A Brief History of Movies, Distribution, and Disruption

March 15, 2011

In response to, and in agreement with, Netflix spooks Hollywood more than ever by Greg Sandoval.

Once upon a time you watched movies at the movie theater.  You watched television shows at home, on your television, when they were scheduled, or you missed them and waited for the reruns.  After enough time the movies would show up on subscription channels, such as HBO, Showtime or Cinemax.  Eventually they might make their way to broadcast television, depending on whether or not the broadcast networks could make enough money from the advertising.  The viewing of movies was controlled, and therefore “scarce.”

Then came the home VCR.  Sure there had been commercial 3/4″ VCRs for a few years, but they were monstrous things, used primarily by professional broadcasters, hardly a good fit for the average living room.  Even if you did have one, what would you watch on it?

The Sony Betamax, and then the VHS flood that washed Betamax from most American store shelves and living rooms, gave people the ability to record broadcast TV and view it at a time of their choosing, and even fast forward through the commercial breaks.

It’s history now, but the movie studios and broadcasters saw this as a threat to their business model, and took their case to the Supreme Court to have these horrible devices removed from consumers’ hands.  They lost in a precedent-setting case that has been a boon to the average consumer for the last twenty-plus years.

Then the studios discovered that they could sell their movies on tape, and people would pay to own or rent  a copy of the same movie they had payed to watch in the theater a few months ago.  Oh how they now loved video tapes and VCRs!

If they loved the money they made off  tape sales  the studios really loved selling those movies again on the new DVD format!  DVDs cost less to produce, less to ship and store, and consumers loved them due to their higher video and audio quality, and the fact that they held up to multiple viewings much better than VHS tapes.  (Any parent who has sat through hundreds of viewings of a child’s favorite show can appreciate the durability and lack of rewind time of a DVD compared to a VHS tape.)

Unlike those pesky VCRs, DVD players didn’t allow recording of movies and TV shows.  Not at first.  Blockbuster and other video rental stores rode the wave as people saw the value in renting movies, first as tapes, and later as DVDs, as opposed to the cost of buying a movie they might only watch once or twice.  (The movies watched obsessively by children being the obvious exception to this.)

Netflix tapped in to this idea, coupled with the knowledge of how much people hated paying the outrageous late fees that Blockbuster or Hollywood Video racked up if you forgot to make The Midnight Run to get your movie rentals back before the deadline.

Movie viewing was becoming less scarce, but the flow was still greatly under the control of the studios and their distribution channels, and they were making a great profit off this new model.

Now a few short years later, Hollywood Video is all but gone, and Blockbuster has filed for bankruptcy.

Just as the home VCR (and later Tivo devices) disrupted the old model of watching content where and when it was delivered to you, so Netflix disrupted the model of buying and re-buying the same movies every time they came out in a new format.  People saw that with the convenience of not having to drive to the local store, and worry about late fees, there wasn’t much point in buying movies or TV when they could just rent it and have it show up in their mailbox, to be watched whenever they felt like it, even if that meant a DVD might sit on the coffee table for a couple months.

At the same time, as Netflix was taking over the video rental market another change was taking place.  High definition TV sets, and surround sound systems started to become available at prices most people could afford and consumer broadband reached speeds capable of streaming high quality video.  (Except for Youtube, which still insists on buffering no matter how high your bandwidth.)

Netflix had anticipated this, and was moving toward a streaming model, though with the newest releases still only available in disc form.

With the ability to easily rent or stream thousands (tens of thousands!) of movies and TV shows, the value of owning a hard copy of those movies became lessened in the eyes of consumers.  An economy in recession increased the perceived value of services like Netflix, Amazon VOD, and later Redbox.

The movie studios certainly loved selling their discs and content licenses to these services, but they hated that they took away from the great cash-cow of DVD sales. (I’m lumping Blu-Ray in with DVD as physical media, to avoid the whole drama of Blu-Ray -vs- HD-DVD.)

While the studios had a couple years of declining box office sales, the last two years have been record setting for the film industry.  They have made more at the box office than ever before.  Naturally, that isn’t enough for them.  They sorely miss the millions they made on DVD sales.  So they’ve decided this must be the fault of Netflix and Redbox (Blockbuster no longer being a contender of note.)

So now the studios have a love-hate relationship with Netflix.  They love the money they make from Netflix redistributing their media, but they hate how little the get from it compared to DVD sales.  And they want those glory days of double-dipping to return!  To this end they force Netflix and Redbox to agree to wait an additional month to distribute movies after the DVDs go on sale.

Just as technology and times changed in the late ’80s and through the 90’s to bring a huge profit to the studios, even at the expense of scarcity, so the tide of technology and consumer mind-set has changed to tighten up the flow of dollars into Hollywood’s bank accounts.  Studio bosses don’t much care for that.  They want their cash flow back, and to do that they look to tighten up the ability to view their product, and increase its value by generating false scarcity.

Only in the twisted, altered reality of Hollywood could it make sense to try and increase the value of a product by clamping down on those who buy and re-sell your product.

Hollywood wants to roll back the clock, put the Genie back in the bottle, or any other metaphor you want to supply.  And they really, really want Netflix to just roll over and play dead.

If they succeed financially damaging Netflix, they will ultimately harm themselves, and rob us of an innovative service all in the name of the corporate bottom line.

Someone should make a movie about that.

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