture here? The industry as a lobbying entity has been consistently wrong about what they were doing, yet they never seem to learn the lessons which are obvious to everyone except themselves.

          All that effort and money could’ve gone into adapting their business model in order to get with what will actually be sustainable in the future. That’s what commercial enterprises are *supposed* to do, isn’t it?

        • Imagine what would happen if the industry leadership spent their time explaining this to artists and producers instead of trying to impose every possible restriction on their customers…

        • Stealing is bad. So what?

          As Steve mentioned, ‘piracy’ occurs in every sector of the economy. Some have mentioned that the FBI gets involved with credit card fraud. Yet despite strong laws, harsh penalties and aggressive prosecution by law enforcement, people still commit all sorts of theft and fraud.The fact is that these laws DO NOTHING to stop crime. Never have. Never will. SOPA will not stop piracy.

          Plenty of stores have sensors at the door to stop the ‘theft’ of goods. But as far as I can tell, the main reason the sensors go off is because the tags in the item were not scanned properly by the sales associate. If someone really wants to steal something at Walmart, those sensors will not stop them.

          The MPAA, RIAA and all the other associations know who the rogue sites are. Why not contact the local version of the MPAA and RIAA and take those sites to court in their local jurisdiction? But that would be too much work and require things like due process and a legal hearing of some sort. And some sites may be found not guilty. So, let’s pass a law where the AG can shut down access to rogue sites based on input from the content industry.

        • And the response to infringement, is a civil suit, where actual damages can be ascertained, not criminalizing re-arranging the ones and zeros on people’s hard drives AND giving a proven irresponsible and corrupt industry a new “right of private action” with the strength of the federal government.

          Intellectual “property” is essentially worthless when everyone can make a copy – and the ability of instant distribution and ease of production is a GOOD thing. But it might mean that a few businesses that used to make lots of money don’t get to make so much anymore, while the rest of us actually get a chance.

  41. [...] A ton of folks have been sending over Steve Blank’s absolutely awesome detailed analysis of why Hollywood can’t innovate… and the result is SOPA. It touches on many points we’ve raised separately, but puts it [...]

  42. This is a superb synopsis of the troubles of SOPA/PIPA, and exposes the troubles that the media industry is facing.

    However, SOPA/PIPA also sets a dangerous precedent in basically turning the media industry into the “Keystone Kops” of the Internet, with the power to order any site to be taken down, forcing the site owner into a protracted, expensive legal battle to have it restored.

    As has already been mentioned nearly everywhere, the act will do little to combat actual piracy, but they can take down criticising sites, perhaps by having an insider, an agent-provocateur, posting “infringing” links on a blog comment, forum post, etc. Now those in the media industry will deny that the act will permit this; but with the currently-vague language in the bill, it is wide open to this sort of abuse.

    And, can we really trust them to not take advantage of this gaping hole to stifle critical reviews and/or other “undesirable” information?

  43. Steve, you state that “The introduction of new technology is always disruptive to existing markets” and link to Clay Christiansen’s classic book, “The Innovator’s Dilemma” as if it is the source for that concept — but Christiansen’s point was to distinguish new technologies that were “sustaining” versus those that were disruptive to existing markets. New technology is not always disruptive, and Christiansen elaborates on when and how disruption occurs.

  44. Believe It Or Not: Last year, more than 330 million vinyl records were sold. Maybe we are missing something amidst all the argument. Anyway I am a trained musician who got into tech in the 90′s and think we can have the best of all worlds. But getting people to listen can be pretty tough. Lastly with all the technology in the Music and Film industry, I believe techies would be fascinated with the technical side of production, it’s just astounding that we haven’t progressed further on the basic issues of digital distribution. Yes, I believe the Music and Film industry basically “missed the boat” when they had a perfect opportunity to get in early. Many musicians (established artists as well) are taking full advantage of tech in addition to traditional distribution but the fact remains the economy is a major factor also. And of course the choices have increased as well. Music and film has to compete with tons of consumer choices these days. Video games, apps, consumer electronics, social media, sports, etc. Life is a very tough business these days.

    • On a recent cross-border shopping trip to Detroit, I was amazed that Best Buy was selling vinyl records and at prices that were three times what I paid for vinyl back in the ‘day’.

      “Music and film has to compete with tons of consumer choices these days. Video games, apps, consumer electronics, social media, sports, etc. Life is a very tough business these days.”

      You didn’t get the memo. The music and film business is ‘tough’ these days because of piracy. All those things you mention are a distraction from the issue of piracy.

      /s

  45. I also work in the industry, as a grip. All the people who work in the movie industry account for a very small fraction of all the people in this country. I do not make any money from residuals (a piddling amount goes into health insurance but it’s barely significant in the big picture). Those of you who enjoy residuals are by capita a very small part of even our comparatively small industry. Is it really fair for such a tiny group of people to get a law passes that harms everyone so greatly just to help themselves?

  46. [...] Blank wrote an excellent piece here, about how the industry has lost the ability to innovate and how it reached that point. The RIAA [...]

  47. Sounds the same as the book industry :(

  48. There are a number of things wrong with the argument laid out in this article. For starters, the fears had by the executives back in the day over the introduction over the tv and other devices were all true — the number of people who go to the movies today is a tiny fraction of the number of the number that used to go before the VCR and the TV. That’s a fact not mentioned above.

    Also, all the examples listed above are fears over new innovations – not piracy, and not on the level and ease with which it’s now available. That’s a key difference.

    It’s one thing to mock someone for being afraid of new innovation, but it’s another thing entirely to overlook the concern that studios and artists and Filmmakers have of their work being outright stolen.

    • Who cares if “the number of people who go to the movies today is a tiny fraction of the number of the number that used to go before the VCR and the TV”? Ultimately, it comes down to how much revenue and profit you can make per person. How much did Avatar make at the box office? Besides, any reduction in box office take has been more than made up by VCR and DVD sales.

      You may want to read the Betamax Case (Sony v. Universal Studios). It was about piracy. It just wasn’t called that back in 1982.

      No one is mocking anyone. I’ll choose to overlook the concerns of studios and artists and filmmakers so long as they choose to overlook new innovations and the Internet and so long as they choose to use Hollywood Accounting that turns a blockbuster movie into a money losing venture.

  49. Theft is not some new innovation. I’m pretty sure it’s been around for a long, long time.

    • Exactly. But it’s never been this easy. And it’s certainly never been described as a human right before.

  50. To classify downloading movies as piracy is a bit strong.surely it would be just copyright infringement .piracy would be downloading and selling on for personal profit .

    • Right, and what is it that is actually stolen? Perhaps a property that should be well in the public domain anyway.

  51. Well said. After being all anti-piracy this and that for some time and also pushing for more legislation regarding the subject, I’ve started to realize within the last year or so how it’s best for the film industry to try and work with innovation in new technologies rather than against it. Your comparison to other industries, as well as the outline of how and where their complaints fell short to be valid historically also shows how its not always wise for studios to just set out to cease innovative measures in whole based on poor or illogical grounds.

    In a habit of massive litigation and persuasive legislation practices to protect a studio’s bottom line, it seems that many of their actions end up alienating the very people who they depend on for revenue….consumers, particularly movie going/downloading/watching/streaming/buying audiences.

  52. Would hate to be a spook right now. What will the security services do when everyone starts encrypting their internet with anonymous proxies to avoid being tracked by Sony et al.

  53. It’s 2011. I thought by now I could go to a studio’s or network’s website and buy downloads of any movie or episodes of any tv show they ever made. Free eps of old shows made available so we can “try before we buy”. My choice, my convenience, my instant download would be their cheaper and more profitable distribution with no middleman. Why am I still waiting?

  54. [...] Why The Movie Industry Can’t Innovate and the Result is SOPA [...]

  55. There appears to be a genuine concern for Studios/Record Companies/Publishers in that digital distribution is monopolised by a few mega companies (ie Apple, Google, Amazon..) who are increasingly positioned to dictate to *insert studio* how much they will earn. Previously there were negotiations with multiple bricks and mortar retail or rental partners in every region in the world.
    Innovation has caused a major shift in the control of post theatrical revenue streams that there is basically nothing the studios can do about. (save abandoning all distribution partners and going D2C – something they should probably do to maintain long term control but cant because the short term backlash from intrinsic partners would be catastrophic…but I digress).
    I’m on the fence on all of this. Without delving too deep into the nuances: On one hand the entertainment industry has hundreds of millions of dollars invested in movies/albums/publishing advances hoping they will be commercially successful – it’s their money and their product so why shouldn’t they take every step can to protect their investment? If you don’t like it, don’t buy it? (“we don’t, we download it for free” I hear the call)
    But on the other hand they are disengaged with the consumer, the market and market realities or at least they seem to be. Reality trumps theory and they are theorising a square peg into a round hole these days.
    I’ll qualify by admitting to having previously worked for 2 major studios, a major publisher and a major record label (in middle management sales and marketing roles). So you can either take the opinion that Im reasonably well informed or that Im biased. You’ll just have to take my word for it (if you’ve read this far I’ll assume you are slightly interested) that I’m capable of independent thought and haven’t been swayed too much by the company line. (I think Trent Reznor is a visionary genius for example and Universal Music Group should be on their hands and knees begging him to run their business. Not that I think he would ever be motivated to do such a thing….digressing again….love you Reznor!)
    In my experience the majority of people vocally derisive of the record companies and movie studios (and who now also think they know everything about how the book publishing game works) tend to be motivated simply for self serving reasons (ie they have had a taste of getting it for free and simply want to continue getting it for free) or because they are sheep and it’s the cool thing to do. This mindset has expanded to become the norm which is a nightmare scenario for any business that relies on monetizing IP. (Another nod to Trent Reznor who has proven you can retain ‘pay for content’ by making it interesting enough – but he enjoys a fan base that is hyper-engaged.)
    It is a TINY percentage that make the argument for genuinely innovative reasons. I have no doubt everyone posting on this page falls into that tiny percentage. But anyone with commercial sense knows that bread and butter income for a business does not come from early adapters, unless you are in the business of building Hadron Colliders.
    I’ll also use my stereotyping super powers to make another broad stroke criticism: the very people who abhor paying $20 for a CD will, without a second thought, hand over $100 in a bricks and mortar games store for a physical format, plastic in a box BluRay copy Call of Duty MW3 without batting an eyelid. In my mind this cements my argument that criticism of the traditional entertainment business is emotionally driven for the most part. The very reasons given for decrying record companies are played out by the game studio’s unchallenged.

    Purely my opinion and I’m open to being corrected by philosophical and superior minded intellectuals.

    Great article by the way. I enjoy reading intelligent discussion on this topic
    Regards
    D. Advocate.

  56. For those who truly want to argue these issues until the end of time, you should join the “pho” discussion here: http://www.onehouse.com/pho.htm
    A group of hard-core digerati, including some entertainment heavyweights, have been having the exact same argument at least since 2002, raising the same points over and over in an apparently endless cycle. I stopped paying attention about 5 years ago, but I expect they’re still at it.

  57. [...] Why Can’t the Film Industry Innovate Like Silicon Valley? from SteveBlank.com (Suggested by rob_sheridan) [...]

  58. [...] -Steve Blank, from Why the Movie Industry Can’t Innovate and the Result is SOPA [...]

  59. Great piece. Congress, however, appears likely to move forward with
    the misguided and ill-conceived SOPA and PIPA, despite widespread and growing public opposition. More troubling is that 158 companies have signed up to support SOPA, with only 87 companies so far against it — a sign of the relative strength of entertainment sector versus technology sector lobbying interests. $21 Million has been donated to Congressmen who favor the bill, but only $5 Million to those who oppose it. Expect Senate floor debate after lawmakers return 1/23 — with supporters appear ready to override a Sen. Widen led filibuster. It’s important to continue work to oppose these horrific measures. Support the OPEN Act instead!

  60. They like to make examples of people. Recently a moderator for the online streaming site Ninjavideo was convicted of piracy and sentenced to 22 months and federal prison and a 210k fine. It is a shame that some people have to pay the ultimate price of freedom to advance change

    • Try this one on:

      They like to make examples of people. Recently an owner for the shoe store site, NinjaShoes, was convicted of selling stolen Nikes and Adidas shoes, for profit, and sentenced to 22 months and federal prison and a 210k fine. It is a shame that some people have to pay the ultimate price of freedom to advance change.

      That sounds absolutely nutty. What in the world is this double standard all about? Maybe, just maybe, if NinjaVideo were giving this stuff away for free, your comment would be debatable, but this person was selling stolen goods for profit and selling advertising on her site.

      What gives?

      • The nutty part is that there is a difference between “stealing” and infringement – for the very good reason that horning in on your market doesn’t rise to the level of harm that denying a shoe store the use of their chattel does.

        See Dowling v US 1985 where the SCOTUS throws out interstate theft charges for a truckload of bootleg LPs.

        If I make a copy of something, re-arranging the ones and zeros on MY hard drive, it doesn’t deny you anything. It’s that simple. You don’t have a guaranteed right to profit every time someone hears your song / sees your movie. Copyright is a limited right – a wide variety of fair uses come into play and the erosion of those fair uses is more damaging to the culture which ALL of us own, than the right to control how ideas are spread around.

        The law has gone overboard to protect content makers (and I am one too – 30 years putting out music)

        The people who buy the most music are file sharers, but every download does not equal a sale.

        The movie business is going to have to change how it makes money, just like the rest of it. Maybe that means it’s not profitable to make a a quarter billion dollar movie. The choice we have to make is a functional, free (as in freedom to think) creative culture or being forced to pay a bunch of crooks to sing songs of authors long dead.

        With history of the MPAA / RIAA, frankly I hope they all go down. The indies will take over and we may get BETTER films.

  61. Can you imagine Walmart lobbying Congress for a law to shut down the road network because there are people who steal from Walmart? That is the equivalent of what is happening here. But you know what… it will stop anyone from travelling any long distances, but people will still walk to Walmart and steal from them!

    • It’s more like Walmart getting the roads shut down to keep other businesses to stop taking pictures of their stores.

      File sharing isn’t theft. Re-arramging the ones and zeros on my hard drive doesn’t deny anyone anything.

  62. [...] Why The Movie Industry Can’t Innovate and the Result is SOPA [...]

  63. Life is too interesting and too short to waste time watching hams walk through stories told better decades ago.

  64. Nice article. SOPA is the biggest piece of retarded ever.

  65. Great, Reposted at our blog. All The Best.
    WRC559

  66. Great article, totally agree! I think the main problem is that the big film studios are too money orientated and choose not to innovate out of fear of taking to big a loss.

  67. It should be a crime to stifle innovation.

  68. So, Ed Burns has a great Op Ed in the WSJ today, demonstrating how he, as a filmmaker and producer, is innovating when it comes to making cheaper films and distributing, directly, online:

    http://blogs.wsj.com/speakeasy/2012/01/12/the-revolution-in-your-living-room/?KEYWORDS=digital

    However, if folks pirate his content, his digital distribution strategy is not going to be effective.

    The Burns column illustrates that while Steve is correct in his assertion that the industry must innovate, that does not mean there shouldn’t still be policing of illegally pirated movies.

    Pirating Burns’ movie cuts the legs from under his innovative strategy.

    • Yet, his numbers are “robust.” Why would that be? Could it be that the people who download his film and are excited enough to share it with their fans are finding ways to pay him for his work?

      Could it be that enough notoriety is happening that people want to support him?

      Louis CK just made a million dollars doing it on his own – no DRM, just saying “If you like it it’s five bucks, please don”t pirate it.”

      I wonder if he’d have talking in more if he’d said “Please share it with people and ask them to buy.” The first point is that he priced it within the realm of sanity.The second point is that he didn’t say “I’ll sue you if you download this film and don’t pay me anything.”

      http://money.cnn.com/news/newsfeeds/gigaom/articles/2012_01_06_lee_louis_ck_marketing.html

      If you make the price reasonable, “pirates” will act as your marketeers, even if they don’t buy it, some of their friends will.

      Then there is another innovation – touring with your film and having a question / answer discussion with the director. Connect with fans and give them a reason to buy.

      You want to give the gatekeepers – the payola guys from radio, the studio cartels that were broken up for price fixing, the record label cartels that were fined for the same thing – the power to use the Federal government to shut down sites like youtube without an adversarial hearing, on the basis of allegations.

      That’s not about protecting artists, that’s about protecting cartels.

  69. [...] businesses in an ever changing technological landscape. They should realize that they could increase revenues by embracing new channels of distribution instead of wasting time tracking lost revenues due to piracy or [...]

  70. [...] Blank makes an important point: This year the movie industry made $30 billion (1/3 in the U.S.) from box-office [...]

  71. All right, Intellectual property rights have been serious issue for a while now. A change in policy could simplify the problems (though it wouldn’t fix everything, especially since we people are part of the problem). What if, instead of awarding patents that give someone sole rights to something (which becomes more meaningless each day, with imitation a huge part of the global economy and technology consistently making it easier to do with and without permission), we give patents that are essentially a tax credit, transferable, and any sales of the product. Some details I’ll leave out, some will take study and test to work out, but it should end up like this: the government would still encourage innovation by reducing taxes on new ideas, but it wouldn’t have to protect what is difficult to protect and it would reward efficiency along with innovation. If you can out sell your competition with the advantage of paying 10% (just throwing out a number) less taxes than them, then great, but if they are so efficient that they can still out sell you, then we should reward that. It makes it a more competitive process, but would still allow someone to make money off of their idea even after competition had driven them out of the market, because they could sell their tax credit/patent to the competition. If one entity owned it at any one time…..What do y’all think about that idea?

  72. [...] Good article here by Steve Blank about the movie industry and SOPA.Why The Movie Industry Can’t Innovate and the Result is SOPA [...]

  73. [...] In a sense, the fight is about the old media (primary Hollywood studios and record labels) trying to protect their incumbent but dying business models. Steve Blank has an interesting take on the refusal (inability?) of old media giants to innovate. [...]

  74. [...] Steve Blank: Why The Movie Industry Can’t Innovate and the Result is SOPA [...]

  75. I work in the entertainment industry, and I also believe that SOPA is bad legislation for all the oft-flogged reasons. Yet the tech community’s attacks on it still grate and your piece sums up why.

    No one who is against SOPA ever acknowledges that the problem it intends to address is valid or even exists. Case in point, see above. It’s the movie industry’s fault for not innovating/being greedy/being stupid. The problem is not real because the movie industry always complains/every industry has piracy/piracy isn’t a problem/piracy actually MAKES money, on and on.

    Your side would have more credibility if you acknowledged that 1. Intellectual property deserves protection; 2. Piracy is a real and growing threat; and even, yes, 3. The tech industry has built several businesses that facilitate — even rely upon — piracy.

    But the tech community is in no mood to make any such concessions. I think this has to do with arrogance and feelings of invincibility — the entertainment industry is yesterday and we’re tomorrow, so good riddance!

    Maybe so, we’ll see. In the meantime, it escapes nobody’s notice that the truth of the matter is nothing any more noble than people just like to steal things.

    And finally, the tech community’s Achilles heel here (and elsewhere) is that it has no respect for the law. Witness Google blundering obliviously down Microsoft’s exact antitrust footsteps. But the law is WRONG, you can almost hear them thinking. Newsflash: It doesn’t matter. The law in the end always prevails. Regardless of how you view the entertainment industry or what you believe information wants to do, the law says piracy is illegal and in the end the law will be enforced, same as always for everyone.

    You can help shape that law into one you won’t mind as much as SOPA. But continue to scoff instead of help and I promise you, when the solution comes — and it will — you won’t like it one bit.

    P.S. There is a word for those who believe their industry should not be regulated: Republicans

    • I’m a musician and composer whose been in the business for 30 years. I don’t believe piracy is the problem that the RIAA / MPAA make it out to be.

      In fact for the VAST majority of musicians, we’re making more money from the sale of our music than in the “good old days” when these same cartels brought us payola and price fixing had control of meaningful distribution and access to the airwaves. What they want is a broadcast model of the internet so they can set up money filters between content creators and artists.

      First, their numbers have proved to be vastly inflated. Only in the entertainment industry would each song heard / movie watched that didn’t collect a dollar be a dollar “stolen.”

      Second, they don’t acknowledge that it’s a singles market – 1) people only have to buy the songs they want instead of a full cd 2) people are not replacing their record collections for the third time due to the format change. Most of us bought our library in the 80s and 90s and we’re not paying for it again so we can listen to in a different format and 3) there is vastly more copmpetition because artists are making more art than ever before. (115,000 cd length releases in2004 vs 35,000 four years beofre.)

      Combine that with a truly rapacious attitude toward people that enjoy their music enough to download it – as in suing grandmothers. WHY would anyone want to support an industry based on culture after reading about all those lawsuits? They gave an active reason NOT to buy. I haven’t been to bit torrent sites because for me, they’re more of a hassle than buying used. If I really like something a major label artist does, I just wait for the cd to hit the used record stores – and of course the major labels want to call THAT stealing too. They want all information to be “licensed” – nobody really owns anything they buy.

      Add all THAT to fact that they were slow to digitize to the point that a whole generation of people got used to instant access before they got on board and you have a recipe for some businesses going down. And yet – this year the music “industry” as a whole, is down 25% from it’s peak years – in the middle of the worst economy since the great depression – but the money is spread out, most of it dribbling in to guys like me, who are actually finding an audience and getting paid.

      People against SOPA should NOT acknowledge the “damage” of file sharing because for the vast majority of creators it’s getting our art into the market place. Artists die of obscurity. If I can’t turn 100,000 people downloading my stuff into a decent living, I don’t deserve the attention.

      • I used to get a kick out of the anti-piracy infomercial that for a time Fox put at the head of their DVD’s (remember those!) It’s message was “you wouldn’t steal a CD, would you?” Because, of course, anyone who remembers music stores remembers checking your backpack and foot-long boxes and security guards and shoplifting detectors, because apparently we WOULD steal a CD given the sliver of a chance.

        So when I am presented with all the “piracy is not a problem” arguments, for instance (but by no means limited to) the ones you make above, what I hear is “now we CAN.” It’s not noble. It does cause harm. If anyone benefits from it, well, I’m sure certain wives would be better off with their husbands out of the picture too, but murder is still a crime.

        And that’s my main point, which you miss: Arguing the merit of the laws against piracy is miles from the issue. It’s *another* issue; work to change those if you feel so inclined. But right now — again, like it or not — piracy *is* ILLEGAL. Facilitating illegal behavior is *also* illegal. If you are doing either, you are on the wrong side of existing law and the law will find a way to stop you. You have the upper hand now? Great, download away for the time being. But *the law ALWAYS comes to Dodge.*

        So, you write:

        People against SOPA should NOT acknowledge the “damage” of file sharing

        Honestly, knock yourself out with that one too, it only makes things easier for the movie biz. The arguments that will ultimately sway lawmakers, law enforcement and courts however will inconveniently fixate on the more prosaic question of, is existing law being violated?

        But how about this: Fine, don’t acknowledge that file sharing causes damage. How about acknowledging that it’s illegal? That’s pretty cut and dried, no? If you acknowledge that it is, then I hope your argument isn’t that you should only be bound by laws you like. As a matter of fact, if you acknowledge that file sharing is illegal, then none of your above points are even relevant to the discussion.

        xxoo

        • When the RIAA / MPAA want to increase penalties for actions that shouldn’t be criminal in the first place, all of those points are entirely relevant.

          We’ve allowed the legacy content industries to buy legislation to criminalize behavior that harms no one, and now that it’s effects are being felt by more people, they’re starting to see the fallacy in the law and the blowback is coming.

          What sways lawmakers is voters and money. What is turning SOPA / PIPA around is that people are beginning to understand what the abuse of copyright enforcement means in their lives.

          People are sick of being told that they can’t upload a video of their fiver year old singing along to a pop song.

          All of this happened without sites like Google making the issue public by use of their front page. The fight is a little less on the fringes now, but if the RIAA / MPAA keep it up, we may see the law on copyright rolled back.

    • Man, you were making a very good argument until you went and got snippy at the end. It seems like this issue is close to your heart, like there’s some anxiety in your response. There have been some important points brought up, and may I say that many where found in this post of yours. The most important in my opinion, that there is little respect for the law these days. And, while I think that point reinforces your stance so well and shows where responsibility should be taken, I can’t help but think about a few quotes I’ve heard:
      “If we desire respect for the law, we must first make the law respectable.” Louis D. Brandeis
      “If you have ten thousand regulations, you destroy all respect for the law.” Winston Churchill
      Now, maybe they’re just good soundbites, and personal responsibility is the foundation upon which fairness will be built. Regardless, this is an issue worth discussing, because each worker deserves their wages. Copyright and patent laws should continue in the spirit they were created and foster a strong work ethic. Can any nation persist, let alone be great, that does not value hard work?

  76. Again, opinions on whether given laws should exist belong in an entirely different discussion than this one, which is about how existing ones should be enforced. You’ll just have to trust me that no one in a position to advance or quash SOPA will be swayed by the argument that a certain law is just too super lame to be for real, man.

    Also, informationally? The music industry was decimated by that “behavior that harms no one.”

    • That’s HIGHLY debatable – that’s what the old gatekeepers want you to believe. This year the entire industry is down from it’s peak year by 25% – in the middle of the worst economy since the great depression.

      File sharing might be a factor, for the major labels, but it’s vastly overblown compared to other factors. The majors want us to ignore things like the return of the singles market – meaning people are buying one song instead of ten. People don’t listen to albums anymore, they listen to playlists.

      During the peak years people were also replacing their old libraries of lps with cds. In a corporate environment where every year demands growth, setting sales expectations based on format change growth makes any downward trend look worse.

      Then there is more competition. We work in a saturated market where there are over 115,000 cd length titles released every year – compared to 35,000 in 2004. Everyone wants to be the star of the day and there are only so many hours a human can listen. If putting out art is a measure, the industry is thriving.

      More people are marketing to a smaller pot of cash and artists and fans don’t need Universal to tell them what they like. Radio is still a factor, but less and less so. You can’t just drop $100k on payola anymore and get your smash radio hit. Those days are gone – and most musicians and composers are better off for it.

      Granting rapacious industries a “right of private action” to use the government as it’s collection agent is no small step – and further criminalizes behavior that traditionally has been a civil matter.

      But I’ll grant you that arguments don’t sway Congress. They don’t read the bills that the industry writes for them. What moves them as I said before, is two things – money and voters. BUT when actors that run websites that many millions of people use start playing on that field, Congress can be forced to notice – as has arguably happened now that SOPA has been tabled. We’ll see if it sticks, this is just the first small battle and there are sure to be several more. It may of may not be as effective as buying a few more Senators. But something if something like Reditt going dark can get millions of people sending in e-mails, imagine what effect the real players will have the nest time it comes up. That’s not going to be ignored like an ad campaign.

      • I’m torn because that is all fascinating and I would love to hear more, but I want to leave time to ask you about the legitimate underlying medical condition that is the basis for your pot prescription.

        Also, while I too am scandalized by giant corporations trying to politically maneuver their way out from under government oversight, I worry that you may have overlooked a tiny, itsy-bitsy aspect about this whole SOPA kerfuffle, and that is which is the industry that’s doing exactly that.

        • You don’t have to be insulting. It really comes down to do you support creators or people that have traditionally ripped them off. (Here’s a hint: it isn’t the people who like your music enough to want to share it.)

          At least if youtube is using our stuff we stand a chance of getting paid – and do. If ASCRAP or your buddies in the RIAA are running the show, EVERYTHING gets funneled to the microscopic few artists that on the rosters, that have enough leverage to get paid. That’s the way it worked for decades and that’s the way the parasites want it back.

          If we lose the platforms, everybody loses.

  77. [...] Steve Blank, Stanford / Berkeley / Columbia MBA programs, 1/4/2012, Why the Movie Industry Can’t Innovate and the Result is SOPA [...]

  78. [...] the Chicken Little role played and replayed by media companies over the years. Here, courtesy of Steve Blank, is an excellent overview. It should be enough to make even a Senator or Congressman stop and [...]

  79. Excellent piece. I can’t agree more with “Why can’t the film industry innovate like Silicon Valley?” Instead of shoveling mounds of cash toward legislation, why not adapt and innovate to use these new mediums when historically (I now know more, thanks to your timeline) it’s been successful. So many things wrong with today’s world, it’s just plain silly.

  80. [...] would have disrupted all manner of legitimate internet activity in the process. Steve Blank offered this analogy: “It’s as if someone shoplifts in your store, SOPA allows the government to shut down your [...]

  81. [...] has also been actively been seeking out alternative, as Big Content does not innovate:, and has long been profiting from new technologies for a 100-years while trying to smother them in their infa…: The MPAA studios hate us. They hate us with region locks and unskippable [...]

  82. [...] I couldn’t help but compare the archaic event of Hollywood to SOPA and PIPA. A fear of change, a fear of technology, and a fear of decades of innovation in every industry that Hollywood interacts with, and most notably a fear of sacrificing their precious bundles of money. No one explains it better than entrepreneurial professor at Stanford, Berkeley, and Columbia. and author, Steve Blank, when he wrote of these fears in relation to SOPA and PIPA on his blog. [...]

  83. [...] Why the Movie Industry Can’t Innovate and the Result is SOPA [...]

  84. Dear Steve Blank,
    May I translate this post and open it for Korean people?
    From a few years ago, South Korea is in a similar trouble regarding internet censorship, and i’m sure this article is worth to be read by Korean readers.
    Additionally, I’m working as a staff of Jinbonet(http://act.jinbo.net), a Korea NGO which has been doing an effort for human rights on the internet in South Korea.

  85. [...] Click here to see this amazing work of art and click here to see the detailed information from which it’s derived. [...]

  86. [...] humbly suggest that you stand up and tell them to either embrace the age of the Internet or get out of the way so that new, forward-thinking industry leaders can take their [...]

  87. understand the logic, but the article does not provide much of an answer to the valid charge that piracy is stealing income – put it another way, would all those college students who started the trend be now willing to give thousands of customers free services/goods now that they graduated? – unfortunately, piracy has affected a few artists that I know (i.e. those who try to ply their trade in a small country) – there are also costs to not combating piracy, e.g. in the music indsutry, lost revenues are made up from charging high ticket prices (pity the poor fools who only do studio work)

  88. Great post. I wrote about some ideas for how to bring more experience innovation to the movies a year ago: http://www.choosenick.com/?action=view&url=experience-innovation-at-the-movies-five-things-cinema-brands-could-do-to-make-watching-films-better-and-their-customers-happier

    I didn’t expect to see any of them happen. And they haven’t. Hollywood really sucks at everything around movies except the making of the film bit.

  89. [...] whole SOPA/PIPA debacle seems to have brought up a lot of bad blood that has been brewing between Hollywood and the tech sector, which isn’t likely to be [...]

  90. [...] humbly suggest that you stand up and tell them to either embrace the age of the Internet or get out of the way so that new, forward-thinking industry leaders can take their [...]

  91. [...] laws already in place, so they would rather lazily have the US government get involved, using cash they could be using on innovation they ignore.  Meanwhile, talented indie producers/directors can’t get decent deals that pay them [...]

  92. [...] to watch content at home was allegedly going to destroy the motion picture industry. And in a preview of SOPA and PIPA, the studios tried and failed to have VCRs outlawed or crippled. In the end, the VCR became [...]

  93. Hollywood is getting what they want, due to the DMCA. It is because of DMCA that Hollywood has been able to functionally have any Blu-ray players with any analog outputs outlawed, forcing you to use an HDMI only connection. In the end, they hurt the format, due to a lot of the older TVs not having the necessary input, and for what? Closing the analog hole has done nothing to stop ripping of their movies, and people who rip have no use for the HDMI port, which uses a handshake, just to stop recording of all content.

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