Digital Economics, Free + Fee = Freemium

Brian Newman, former CEO of Tribeca Film Institute, talks about the economics of free + fee in the Internet era.  Brian explains the aspects that motivate people to buy and backs up his assertions with examples from different filmmakers.

The topic of digital economics has been famously covered by Chris Anderson, Editor in Chief of Wired Magazine.  In the video below, Chris sheds further insight into the ‘freemium’ model.

The Twitter Effect… Is There One?

Today The Hollywood Reporter’s Risky Biz Blog published a piece titled ‘Basterds’ is Twitter Age’s first true success story.  The post starts off with the statement, “Finally, a Twitter effect that benefits a movie instead of hurts it.” …But is there really a “Twitter effect”?

While there is certainly no shortage of opinions regarding Twitter’s value, there is a lack of definition in terms of its function.  Last week Dan Rayburn, EVP of StreamingMedia.com, blasted Twitter in his blog saying, “I think it is by far the most over-hyped, over-rated Internet application I’ve seen in the past fifteen years.”  I agree that Twitter is massively over-hyped.  However, that does not negate the presence of a Twitter effect.  In fact, it fuels it.  The Twitter effect, as so eloquently put by Gary Vaynerchuk, is simply word of mouth on crack.

Chris Thilk of Movie Marketing Madness did a great job of putting the Twitter effect in context for the Industry in his post today:

“Word of mouth has always been the primary tool by which a movie lives or dies after its first weekend.  The marketing campaign is responsible for making a movie a success Friday through Sunday but then it quickly dies out, with only a handful of ads and other materials that are put in place after that point.  So it’s then word-of-mouth from the moviegoers that sustains or kills it.  All Twitter – or Facebook or Flixster or blogs or anything else – does is speed that up.  So, as I’ve stated before, studios don’t have a Twitter problem, they have a word-of-mouth problem because their movie isn’t meeting audience expectations…it’s not like we’re dealing with a completely new paradigm, just an exponential increase in the reach of that paradigm.”

Social Media Stats, The Astounding Figures

There is no doubt that social media has and will continue to change the way that people communicate.  The video below sums it up.  The figures presented are flat out incredible.

Redbox, The Growing Problem For Studio Profits

DVD vending machine company Redbox is starting to really piss of the studios.  Warner Bros has just joined Fox and Universal’s plans to pull new releases from Redbox kiosks for the first month following their movies’ releases.  The negative sentiment stems from the studios’ belief that cheap kiosks are partially to blame for the eroding DVD market.  DVD sales fell 13.5 percent in the first half of 2009, while DVD rental revenue grew 8 percent.  With more viewers opting to rent rather than buy, it is understandable why the studios fear Redbox.  Coinstar’s Redbox delivers convenience at a cheaper price than anyone in the market.  With 17,900 kiosks in the U.S. and plans for 8,500 more this year, Redbox has become a serious threat to the studios’ DVD sales.

The core problem, as pointed out by Patrick Goldstein in the LA Times, is that Studios are trying to hang on to a dying business model.  Redbox’s revenues grew by 110% last quarter while Blockbuster’s second-quarter revenues plummeted by 22%.  Goldstein also correctly pointed out that “you can’t fight the power of consumer choice”.  Studios must recognize that DVD sales are a diminishing source of revenue and come up with innovative solutions to compliment the experience of their healthy revenue streams.

How Microsoft Can Dominate Home Video

Microsoft

Microsoft dominates the personal computer market by controlling the vast majority of home operating systems.  One of Microsoft’s recent initiatives has been to leverage its dominance in the PC market to capture the living room.  Xbox 360 has been a knockout success in this area.  The Xbox brand, which pwns the game console market, is transforming itself from a game console to a media and entertainment device.  I believe the future of Xbox spells domination for home video.

…And that is where my Microsoft cheer leading session ends.  In the recent years, Microsoft has been slow to the game and has marketed its products with the intelligence of a big dumb animal.  Whether they acknowledge it or not, Microsoft’s business strategy has been duplication, not innovation.  Going forward, Xbox gives Microsoft the platform to become a truly respected innovator.  The next generation Xbox console offers Microsoft the opportunity to take a major share of the home video market.  Most people do not want ten different AV components in their home when they can receive all the same content from one.  Xbox needs to become a transitional platform that embraces both current and emerging technologies.

Physical Media

I am large proponent of blu-ray.  Is blu-ray here a game changer?  No, not in the same way that DVD was.  However, I question the many that argue streaming is the only way to go.  I love streaming media, but the experience is completely different from blu-ray.  In order stream a blu-ray quality video, I would need a 45Mbps Internet connection.  The domestic infrastructure does not have the bandwidth capacity required to handle streaming blu-ray quality video to scale (scale defined all US homes that currently have a broadband connection), and the problem becomes even greater home video moves from 1080P to 4K.  Furthermore, there is no incentive for ISP’s to grow capacity when there is no viable business model to generate a sufficient return.  My point being, though companies should never bet against the Internet, physical media is here to stay for the next 5 years.

Where they meet

Microsoft’s strategy should be to acknowledge that no one knows the future of distribution and use that to its advantage.  By creating a transitional platform that embraces both physical and streaming media, Xbox will become the hub of home media and entertainment.  In the process, Microsoft can gain back some of the respect it has lost and I can relinquish my title of Microsoft, The Big Dumb Animal.