Latest update April 1st, 2015 6:34 PM
Hollywood Business Trends for 2014
By Schuyler Moore*
Part of the fun of the business side of Hollywood is that every aspect of it changes at lightning speed. On one side, the blizzard of technological developments means that contracts written today may be the subject of litigation tomorrow, since film rights can be splintered into a thousand pieces with a few pieces of paper, and none of them may have predicted tomorrow’s laser wrist-watch video. Add to this chaos the constant change of financing sources (from state tax credits to foreign subsidies) and the mountains of legislation and regulations that get dumped on the industry every year, you have to drive full throttle just to stay current. So knowing what is happening today just won’t suffice; you have to be able to predict the future to have any advantage. So here are some predictions for the industry for 2014:
- Digital Kiosks. Streaming works just fine, but try downloading a film to own, and it can take hours and multiple tries, since the U.S. does not yet have an optic fiber system, as many other countries have. That leaves a big opportunity for digital kiosks; think Redbox, but downloading in seconds to a USB flash drive by direct connection or directly to your computer via wireless. You can download to own or rent, and you can play the film on any device you choose. The leader on this technology is Digiboo, which is initially rolling out these kiosks at airports, where travelers can choose any film they want before jumping on a plane. So expect to see these kiosks in 2014.
- Optic Fiber. Which brings us to optic fiber. A strand of optic fiber can carry more data in one second than any other system can carry in a day. Download speeds are instantaneous, with no slowdown just because your neighbors are also on-line. Remarkably, Google is taking the lead here, building out systems in Kansas City and Austin, which is spurring other companies to do likewise, and this trend is going to accelerate in 2014, so you may be getting it too. The result will put the film industry on the same footing as the music industry for downloads, which has it pluses (fast speed) and minuses (more piracy).
- Collapsing Windows. Which brings us to collapsing windows. Right now, we have the theatrical window, the piracy window, and the video/VOD window. This lunacy has just got to end, or the film industry will be Napsterized to death. Gee, I wonder if there is any relation between increasing piracy and sagging DVD sales? Do you think the music industry might offer a useful analogy? Hmmm…. We may not get to full day and date releases in 2014, but the delay from the theatrical release to the video/VOD release will get substantially shorter, to not more than sixty days. One approach in the works is to implement full day and date VOD with the theatrical release, but to offer theaters a cut of VOD revenue from consumers near their theaters, using the concept of “virtual seats.” And the closer the VOD window gets to the theatrical release, the more theaters are going to have to compete for customers.
- 4D Seats and 3D Sound. Which brings us to 4D seats and 3D sound. In order to compete against collapsing windows and high def, surround sound, home entertainment centers, theaters are going to have to compete by offering a better experience, and a big part of this is going to be 4D seats that move to match the film (where you feel like you are flying when a jet is on screen), and 3D sound, where the sound seems to come from different angles at different times around you, like raindrops falling around you. I have experienced both of these, and the results are astounding. Theaters are going to have to get on this bandwagon or be relegated to bowling alley locations.
- International Reach of VOD. The VOD companies (think Netflix) are working mightily to expand their reach worldwide. By the time they are done, people in every part of the world will be their customers, and those customers will be able to toggle what language they want to watch a film. The VOD companies may get close to this goal in 2014, which will have a huge impact on how independent films are financed. Right now, independent film makers raise financing by selling their films via “pre-sales” on a country-by-country basis to local distributors, but a worldwide VOD reach will rip the heart out of these sales, since it will destroy the value of DVD and pay TV to the local distributors. The net result will be that independent films will be financed by pre-sales to the VOD companies, not the local distributors. Instead of going to the Cannes film festival, film makers may be going to Las Vegas for a digital convention.
- Investment by Advertisers. Advertisers are being pushed out of television by TiVo, DVRs, and VOD, and they are fighting back by investing equity in films and TV series in order to integrate their product into the message in a way they can control. The boundaries of this trend are being pushed by Hasbro, which was so enthralled with the success of its toy line from “Transformers” that it invested in the film “Battleship” (based on a Hasbro board game) and has gone to the logical extreme of opening its own studio on the lot at Universal for creating TV shows for a network it co-owns with Discovery Communications. Other companies are following that example, and you can expect a substantial increase in direct ownership and funding of content by advertisers in 2014. And if they do it right, the products will integrate into the film - think “Castaway” (Fedex), “The Italian Job” (Mini Cooper), and “Transformers” (duh). So if you are looking for film financing in 2014, advertisers are a good place to start.
- Investment by “Retailers”. An extremely important recent development is the disintermediation of the studios through the creation of content by companies that have a direct link to consumers (think of them as retailers). This trend is accelerating on many fronts, including the creation of content by Internet companies (Netflix and YouTube), theater chains (Open Road), premium cable channels (Showtime), and DVD retailers (Wal-Mart). These retailers now provide a vibrant, important source of new financing that disrupts the studio system and bypasses standard distribution channels. This trend is going to accelerate in 2014, resulting in continued disintermediation of the studios, since they won’t be needed to produce or distribute this content.
- Advertising of Film Offerings. Independent films have long relied on private investors for the critically needed equity to at least get through development and pre-production. Almost all of these transactions trigger application of the securities laws, since raising equity is treated as the issuance of a “security,” and all these transactions rely on an exemption from registration for “private offerings” that historically prohibited advertising in connection with the offering. However, private offerings to “accredited investors” are now permitted to advertise by new SEC rules, and film companies are going to wake up to this by 2014. So instead of watching trailers for upcoming films, you may find yourself watching trailers for upcoming film investments.
- The Death of Film. We don’t call it the film industry for nothing, and the “P” in “P&A” stands for prints, but all this is going the way of the dinosaur. Based on rapid improvements to digital filming cameras, and the transmission of films to theaters digitally, 2014 may witness the final burial of actual 35mm film. We will live in a seamless digital world, from the camera to the theater, home, or mobile device.
- Ultimate Reality Shows. The advent of Google Glasses and facial recognition technology in a world with infinite channel bandwidth via the Internet has remarkable implications. How much would you pay to watch the world from Brad Pitt’s perspective for an hour? How much fun would it be to have real time “best of” on-line videos, where you can watch people (named at the bottom of the screen thanks to facial recognition technology) doing what they shouldn’t be doing, while being surreptitiously filmed by someone wearing Google Glasses. It brings voyeurism to a new level. You may become a star of your own show without even knowing it. It is such an irresistible guilty pleasure that it will happen in 2014.
So brace yourself for a fun year!
* Schuyler M. Moore is a partner in the corporate entertainment department of Stroock & Stroock & Lavan. LLP. He has been practicing in the entertainment industry since 1981, and he represents a broad spectrum of clients throughout the entertainment industry, including producers, sales agents, foreign distributors, and financiers, and he has handled some of the largest financing transactions in Hollywood. He is the author of (a) The Biz: The Basic Business, Legal and Financial Aspects of the Film Industry (Silman-James Press), (b) Taxation of the Entertainment Industry (CCH), (c) Advice From Dad (Mill City Press),and (d) What They Don’t Teach You in Law School (William S. Hein & Co.).
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