“Staged financing must become the film business’s immediate goal.” – Ted Hope, September 2013
Over a series of blog posts I’ve been looking at some challenges that film and documentary are dealing with online. In a conclusion to the series looking at what can be done, I explore the limits and opportunities around crowdfunding.
Crowdfunding’s lack of sophistication around risk
Much of investment is about dealing with risk. A backer of a project – be that an equity or debt investor who is hoping to see some kind of profit, or a crowdfunding supporter who wants to get their perks and see the finished film – has to predict risk. Normally, the closer a project goes from idea to release – from pitch to screen – the lower that risk gets; in other words, it's reducing all the time. To reflect this, in the majority of business investments, the first ‘angel' investors will normally put in the least and get the most equity, and as subsequent funding rounds continue, new investors put in greater amounts and get less relative share, but more value as the business is now worth more. As risk decreases, the cost of participation increases, just as there are far more ideas that get turned into scripts than scripts that get made into movies, or movies that get a theatrical release.
But crowdfunding, not technically an investment, is flat and treats all types of backer the same. At the start backers have to decide if a project looks viable and convincing, pay their money and hope for the best. It’s an investment of faith and confidence when 75% of all crowdfunded projects arrive late and a quarter over six months late (according to a July 2013 study). Some end up cancelled (examples here or here), which damages the whole space as they will doubtless put some people off backing a crowdfunding project again.
The problem is arguably even more of a challenge with flexible crowdfunding where projects can miss their target and end up raising far less than they need but still cash in. On Indiegogo, 80% of projects raise less than a quarter of their target, meaning often there isn't the money to deliver the project or to do it to the standard promised. This is a problem both for the creative, on whose shoulder the stress and reputation rests, and the backer, whose money is at stake. Meanwhile, the crowdfunding space depends on people having a good experience, backing a project and doing it again.
Yet the money is almost never all needed at the very start. For a lot of creative projects, some money is needed to pay some wages and overheads over the many months or years it will take on an ongoing basis – so it could trickle in. Indeed, the biggest cost might be towards the end during post-production or when 1,000 DVDs need to be pressed or a dozen DCPs created. By that time the risk is considerably lower – if a book is ready to print or a film fit to screen, there's less risk about delivery, while it’s easier to assess the quality at that stage.
Rolling with it
Is there space for a rolling or staged crowdfunding that drips money into the project throughout its creation? It seems to resonate with how Ted Hope (pictured) has been arguing the indie film world urgently needs to adopt staged investor financing to get more people investing in film.
It would support the kind of structure where, say, of 1,000 scripts or ideas that got funding, 200 would be supported to produce a budget, assemble a team and make a trailer/promo, 100 get shot, 50 get full post-production and packaging for delivery and 10 get extra marketing and distribution support. Investors at each stage would be taking a smaller risk and would be putting in larger sums of money – while the backer who’d taken a risk and made a good choice during at the initial idea stage could make a much bigger share of any profits.
"To challenge economy is to challenge ourselves," says filmmaker Maja Borg. "It is far harder than complaining about the banking system." Maja's debut feature Future My Lovetells a story of idealism and failure, looking at concepts for both our personal lives and society as whole. "Economy is a human relationship," states the film's tag line.
Contemplating the ideal of a world without money (or, respectively, a relationship without possessiveness), the film focuses on Jacque Fresco's ideas for an economic system in which goods, services and information would be freely available. Fresco's Venus Project (Wikipedia) and the related Zeitgeist Movement have hundreds of thousands followers worldwide. In charge of audience relations for Future My Love, I could possibly tap into a large existing community.
With a thought-provoking Scottish-Swedish co-production that has been critically acclaimed, toured international festivals for more than a year, and won a Green documentary award, what could possibly go wrong?
Not before time, the new year started with some promising news about selling films online. For the first time, the annual decline in DVD and Blu-ray sales in the US has been outstripped by the growth in digital sales, rentals and subscriptions. Home entertainment rose 0.7% in 2013 (PDF source). $6.5bn – over a third of total consumer spending – came from digital rental, retail and subscriptions, with download-to-own rising a hefty 48% on 2012. The figures don’t even include subscriptions bundled with other services (like a cable company’s deal with Netflix) or advertising-supported VOD like Hulu or YouTube.
Of course, a chunk of this growth has been for television and traditional film, and the biggest beneficiaries continue to be the studios and large rights owners. For independents – as Scott Harris detailed in his frank description of the struggles self-distributing Being Ginger – digital distribution is typically a lot of work for limited gains. Why is this?
After releasing acclaimed films without digital rights management (DRM), Scottish Documentary Institute experienced no negative side-effects or rise in piracy. In the second of a series of posts looking at threats and potential of the digital space, Nic Wistreich compares DRM to the birth of cinema.
The monopoly that created the independents that created the studios
Imagine having to pay a license fee every time you filmed something or screened your work. At the start of the 20th century, the Motion Picture Patent Company (MPPC) in America controlled patents around cameras, film and projectors, and demanded fees for anyone screening or filming anything. The MPPC were able to dictate what could get filmed and screened, telling a young Alfred Zukor who had just bought the rights to a big French success: “The time is not ripe for features, if it ever will be” (as described in Timothy Wu’s excellent Master Switch).
Zukor, who would later head Paramount, became an early rebel who refused to play along, as was Carl Laemmle who declared himself ‘an independent’ – the first to use that name. Laemmle wasn’t independent for long, his company Universal became one of the biggest studios on the planet, as did those from other ‘rebels’ and ‘independents’ Willhelm Fuchs (20th Century Fox) and the Warner brothers Jack, Sam and Henry. When Laemmle started to make ‘independent films’ without paying a licence, he was sued 289 times in a three-year period by the Edison Trust, and eventually fled New York to the west coast with Fuchs, Zukor, the Warners and others, further from the MPPC ‘spies’ and lawyers, and closer to the Mexican border if a quick escape was needed.
It’s hard to avoid the irony that the founding of Hollywood was driven by people trying to dodge the copyright and patents on technology. These patents had created an unhealthy monopoly, and had they prevailed they could have prevented America’s rise to dominate cinema (France at the time produced twice as many films as the US). And yet the film industry’s view of open video today – which similarly believes that video technology is too important to be owned, locked down and controlled by one company – has undoubtedly been damaged in the piracy debate.
One US producer, well respected for his web-savvy approach, confided to me in 2008 that he didn’t like open source, calling it "the same as piracy" - in spite of thousands of open source projects from Wordpress and Mozilla to Redhat and Canonical running large, multi-million dollar, legitimate businesses. Somehow the issue of open technology – which powers every website in the world through HTML and the majority of smartphones through Android – has become confused with a filmmaker’s right to chose the price of their film, when they are quite distinct subjects. An open license around technology is not the same as saying every film must also be shared for free: open technology is about freedom from monopolies, not freedom from profit.
Free as in speech, not as in beer
Nowhere is the confusion of open tech and piracy more entwined than in the subject of digital rights management, the copy protection added to content to attempt to limit the ways consumers can use that content. As an architecture that can stop you playing the DVDs you bought overseas on holiday when you get home, or moving your Kindle files between tablet and phone, or accessing purchased downloads after you upgraded your computer, DRM has long been unpopular with consumers, yet to much of the film industry has been viewed as an unfortunate but important way to limit the risks of piracy.
If you ever tried to copy or sample a rented VHS as a kid you might remember how in a pre-digital age, copy-protection succeeded in limiting small-level copying – copies ended up a technicolor mush. But in the digital era it’s redundant. At best it is an inconvenience: but no system exists that’s uncrackable as people can always digitise their audio or video output (or simply film the screen). And once a DRM-free copy exists, anywhere in the world, it destroys the economic value of the DRM-encumbered version.
This summer, Scottish Documentary Institute used downloadable copies of I AM BREATHING for its theatrical Global Screening Day free from digital rights management (DRM) – and with no noticeable piracy or impact. In the first of a series of articles looking at some of the myths, challenges and opportunities around digital distribution, Nic Wistreich questions why it can still be so hard to pay to watch a film you want to see legally.
Perhaps no sector has been more involved in shifting the debate around video piracy than the TV industry. It seemingly began in late 2006, nine months after Steve Jobs had sold Pixar to Disney, joined their board and become more involved in their operations. Disney co-chair Anne Sweeney (pictured) declared at a conference that piracy was not simply a threat, but a competitor – that pirates competed on quality, price and availability. On all of these levels, she recognised, Hollywood was losing: "We don't like the model but we realise it's competitive enough to make it a major competitor going forward." Hulu launched five months later and competed on all three levels with free, ad-funded, flexible streams; the BBC’s iPlayer arrived not long after.
Piracy "better than an Emmy"
Then in August this year, Time Warner chief Jeff Bewkes appeared to jump the shark when he announced that piracy was "better than [winning] an Emmy." Time Warner/HBO’s Game of Thrones is one of the most-pirated TV shows of the last few years, and possibly one that has gained the most free marketing from piracy. "We’ve been dealing with this issue for literally 20-30 years," Bewkes said. "Our experience is, it all leads to more subs."
The difficulty with Bewkes’ argument, when related to independent feature films, is that he’s talking about episodic TV. A percentage of the people who got hooked on early episodes and seasons of Game of Thrones, Breaking Bad or The Walking Dead through pirate copies will subscribe to channels and services offering the latest episodes so they can watch them first. Their fandom expressed on Twitter and Facebook also builds awareness and might convince their non-pirating followers and friends to tune into those channels.
But one-off dramas, documentaries and features can’t benefit from these effects; a pirate stream or download will rarely translate into further money for the filmmaker other than occasionally through a future crowdfunding campaign, or platforms like Vodo or BitTorrent that let people Donate-After-View (DAV).
Sonja Henrici started a really interesting debate proposing a Triple Bottom Line in Film (TBL). The concept as I understand it involves adding social and environmental concerns, “people and planet”, to the profit bottom line. Sonja suggests the need for a template, or standard accounting practice that measures “actual cultural value”. One purpose of demonstrating “positive social action” or “positive audience engagement” is the gaining of rewards like “future investment, funding or sponsorship”. Reflection of a film’s impact additional to financial measurement is proposed as a potential avenue to satisfy funders and investors in the independent film business.
As Ben Kempas points out in comments on the post, the debate is timely given the attention on film funding in Scotland at the moment. Any institutional funding or investment for film must have a strategy behind it and underpinning such a strategy must be the intelligent use of data. As a consultant on the Virtuous Circle initiative of the Scottish Documentary Institute and an academic researcher dealing with this topic, I was kindly invited to contribute some thoughts. I am particularly focused on how the film market becomes digitally mediated through various metrics.
Amazing data visualisation of traditional metrics for film evaluation by Tom Evans (atacatcalledfrank) – could we do the same for social impact?
Clarity of Objective
There is great merit in exploring non-financial valuation frameworks for creative works. Documentary film is a perfect example and many fiction features could also claim similar worth. However, this is an area fraught with complexities and enticing tangential asides. A great deal of policy literature on public funding investigates attempts to capture the non-financial returns on cultural or creative investment. This is a broad topic that falls in and out of fashion, but is yet to define stable results. The BFI reported on cultural value of film in 2011 and the general topic continues to attract attention of institutions like the RSA. But if the aim of this initiative is a practical outcome, these wide debates are diversions and crucial distinctions need to be made to define a goal more narrowly.
Last week I attended the Global Entrepreneurial Leaders conference, in short GEL, organised by the Scottish charity WildHearts and hosted by RBS in its campus-like headquarters in Edinburgh. As a filmmaker, it is rare to find yourself in the presence of politicians, billionaires, bankers, accountants, school kids, teachers, the third sector as well as an inspiring businesswoman from Uganda – at the same time. At the core of the conference was the idea of compassion in business and celebrating 'entrepreneurial spirit' in Scotland and beyond as a way out of economic and emotional poverty.
How did I find myself there? A free ticket. Why I got that is less interesting than how GEL made me think and feel. Listening to WildHearts' thought leader and founder Mick Jackson (a former musician), to big-name representatives from RBS (Chris Sullivan), to the Scottish Government (John Swinney) and to Tom Hunter (pictured), digesting the discussion of entrepreneurship and values among business leaders, I got a sense that perhaps the film industry has a way to go itself, implementing 'compassion' in its processes.
Even I catch myself thinking, well, "I work in documentary, aren't we contributing enough 'compassion' or social impact, by just doing what we're doing?"
In 2006, novelist and blogger Cory Doctorow described how ‘technology giveth and technology taketh’; that for every hopeful revolution brought by our networked world there’s a downside, and for every peril, there’s potential. A nice illustration of the idea: running a search to find the article where I first read this quote gives me page after page of results linking to a no longer existing MP3 of Cory's talk, mistaken by a web-bot for a pop song, and I’m invited to send a ‘Technology Giveth Taketh Doctorow’ ringtone to my phone. So while it’s wonderful that the Internet allows you to find – without leaving your home – a recording of a lecture from years ago; it’s not great that the search is full of spam. Conversely, the issues raised in my previous blog – Peak Eyeballs and the Scarcity of Attention – at first glance are quite troubling. They suggest that not only must the independent film sector deal with the collapse of pre-sales and bank financing, with increased piracy and considerably reduced buyouts from distributors and lower acquisition prices from TV – but there’s more filmmakers competing than ever, all trying to communicate with an audience who has far more things hustling for their attention.
But in spite of this, the global market for filmed entertainment is set to continue to grow by over 3% a year to $100bn in 2016 (PWC), and most of the challenges of the web are come hand-in-hand with benefits. So working back through some of the challenges raised in that blog post:
No limits to platform size
While there is much more competition on digital platforms, the barriers to market access have almost vanished. There is no artificial shelf space limit that prevents Amazon, iTunes, Netflix or LoveFilm from offering your film. One of the biggest frustrations for independent producers throughout the 20th century was the challenge of getting a film into a video store or cinema. In turn, the web has a potentially infinite ‘longtail’ distribution curve where hundreds of thousands of archive, niche and minority interest films combined can outperform the top 50 blockbusters at the head of the curve. (There was some academic research looking at 2000-2005 to suggest this may not apply as well to film as to books but this was done before subscription digital services like Netflix and LoveFilm took off.)
There are only so many hours in the day. Take a look – if it’s not etched already in your film business memory – at the graph of cinema admissions in the UK following the launch of television. TV's arrival, peaking in the 50s, did not herald an end to people engaging with mass-market moving image – but it dramatically changed the platform and format for where they did that.
This impact of TV on cinema, which cut admissions by some 3000% from the peak in 1946 to the very bottom in 1984, left much of the industry terrified of new distribution technology, leaving them erring on the side of caution henceforth. Indeed the first video-on-demand system running over a phone line was Zenith’s PhoneVision and was unveiled back in 1951. It aimed to offer Hollywood films direct to people's homes for a $1 a time, but in a pattern that many start-ups today could sympathise with, it never got the studio support it needed. It's understandable the majors were scared: thousands of cinemas had closed and laid empty or were turned into bingo halls and night clubs. Perhaps hundreds of thousands of people lost their jobs. But the appetite for great films didn't decline, it just moved to a different space.
The graph is significant as it not only shows how dramatic an impact such a new ‘empowering technology’ can have on a business model, but also how slow adaptation allowed for the recovery of some lost ground. With the TV-saturated market of the 1980s and the threat of multi-channel TV and cable, cinemas began to split their screens into smaller spaces so they could show a wider range of films. It was a step backwards for the architecture but a jump forward for audiences and producers. The rise of the multiplex in the 1990s, a further unfortunate footnote in the history of architecture, helped to drive a resurgence in film-going that has not abated since, with admissions rising more than three-fold since the mid-80s and continuing to grow through recent recessions. In these adaptations, the cinemas had found that they could keep their base costs of running a building and box office roughly the same while offering more films to attract wider audiences. In other words, cinemas (eventually) evolved, much to the benefit of producers and filmgoers – and the cinemas' survival.
"Reclaim the Vision" was the title of one of the DOK Leipzig industry talks Sonja Henrici attended recently – and also the festival's overall motto. The debate got Sonja thinking about branding, the market vs the public, and how we stay relevant in what we do.
Media academic and creative director at Exozet, Friederike Schultz kicked off with a keynote summarising the big technological and behavioural changes under way. Producers will have to learn to provide for an audience that likes to "lean smart": "lean forward" when we want to engage, and "lean backward" when we want to view in a more traditional way. A world in which we can watch and interact, as Schultz calls it: "any place, any time, any line."
A world which is becoming more complex, app-ified and controlled in 'user-friendly' walled gardens. Even Google fears we have reached "peak search" – much like peak oil – which could threaten its entire business model (see Guardian article), as browser search is on the decline. Multi-screen is already commonplace – who doesn't use their mobile or iPad as their 'private' secondary screen? Brands – from broadcasters down to individual productions – are becoming de rigeur: How will you otherwise stand out in a post-broadcast era without schedules; how will you be found online or in the app shop?
"Ask yourself, what do you stand for?" Schultz says. To communicate this, is your brand.
Simon Kilmurry from POV emphasised the need for public broadcasters to keep championing diversity of opinions and culture, and to resist the simplistic measurement of audience ratings. In an increasingly self-curated media schedule, how do you ensure that you don't just watch films and news which confirm your already-held opinions? How do we expose ourselves to a multitude of opinions? (I'm sure an app is already on the way for this.) Public broadcaster brands still have a really important function to uphold. But once you're into branding, how can you stand outside the market to provide for 'the public'?
Gargi Sen from Magic Lantern in India said wisely: "The market doesn't see the public – only consumers."
In my eyes, most of us see no difference between the public and the market – no doubt, a neoliberal legacy. Perhaps we should debate the difference between the audience or user and the public more? In all our thinking about new business models I believe this question is rarely addressed. In a world where we're jointly scrabbling for scraps of money, we've resigned ourselves to the market model.