Movies are going the way of music, and how to stop it

I love movies. I love movies so much that I have over 800 titles on DVD, Blu-ray and iTunes in my personal collection. They span everything from animated films to comedies, drama and musicals, sci-fi and westerns.

My love for them is waning though, and it’s not because I am jaded by the offering, it’s the restriction in access that’s getting to me.

The movie and TV studios are doing exactly what the music industry did and look where that got them. First, physical album sales declined due to piracy and when the industry got their act together with downloads, streaming services became more popular and download sales declined. We want to listen to a song, not be forced to buy a whole album.

Rumours abound that movie studios have started asking Netflix to block users who use VPN’s from accessing content not licensed in certain territories.  Netflix is denying this of course, and I understand why. In the event that they have to block these users due to pressure from the studios, they stand to lose around 30 million subscribers, the majority of who pay to access the service, albeit illegally. Reportedly Hulu has done this, a blanket block of all users who access the service via VPN, including legitimate users in the USA who use VPN’s to protect their privacy. Hulu is operated by the various studios, so don’t count on them reversing their policy or reporting how many paying subscribers they lost.

So what’s at issue here? Licensing. A very archaic and stupendously convoluted content management and monetization tool. Here’s how it works: The studios create content (TV show or movie). Once the content has been created it needs to be monetized so they studio can recuperate their investment. Their first port of call are cinemas. For those of you under 25, I won’t blame you if you’ve heard of these sinister places but never dared set foot in one because of the high and increasing prices of tickets, exorbitant cost of snacks and the multitude of irritations. Then it get’s distributed via DVD and Blu-ray and in some cases download services such as iTunes. Finally, the movie gets licensed to TV networks and we see reruns of it for months to come. TV shows follow the same sort of process, skipping cinemas obviously, and the content gets licensed to various broadcasters after which a DVD or Blu-ray box set gets released and it hits download and streaming services. A great example of 2 movies that bucked the trend was Snowpiercer and The Interview. The Interview had the massive PR of the Sony hack behind it, but the fact stands that both movies, released simultaneously in cinema and for download made more money on downloads than in cinemas. The Interview was also pirated 750 000 in the first 48 hours of release. Why? It was region locked to the USA. Imagine the revenue lost on those pirated copies not because “these people would’ve pirated anyway even if it was available”, nope, many of these people would’ve purchased a copy had they been given the opportunity.

Licensing creates a problem right throughout the distribution chain. In smaller markets, distributors who buy content to show in their cinemas, have to pick and choose which films get shown on the big screen based on limited screens and finite budgets. Then, distributors in the DVD or Blu-ray business need to license the content for that medium and have the same restrictions in resources. Download and streaming services then license the content for their platforms, albeit being able to offer a much larger variety, but they can only license content for specific territories as determined by the studio. Now here comes the problem. The reason why streaming and download services are restricted to licenses in only specific markets is because studios sign exclusivity agreements with TV networks in some markets for that content, basically forcing consumers to sign up for expensive subscription services including having to buy decoders and satellite dishes if they want to watch the content.

OR, resort to actual illegal activity like pirating.

I’m going to use South Africa as an example, although similar examples exist in many other countries. In SA we have a public broadcaster and one dominant satellite TV network. This TV network basically operates a monopoly due to the length of time they had in the market with no competition. They have a very healthy subscriber base and due to the quality and quantity of their entertainment and sports content they have a very healthy advertising revenue model. To ensure they remain dominant, this network signs a multitude of exclusive broadcasting rights for the African continent for the best content (think GoT, Walking Dead, UEFA Champions League, Super Rugby etc). Any other broadcaster or streaming/download service is thus excluded from offering a competitive service as they cannot carry the content that the majority of users want. The cost of ownership when subscribed to this network will run an average of a once-off R2000 equipment and installation fee and then R800 a month (equivalent of $200 and $80), this excludes internet access (this network is owned by a company that also operates the countries largest ISP, they have yet to merge the products and offer triple play).

So where does this leave the average consumer? Pay the $80 a month or go without the content. OR, subscribe to a VPN service to circumvent the region blocking on download and streaming services, pay for the content and watch what you want when you want it, at a fraction of the cost. OR, resort to actual illegal activity like pirating.

That is inevitably what is going to happen in markets where iTunes and Netflix (and Spotify) are blocked due to licensing restrictions. Those markets will continue to pirate the content because studios want to keep their exclusive content distribution contracts in tact. Now our beloved TV network will argue that competition is heating up in the local space, specifically with regards to streaming services. It is true, we’ve had the launch of 2 very innovative and attractive services (VIDI and Node) over the last 6 months. Go have a look at their programme schedules, they lack every current hit show and blockbuster movie, which you can find on the schedule of the dominant player.

Now I completely understand that great content comes at a price, these shows and movies are not cheap to produce. But if you make the content easily accessible at a price that most people can afford, the law of economics (and probably averages) should dictate that you’ll make more money as more people sign up for streaming services and consume more content. Here’s a few ideas on how it could work:

  • Release movies day-and-date in cinemas and online (streaming and download). Some consumers would still want the social experience of going to a cinema and enjoy the big screen and thumping sounds. Others would rather stay home and in this category there are still some who would want to “own” the content by downloading it. The last group wants to see the movie or TV show but aren’t interested in “owning” the content.
  • Stop regional blocking and don’t sign exclusive rights. The more accessible the content is, the more people are able to watch it and the higher the potential revenue.
  • Don’t be greedy. Netflix works because of the price and all-you-can-eat. Netflix is a bargain. So is Spotify. If you want to own the content you can grab it from iTunes at a premium but you get a massive amount of extras, all worth the price. If the current subscription fee of Netflix and other streaming services aren’t enough to sustain the quality of content consumers desire, try this:
    • Netflix Basic, the product as it is now with the current content schedules at its current price. $8 per month.
    • Netflix Premium, Basic plus all the blockbusters and newest TV shows. Movies get released 2 weeks after their release in cinemas and for download and TV shows air 24 hours after they were on TV. $20 per month.
    • Netflix Prime, go sort it out with Amazon ;-). Day-and-date releases with cinemas and TV networks of new movies and TV shows. $40 per month.
  • This same model can work for other streaming services such as Spotify. The basic subscription gets you what they offer now for $7.50 and then going up to $15 which includes music videos and band/artist related content (interviews, photo shoots) and finally a $25 subscription that also nets you live streaming of concerts.

By offering consumers various tiers and removing restrictions you give consumers choice in terms of cost and variety of content. In stead of blocking consumers to access your content, and thereby reducing the value of the content through piracy open up access, provide choice in cost and variety and grow the base of consumers to ensure long-term growth.

Studios, pull your heads out of the sand. Modern consumers and the consumer of tomorrow will not abide by the restrictions placed upon the content. They will simply forego the content and do something else, like reading or playing video games. Once the habit has been broken as they say….