Q&A: A front-row seat for media's meltdown
Asked whether the film industry is doomed, Big Champagne CEO Eric Garland predicts that it has more advantages in the Digital Age than music labels.
(Credit: Big Champagne)During a visit to Hollywood last week, I wanted to talk to people who knew a thing or two about the film industry's burgeoning meltdown. One of the people I sought out was Eric Garland, CEO and co-founder of Big Champagne.
Beverly Hills, Calif.,-based Big Champagne has collected data on file sharing and sold it to media companies for almost 10 years. Garland's company has survived all that time, even while making the same sad pitch. He tells the music labels and film studios they are going to be chopped down at the knees by the Internet and online piracy--but that doesn't mean they can't survive.
As anyone might have guessed, almost everybody in media initially told Big Champagne to stick a cork in it. Back in the early part of the decade, nobody wanted to hear it, and Garland logged lots of five-minute meetings. Thanks to his persistence, though, he saw up close how digital technology buffeted the music industry. Now, some of the big labels are striking partnerships with his company.
What makes Garland an important speaker on this subject is that despite his gloomy message, he's bullish on both the Internet and movies. His interests and Hollywood's are aligned, he says, because if the studios don't survive then he loses customers. He wants them to do well but he just doesn't think that telling them what they want to hear, the "bedtime stories" as he calls it, is going to help.
In his interview with CNET, Garland predicted that the film business is in for a period of downsizing and cost cutting; that Hollywood's digital evolution will likely be similar to the music industry's but will unfold much faster; and that great wealth will still flow into the sector.
Question: Your business is watching file sharing. So is it spreading to the mainstream? Is Mom and Dad from Sheboygan pirating content?
Garland: Oh yes, particularly Mom and Dad in Munich; Mom and Dad in Seville; Mom and Dad in Paris. When we talk about video the reason I single out the European cities is because that's where people are forced to wait a long time to see content legally. In the digital world, we don't want to wait three months, six months. We're just not accepting that anymore...we want it all, we want it right now and even Mom and Pa Kettle are getting to the point where they say if it's not on, let's just fire up the computer and watch it. If they want me to wait six months, I've got other options. And people don't really have a conscious or qualms about that, or at least it's mitigated by their feeling that they are entitled to keep up with the Jones'. It is the Twitter, real-time Internet expectations.
What we're seeing is a tremendous pile-on of feature film and television content, led by TV worldwide. In terms of growth, it is eclipsing the sharing of these little music files. I mean most of the new adopter activity, most of the increase in terms of people, transactions, and downloads is coming on the video side.
That means that this year or next year is going to be Hollywood's year to really start to lose audience--not just at the fringes but in regular middle-American living rooms. They'll lose them to the other box, to the smart box.
Q: Reed Hastings (the CEO of Netflix) wants to see every TV set come equipped with the ability to access the Internet. That will only accelerate Hollywood's demise, no?
Garland: Again, I think it drives both. The winner is the one who ultimately wins on the merits, and those are ease of use. Certainly the legitimate markets should win there. It did in music. Remember, iTunes wins in large part because it works so much better than anything else. So, Reed should win. His competitors should win on ease of use. Quality of content? They should at least be competitive in terms of having great on-demand, high-definition, rich audio, video. But when it comes to depth of catalog, that's where pirate markets have the edge. They have it also in timely delivery. Sorry. Go to Hulu right now and type in 24. There's just a clipped sort of terse message that says "Sorry about season 1 and season seven...
Q: Because they want to sell me past seasons on DVD, right?
Garland: Yes, but Surfthechannel.com, (an online site where users can find links to a plethora of unauthorized shows and films) doesn't care about that. They're happy to serve up current and past episodes of "24." And just like music, Hollywood's first reaction to that will be "Well, that's just not fair. That's jumping the turnstile, that's breaking the rules. We have to shut that down, because if you remove that option then people will be more patient." You won't remove that option, and you're losing valuable time if you focus on removing that option at the expense of improving that option and bettering that option, beating that option.
The music people used to say, "How can you can compete with free?" And now you ask anybody in digital music and they'll tell you, "I'm just trying to compete effectively with free." They've embraced the very condition that up until very recently they said they would reject. I'm telling you, you are going to compete with free. Sometimes you're even going to win, once you make the commitment to living in the marketplace as it is and not as you wish it were or as it once was.
Q: That's got to be hard for people in that industry or in any industry to hear. After hearing that, I almost want to start collecting donations for Matt Damon.
Garland: But I want to be clear that I was far more bearish on music than I am about Hollywood's prospects.
Everything that the customer demonstrated that they wanted starting with the original Napster was diametrically opposed to what the music industry needed. Everything that the distributor or the (bandwidth providers) wanted was diametrically to what the music industry wanted. In other words there was no place to hammer out a marketplace that would work for both sides. Customers would say "I want MP3s" and the music industry would say "We can't do MP3s because we have to have (digital rights management)." The customer would say "deal breaker!" The customer would say "I want every piece of music ever recorded. I want access to everything, everything I can remember dancing to no matter what year I went to prom and I want it right now."
Napster said sure. The music industry said "We can't do that. We can only license these titles." Deal breaker.
The customer said "I want to eat all I want at one low price that feels like free." The music industry said "No my friend, it's a dollar a track." There was no point of agreement. Hollywood conversely, is very different.
Hollywood says we like DRM, we would like to extend to you this content but on terms that we control and the customer says "Yeah, that's cool. I've always been good with that. I like renting. I'll give it back to you when I'm done." The music industry says "How come we can't we do that?" The customer says "No, because it's not my expectation. It's not the contract that we've had all along." But in video this is in the contract we've had all along. Blockbuster has always given us stuff and we paid for it and then we had to bring it back. We're good with that. There are all these places where what the online consumer is demanding is actually a workable proposition to Hollywood. There's a lot of alignment but some really some important places where there isn't any. There's no easy fix. When I tell the film studios "The good news is that you want people to rent and not just own and people are happy to do that. Check."
I say "You want some DRM--people are accustomed to DRM. There's DRM on DVDs." But when you get to one where you want customers to wait two months for a DVD, then they say that's not negotiable.
Anybody who really understands the film business will tell you that's the end of our lives as we know it. That's the end of our industry as we know it. We have to be able to preserve those windows. We have to regain at least enough control to say you can have it, but not today. And when I tell them you're never going to get that, that's when the conversation breaks off and curse words are uttered and we go back to our corners.
Q: What windows are you referring to? They have windows that allows cable channels and broadcast stations to get exclusive access to a film title for a specific amount of time. But you can't be talking about theaters too. What is Hollywood if it can't promise theaters exclusive access to films?
Garland: I think the theatrical experience is totally viable. We love going to the theater. But when we walk out to the lobby I want to be able to pick up the DVD. If I got my 3D glasses on and my kids say "Can we watch it when we get home?" The answer has to be "yes." If the answer's no, the film industry loses.
Garland: These are tough lessons. By the way, I don't want to sound like the armchair pundit. You end up sounding not very empathetic. You sound like some ass who says "This is how it's going to be and if you don't like too bad." I'm not trying to be dismissive. I'm not trying to be glib about this. I understand the implication may well be tens-of-thousands of jobs lost, billions of dollars pouring out of the industry, shutterings, downsizings...I'm not trying to make light of that. I'm just telling you that in the final accounting i think some things we now know. Some of them are very unpopular even in concept and some of them are very hard to incorporate into strategic thinking, but that doesn't make them any less avoidable or inevitable.
Q: Are paywalls one of the solutions? That's what Hulu's leaders are considering.
Absolutely not. What you have is a very effective antipiracy tool in Hulu, and I'm specifically drawing on the numbers and not just citing anecdotal evidence. People really do prefer the Hulu experience. So you actually have cannibalization, for once, of a pirate market by a legitimate market. You have a legitimate market stealing share and audience away from a pirate market. Put that behind a subscription wall and they'll just go back.
Q: But it doesn't appear that Hulu is making the kind of money that will satisfy content owners, at least those News Corp. and NBC Universal (Hulu's backers).
Garland: The cute answer, which is probably the truest answer, is that growing a sector is a privilege and not a right. There is no right size. There is no correct or God-given size for any sector. Why do we get to make movies that cost $300 million to make? Because we have found venues where people will spend more than $300 million on the result. If people spend only $50 million then the price of a movie must be $49 million or less.
I think in today's dollars no one could make "Gone With The Wind" because at the time this movie was made when everyone went to the movies. It was something like 79 percent of the population. The cute answer is that movies will get smaller.
I know people are tearing out hair and spinning in graves, but maybe "Transformers" has to be made for $75 million next time. Oh my God, what am I saying? Put the words back in your mouth. That is just a pretty plain faced observation. One outcome might mean that in the Digital Age the return on investment on a major International tent-pole franchise is not a billion dollars. It's a quarter of that or a third. Therefore we have to get our costs in line with the market value.
When we talk about this in 3 or 5 or 7 years, one thing we will all have to concede is costs have to come down. We don't have the total control over the distribution chain that we exploited so well as industries for so long. Without that you can't take advantage of the consumer in the same way.
Q: I feel like I just heard the doctor give his prognosis and the patient is a goner.
Garland: It's just "Lose weight man (laughter). Get on a treadmill, change your diet and lose weight."
Q: Has Hollywood given up on fighting piracy?
You mean has changing the name from "antipiracy" to "content protection" a symbol of a retreat or a softening? No. Not at all. It's likely that (the Motion Picture Association of America, the trade group of the six major studios) is trying to be more focused, more strategic. They are upping their game because that's how seriously they take it and that's how high a priority it is. On the contrary this is not the end, this is early days.
We now have the benefit of hindsight. We have watched an industry go through this. I think we can say with some confidence we know how this unfolds. What will happen is the studios will exhaust every available remedy and there will be a series of evolutions, meaning they will exhaust one remedy and a new one will present itself. These things will be pursued in tandem. They will pursue technological intervention on the Internet. This goes to the study at NYU that basically says this has had no effect. Ultimately, because they are spending a lot of money and not getting results, they'll become disillusioned with these vendors. They'll clean house. But something else will present itself.
"Well, maybe we were focused on trying to disrupt the networks and we should have focused on a technological solution to mass notification." Well be on to the next thing. Well spend some number of months--I'm just essentially recounting the music industry's journey--filing vast numbers of infringement notifications, letting everybody and their granny know you're infringing our content. They'll take the temperature and they'll do surveys and collect data and they'll try to convince themselves that this is having a real effect in reversing the tide and then after some period it will just not have been convincingly demonstrated to have worked. And they'll realize that by any number of measures the piracy problem has only grown worse. But they will have to exhaust all of those things and more. They will have to chase legal remedies, legislative agendas, all the way to what they view as being the end of the line before they say "OK, so this really is the landscape we're stuck with. As much as we didn't want it, this appears to be it. Now we have to just dive in and make businesses that work here."
And that's where music has only just arrived in this country and note it hasn't even come close to arriving in a lot of European countries. If you ask Universal Music Group in the U.K. "Are you going to win this war on piracy?" They will say "Oh yes, swiftly and decisively and soon. The rate of peer-to-peer infringement will be down 70 percent in the U.K. in the next few months. They have specific targets. Not here. We've exhausted all of those paths. There's a big gap. If the music industry in this country just now sort of arrived at the conclusion where they say "We just have to play on this field even through it ain't home court and there isn't a lot of advantage." And in some territories, music hasn't even gotten there yet, then how can Hollywood be there? This is early in the journey. I do think it's going to be a quicker path. It has to be. The economics are going to come down faster.
I spent years when everyone ignored what I was saying because I know it's not pleasant to hear. But my job is to help businesses all over this landscape to get from point A to point B with the least amount of pain. But that means getting smart and getting ready for the transition before the competition. I want them looking in the mirror now and not when it's too late. It's tricky. I want these guys to do well but l don't' want them to tell themselves bedtime stories. That's what the music industry did.
They spent a lot of money going back to antipiracy and spent a lot of emotional dollars on vendors who sold them panaceas and told them everything is going to be okay. "Don't listen to Eric Garland," they said. "He's a gloom-and-doom guy. He gets off on telling you things are going to be terrible. Spend a few million dollars over here and we'll clean up the Internet for you. Hey, I understand that. I want to open up my wallet for that guy too. It's comfort food.
But my message to media companies is they don't have that kind of time anymore.
Greg Sandoval covers media and digital entertainment for CNET News. He is a former reporter for The Washington Post and the Los Angeles Times. E-mail Greg, or follow him on Twitter at http://twitter.com/sandoCNET. 
1. Regarding the difference between music and video, I want to be able to reuse music that i "own" in my own, personal creations (a slideshow of a family vacation, for example). DRM always got in the way of that. I don't ever recall wanting to use commercial video in any of my own works.
2. Commercial music content (I use Zune Marketplace), now, finally, allows me to place the music legitimately onto a device for playback. I'm no longer stuck with a bazillion CDs laying around the house. I want that same convenience with DVDs/Blu-Ray disks and downloaded content (to own, not rent). I want a media player that makes copies of all of my videos, then makes those copies available for playback throughout my home. I can do that today, but I want it to be legally possible and supported by the movie studios.
--mark d.
You might not have a problem paying for compressed 320kb, if you're lucky, MP3s. But I do - I run my music through a good amp and speakers. I am not Cool with paying real money for fake format. So if Zoon or Apple start offering lossless formats for sale at say; $1/song - then this will really take off for me. Otherwise people will keep downloading illegal MP3s and buy CDs in lesser quantities because they feel that an MP3 is a bad deal, which it is. Same story goes for video; it must be superb quality.
How does it go... to music industry Don't ask me to lower my standard just because you have none.
1) First run distribution movies will become true worldwide events, thanks to faster duplication of movie prints and increasing use of digital distribution to theaters for simultaneous worldwide release.
2) First run distribution of TV shows will now become worldwide events, thanks to new international copyright agreements for true worldwide distribution. Japanese anime companies are headed towards this direction with the Crunchyroll service, and even the BBC is looking at simultaneous worldwide distribution of its TV shows through various digital means.
3) After a few months of world wide first-run premiere, both movies and TV shows will be available for paid digital download worldwide in 480p (standard definition) and 720p (high definition) formats using H.264 video compression formats.
The reason why up until now there has been a lot of distribution rights problems is that entertainment companies tended to stagger worldwide release of a movie or TV show. But now with vastly improved distribution methods, that staggering no longer is necessary, and true simultaneous worldwide release is achievable, drastically slowing down potential piracy issues.
Personally, I'd like to add one bit: How about Hollywood stop trying to rip off old memes and old flicks, and do something, well... original? My missus and I have begun playing a game with the movie ads called 'name that ripoff' (e.g. when that button-pushing movie ad came out, she almost beat me to it when we shouted: "Twilight Zone Episode!" Spoiler: The person who dies is the person who pushed the button before you did, duh...)
The last new movie we bothered to actually go out and see? A huge letdown (Paranormal Activity), but I'm willing to wager that it was better than 90% of the other flicks on tap at the theater that day.
Maybe Hollywood should start, you know, fostering writers worth a damn, and working from that?
It may be obvious to many people. It is not about how much it costs, but how much value it has. As a consumer, I want to be entertained at the time I choose. I'm willing to pay for quality and convenience, but only so much. I want to be able to buy/sell/borrow/lend/give away digital content just like the real goods. If I can't get what I want from you, I'll find someone else who can.
Hollywood is now at that place with the cost of theater seats. I will see action adventure in the theater but most comedies, animation, RomCom at home via Netflix, because the price for theater is so high for what value (large screen, great sound) they bring.
Most movies, books, tv shows, I only want to see/read once and that is all. Most music on the other hand I want to hear over and over again. That is the difference in the models and that is what they need to understand.
As for the television industry, I would like to be able to pick the channels that I want from Cable/Sat and would be willing to pay more for what I want then the $XX I pay now for the given package I am forced to select. But that is a different topic.
Instead, I'll wait for the DVDs to come out, and if that's too slow, I'll just stop watching.
He can comment on the motivations of business people, even when illogical or lead to folly without spilling a drop of superiority or disdain into the discussion.
I appreciate that.
Content providers want to control how the consumer uses purchased content, while the consumer wants to control how they use the content they rightfully purchased.
If a consumer buys a product, they want full control over that product, be it a car, toys, furniture, clothing, media, or etc. Obviously, media has a disadvantage, because it can be easily replicated. Thus, content providers feel compelled to change their view on control and tighten the grip. However, this doesn't necessarily change how consumers view control. And there lies the rub.
I remember early days in DRM; before I had an iTunes account or Amazon had opened their doors to music distribution, I tried Walmart's online music store and purchased about 10 songs (all DRM restricted). I wanted to play one of the newer songs for a buddy. So I dragged the song from my desktop PC to my laptop and visited my friend at his home. When I tried playing the song that I knew he'd love and would probably buy, I received a DRM message explaining that my rights to the content were restricted. The song refused to play. The DRM mechanism read my earlier behavior as illegally copying the song. Moreover, the song had become locked on both my PC and laptop. As it had been after hours, I had to call Walmart's customer support line the following day to re-activate my song. Thankfully, I had printed my receipt. The whole thing left a bad taste in my mouth and was a waste of time, besides the point that my friend never heard the song. I wanted control of my purchased good. The content providers wanted to control how I used my purchased good. I do not advocate piracy, and I didn't trust DRM, nor was I interested in buying the CD for the single song I liked, so I felt stuck. I gradually stopped buying music and instead listened to the radio (which also limits content). I quickly tired of the radio, and just waited until DRM became a thing of the past. I could understand why people turned to piracy, even though I did not. Today, I can buy DRM-free music on iTunes and Amazon, but it was a long battle. A battle that spent too much time alienating consumers from content providers.
Now we come to film/tv content, which does have a slightly different platform, and smarter tech, like DRM that more or less recognizes that a movie file I purchased on my PC can be shared with my laptop and hand held devices. Yet I'm still concerned that my movie file will one day glitch and lock me out again. That if I do buy the DVD/Blu-ray, I'm advised by content providers against ripping the film to my PC for use on my hand held devices, but rather to buy extra digital iterations. Or, my Netflix account will be suffer, because Studios decide to boycott content. Or, I won't be able to watch the MLB playoffs on MLB.com while on the road, because MLB sold the rights to a cable company. Why should consumers deal with these hassles? Imagine if car makers, toy companies, furniture manufactures, and clothing lines decided when and how you used their products?
My overall point is that indeed there may now be "Twitter, real-time Internet expectations" changing the consumption landscape, but in the process why should supposed anti-piracy efforts scare away those who don't pirate? In my observations, people don't purposefully commit illegal activity. They feel driven towards it by an opposing force.
As media production companies tighten their belts and reduce budgets, the quantity and quality of the creative performances will decline more than it's perceived to have been declining lately.
Shopping in a store and getting patted down as you leave does not create customer loyalty which is what the other DRM technology used.
I thought this particular statement was striking: "... growing a sector is a privilege and not a right. There is no right size. There is no correct or God-given size for any sector. Why do we get to make movies that cost $300 million to make? Because we have found venues where people will spend more than $300 million on the result. If people spend only $50 million then the price of a movie must be $49 million or less."
"Getting costs in line with market value" is the name of the game. It is, to a large extent, what the music industry has been relegated to.
People don't mind "giving back" movies because who wants to watch "Maid in Manhattan" more than once? Music, in contrast, is something you listen to over and over in many different environments (and therefore devices.)
That's just common sense, and it makes you wonder how many other things he got wrong in the pursuit of sounding expert.
Hollywood says we like DRM, we would like to extend to you this content but on terms that we control and the customer says "Yeah, that's cool. I've always been good with that. I like renting. I'll give it back to you when I'm done." The music industry says "How come we can't we do that?" The customer says "No, because it's not my expectation. It's not the contract that we've had all along." But in video this is in the contract we've had all along. Blockbuster has always given us stuff and we paid for it and then we had to bring it back. We're good with that.
- by inachu1 December 3, 2009 1:22 PM PST
- I have not bought a music cd in 2 years.
- Like this Reply to this comment
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(25 Comments)Why?
All my local store are catering to illegals and most of them have removed 50% of americna music with Latino and I can't find my music anymore and I stopped shopping there and stopped complaining.
Let them dig their own graves.