Analysis of IT news

Wednesday, June 21, 2006

Case Study: Music and movies online

In the mind of music and movie executives, the Internet is probably associated with piracy more than anything else. But new technologies in general might represent a far greater danger than piracy. It might end their control on their industries.

Music majors and movie studios currently control their respective industries because they have a strong grip on three key elements of the value chain: production, marketing and distribution. There are plenty of independent talents out there, but without at least marketing and distribution, they can't go anywhere.

Now, let's see how new technologies could legally affect the industry by allowing independent artists to bypass completely the current entertainment giants.

Production: the music majors are here at a disadvantage. Nowadays, independent bands can easily come up with a tape of their songs. Producing a movie is of course much more expensive but new technologies have helped, even if they're not completely there yet. The first one was the rise of digital cameras which allow shooting at a much cheaper cost (the cost of film is very expensive when you have a shoestring budget). But the big innovation is CGI (Computer Generated Imagery) movies. You can nowadays find lots of CGI talents all over the world on the Internet, a lot of whom are much cheaper than their U.S. counterparts. Independent directors can assemble virtual teams of people without even meeting them. That's how some movies such as Hoodwinked were created offshore, at a fraction of the cost of a traditional CGI movie. Sure, Hoodwinked isn't nearly as fancy as a Pixar movie, but it's good enough as long as it's backed by a solid story, and the quality of such movies can only go up. As a matter of facts, some people who produced CGI movies on their own have started to negotiate - and obtain - from movies studios a part of the royalties from their movies. Something unheard of before.

Marketing: once you got a hit song or movie, how to let the public know about it? There are plenty of traditional recipes: have the song played on the radio or on VH1. Buy commercial time to air the movie trailer. Use the fame of the featured artists to create some buzz (hey, that's why they're paid big bucks). But all this costs a lot of money, and independent artists seldom have that kind of deep pockets. On top of that, for every hidden talent out there there are hundreds of talentless people who believe they're geniuses. How can the mainstream customer sort out the real talents from the crap? Word of mouth can be effective, but the Internet can help too. What is currently missing is a Web site where people can discover hidden talents. One large enough so that mainstream customers can actually find some independent artists they like.

Distribution: the music majors have deals with all the main music retailers, and the movie studios have deals with movie theaters. Something an independent artist can hardly get. But songs just like movies are something that can be easily downloaded from the Internet, as file sharing networks proved. Online music stores like iTunes showed there was a market for legal music download, and there should be such a market for a lot of movies should the price be right. And iTunes has proved that it has a strong negotiating power over the music majors. Apple CEO Steve Jobs has indeed successfully managed to prevent any price rise, despite the major's strong push. On top of that, even though that's not iTunes main current use, independent artists could bypass music majors altogether by striking a deal with iTunes directly. The advantage for them would be much bigger royalties. And sites such as Google Movies already allow independent artists to upload their movies and set a purchase price.

Currently, the independent artists still have to go through the entertainment giants if they want to go mainstream. But new technologies could change that one day.

Now, one shouldn't expect a complete change overnight. A lot of innovations like CGI movies are disruptive innovations, so won't replace traditional movies instantly. But they have already much conquered the children movie segment, and could move to other markets as they get cheaper and more realistic. By the same token, some movies really gain in being watched on a large screen at a theater. But then again, the rise of super large TV screens and entertainment centers weakens this argument. And watching a movie at home has a lot of upsides (no driving, no line, no overpriced popcorn).


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