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  • 1. The Entertainment Industry in Crisis An Examination of the Future of Online Media Models Greg Zuk
  • 2. In a State of Crisis Introduction of the Internet P2P File Sharing Piracy Current Business Models Failing Milos Forman (Academy Award Winning Director): “Now, we all know the reasons why we are here today. The most important one sounds very romantic: piracy. In my childhood games I always wanted to be a pirate. Not his victim. I’d prefer to call it what it really is: a theft. Internet thievery. When you think about it, Internet today is functioning as a dreamlike supermarket where you can go, take anything your heart desired without paying for it.”
  • 3. Business Models No Longer Cutting It DVD and CD sales plummeting Traditional Business Models not yielding enough Home Video sales normally account for 50% of a film’s process CD Sales are primary channel for Record companies to recoup their costs
  • 4. Number of CD’s Sold Over the Last Years
  • 5. Decline in DVD Sales Over Time “Every studio is claiming, ‘We’re O.K. so far, but we’ve looked at the overall competitive sales data and we have some concerns,’ ”-Amir Malin, Qualia Capital "Blockbuster films are generating fewer DVD unit sales than in previous cycles. Where a big picture used to sell 20 million units, top movies now struggle to reach 10 million units."-Alan Gould, Analyst
  • 6. Where are We Now Current Entertainment Business Model is Failing Time to look to the FUTURE is NOW Completely open field Must act before situation worsens Potentially Extremely Lucrative
  • 7. What is a Digital Business Model?
  • 8. Michael Rappa Founder and Director of North Carolina State University’s Institute of Advanced Analytics Former MIT Professor Host and Co-Chair of the 19th Annual World Wide Web Conference Well Regarded for his work in technology education Pioneer in Internet Business Models
  • 9. What is a business Model? A Business Model “is the method of doing business by which a company can sustain itself -- that is, generate revenue. The business model spells-out how a company makes money by specifying where it is positioned in the value chain.”- Michael Rappa Same idea translates to the digital marketplace Though philosophy same, web offers plethora of new options and opportunities Exchange rate of information and ideas almost unimaginable
  • 10. Types of Online Models
  • 11. The Models Brokerage Advertising Infomediary Merchant Manufacturer/ Direct Affiliate Community Subscription Utility
  • 12. Brokerage Bring buyers and sellers together to create a transaction Charge a fee for bringing the transaction together Orbitz, PayPal, Ebay, Priceline.com
  • 13. Advertising Based around traditional business model Charge to advertise on website space banner ads, pop ups, etc. Sell advertising information registering for a website like nytimes.com Favorable position on searches google
  • 14. Infomediary Consumer or business habits are of primary importance Peoples tendencies can be tracked on the web and this information can be very valuable help understand the market DoubleClick (google owned), Nielsen ratings
  • 15. Merchant Sounds like what it is Wholesalers and retailers sell goods or services in web markets Can either be purchased outright or bid upon
  • 16. Manufacturer/Direct Web allows the actual manufacturer to reach the customer Eliminates need for middleman Can purchase, lease or license directly from the owner benefits both the consumer and manufacturer Dell Computer
  • 17. Affiliate Websites that make deals with larger websites to allow for the larger sites to sell goods on the smaller website or link themselves through the smaller site Pay Per Click Percentage of the Sale Amazon or Barnes and Noble Hemingway Example
  • 18. Community Based around loyalty and high user attachment Revenue extracted from donations or sale of supplementary products or services or utilizing an additional model such as advertising Open Source, Open Content, Social Networks
  • 19. Subscription Pay a fee for access to the content Like a magazine on television subscription Normally utilizes other models such as advertising to increase revenue Netflix
  • 20. Utility “Pay as you go” philosophy Pay for as much as you use or access
  • 21. Digital Model Attempts
  • 22. Cases DIVX DRM Radiohead iTunes Netflix Pandora Artistshare
  • 23. DIVX Disaster Digital Video Express (2/3 Owned by Circuit City) invented a DVD rental system based around a special encryption software Can’t copy or pirate the DVD due to the encryption Came with Modem, Memory, and Encryption Chip Pay with the modem and your account Can watch for 48 hours after playing $300-$500 to get the player attached to regular DVD player Purchase the rentable discs from Circuit City locations Massive Failure Stopped After two years Cost CC about $114 Million People preferred to own Was not popular with film studios
  • 24. The Iron Hand of DRM Digital Rights Management Encryption Software attached to entertainment media to prevent consumers from copying it or pirating it Supported by 1998 DMCA prevents all circumvention of DRM locks AACS Technology Placed on HD DVD as encryption software 2006 Encryption key broken and distributed widely on the net several times Huge embarrassment to the film industry Reaction Many proponents of remix or free culture have come out very harshly against DRM technology limits our culture fair use Failure
  • 25. Radical Radiohead Online Release of In Rainbows (2007) Released without a label Pay what you want for the first disc online 1.2 million people downloaded Average about $5 paid Several packages including actual CD and Vinyl form for a larger fee $80 deluxe package Massive Success Appealed to the average listener as well as the fanatic Many bands have followed in this fashion Metallica who famously came out against Napster
  • 26. iTunes dOminates dIgital Digital media player created by Apple that is compatible with all current operating systems Released in 2001 Plays video and music Also has podcasts and live radio integrated New Genius feature also a revolutionary technology in musical experience iTunes store Purchase tracks or albums of all artists agreeing 99 cents a track (increased on some songs due to record label complaints) Typically $9.99 for an album (depending on the album) Initially DRM attached to their sold tunes As of 2009 no longer the case Shows the power iTunes has over the record labels Offers the music cheaper than the record labels would like, but the ease of the program and relative affordability has made it a massive success
  • 27. Netflix Online movie rental house revolutionized the home video industry Founded in 1997 by Reed Hastings Order all DVDs online and have them delivered to your house Subscription model with a fee as low as $8.99 includes 1 DVD and unlimited streaming of films Only certain distributors give their movies to Netflix Takes away from their DVD sales overall Competed directly with Blockbuster formerly closely associated to Viacom Keep revolutionizing Deals with Sony and Microsoft to stream Netflix directly to the video game systems Deals to get it through Blu-Ray Players Deals with Tivo Deals to stream directly to the TV
  • 28. Pandora’s Struggle Online Streaming Music Player that offers customizable song list based on what the consumer enjoys Created by the Music Genome Project Hugely innovate technology trying to break down musical taste Available through both mobile phone and computer internet access Two business models to choose from 40 hours Free Advertisement based business model + $.99 after that or An advertisement-less model $36 annually Special functions Cannot skip more than 12 songs per 24 hours unless you have Vista or a paid account Artists consistency is limited Royalties Got into royalty and copyright disputes in 2007 Almost went bankrupt had to go to a semi-subscription model to stay alive Almost lost their fan base, who wanted free streaming music While Pandora it sustains it is hard to consider it a massive success it will continue to be fought by the record companies and as it becomes less and less free other more attractive models will take over
  • 29. Innovative Artistshare A website that facilitates the donation of funds to artists in exchange for aiding in the creative process Allows fans to feel a part of the process VIP treatment and credit on all works Good for small scale artists to have access to the funding they need Small celebrities such as Rick Moranis A definite positive step, but far too idealistic in terms of becoming mainstream
  • 30. A Look to the Future...
  • 31. Two Horses of Two Different Colors Both the film and the music industry are certainly in crisis Require two different Models Music Industry is 10 years further worse off Napster Cinemas are still a powerful draw
  • 32. Music Model
  • 33. P2P Collective Societies Voluntary collective licensing: Electronic Frontier Foundation Music industry created collections of music that can be accessed for a monthly fee fee is divided up amongst the rights holders based on popularity of songs Can be integrated into the Internet bill to be less abrasive download as much as you like and share with whatever program you want Completely open to competition, which will allow for music labels to stay alive while existing in a reasonable and updated environment Promotes the industry’s involvement in digital music so that it can work to further the business model Resistance to the model will only hurt in the long run
  • 34. In Exchange There MUST be stricter enforcement of illegal downloading If there is to be cheap legal file sharing then the illegal must be eliminated Since there is a strong possibility of the fee being integrated into the Internet bill, the internet companies must be stringent in their monitoring of all ILLEGAL downloading
  • 35. Follow Radiohead’s Example Continue to release new albums as Radiohead did Pay what you want limited quality downloads Special packages to still sell CDs and Vinyls to fans the better the packages the more money that can be made off of them Delay the release of the new album for a few months in the Collectives Market through social networks and the digital super highways
  • 36. The Live Spectacle Increase efforts in making the live show as profitable as possible Try to achieve the consistency of movie theatres Utilize the instantaneousness of the Internet Stream Live shows on the web for free Record all Live shows and offer them for immediate sale or almost immediate
  • 37. The Record Labels’ Demise This plan spells only one ultimate end for record labels: DEATH The majority of the focus in this plan is on the Artist and if the Artists can, like Radiohead begin to detach themselves from the labels, the labels will no longer exist It will not be immediate, but with the success of social networking sites like MySpace and Facebook in terms of marketing it is only natural Moreover increased technology has made it easier and cheaper for musicians to practice their craft, which further distances them from the labels Artists have begun their move for control of their craft and the Internet is affording them that opportunity
  • 38. Film Model
  • 39. Continue to Maximize the Theatrical Experience Theatre sales have consistently managed to stay high through both good and bad economic times Must Continue to Capitalize on this one of a kind spectacle More films into IMAX More use of 3-D James Cameron has called 3-D the future of cinema Maximize the technology to create a truly AWEsome cinematic experience Charge slightly more for the service, but deliver much more in the seats Offer additional categories at the Academy Awards for innovation in technology
  • 40. Cut those Costs High Print and Advertisement Costs grossly limit the theatrical release of most films Around $4000 per print of a film and you need a print for every single theater you want to show the film Convert to Digital Large initial cost, but will pay off in the long run Korea has had great success with this method Highest quality Opens up the industry for the smaller fish Keep 35mm, but integrate digital to massively reduce the amount of prints needed Do not ever have to actually have any prints made--choose only digital screens
  • 41. New Distribution Window With the waning sales of DVDs, it is time to restructure the distribution timeline by introducing a new or potentially several new windows for films to be distributed Producer of the Year Ryan Kavanaugh has been supporter of Video on Demand technology to create new Window Must create a window shortly after the theatrical release of the film through VOD and Online Video Game Systems Increase the revenue on the release of films, for people who don’t like to go to the cinema Then Shortly after this window an additional window should be streamed online on websites run by the Studios Product will be out there anyway, offer highest quality for a small fee and continue to attract those who did not want to go to the theater Studios can then offer the same service for their libraries and charge a larger subscription fee for access to these films Studios need to make up for their lost DVD rentals and sales; Digital is the new platform Continue to sell the latest technology physical copies of films, but make sure to load them with special features to attract true fanatics Can charge slightly more and still attract a great deal of true film fans Attacks the major competitors of Netflix and Piracy by offering quality content controlled by the content creators at a reasonably fast distribution rate for an appropriate fee
  • 42. Ultimately... Ultimately, no matter how many new distribution windows the film industry inserts to attempt to increase profits, the Hollywood Hot Shots must learn to accept lower profits than the times before the Internet I am confident these models will succeed and boost the film industry, but profits will not be as high
  • 43. In Conclusion... Unfortunately, no matter how close my assumptions and presumptions have brought me to the future of the entertainment industry’s business model, the model will always be changing. What is right now may be trash tomorrow. The Internet is a fluid marketplace and we must always be on our toes to keep up with its evolutions.