YouTube, The Internet and the future of movies The Internet has transformed the music industry. Sales of CDs in retail music stores have been declining while sales of songs downloaded through the Internet to iPods and other portable music players are skyrocketing. And the music industry is still contending with millions of people illegally downloading songs for free. Will the motion picture industry have a similar fate? Increased levels of high-speed Internet access, powerful PCs with DVD readers and writers, portable video devices, and leading-edge file sharing services have made downloading of video content faster and easier than ever.
Free and often illegal video downloads are currently outpacing paid video downloads by four to one. But the Internet is also providing new ways for movie and television studios to distribute and sell their content, and they are trying to take advantage of that opportunity. In early 2006, major movie studios reached agreements with sites such as Cinema Now and Movielink, which has since been acquired by Blockbuster, to sell movies online via download. Until that time, those sites had offered movie downloads as rentals, which, like the video-on-demand model, the customer could watch for only 24 hours.
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Warner Brothers also expanded its presence by entering into relationships with video-downloading services Guba. com and BitTorrent. The studios moved to build on the momentum created by the success of the iTunes music store, which demonstrated that consumers were very willing to pay for legal digital downloads of copyrighted material. At the same time, they hoped that entering the download sales market would enable them to preemptively confront the piracy issue in their industry to avoid the fate of the music industry.
What remained a question was whether the studios could replicate the success of iTunes. The initial pricing schemes certainly did not offer the same appeal as Apple’s $0. 99 per song or $9. 99 per CD. Movielink set the price for new movies at $20 to $30. Older movies were discounted to $10. Movielink was counting on the fact that customers would pay more for the immediacy of downloading a movie in their homes, as opposed to visiting a bricks-and-mortar store such as Circuit City or an online store such as Amazon. com, both of which sell new DVDs for less than $15.
However, even if customers were willing to pay a little extra, they were getting less for their money. Most movie downloads did not come with the extra features that are common with DVD releases. Moreover, the downloaded movies were programmed for convenient viewing on computer screens, but transporting them from the computer to the TV screen involved a more complicated process than most consumers were willing to tackle. Neither Movielink nor Cinema Now offered a movie format that could be burned to a DVD and played on a regular DVD player.
Right around the time that the studios were making their foray into Web distribution, a new challenge emerged. YouTube, which started up in February 2005, quickly became the most popular video-sharing Web site in the world. Even though YouTube’s original mission was to provide an outlet for amateur filmmaker digital rights management issues immediately emerged. Sure enough, video clips of copyrighted Hollywood movies and television shows soon proliferated on YouTube right alongside the video.
Diaries created by teenagers with webcams and the amateur films created by film students. YouTube measures to discourage its users from posting illegal clips included limiting the length of videos to 10 minutes and removing videos at the request of the copyright owner. It was, however, a losing battle. Clips from popular movies and shows were often posted by multiple users, and they could be reposted as quickly as they were removed. And watching a two-hour movie in twelve 10-minute pieces proved to be a small price to pay to view the movie for free.
It is difficult to gauge how much Hollywood derived content is submitted to YouTube without the studios’ permission. Academics and media executives estimate it ranges from 30 to 70 percent. Viacom claimed in a 2008 lawsuit that over 150,000 unauthorized clips of its copyrighted television programs had appeared on YouTube. The media conglomerate is seeking $1 billion in damages from YouTube. When Google purchased YouTube in 2006 for $1. 65 billion, the site gained considerable clout in the media world.
With YouTube reporting 100 million video views per day and becoming one of the most visited sites on the entire Web, the major production studios were not going to stand idly by while some-one else profited off of movies that cost them an average of over $106 million to make. NBC Universal, for example, assigned three employees to search YouTube every day for property that had been posted without permission. Of course, in the end, the chase probably is not worthwhile.
Rather than pursue an unachievable goal, some of the major studios, including NBC Universal, Time Warners Warner Brothers Entertainment, and News Corporations Twentieth Century Fox, sought more constructive solutions. They entered into negotiations with YouTube to establish licensing agreements that would make copyrighted content available legally. The licensing model was already in place between YouTube and several major music companies. Furthermore, YouTube had already engineered successful arrangements with major studios to market movies on the site.
The studios clearly recognize the value of getting exposure for their movies on such a heavily trafficked Web site. Marc Shmuger, chairman of Universal Pictures, noted that his company’s marketing team distributed promotional video clips of all its new films to Web sites such as YouTube. It made sense for the movie industry to follow the lead of the music industry, where the focus shifted from killing off illegal uploads to taking advantage of digital music as a new source of revenue. In early 2007 YouTube revealed its intention to explore a revenue-sharing model with content creators.
YouTube developed filtering and digital fingerprinting technology called Video ID to make this possible. Video ID allows copyright owners to compare the digital fingerprints of their videos with material on YouTube and then flag infringing material. Using this technology, it is able to filter many unauthorized videos before they appear on the YouTube Web site. lE infringing videos do make it online, they can be tracked using Video ID. YouTube does not remove all the infringing material.
Instead, it has arranged with CBS, Universal Music, Lions gate, Electronic Arts, and other media companies who have the copyrights to “claim” their videos and start showing ads alongside them. YouTube and the copyright owners share the revenue. The revenue so far is minimal, with ads appearing with only a fraction of YouTube/s millions of videos. But the media companies feel that these YouTube ads help get their customers excited about their content Whatever the motion picture studios’ relationship to YouTube, it remains to be se en whether streaming video can actually be profitable.
Screen Digest, a London research firm, forecasts that 55 percent of the video content watched in the United States in 2010 will be in the form of video streams-44 billion of them. However, that 55 percent of the video content will only account for 15 percent of the revenues produced by video content A large part of the problem is that the videos that are most popular online are the least attractive to advertisers due to inappropriate or objectionable material, or because they are simply dull.
For all of the players in the movie game-studios, video-sharing sites, rental companies-partnerships and revenue sharing seem the best choice for maximizing the revenue streams made possible by new technology. The developments in online movie distribution have come at a difficult time for the movie industry. DVD sales in 2008 were sharply down from previous years and marked the first time that DVD sales actually decreased from the previous year, dropping to $15. 9 billion from $16. 5 billion.
Distributing movies online offers movie studios some cost-cutting benefits, including avoiding expenses from handling distribution themselves and from returned products. Equally as important, it may allow movie studios to earn revenues where their products might otherwise have been distributed illegally. The studios continue to seek out more partners for movie downloads. The six major studios reached an agreement with Wal-Mart to allow the discount shopping giant to sell movie downloads from its Web site. Wal-Mart joined iTunes, Cinema Now, Amazon, and others who already had such deals.
All will now compete on pricing and ease-of-use of their Web sites. 1Wo things are certain: technology will continue to advance, and lawyers will continue to argue concepts such as liability and fair use. CASE STUDY QUESTIONS 1. What competitive forces have challenged the movie industry? What problems have these forces created? What changes have these problems caused the movie and televisions studios to make? 2. Describe the impact of disruptive technology on the companies discussed in this case. 3. How have the movie studios responded to YouTube?
What is the goal of the response? What can the movie studios learn from the music industry’s dealings with online digital music and copyright infringement? 4. Should motion picture companies continue to use YouTube to promote their new films? Why or why not? 5. Go to YouTube. com and search for videos from your favorite movie or television show. What do you find on the site? Do you see any advertisements attached to the video? Do you feel this way of advertising is effective? Why or why not? Answers: Question 1:
There are several competitive forces challenging the movie industry. Film corporations are currently facing the challenges of websites offering free downloadable movie torrents along with DVD readers on computers, portable video devices, and the start up of the website YouTube in February 2005. Free online film downloads are four times more popular than legal film downloads that are paid for. This new industry is giving customers power to challenge movie store prices, customers are substituting pricey blockbuster rentals with free online downloads.
This is transforming Movie rental establishments into price takers, rather than price makers. The online market is a new market for the movie industry; this is a problem because large film corporations are overcharging for their online products. They do not realize that Twenty dollars for a 24 hour movie rental is not going to appeal to customers. Another problem the movie industry is facing is that 30 to 70 percent of Hollywood derived content has been submitted to YouTube without legal consent. YouTube is profiting on movies that cost major production studios over $129 million to make.
These problems are forcing film companies to enter the digital firm where business relationships are digitally enabled. They are entering agreements with online companies such as CinemaNow and Movielink, selling their products online via download. This has transformed the entire way the film industry marketed their movies. The strategic value of entering the online world is basically for mere survival of the industry. The problem of YouTube has also added complication to the creation of films. It has caused companies to resort to hiring more staff in an attempt to monitor the website.
It has also forced the development of new technology such as Video ID which has been added to films in order to prevent unauthorized videos from appearing on YouTube. Question 2: Disruptive technologies such as YouTube and other free media websites have severely impacted the companies discussed in this case. Viacom (The world’s fourth largest media conglomerate) has resorted to filing a lawsuit against YouTube for $1. 25 billion dollars in damages because more than 150,000 unauthorized clips if Viacoms copyrighted material has appeared on YouTube.
Disruptive technologies have caused companies like NBC universal to resort to new job positions involving searching YouTube everyday for property posted without consent. So on top of losing money from lack of sales revenue, companies are forced to spend money filing lawsuits and hiring employees to tackle this new interfering technology. Question 3: Because YouTube is such a powerful company, studios have decided against Viacom’s decision (filing a lawsuit) and are developing a more constructive solution.
Companies such as NBC Universal, Time Warner’s Warner Brothers and Twentieth Century Fox have entered into negotiations with YouTube to establish licensing agreements. They are shifting into information system trends like using websites (YouTube) for advertising. The goal of this response is basically to maximise revenue streams made possible by this new technology. It allows companies to earn revenues where their products might otherwise have been distributed illegally. This is something learned from the music industry.
The movie industry needs to follow in the footsteps of the music industry; iTunes music store sells music for . 99 cents per song. I think lowering the fee for online movie downloading could definitely benefit the industry. The music industry has been dealing with copyright infringement for several years; the movie business needs to team up with the online music conglomerate to learn from their experience and to work together to find an overall better way to overcome the challenge of copyright infringement. Question 4:
I think motion picture companies should most definitely continue to use YouTube to promote their new films. YouTube is a heavily trafficked website reporting over 100 million video views per day; this provides valuable exposure for companies in the film industry. Information Technology is only going to grow larger, the film industry needs to find a way to take part in this revolution and take advantage of what Information Technology has to offer or else it will become a thing of the past with VHS’s and Cassette tapes. by Parvati