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Archive for the ‘bidness’ Category

To listen to my half-hour radio piece about Bensonwood, click here or listen at the player below:

The background…

I spent the first eight years of my life in Fountain Inn, South Carolina, a small town now numbering around 6,700 people. When I prepared to move near Walpole, New Hampshire about a year ago to start at Florentine Films, I used my birth town as a model to imagine what Walpole might be like. This turned out to be unhelpful, as Walpole is practically star-studded even with 3,000 fewer folks: where Walpole has Ken Burns, Fountain Inn has Peg Leg Bates.

Though it sounds odd to American ears, Walpole is probably best described as a village, considering the ‘central settlement’ only has about 600 people. Yet in this village you can dine at the posh flagship cafe of LA Burdick, whose high quality chocolates are produced nearby and shipped hither and yon. If you sit long enough, you’re sure to see some of the Florentine Family grabbing a coffee or a bite to eat, seeing as the edit house is a five-minute walk away.  And you might meet there, as I did, Gary Smith, record producer most famously for the Pixies.

I’m terrible at the thing businesspeople call networking, so the first time I met Gary I really had no idea who he was or what he did, even though the night ended with him, another guy, and me sitting on his porch swapping stories for a couple of hours. I didn’t see him for a several months until we met again at a birthday gathering for one of the Florentines. During the chitchat, he mentioned he was trying to find content for the small community radio station he ran across the river in Bellows Falls, Vermont. The opportunity was perfect for me–except that I was moving to Atlanta in about a month. D’oh, I thought.

I met with Gary a few days later to discuss what I might produce for WOOL FM, and he suggested a series of ten-minute vignettes on local companies. Not the podunk ones*, mind you, but regionally or nationally-known ones of the Florentine Films and LA Burdick flavor. He gave me a list, and I was again amazed at the caliber and variety of companies in and around Walpole. The idea was to cover one company per week in the three or four few weeks I had left.

*Though as a Florentine assistant editor notes, Walpole does somehow summon the economic might to support two dentists.

The one I eventually decided to start the series with was Bensonwood, whose facility I had driven past dozens of times without really noticing it. Bensonwood designs and builds homes and commercial buildings all around the country using a pretty ingenious method, and Tedd Benson, the founder, was chiefly responsible for the national revival in timber-frame construction starting about thirty years ago. I interviewed Tedd, took a tour of the facility, and interviewed a few other people over the course of two days.

As I began putting the piece(s) together, it became clear that I wasn’t going to meet Gary’s output goal. The pace of my creative process is slow to begin with, and nearly glacial when haunted by the specter of possibly ruinous technical challenges**. Instead of doing three or four ten-minute pieces on different companies, I would tell one half-hour version of the Bensonwood story. In the end I finished it several weeks after moving to Atlanta.

** BLOG EXCLUSIVE: I recorded all my voice-overs in my car, as it was the most convenient and acoustically-suitable environment I had.

My goal was to achieve professional-level quality despite my limited resources, and it wasn’t until the final few hours of work I put into the piece that I felt I was getting anywhere close. I’m proud of the final product, even if it still sounds a bit amateurish to my ears. Gary and the folks at Bensonwood enjoyed it at any rate, and I hope you do too.

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For Part I, click here.

For Part III, click here.

In Part I, I gave a short history of the release window system for movies and how that system nearly destroyed my childhood. Slowly but surely, the window during which a movie plays exclusively at theaters before being released to DVD and Video on Demand (VOD) has shrunk.  In the 80s the standard was six months, but now four months is the most common, with some films being released in other formats two months after, simultaneously, or even before the theatrical run. The National Association of Theatre Owners (NATO) opposes shortening the four-month window, because they believe that would lead less people to see movies in theaters. The industry as it exists would thus not be sustainable.

When DirecTV announced a VOD service that would allow users to rent HD movies two months after the theatrical release, NATO penned an open letter opposing the service and got a couple dozen famous directors to sign it. I’m no expert, but to me the letter is bad PR (all emphasis mine):

AN OPEN LETTER FROM THE CREATIVE COMMUNITY ON PROTECTING THE MOVIE-GOING EXPERIENCE

We are the artists and business professionals who help make the movie business great. We produce and direct movies. We work on the business deals that help get movies made. At the end of the day, we are also simply big movie fans.

Besides the self-congratulatory first line, this opens the letter decently. I like that they identify themselves as movie fans, but as we’ll see, they then neglect this viewpoint almost entirely for the rest of the letter.

Lately, there’s been a lot of talk by leaders at some major studios and cable companies about early-to-the-home “premium video-on-demand.” In this proposed distribution model, new movies can be shown in homes while these same films are still in their theatrical run.

In this scenario, those who own televisions with an HDMI input would be able to order a film through their cable system or an Internet provider as a digital rental. Terms and timing have yet to be made concrete, but there has been talk of windows of 60 days after theatrical release at a price of $30.

This ended up being exactly what happened. $30 for a two-day rental after two months.  No figures yet, but the speculation is that it ain’t doing so hot.

Currently, the average theatrical release window is over four months (132 days). The theatrical release window model has worked for years for everyone in the movie business. Current theatrical windows protect the exclusivity of new films showing in state-of-the-art theaters bolstered by the latest in digital projection, digital sound, and stadium seating.

This is the first big mistake. If you’re going to write an open letter (i.e. intended to be read by a wide audience), you shouldn’t be making arguments about what’s good only for the industry, but what’s good for the industry as it concerns the moviegoer. (Or more aptly: movieviewer. Too weird looking?)

As a crucial part of a business that last year grossed close to $32 billion in worldwide theatrical ticket sales, we in the creative community feel that now is the time for studios and cable companies to acknowledge that a release pattern for premium video-on-demand that invades the current theatrical window could irrevocably harm the financial model of our film industry.

Yep, this is a one-sentence paragraph, and the first half is out-of-place. I understand the desire to flash the industry’s mighty bona fides, but you shouldn’t do it while introducing a point about how a change might “harm your financial model.” Also, that last phrase is too dryly written and again offers no bone to moviegoers.

Major studios are struggling to replace the revenue lost by the declining value of DVD transactions. Low-cost rentals and subscriptions are undermining higher priced DVD sales and rentals. But the problem of declining revenue in home video will not be solved by importing into the theatrical window a distribution model that cannibalizes theatrical ticket sales.

Make no mistake: History has shown that price points cannot be maintained in the home video window. What sells for $30-a-viewing today could be blown out for $9.99 within a few years. If wiser heads do not prevail, the cannibalization of theatrical revenue in favor of a faulty, premature home video window could lead to the loss of hundreds of millions of dollars in annual revenue. Some theaters will close. The competition for those screens that remain will become that much more intense, foreclosing all but the most commercial movies from theatrical release. Specialty films whose success depends on platform releases that slowly build in awareness would be severely threatened under this new model. Careers that are built on the risks that can be taken with lower budget films may never have the chance to blossom under this cut-throat new model.

If you grant the premise that shorter or simultaneous release windows will cannibalize ticket sales (which is debatable), then this is a fair argument. This point could be made, however, without so obliviously regarding lower prices as bad. The horse is already dead I know, but flog it I will: customers like lower prices!  You could admit as much in the letter without failing to point out the negative consequences that lower revenues might have.

Further, releasing a pristine, digital copy of new movies early to the home will only increase the piracy problem—not solve it.

Giving folks an early legal option for watching pristine digital copies may offset some piracy, but no one really knows.

As leaders in the creative community, we ask for a seat at the table. We want to hear the studios’ plans for how this new distribution model will affect the future of the industry that we love.

And until that happens, we ask that our studio partners do not rashly undermine the current – and successful – system of releasing films in a sequential distribution window that encourages movie lovers to see films in the optimum, and most profitable, exhibition arena: the movie theaters of America.

This last line is as sticky as a movie theater floor after a double feature. Earlier in the letter, NATO argues that movie theaters will lose business to DVDs in a head to head competition. This leaves NATO in an awkward position: if movie theaters are so great, why would they lose business to the suboptimal DVD?

My concluding thoughts on this letter can be found after you leap over the famous directors below.

We encourage our colleagues in the creative community to join with us by calling or emailing NATO at 202-962-0054 or nato@natodc.com.

Sincerely,

Michael Bay
Kathryn Bigelow
James Cameron
Guillermo del Toro
Roland Emmerich
Antoine Fuqua
Todd Garner
Lawrence Gordon
Stephen Gyllenhaal
Gale Anne Hurd
Peter Jackson
Karyn Kusama
Jon Landau
Shawn Levy
Michael Mann
Bill Mechanic
Jamie Patricof
Todd Phillips
Brett Ratner
Robert Rodriguez
Adam Shankman
Gore Verbinski
Robert Zemeckis
Christopher Nolan
Jon Favreau
Quentin Tarantino
M. Night Shyamalan
David Dobkin
Mark Boal
Jim Cardwell

In truth, my beef with this letter isn’t its style or solipsism, but in the way it so keenly embraces an illusory status quo. This error, which I’m tentatively calling the Obscene Movie Fallacy, will be the subject of Part III.  How’s that for an after credits teaser?

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For Part II, click here.

For Part III, click here.

As a kid I wasn’t allowed to go to the movies, so I had to wait until a VHS showed up at Blockbuster before I could see a ‘new’ movie. Having to wait was frustrating, but in my naivete I figured it just took a long time to convert from film to video or something. What a silly child I was.

Now I know that agonizing waiting period was not due to some production constraint, but part of an agreement between studios and theaters. In the eighties, you see, new technologies like video and pay-per-view were allowing the masses to watch movies in their homes, not in theaters as God intended. Thankfully, a little Hollywood magic turned competition into collusion, and thus the ‘release window’ was born.  Under this arrangement,  films would undergo sequential releases: first theatrical, then video, then pay-per-view, and so on. This way, a movie wouldn’t compete with itself in different formats. If you wanted to watch a movie right away, you went to the theater. If you hated the theater or didn’t care about waiting several months, you could catch the flick at your house instead. Studios and theaters maintained their revenue streams, and except for kids like me who had no choice, everyone was happy.

For thirty years the release window system has been sacrosanct. This has been fine just fine for theater owners, but studios are having second thoughts. According to this Slate article from 2005, theater goers accounted for less than 15 percent of worldwide studio revenues, with the rest coming from DVD sales and TV rights. Understandably then, studios began to question the wisdom of delaying the real money-makin’ for several months while theaters made their money on popcorn.

As a result, studios have been monkeying around with the release window(s) since 2001. While the original theatrical release window was six months, by early last decade that window had been shortened to five months and then to four, as studios pushed out DVDs earlier for better holiday timing. The four-month window lasted for several years until Alice in Wonderland was released on DVD three (three!) weeks earlier than usual in order to beat the attention-stealing World Cup. And if that fortnight and a half body blow wasn’t enough, DirecTV introduced in April a video-on-demand service which allows users to stream HD movies into their living rooms a full eight (EIGHT!) weeks early.

Theater owners are not happy with these ill harbingers, and DirecTV’s new service prompted the National Association of Theatre Owners (or, more confusingly, NATO*), to write a letter arguing that reducing the theatrical release window below four months “could irrevocably harm” the film industry. Interestingly, this letter has been signed by numerous big name directors, who are evidently also worried about ‘protecting the movie-going experience.’ I read the letter a couple days ago, and was surprised at how little it did to clothe its naked self-interest. So amateurish is this letter, in fact, that in the next post I plan on performing an in-depth analysis of it;  I would’ve just continued with it in this post, but I thought I’d do my own sequential release.

*Before she left to do good in Rwanda (and meet me), girlfriend Thelma used to be deputy executive director at NATO, a fact I love to share.

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A new PSA to make movie pirates feel guilty has been released:

Clever how it plays on our natural sympathies towards boom operators, isn’t it?

Problem is, the logic applies any time a movie is seen second-hand. Watch a DVD at a friend’s house? So long, key grips! Friend loans you a movie? Goodbye, gaffers! Buy a used blu-ray? Y’all take care now, dialect coaches!

Imagine some rich guy has such a passion for movies that he regularly buys and broadcasts full-quality movies for free all across the world via multiple formats. Is he violating copyright law? Yes. Would this have longer-term consequences that were bad for the film industry (and possibly fans)? Yes. But is he acting immorally? Are the people who watch the movies engaging in theft?

And how about this doozy: if my willingness to pay for a given movie is $0.00, then I’m not putting anyone out of work by pirating because otherwise I’d just not see the movie. If that isn’t a victimless crime, then anyone in the world who failed to see the movie is also complicit, which seems excessive.

Many people are not like me, however, and they’d be willing to pay $.50 or even $10 for a given ticket. But so long as that maximum willingness to pay is below the ticket price, they’re not going to buy. The result for the studios is less revenue from unsold tickets, and less revenue from concessions for the theaters. This is a losing proposition for both the industry and for customers, but it’s worse for the industry since some of those potential customers are going to see the movie anyway for free.

Movie theaters could respond by introducing demand pricing (and a quick google reveals I’m not the only one with this idea).  Instead of one price to rule them all, theaters could adjust prices to reflect people’s willingness to pay, much as airlines and now even sports and music venues do*.  The average ticket price would happily decrease for movie-goers, and profits would happily increase for movie-makers. Further, since the marginal cost of a ticket is near zero,  theaters could actually give away unsold seats for free and still make some money on the popcorn**. How’s that for an anti-piracy measure?

*After all, if you’re going to copy stadium-style seating, it only makes sense to copy stadium-style pricing, right?

** Note: this would not work on me, for I am in my soul an economist.

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Everything reminds Milton of the money supply. Well, everything reminds me of sex, but I keep it out of the paper.

So said Robert Solow of Milton Friedman. I’ll beg Solow’s and your indulgence, Reader, for these days I have wine on my mind, and I can’t keep it out of the blog.

A few days ago I read the following passage in The Alchemist, which I’ve now finished:

Page 60

The old man continued, ‘You have been a real blessing to me. Today I understand something I didn’t see before: every blessing ignored becomes a curse. I don’t want anything else in life. But you are forcing me to look at wealth and at horizons I have never known. Now that I have seen them, and now that I see how immense my possibilities are, I’m going to feel worse than I did before you arrived. Because I know the things I should be able to accomplish, and I don’t want to do so. ‘

A fun coincidence, reading this when I did, as it came just after a disappointing meeting with a restaurant owner. Despite a drawn-out conversation, the owner to the end held the position that while our wines were better than her limited selection and reasonably priced, she thought her customers were content with what she had and couldn’t be bothered to care about something better. Perhaps she was right, but to me her position smacked of a certain cognitive dissonance, as if she felt she would be better off by denying a choice existed rather than having to make one.  Even still, I doubt this business owner, unlike the one in the book, felt worse afterward.

***

As for my thoughts on the book itself, in short, I didn’t like it. Too easy, simple, trite, thoughtless, contradictory. It reminded me of this bit of data showing Americans, particularly better off ones, like to use the metaphor of a journey to describe their lives. Like Tyler Cowen, I wonder if just reveals “our tendency to impose a false or misleading narrative on events.”

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Minty Fresh

At some point in the past few days I acquired an unusually decrepit–even for Rwanda– 2,000 franc note (~$4); not only is it nearly torn asunder, but it’s also missing a quarter sized chunk at the top of the bill. So is it still worth 2,000 francs? The National Bank of Rwanda would say yes, but common sense says no: damaged money is less valuable than its freshly-minted brethren.  This leads to a phenomenon known as Gresham’s law, which Wikipedia outlines as follows:

Gresham’s law is commonly stated: “Bad money drives out good”, but more accurately stated: “Bad money drives out good under legal tender laws.”

Let’s say the government issued a 100% gold coin with a face value of a dollar. After a few mintings, however, the government decides to increase its seigniorage by minting a new series of dollar coins, but this time with only 50% gold. Now two coins are circulating about the economy, and both must be accepted as worth $1 in any transaction. But the citizenry knows one coin has twice as much gold in it as the other and is thus more valuable, so they will hold on to the full-gold coin and use the half-gold coin as much as possible. Soon enough, all full-gold coins will have disappeared, having been driven out by the less valuable but legally equal half-gold coin. In my real-world case, I utilized my full measure of clever to swap out my bad note with a good one in a bank deposit for my wine company.

And now that we’re speaking of wine again (weird, huh?), I’ve come across an inverse wine corollary to Gresham’s law, as explained to me by a restaurant manager as I replenished his supply. Since buying our wine, the manager had instructed his pseudo-sommelier first to get rid of his old inferior stock from another supplier. For whatever reason, however, our good stuff drove out of circulation the bad stuff, of which he has hardly been able to sell a drop.

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Train Up A Child

Many parents buy certain toys for their little tykes in the hopes of influencing them down a certain career path, and now it appears that large German companies think parents might be on to something:

Germany’s shortage of engineers has become so acute that some of its leading companies are turning to nursery schools to guarantee future supplies.
Industrial giants such as Siemens and Bosch are among hundreds of companies giving materials and money to kindergartens to try to interest children as young as three in technology and science.

What puzzles me is that since demand for engineers outstrips supply so greatly, wages for new engineers would presumably be soaring at the moment and encouraging many an indifferent German college student to speed up his studies or even switch majors. Even though an eager response to a wage-premium might take a few years to fill the gap, it would still be faster than waiting twenty years for preschoolers to get all growed up.

The answer seems to be that the scarcity is artificial:

The chairman of one large German industrial group said: “The loser here will be Germany, not the companies. We can always go to Asia to find our engineers. So everything we can do here – even something like going into kindergartens – helps.”

Companies like Siemens are virtually like institutions in Germany, so there’s a certain obligation that their workforce be made of the sort of industrious German that flatters the country’s self-image. The irony is that this not-so implicit requirement makes these companies less competitive and thus may be perversely encouraging their speedy decline.

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