News out of England is that Sky TV has announced a true Over The Top product that does not require buying into a traditional satellite subscription.

A quote from the official announcement:

“This exciting new service will offer some of Sky’s most popular content through a wide range of broadband connected devices. Alongside the continued growth of our satellite platform, this will be a new way for us to reach out to consumers who love great content, but may not want the full Sky service. Bringing a distinctive, new choice to the marketplace will help us meet the needs and demands of an ever wider range of consumers.”

The key point is in bold.  Sky is going to offer a broadband only viewing service that is not tied to their core broadcast service.  This is the exactly the path other services are going to consider to slide into the hearts and minds of the cable-cutters.

Looks like Sky has decided that if someone is going to eat their lunch, it might as well be themselves.  Other takes on the news at Engadget and the Wall Street Journal.

With the US based DirecTV crossbred with Murdoch DNA in the past, I wouldn’t be surprised to see them attempt a similar product to distance themselves further from the cable focus on TV Everywhere.

Two interesting tidbits in the news that showcase the television industry being stuck between the past and the future.

Article in the New York Times about the ratings game the networks play:

In Networks’ Race for Ratings, Chicanery Is on the Schedule

“This is the kind of programming sleight of hand that executives seize on as they seek to gain every possible edge in the television ratings game, at a time when each tenth of a point or two enhances their standing in the nightly ratings and the ability to pitch to advertisers who spend billions of dollars a year. But these tactics are more about bragging rights than money.”

As the industry moves to direct measurement of ratings of viewing and away from the Nielsen survey style, these gimmicks will disappear, and seem laughable in hindsight.  The online industry is not immune to such silliness.  Consider the endless amount of top ten lists that require you to click ‘next’ 10 times to see the whole article, simply to increase the number of page views.

Article in Variety discussing News Corp President Chase Carey’s take on TV Everywhere:

Chase Carey: Not impressed with TV Everywhere

“Carey didn’t mince words on how badly he believes cable, satellite and telcos have botched extending program viewing to digital platforms at no extra charge to subscribers who access content via authentication.”

The major cable and satellite distributors are counting on TV Everywhere to help reign in the proliferation of free content on the web and maintain the perceived value of subscriptions.  Many inside the studios like the idea of TV Everywhere because it basically creates a whole new product they can sell or barter with in negotiations with the distributors. Carey’s words are very much in line with the consumer research that show TV Everywhere as frustrating to viewers looking to replicate a simple television experience on a computer or iPad.

The widespread grassroots protests and blackouts against the SOPA and PIPA bills effectively killed these incarnations of new copyright policing. Many are congratulating each other on a job well done, and rightly so.

But don’t think this debate is over.  To quote John Rambo, “Nothing is over.”

What the protests did was reduce political support, raise general awareness, and most importantly get the issue talked about on The Daily Show.

To understand what’s driving this kind of legislation requires a little insight into the thinking within the large companies.

Contrary to popular belief, executives at large media companies are not the Nazgul.  They are not insane villians plotting world domination.  For the most part, they are nice people that you probably would find interesting to talk to over drinks.  I spent the majority of my adult life working with these people.

The media executives know it’s a losing battle.  They are going after locker sites like MegaUpload because then know they can’t do anything about newsgroups and private darknets.  They continue suing bittorrent users even though they know it’s bad PR and doesn’t stop piracy.  They still try to do things like “plug the analog hole” and down-ressing HD content even though it’s a complete waste of time and does nothing to prevent piracy.

What many people need to learn is why?

Why in the face of such a daunting task, do media companies continue to hammer away with things like SOPA and PIPA?

If you read some of the posts on the interwebs, they would have you believe that the reasons these bills are being pushed are things like this:

• They hate freedom
• They don’t understand fair use and/or copyright law
• They want to censor what you say
• They are part of a government plot to block political speech
• They hate puppies and kittens, cheer for Darth Vader & the Daleks, and eat your children

While those reasons do make people get riled up, and I have pondered about the white armor I’ve seen stashed in various corporate closets, the reality is far different and much more mundane.

Here are the real reasons that SOPA & PIPA were proposed, and the reason why lobbying for similar things will continue in the foreseeable future.

The Stock Price – Every three months the companies have to release financial figures that are looked at by Wall Street analysts to determine if they get the thumbs up or thumbs down.  The stock price is very, very, VERY important to the top executives in media companies because it determines if they will continue in their job and how much of a bonus they will get.

Media companies love to point to piracy as claim of losses to justify lower profits.  A lot of effort goes into creating “piracy loss” estimates, just to help the various CFOs justify the earnings.  It’s much easier to say, “If it wasn’t for all these pirates, we’d have made more money!” than saying “Our fundamental business model is changing and it’s unclear where we’ll be in five years.”

The method used to estimate the losses would receive an F if submitted in a college course.  Yes, there is some loss of revenue to piracy, but the methods, logical leaps, and invention of numbers utilized in these reports are completely unsupported.  They are so bad, that there’s even internal debate about how full of crap the estimates are.

Contracts with Talent – The term ‘Talent’ refers to the creative people that do the acting, writing, directing, and others that turn ideas into entertainment.  Groups like the Director’s Guild, Writer’s Guild, SAG, AFTRA, and IATSE all insert language into contracts that force the studios to use things like DRM and agreed to aggressively pursue copyright infringement.  The logic of the guilds is simple; every product that is pirated instead of sold is less money to their members.

Contracts with Distributors – Cable & satellite providers, television networks, mobile providers, brick and mortar stores, and digital media outlets all pay a huge amounts for the right to use, sell and retransmit content from the studios.  They don’t want people getting the content for free.  As a result, contracts with distributors have language that requires the media companies to crack down on piracy.  Combined with the insistence on DRM by the Talent and Studios, you have an interlocking set of agreements that basically prevent anyone for advocating an unsecured solution or allow them to ignore piracy.

Legal Standing – Beside the person at home downloading shows via a torrent or newsgroup, there are some serious criminals operating on pirated content.  There are entire companies devoted to creating counterfeit DVDs, Blu-Rays and other versions for sale in Asia, Russia, and the Middle East. Even in Los Angeles, home to Hollywood, you can visit Santee Alley and buy counterfeit discs.  To combat this organized criminal effort involves a lot of lawyers.  IANAL, but from the legal point of view, the media companies  want to show that they have tried every possible way to stop piracy and that the counterfeiters are actively going around these measures.

The reason behind the FBI warning is not to deter anyone from pirating content, it’s simply to be able to say in court, “This person saw the FBI warning, knew what they did was illegal, and can’t claim ignorance.”  Just like if you buy a toaster, the manual will warn you not to stick a fork in it.  Not to educate you, but to use against you in court if you sue them later, after sticking a fork in your toaster.

International Distribution – Critical to the media business is selling content made in one country to distributors in another country.  The value to the buyer comes from being able to get the eyeballs/sales via their distribution conduit.  The value drops dramatically if it’s available for free.  This is why you see so much geo-blocking to prevent Europeans from viewing video on American sites and vice versa.  The studios have had to drastically revise their release windowing schemes to help reduce the amount of piracy, but even a couple day delay is too much for some passionate viewers.  Contracts require the studios to fight piracy aggressively.  I’ve been in the room when distribution partners turn a laptop around, show a streaming version of a show, and say “Why should we pay you £200,000 per episode when people can get it for free?”

Piracy does cause lost revenue – As much as people don’t want to admit it, piracy does cause a loss of revenue to the studios, and as a result, people on all sides make less money.  Many people try to justify this by saying that those people are already rich, but it doesn’t make it any less true. There are many people without a lot of extra money to pay for movies or cable that pirate content to stay entertained.  I can’t say I put a lot of blame on those people.  But, I do know several people that have literally made millions of dollars on internet companies that don’t pay for cable, but do pay for elaborate downloading set-ups with newsgroups, auto-downloading, media centers and TV set-ups that would make Hollywood moguls jealous.  The truth is that many of the people that participate in illegal downloading could pay for the content, but simply don’t.

The point is not to justify the tactics of the media companies; it’s to help educate people on why things like SOPA and PIPA get proposed.  Until the underlying issues start to change, the lobbyists will still get paid, and the politicians will bring up new legislation.

The music industry has already begun to start resolving their versions of these issues, but not without suffering a near-death experience.  What will it take for change in the television and film industries?  Probably a lot more change in the marketplace with new competitors bringing new ways to watch television and movies.  But remember, the media companies are well funded, well armed, and like Rambo, ruthless with people that they view as the ones that started the fight.

Understanding the true drivers in the Copyright Wars is critical to creating a reasonable and effective response.  Logic and reason should guide grassroots organizations, not raw emotion.

“If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle.” – Sun Tzu

The new hotness is to talk about how “the Internet” is going to “kill Hollywood” and that “old media is dead”.

A few of the posts I’m referring to are from smart, sharp people like Marc Suster, Paul Graham, and Rex Sorgatz.  They vary a little in theme, but all discuss the basic idea that the old way of doing business in television and film is going to change at a fundamental level.  Accelerating the thinking is the clash over copyright which is really a clash over revenue generation and competition.

While people are right to see significant change coming to how media is distributed and consumed, they are wrong to think that changes in technology are going to destroy the basic processes that exist today in what is considered “Hollywood”.

Let’s look at a model of how ideas become shows and movies.

The Five Steps

Ideation – The creation of new stories, concepts or presentation of existing ideas into a new package that would be engaging to viewers.  This is the realm of the writers and producers where the cool, new stuff is conceived.

Production – The actual creation of the film or television program.  This is the realm of the director, actor, cinematographer, musician, gaffer, best boy, make-up artist, special effects, and an endless amount of other experts in specific fields where experience and technique is required.

Aggregation – The process of sorting the bad from the good and the marketing of the good to people.  This is the realm of the Studios, green lighting films and shows, helping coordinating in the realms of Production and Distribution, and most importantly, making people aware of what is being created.  This is the “Hollywood” that many speak of with derision.

Distribution – The process of getting films and shows to people that want them.  This is the realm of cable & satellite providers, theaters, digital distribution, “piracy”, and plastic discs.

Viewing – The consumption of creative product by people.  Taking a variety of forms, it’s entertainment for people in a plethora of genres and forms.

Skills That Power The Steps

Creativity – New concepts and ideas are the engine of the entire entertainment industry.  Without creativity, entertainment stagnates, becomes repetitive, and fails to attract an audience.

Workmanship – Expertise, innovation, and precision are what create immersive and engaging entertainment.  Without workmanship, there can be no ‘suspension of disbelief’.

Marketing – Helping people understand the new entertainment being created and framing it into something people think will have value is essential to getting new ideas into the world.  Without marketing, the entire process would fail as people are not motivated to try new entertainment.

Distribution – Getting content to people in a variety of formats and delivery methods.  Without distribution, even the greatest stories remain untold.

Discretion – In the end it’s the decision of the viewing public as to whether content is good and has value to them seen in the form of ratings, box office receipt, purchases.  Without viewer discretion, good things don’t surface and bad things stick around.

Who Exactly Are You Trying to Kill?

Now that the model is clear, let’s examine what part of this would be affected by “the Internet”.  The recent calls to “kill” are almost solely focused on Technology.  That means new and alternative ways to distribute content.  So the key idea is that the rapid pace of change in technology is going to bring down the Hollywood studios.

Let’s look at that claim in context of the technology change in the 20^th century.

The modern studio structure begins in the early 20^th century with movie theaters as primary distribution.

• Broadcast Television comes along, studios adapt, create content for it, turn it into a billion dollar industry.
• Cable Television comes along, studios adapt, create content for it, turn it into a billion dollar industry.
• VHS Tape comes along, studios adapt, create content for it, turn it into a billion dollar industry.
• DVDs comes along, studios adapt, create content for it, turn it into a billion dollar industry.
• Digital Downloads comes along, studios adapt, create content for it, turn it into a billion dollar industry.
• Internet streaming video comes along, studios adapt, create content for it, and are in the process of turning it into a billion dollar industry.

Changes and innovation in technology alone are not going to “kill Hollywood”.  Do you really think that the content producers can’t or won’t adapt to the new distribution methods and revenue models?  Of course they will.  They have every time in the past.  Change is hard, so first they fight it and then they accept it and turn it into a billion dollar business.

Competition, not Assassination.

Let’s look at some of the new, innovative companies out there that are pointed to as examples of new media, Maker Studios and Machinma.  Often they are heralded as the “future of television”.  They make some great stuff, I watch plenty of it, but they are following the exact same overall model as the big Hollywood studios.

Ray William Johnson – Ideation, Production
Maker Studios – Marketing, Finance
Youtube – Distribution

Athene – Ideation, Production
Machinima – Marketing, Finance
Youtube – Distribution

You could swap out a different distribution method and it wouldn’t affect the other steps.  The model continues and the new studios become more like the older studios.

Even in podcasting, you are seeing the rise of podcast studios like those from Kevin Smith and Adam Carolla, using exactly the same model.  Even podcast coming out of the tech space like Revision3 and TWiT follow the model.

Looking at gaming, we see exactly the same model occur as well.  The studio Activision owns  and markets Blizzard/World ofWarcraft and Infinity Ward/Call of Duty games and distributes via download and discs.  The studio EA owns and markets The Sim Studio/Sims games and distributes via download and discs.

Yes, improvements in technology make to the other steps of the model easier, but they don’t break the model.  All of the transitions in technology may change how content is created, distributed, and viewed, but they don’t kill anything except old technology.

Perhaps a new form of entertainment will emerge, but it won’t be from the technology side.  New entertainment comes from the creativity side.  With Silicon Valley and Alley so focused on the next technology, they don’t have much knowledge or experience in start-ups focusing on creativity.  There is no minimal viable product in entertainment.

Billions of Dollars, Waiting to be Picked Up

The modern studio system is full of inefficiency, bloat, tradition, groupthink, and plenty of just plain stupidity, but it does get the job done and remains orders of magnitude more popular and profitable than any other form of entertainment.  The industry is so focused on playing defense and guarding the backdoor against piracy, that people with good new ideas can simply walk in the front door and Hollywood will think they’re there to help.

There is a huge role for technology start-ups to play in improving and innovating in the world of entertainment, but it starts with understanding how entertainment go from ideas to eyeballs and working with experts in other areas rather than stating they want to kill them.

You are a digital media or technology executive within one of the large media companies.

You are bright, articulate, and able to grab complex concepts and relationships.  You “get it” quickly in the first five minutes of the hour long meeting.

You see the inexorable changes happening in television and film and understand we are living through a fundamental shift in the business model that your company thrives on.  You see the disruption happening and know that serious change and risk taking is needed to meet the expectations of the public and the shareholders.

You are expected to know everything about every new media device, technology, start-up, and business model.  You get called into meetings at the tail end of deals to explain what the biz dev guys just agreed to without understanding the cost or difficulty to do.  You demo new products and concepts to people that hate what you are showing them.

You understand that piracy is unstoppable and should be regarded as a competitor that cannot be sued out of existence.  Pretty much all your friends regularly grab your content from newsgroups or torrents, complain about geo-restrictions, and ask you why your company is “so stupid”.  You are asked why there isn’t ala carte cable, live network streams on the internet, new movies on Netflix, old shows and movies simply not available anywhere, and all you can do is shrug and say, “It’s very complicated.”

Your team is understaffed, overworked, and called upon to make things based on what lawyers and MBAs dictate, not what any viewer would want or use. Every now and then you get to make something cool, but mainly you are asked to make something useless because a creative executive read about in Wired magazine or Variety said another studio was doing it.

Your company holds the ‘creatives’ in highest regard.  Those that make and produce content are treated as aristocrats and you are expected to cater to their every whim.  They pride themselves on technical ignorance and don’t use most of the media technology that is commonplace to every teenager in the country.  They can do no wrong until they are fired and thrown from the parapets to the moat below.

You work with the attorneys that expect help in finding ways to break the internet.  You heard them planning SOPA and PIPA years ago.  You are expected to develop ‘defensive’ patents. You are told to put in geo-fencing, DRM, secure streaming, and every possible security measure to protect content at the same time the Marketing Group is sending out DVDs of content that is unreleased to critics and distributors months in advance.  When music from shows leak to Youtube and gets thousands of likes, and you are expected help take it down and figure out how it got there.

You are asked to develop ways to help the incumbent cable and satellite providers maintain their lock on consumer by pulling more content off of free sites and put it behind paywalls.  You go to meetings about this with people from other companies like yours during the day, and later over drinks at night say, “Can you believe we are building this shit?” You review the contracts that require insane things like down-rezzed HD content and blocking “analog holes”.

You see the interlocking web of agreements between producers, writers, actors, musicians, studios, cable and satellite companies, mobile phone providers, international distributors, and everyone else in “the business” that attempts to preserve the existing revenue stream and lock consumers into contracts that bind them for years at a time.

You discuss how exclusivity leads to piracy, and it is explained to you that the billion-dollar customers get whatever they want.  You explain how DRM leads to even more piracy, and it is explained to you tha the talent contracts require it.  You discuss the Innovator’s Dilemma, and it is explained to you it doesn’t apply to the media industry.  You discuss the impact of ubiquitous broadband on the cable and satellite providers, and it is explained to you that the cable and satellite ‘have a plan’ on how to deal with internet TV.  You say “If someone’s going to eat our lunch, it might as well be us.”

Your boss talks to you and says, “You’re right, but never disagree with the people in the room.”  You know he’s saying this because somebody complained about you.

You see the start-ups wandering in the weeds, ignorant of the web of contracts and agreements designed to stop them. You see the consumer electronics manufacturers building insanely stupid gadgets that either no one will use or will get sued out of existence.  You see the cable and satellite companies actually believing that their customers like them.  You see the public raging angrily at the wrong people and companies.  You see the government being paid to create laws to entrench a business model.  You go to trendy conferences that explain how Old Media is dead and how new media will take over as soon it’s figures out that pesky task of making money.

And then you go home to your family, your mortgage, your underfunded college savings, your vacation plans and feel queasy in your stomach.

You hug your kids and forget about life for a while.

The next morning you get up and go do it again.

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