In the Beginning: A Geologic History of Media
The Media-Publishing World is comprised of four massive tectonic plates called Audio, Video, Print and Software. These plates rest on a fluid called Technology that keeps them in continuous motion. Technology moves these plates at glacier speed, but every so often a bubble in the technological fluid causes a seismic shift that causes plates to collide, retract, rise, fall, emerge, or disappear.
The printing press, radio, film, television, VCR, personal computer and internet are all examples of tectonic bubbles that created seismic shifts of the media-publishing plates. The collisions of these plates create both shock and awe to all who bear witness. The shock comes from those who can’t see past the destruction of their old world; the awe comes from those who see opportunity in their new world.
Over the past ten years the world watched as the personal computer and internet bubbles caused a massive collision of the Audio and Software plates, which gave rise to digital composition, digital recording, and then, digital distribution. From the 2003 rise of iTunes to the quickly-responding file-sharing (aka piracy) programs like Napster and LimeWire, digital distribution ensured listeners no longer needed to pay for compact discs, and they didn’t —as much. The result: shock from the music industry and awe from consumers.
When the dust settled, the music publishing industry was finally able to see the opportunity that lay before, and embraced this new age of digital distribution. It wasn’t an easy or pretty transition, but it was working: mainstream artists and publishers, as well as consumers seem to be coexisting on this new plate.
Interconnectivity has since overwhelmed the planet, blanketed by the invisible wire of the internet, and it’s made a mark on all aspects of world order, including politics, social strategy, and how we trade, buy and sell media with our web connectors. Digitalization didn’t entirely erase physical consumption, but it made a significant dent: “The sales of albums in physical format dropped 14 percent between 2007 and 2009.” Yet, revenue from digital distribution still falls short of the physical sales once received: another trade-off for instant acquisition, when it is both steered and consumed by the masses.
Over the years, mainstream music artists and publishers began to coalesce with consumers and all seemed to be in sync. Eventually, however, the much larger mass of consumers began to dilute the influence of artists and publishers. These consumer masses had an eroding affect on the high costs associated with composing music in professional studios, and the exponentially higher costs of marketing and releasing music to consumers. For decades these exorbitant costs created an impenetrable financial barrier-to-entry that helped publishers consolidate their power over artists and consumers alike. But time marches on and further advances in digital composition, compression and distribution, have eroded those barriers-to-entry. The technology required to compose, mix and publish music now comes pre-installed on consumers’ laptop computers. The exponential reach of social networks like iTunes, Facebook and Twitter have supplanted the prohibitive cost of marketing and distribution. Music has become fully and irreversibly democratized.
This seemingly inevitable evolution of media production and publishing has since permeated every facet of the Media-Publishing World. As the music industry was entirely reconstructed through digital democratization, so too has the print publishing industry been transformed by binary code. And so goes the way of the film industry.
Almost from the start, movies have strove to continually redefine the meaning of “big budget”. The first film to cost $1,000,000 was released in 1916 and had a cast of thousands; in 1991, Terminator 2 proudly boasted their $100,000,000 budget and its cast of one (Arnold), but Avatar reigns supreme: costing $300,000,000 and having a cast of billions (of pixels). And the major studios, who are far and away the largest film publishers, couldn’t be happier.
Whereas studios rest on the twin pillars of production and distribution, independent filmmaking is comprised of three distinct pillars: production, distribution and finance. Indie budgets grew from the hundreds-of-thousands to the millions in order to cover the high costs of cast, crew, camera packages, film stock, visual effects and film processing. Production costs continued to rise. Investor relationships were the closely guarded secret of Hollywood insiders. As filmmakers struggled to cover their rising costs, financing structures became more convoluted. At the same time, advertising rates began to soar.
Unbeknown to filmmakers, the personal computer and internet bubbles had already put the massive Software plate on a collision course with the Video plate. Suddenly, shooting a movie no longer required skilled cinematographers, complex cameras, or film; anyone can now shoot a movie on the High-Definition cameras that they bought at the local electronics shoppe over the holiday, or on their new iPhone. Casting is conducted online (yes there’s an app for that) and background talent has too often been replaced digitally. That is, if talent is used in a film at all.
Editorial software now comes free with the purchase of your Apple computer. Final Cut Pro software, Apple color and low-cost output software and hardware virtually eliminate the need for a post-production house. Even 3D animation can be done at-home. Sound editing, mixing and low-cost output software like Pro Tools and DVD Studio Pro can all be purchased off-the-shelf at your local Apple Store or Best Buy. The production barrier-to-entry has been toppled.
So, does the fact that a movie can be constructed outside the studio zone mean Hollywood insiders will no longer hold the keys to open the golden gate of the “film industry”? Not quite. That golden gate sits atop the three pillars and two are still standing.
The Final Frontier
What are the barriers to a complete democratization of the film industry that will allow every man, woman and man-child to be his or her own mini-studio?
Financing and Distribution – the two remaining pillars.
The corollary to anybody being able to shoot a movie is that now everybody wants to make a movie. But no matter how easy or cheap it is to make a movie, it still requires capital. As a result, the masses that democratized film production are now demanding a democratization of film financing. This natural evolution started with the aptly named “Age of Stupid”, a small indie film that crawled out of the primordial ooze of conventional finance and eventually became the first film to successfully use the internet to solicit production capital from the masses. The idea germinated in 2002, but the producers didn’t start sourcing money from the crowd until 2004; by November 2007, they’d crowdsourced over half of their 500,000GBP budget. The film was completed in 2008, released in 2009, and the crowd received their first profit shares in 2010. Since then, crowdfunding has continued to adapt to the increased accessibility of digitalization, with a running leap in 2010 with the launch of dedicated crowdfunding sites like IndieGoGo and Kickstarter. These gifting sites accept funds on behalf of a film project, and once they meet their fundraising goal, the cash goes to the filmmaker, allowing a film to get made. Undoubtedly, this new fad of “gift-financing” will allow some crowdfunded films to get made that probably should not have been made, but in the meantime some crowdfunded films are now appearing at prestigious film festivals like Sundance. A premiere at Sundance no doubt allows your “crowd producers” who donated to the film feel like they got a little piece of celebrity with their $100 donation. But is this enough to incite a gift larger than $100, in order to satisfy the necessary increase in funding that elevates a $10,000 film into a $1,000,000 film? Probably not.
If your goal is to break the one-million-dollar threshold via crowdfunding, then you’ll need to tickle a person’s greed chromosome, which means you must offer something in return, like profit, i.e., an investment. Unfortunately, soliciting funding from people you don’t know through the internet or other forms of advertising violates numerous federal and state securities laws (see Golman Sachs recently botched Facebook investment). Nonetheless, IndieGoGo, Kickstarter and others have collectively raised tens to hundreds of millions of dollars for films, startups and other niche projects. These new alternative financing structures are yet to be transformed into a system that can finance features with investment, and therefore, aren’t ready to be incorporated into traditional finance models. But their foot is in the door, and it’s only a matter of time until film finance barrier-to-entry is toppled. I’m already aware of one US film that has received SEC approval for crowdfunding. I’m hopeful that we can put our minds together and find a way to scoot the transition from a grassroots structure into an industry-effective structure. It’s not about just being able to physically execute it; once the financing structures are revamped, everyone can afford to do it. When we can get beyond the costs to minimize expenses every step of the way in making a movie, budgets will continue to drop. If social media can facilitate a political revolution in Egypt, it should allow a filmmaker to raise 1m to make a movie.
The final barrier-to-entry is Distribution (or more specifically, Prints & Advertising, or even more specifically, Advertising.) The cost of marketing a film to a national audience has become so prohibitively expensive that domestic distributors, as a whole, have become an endangered species. The chances that a small, indie film will be acquired by a domestic distributor are slim to none. It’s irresponsible to assume that a film with a budget of less that $10,000,000 is going to get a theatrical release, unless the producer can raise additional monies to cover the prints and advertising costs. This is still true despite the fact that home distribution (delivering the media to viewers) has already been democratized vis-à-vis iTunes, cable VOD providers, Netflix, Amazon, Xbox, file sharing and others, who are cannibalizing each other in the quest to deliver to consumers the broadest array of media content as quickly and cheaply as possible. It’s a classic race to the bottom.
Prints themselves haven’t been democratized so much as they’re just becoming obsolete, like buggy-whip makers. Films are being distributed to theaters, broadcasters and home video providers via satellite or the internet. Every step of the filmmaking process, from filming through distribution, is all done on hard drives. There’s no need to ever buy film or strike a print, unless you need an archive copy for contractual or insurance reasons.
This leaves advertising. Generally speaking, if you’re not planning on spending at least $25,000,000 to market your film to national audience, then you probably shouldn’t spend anything at all. But for smaller independent films, social networks like Facebook and Twitter are giving filmmakers unparalleled access to millions of followers who can hopefully be converted to viewers and fans.
Just as in the music industry and the rapidly changing print industry, distribution changes everything. Distribution is the last piece of the democratizing puzzle. Although a film can get made without them, distributors still remain the final “judgment” by which even a finished film must acquire approval in order to reach viewers.
But this, too, will change. It’s only a matter of time until legitimate alternative forms of distribution rise and perhaps coincide with alternative forms of financing, thus ironing out the bumps to reveal the new, fully and irreversibly democratized film industry, whose entire life cycle will be comprised of ones and zeroes.
Every level of the filmmaking process will soon be communized. The effects on film craft may go both ways; a filmmaker may never become too skilled at one job while he wears multiple hats, never wearing one long enough for it to feel right. Or filmmakers may become more specialized, as we see in the introduction of new roles such as Digital Aggregators, a job once unknown in the business of film. How we meet these changes will ultimately prove how we will use the tools of technological development — for progress or to hindrance.
The call is to be proactive and not reactive. Already we’ve seen Blockbuster stores close down and Netflix’s innovative forethought in eliminating overhead and flipping VOD into homes. Also, with Obama’s call to make high-speed Internet accessible to 98% of the population, social media is sure to evolve the P & A requirements of film more than before. In order to use these vast changes to empower filmmakers, they must become industrialists. Filmmakers have to think past the horizon and foresee the change before it arrives. They have to continue to do what they do best: take risks.
The digitalization and democratization of the filmmaking process has the ability to bring the power to the people and cultivate new and fresh voices in film that deserve to be heard. The film producer is soon to be the everyman. No experience required. Sure, it will make it easier to make movies. But it won’t necessarily make it any easier to make good ones. It still requires drive, determination and perseverance to complete a film. And even with every tool in the toolbox, you can’t construct a quality film without vision, passion and talent.
The Wild West is making its return not to the big screen, but to the offices and home computers of anyone shrewd enough to navigate their way into the Film Biz and come out with a high-resolution Quicktime in hand. Hollywood’s borders are stretching into the wild beyond. And in this new frontier, there are no rules. Only laws.
Copyright 2010. Film Closings Inc. All right reserved. Printed courtesy of www.filmclosings.com and Jeff Steele. Written by Jeff Steele.
Jeff Steele is a noted film finance expert in all matters of debt and equity, but also has a significant portfolio of hands-on producing credits. Jeff is the owner of the entertainment consulting firm Film Closings, Inc. and most recently, was the CFO of Magnet Media Group, an equity finance, production, and distribution fund.
Connect with Jeff Steele via Twitter @filmclosings
*These materials do not, and are not intended to, constitute legal advice, and you should not act or refrain from acting based on any information provided on FilmCourage.com and our social media accounts. Please consult with your own legal counsel on your situation and specific legal questions you have.