Ep. 49: The Internet vs. Hollywood

Oh and don't. Hi everyone welcome to reporters roundtable -- people in this is cnet's podcast on single tech topical -- today we're talking about the movie in the TV industry's immerses the Internet. Who will win the studios the Internet companies consumers manufacturers or some combination of those. In a nutshell what's happening right now is that the entertainment industry is in the middle of shedding its skin the old ways of distributing and -- and charging for entertainment content are being changed. By the web. Technically entertainment can now follow -- anywhere from screen to screen. From our living room for mobile phones that are now and it can do it without costing us the -- And some content is doing it. Hollywood content is not least a lot of at least not for not not yet. And with over the top content boxes coming from Apple the Apple TV upcoming Google TV broke who boxing Tivo. They all give -- easy access to Internet streamed content. And with content plays like Hulu and Netflix in the back and work everything is up for grabs the -- -- going to be talking about today. We have two great guests first representing CNET calling from New York. What the tech first view of content industries is our own great cent of all author of the media maverick blog Greg thanks for dialing in. -- -- -- And coming to us from the heart of the text of the entertainment industry Los Angeles Hollywood. We have Stephen -- -- the executive editor of variety. The industry rag that you must read if you're in this business and that's one of the foremost experts at understanding the changes in the entertainment industries Stephen thank you for making the -- -- -- -- be with you all right gentlemen so let's talk -- get right into this will be Internet killed the movie theater. Who wants to take that one. I'd love the -- that just because I'm I'm old enough and and may be enough of a historian about Hollywood to. To be up to Speedo all the things that we're going to kill the movie business that didn't go ports Leo yeah I mean TV was going to kill the movie business. And the studios went berserk in the 1950s and and they came up with all kinds of gimmicks that treaty was one of them -- the content. And they discovered the TV was an amazing medium for selling tickets to movies so. I'm guessing that movie theaters in the communal experience in the visceral experience of seeing. A film of forty feet high with a group of strangers is it's going to survive. -- -- Well I don't believe that that theaters or only in trouble but the studios. Including. That -- there there are. Customers -- -- their -- it is saving money and your all potentials of piracy -- gets us free so I usually. -- becomes more problem right now we're just at the beginning. But you look around the world it's the speed it's just -- that people are going on streaming sites in you have to download torrents. Watch full movies full Pelosi shows without hanging down. That help people still care about seeing movies -- Stephen was saying in their their full in the full cushy chairs the forty -- -- Experience of the screen. -- -- free trump the experience. Or free EE would it's not a good that cancer in. You have people that can get public theater experience -- huge flat screen he needs. And some of these people can really create that experience with O oh excellent Steve -- -- -- Thanks even what -- -- of -- is worrying that. No I I think that piracy is extremely worrying and and we're really. Cuts into the business is in the what I would call the discretionary -- the middle -- you've seen Hollywood. You know run away from producing what we would call the middle range films. To the event films and so the event films it's harder to have an event in your house. That in the movie theater but if you're going to have a drama with a couple of people talking to each other and having an emotional experience. You probably can do is Greg saying you can probably have that experience in your home and and you may not want to spend 25 bucks or thirty bucks you got the movies and do it so. Piracy. Has already cut into. The independent film marketplace. Internationally and that that is worrying. Now can the Internet. An Internet distribution of -- of I guess where you're talking middle market films. Emotional dramas -- big blockbusters. Can the Internet replace that. Economically. From the movie theatre experience. Well -- let's go back 11 step to the whole question you know does the Internet automatically equate to piracy. I think if the Internet equates to piracy thing -- is is a 100% right to be Paul Revere and and ringing the bell and saying watch out -- they're hear -- I don't know that. That's the case I don't know that. There will be no way to deal with piracy and there'll be no effective. Methods to safeguard helmet there is way to safeguard -- and and there is they've wall that can be built in and piracy can be. Dealt with that I don't think the Internet -- is anything other than -- co existing wonderful thing to go along with the movie experience. Now one of the reasons we're doing the show today is because of the news recently that Disney and Warner have are getting together to come up with a new way to let. Consumers in their homes watched first run movies aiding and much more quickly after the film leaves the screens than -- has -- -- four. They're moving that -- -- forget Chrome and several months to thirty or sixty days out but they're charging. An unprecedented Lehigh a map -- to stream these films thirty dollars. -- great you've been hearing about this happening for awhile worded this come from and talk about the history of this deal and then -- -- askew. What this means for for consumers and from the industry's great. Well it comes from we're just talking about -- They seem that people want to watch these films these seniors -- getting hung on bitch -- this is the way to fight piracy. Give people what they want on the movie comes out. Susie hit the theaters -- very shortly afterwards give an opportunity for people to buy the mature. Now this is a tough price point and I think some of this is steered toward satisfying your owners -- scare. They're looking at this and they're looking at -- windows you know periods of time that. They're allowed to happen movies exclusively in the window first premium TV cable TV broadcast TV and -- -- those are starting to encroach on home computer which I thought a lot of people. Let's say right it's always been the bread and butter Hollywood. It seems that at least 100 you know started -- patents and you don't -- nothing QVC the world people -- -- -- -- -- -- boils down to us. You lost control of their distribution. So it's time to get done yeah you gotta compete against piracy. We're giving people what they want to -- one thing. -- -- The I think Greg that yeah I agree we're about 95% of what you just said I think it isn't just. In relationship to piracy. I I think the idea of the windows. You know worked in a world that was a different world and there are lots of creative reasons with that with the technology of the home systems and equality in everything. The idea of choices is a pretty wonderful idea -- it doesn't necessarily have to be dependent upon -- reactive posture to the piracy. It's just choice. And I think going back to the independent films in the in the mid range. Budget is films and the dramas. I think the idea that the audience can see them where that -- and how they want I don't think that will crater the movie experience I think it will just -- You know it could theoretically bolster the independent film business by. Making an alternative viewing experience that. That's Stephen that's uninteresting prospective -- here at CNET we. Tend to have a kind of gut reaction to the content businesses which is not positive. Which is that they're trying to control -- to trying to maintain their old business model. And it make sure that we can only see their Condit in the place and time of their choosing. Your perspective it is it's quite different and much more charitable he can -- does this come from this this that difference. I think it comes probably the very specifically I was call myself they focus group of one. I come from independent film before worked as a journalist -- -- a filmmaker in and and came from independent cinema. And and that's what I follow most closely and I most. -- where. That in the past five years certainly from around 20052006. To 2008 or nine. About two billion dollars of capital was eaten up in the independent cinema. Making films for too much money that too few people saw them and that entire business is reinventing itself right now. And I think that entire world. Is really really down with the CNET view of things that the system. Was it was it's it's dead it's gone it didn't work. There was too much greed the producers were taking these -- -- movie nobody wanted to see. And and the filmmakers just want to see their movies on big screens but you know the audience didn't share that -- -- higher. So that whole world have a a nervous breakdown and collapsed and and it's being reborn. I think anytime you have a cataclysmic. Disaster that like the of the independent world states. You have a -- opportunity -- to reinvent itself and in the openness and the willingness to embrace. Change and and new ways of doing things. -- it's so that's a lot easier to do when when that's the only option. When. Greg. Is your take on this for their technological. Angles here with out of the rise of 3-D your with DRM making its way into the stream that may. This system begin to work again just on different screens. Absolutely I think the people listen we know what she's doing great. People love -- Here comes Apple here comes -- getting into it. I think the studios and I know a lot of CNET readers hates anything good about the cabaret donors and content creators call. But I think -- done a great job they're not sitting back and holding onto their content. You're just you're -- an actual lot of different tech companies getting -- -- issued it is. I think you do this movie industry it doesn't happen -- -- in the year. They are threatened by piracy they are driven by their customers candles yeah that's -- tough economy wanna save money absolutely -- cut court. And sing -- time. There's some pressure on. Companies are gonna be coming -- that he didn't have to -- again they can jump into this area and onto the web and daring eat well let's talk. I talked toxin to aspects of this that we haven't talked about -- all that are really really important -- Exhibitors. The theater owners are probably. The most conservative group in the entire food chain of of content creation and delivery. They always have been they always will be so so you have that that. Is is part of the situation you're dealing with the other part -- marketing costs. Now what's interesting about video on demand and in this whole window of being able to get the film almost day and date or or day and date with the theatrical release. Is that. The studios the distributors would take BTV ads and would spend. Millions of dollars I think the average is up to about forty million per picture just in marketing costs that's just -- middle range film that's not a blockbuster. That's about half what a blockbuster cost. So you've got about forty million dollars in marketing cost all borne by the distributors the exit bidders are there are saying it's gotta be your way or no way. And the people are herded into the movie theaters when they were bombarded with billboards. And print ads and radio and TV yet. Now -- The cable operators to me or the equivalent of the theater owners. In being extremely conservative. And having absolutely no no marketing. DNA and no marketing motivation. What is just about to happen. Is some very clever people are going to start marketing DOD. And I think when you see a marketing campaign. That exist behind something the way that it would exist behind a -- -- in the theaters -- the whole equation changes how some. It changes because people have an awareness that the thing is there I mean BOT releases right now are like a tree falling in the forest. You don't even know they happen to you there's there's no presence out there. If somebody spend some money creating a presence -- using this fantastic medium of the Internet. Where everybody's plugged in the in almost all day every day I'm gonna fourteen year old daughter and it -- -- marvel at how she's even more connected. To the computer that I am I by -- for a living. Once you really raised the the profile -- the awareness level and you reach people and you get into their lives. And tell them that this thing is happening on view of the and and you know for this price on this day. This is available and tell your friends and everybody get together and see this thing whether it's an art film -- or -- genre film or film or whatever. You know like I think that there could be some very exciting days ahead of -- in this in this equation. Well -- used to be this thing of street to the video or not -- the rental store for movies that worked maybe. I don't know have to certainly through production made -- wanna give up they didn't wanna put money into advertising and it just put it straight out in video. Right is that gonna happen with Internet I mean we've seen a few are very few productions. Marketed in this in via social media onto the Internet doctor horrible come market. Is that the next kind of meet here channel straight to the web. All disrupt my guess and in my guess is it is but they're great what do you -- Well I -- they're -- Paramount in some serious Sony tried you know web only contents. It in kind of -- tightlipped about whether it's been successful I don't see why not though certainly not Dickson knew continue to do well and it's important players -- but I -- Here here repeat my question then. It yet and this is really -- a question I should be able to answers executive editor variety and I can't answer it. Has anyone put any kind of of cleverness or money behind video on demand. Promotions. I haven't seen any I can't think you know -- somebody can think of the example. I'd love to see it and see how it worked I just think worth the very beginning I think that this is something. That it's it's fun to be talking about in 2010 and look back in 2012. And say isn't that that charming. This was it had happened and now it's happening in a big way I really do think that this is very exciting area. You know this -- -- -- my show notes and I really don't wanna go in this direction with the adult industry sure knows how to make the online. Area work for cross promotion -- -- That's interest. And up to another interesting thing is the development of the the three the on technology and we have the best -- reporter in the world -- David Cohen and use up all this stuff. The technology in the roll out especially sport so you've got. Adult content over here and you've got sports content over here and now we're talking about first run movies. That or either you know big Hollywood movies or smaller movies that have -- need should -- 22 different targeted audiences. I think there's some interest in days. Let's not until -- let me let -- forward on -- been able to talk about the European cable industry and print job -- little -- all here. From my readers and some people my friends uncannily. They don't want -- one. However the cable companies in need eighteen you guys -- gonna go. All the marketing muscle in the world I don't think Norbert home just a lot of years people saying why -- all this. -- all these channels I don't care. And your comes that's what's -- charger V ten dollars a month get a lot of content and content library is cool. I'm gonna Johnson and I know it's -- and you can't hit sports you can't get -- Someone they need big financial services firms that was it -- -- down -- it's they can get a study and they reversed themselves. Because they see -- younger generation. Saying you know what are unlocking eight KB cable hundred dollars a month. Although Netflix Apple -- supreme spend twenty dollars a month I get everything that I need to watch except for sports and yeah. You made me you made me feel young you just described to me. IE I unplugged from DirecTV after unplugging from Time Warner a have a thing called says me. And we have Netflix -- says meet says mute nineteen dollars a month. And and I think that it if somebody you know had a movie I really wanted to see on a one time basis. Now that a ticket -- -- just an average movie that -- is fourteen bucks per person. That's a thirty dollar date. So you know I think there's some room at that price point two to entice me to watch something -- HD screen and -- -- the blue great quality at home and and and see it. But it's targeted it's the stuff I wanna see all that stuff on cable that I was paying. You know seventy to a 10220. Dollars a month and I was only using. 1% of it. That -- work for me. That let's talk about. Replacing cable and one of the things that person I've been wanting to for -- times the public accord but I haven't yet. We have -- we have who premium and other services that and yes we put our own stuff online our own way. Give -- kind of in a nutshell -- Hulu. Works and why is it such. A battlefield for the television industry's. -- -- Yeah well it's very simple the big problem boils down -- this you can stuff enough commercials -- -- woo. A podcast -- say 30 Rock. To make up the kind of money they make broadcast TV. -- -- that simple if you put too many commercials and you don't -- it's not -- much. Who just hasn't been profitable for the content industry -- engine companies. As it is you want to broadcast on keeping each now that said this will look for an arm that's -- -- costs opening. Subscription model comment -- make -- difference. -- sure that -- -- you're picky about who premium. Is that you paid ten dollars a month. And you're -- subscription he still didn't commercials. So -- rubs people wrong way it's got what. Happens scripts. And outside -- -- Not some. Content producers I think on -- that would be -- beats the that are. There they put the stuff on Hulu and some like -- -- parent company CBS I believe does not. It what is -- how come some companies are saying we know we're gonna give a shot even though the economic -- sketchy because maybe. We have to experiment it's -- within summer like you know what we're holding back. It what are they gonna do the once -- holding it back back from things like who. Viacom has been you know content and one foot in one -- out. A lot of people are -- taking the chance possible because it's been so successful. Is people weren't yet your your viewing it -- -- -- groups. People wanna be able to watch it wants whenever they want patent and over the web it's easy writer -- WD -- Secret Service so the summit the studios that have joined up Sony. You changed your instincts they've done -- lets you hats. Somebody like CBS in Europe and yes you but its content -- -- -- its main -- bursts. All this stuff does a lot of speculation. Early on I just want -- -- reasons I think a lot of people have to wait and see. Much is about -- but about what else. And yeah there's already plenty of competitors are that's CBS some yoga studios. Are -- -- -- trial. We haven't -- what Google's got -- right where the very beginning there's a lot. Do what's your valley down there -- in Silicon Valley here what's your rally on their think about -- I think that you know outbreaks -- -- very well and in the sense that there's there's there's fear loathing there's trepidation there is conservative is them. Any time you you have. A model of gigantic profits. That is you that is eroding. And the new world he knows is everyone is said the cliche of analogue dollars and digital pennies and I think there's just real fear and confusion that that. One thing that's not confusing. They note that the old system had great profit margins and the new things that turned up so -- don't. So you know of the music industry. I -- in Hollywood long enough to remember when you could walk through and the record labels have lavish offices and they had huge staffs. And they -- big parties in the drove around -- limousines. And they're all gone. I mean you can find a label in in town now -- its its hard. So they had the big fat margins they would never price CDs differently they're back catalogue stuff that they had recouped on about 4000 times over. We're still 1799. And they just bought against you know digital -- and in the Internet and downloads and and they fought with every last breath of their bodies. So the -- you know. So how come now -- -- -- this is you know that has such a good point and it is is such uninteresting. -- precursor. Maybe -- what's happening with the video and movie industries don't the people in the movie industries and movie intelligent and and visual entertainment -- see what happened with. Than the record industry the record industry with Napster -- -- and say. You know this is going to happen to -- we cannot stop how to get ahead of us and then. Do they or or do they are they still trying to maintain these profit margins which I think we all agree. Are not maintain -- in the era of technology -- Internet. Well. -- gonna click in in one quick way ten years ago about ten years ago. I did a finance panel the late Jack Valenti who was the head of the Motion Picture Association. And we did this in Berlin and see -- out of the clarion call and said folks. The music industry's been decimated by piracy than it is absolutely. At your doorstep. And if you do not to change the way you're doing business -- wake up to the danger of this and also wake up to the fact that the way you do business is not sustainable. You will be destroyed the way they are being destroyed. I'm not sure that. You know what what portion. Mr. ogle and -- -- -- was was Burton act on. -- Well I'm pretty sure. Hulu we can't forget -- -- -- -- but some silicon -- All tech crunch worsens when something whiz kid -- -- NBC in the square. You old media companies. They jumped on they are waiting for -- Grass they're out there are possible these guys are cutting deals and all it almost -- is you can deals with. All the Netflix is -- apples and Google comes on board they're gonna get content is well they're not sitting back and they just ordered a lot of credit they did learn. A lot of the music and she -- access. There's still a lot of guys incorporated it's vulnerable -- our. Studio sources say. Great fewer and -- you don't see anything you don't want to play setbacks. In particular big gamble on a -- or technology. That make you very small percentage of what used to getting you're gonna play out dvds you're gonna continue -- and only every -- that she can. While the same time destined Sudanese news a business -- my future. -- can register a minute and talk about one aspect of it that I -- I wish. I -- as positive about it but there's another aspect of this that that is I don't think it's -- -- I think it's the main show. The studios now have cut back on production of what I would call interest -- movies. Had at the it -- to get to the point where. Virtually everything has to be what difficulty for quadrant film or a tent pole fell. So the number of films they're making is dwindling down to. A couple of dozen a year perhaps. And they're role along the lines of -- 150 to 250 million dollar. Mainstream entertainment films and that's their best plan for dealing with the crisis. I I think it's it's a plan that is fraught with -- But -- you know they run the studios I don't that's the all your eggs in one basket planet believes what you're describing. Well you know if something does change if if if there is any sort of BC -- or -- or or the economy changes or or you know. Something goes wrong and 34. -- -- -- On their face that you have a billion or two it losses because remember I was just talking about the production cost of the movie. To put a -- to put a 250 million dollar movie in the theaters cost closer to about 400 million dollars. So you know you're making half billion dollar bets. I think it's a little bizarre and I think that at all a lot of Hollywood today makes money on the process. Of making films and not on the audience consuming them. Well that's the big question maybe four different type of pellet with how out of these gigantic the expense it's thinkers get made has always boggles my mind. You're down had just in if you can answer -- ten words or less mean how to make such bad movies and -- have so much money and play. -- of of the you know by in my view is because incredibly bad movies and succeed all the time. Now while downloads so what they say is you know this movie over here was a real stinker. And it grows to 150 million and we -- overseas in the home entertainment number on it was big. And so we got out of it alive we we made a decent profit margin on -- the audience will. -- -- -- -- You wrote recently a story where you basically said that a blockbuster -- he called premature canary in the coal mine for the future -- -- distribution. Looking I think Netflix has -- a -- in at eight blockbuster launch. Can you spent on a little bit for this for the people are listening to the show what what happened the blockbuster and how did that happen. Blockbuster was once you -- he. Unbeatable. Emails. -- -- FaceBook. Blockbuster was part of our culture here are her weekends when rent movies on Friday and Saturday -- -- -- and we're gonna set Iran wants. Dvds your videos from blockbuster. Netflix came -- Started and no more than ten years ago and nobody cheats and they -- -- -- using Internet. And any thought about the consumer to consumer wanted to. And they don't convenience around the Internet pat he needs to -- convenience. Other products and I think it's if it's a Mac. It's a perfect cautionary tales. Sure. So ministry studios -- some -- -- it'll tell us. All the Digg genealogy learn what how are storms the Internet is a wonderful tool that streaming media all kinds. And if you think it because you guys have -- And because. People all the -- saying it -- its once they figure out. Yeah yeah Internet guys can shoot it. And should be cheaper. Keep costs down to give you that I'm convenience. And -- great there's a let's. What your -- describing as a recommendation that the entertainment industry. Split apart its traditional vertical integration. That's with traditional vertical integration which is great content distribute content. It's put those two things and have to focus on creation of content -- distribution to newer smarter people -- has what you're describing. Well I mean there on them these -- studio right there in the business and have been this close trading entertainment so. You know you get into the distribution business I think it sounds easy right let's discuss strippers and she can't -- -- -- can be applied. It's -- they tried that before. -- -- -- -- -- -- -- help me on this I mean you're describing the demise of blockbuster in macro terms but. Wasn't there -- some sort of an infection or or something wrong inside the blockbuster corporation. That that rendered them helpless and and unable. To actually. Deal with the changing market conditions it's -- be is is -- not specific to blockbuster didn't they make. Some specifically you know clunky. -- dumb moves here. Well this is not happen overnight blockbuster settled a long time they made lots of different state so if you're suggesting that it is just bad -- I'm gonna -- But I will tell you they had plenty of chances tried to use. The community is not what someone tried to -- -- -- combination you can order online content to your home tried to mail out. All dvds the model was broken in the beginning they were distributing movies. Essentially. Through lots and lots more restorers lots and lots of costs associated. Netflix and -- -- us. Netflix had licensee of the Internet it at what what what what do you think was blockbusters motivation to stave with the of the bricks and mortar system that was -- where there where the giant profit margins there that they were addicted to. Absolutely but also get unloading. The you know all those stores and change your business models from companies like that isn't the easiest thing sure I can think one. Where companies just -- -- -- not completely true and -- 80% of its size and pop or takes a long time Stevens. -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- We're gonna run out of time and a second -- -- the questions you're asking Greg -- are actually giving me some making me worry about the flexibility of a Hollywood. And the movie and television industries to to to really move forward do you think what you -- think your job is gonna be lookalike. You know five years from now covering tech covering entertainment -- -- tell me where you think you see things are going we're gonna have to wrap it up there. -- I think that the studios will continue. Focusing on on blockbusters and an exclusively on Blockbuster's I think the -- business the indie film business. Will undergo -- huge transformation the way they did and then 1989. And and the early Sunday in -- and will be a new independent business. And I think that the Internet and home 3-D. And the quality of the home experience and the and the narrower -- of windows will probably. Be a front page story it even bigger way that it is today. There well gentlemen on that we're gonna have to wrap this thing up. Stephen -- dose of variety Greg -- -- thank you both gentlemen very much for your time -- mentioning discussion. If you would like to hear more of this type of thing go to reporters roundtable at cnet.com. Residents can accomplish reporters roundtable Garnet -- history. Reporters roundtable that cnet.com -- -- -- email at roundtable at cnet.com to comment on this show or give me ideas for other shows. Follow me and Twitter I'm that -- are AFE for news on what the next show's gonna be about again gentlemen thank you very much. Being -- thanks for producing and we'll see guys all next week they care. -- --