[jonnathanson]

Here's the problem: scarcity exists on the creative side of the entertainment business, but it's scarcity by way of cost-prohibitive access. What's scarce? Access to $20MM-a-movie actors and $8MM-a-movie directors. Access to $200MM productions. Access to creating the "tentpole" movies and shows that result. All of these things require outrageous amounts of capital, and they're all dependent on the ability to monetize the end result by many multiples of production and advertising costs by way of theatrical distribution, DVD sales, licensing and merchandizing, and various other derivatives of the original work.

At least one major revenue stream, DVD sales, is collapsing steadily. This leaves box office and derivatives and licensing. Derivatives have never been huge business, or at least not a sturdy enough pillar to bear the weight that DVD sales have borne. And licensing has always been mere icing on the cake, except in the case of titles perfectly suited to it (such as Star Wars).

As the downstream revenue sources dry up, so too will the big production dollars, and so to will the scarcity of access to "Hollywood-quality" creative. At least for most companies.

What's going to happen? One theory is that we're going to see some sort of price discrimination at the box office. Big tentpole movies cost more to make than do lower-budget romantic comedies, for example, and so tickets to Transformers XXIV will cost more than tickets to Generic Sandra Bullock / Jennifer Aniston RomCom. (Arguably this is already starting to happen, if you consider 3D to be a price discrimination mechanism. Whether by intent or by accident, it functions like one).

Another theory is that we're going to see a hollowing out of the middle tier of the film and TV businesses. You'll have giant studios making giant movies, and you'll have tiny indies making tiny movies. But there will be no middle ground, because it will no longer be profitable.

All of this assumes, of course, that production costs hold steady or increase. And so long as there are folks out there willing to pay $20MM for a single actor or $8MM for a director, they will. But the bottom might drop out of that market eventually, too. Or it might stratify dramatically as outlined in the previous paragraph.

[roc]

> "Another theory is that we're going to see a hollowing out of the middle tier of the film and TV businesses. You'll have giant studios making giant movies, and you'll have tiny indies making tiny movies. But there will be no middle ground, because it will no longer be profitable."

You can see this already in the game industry. EA, Activision and Ubisoft have all transitioned to a franchise-only tentpole-or-bust strategy. The independents are struggling to compete with those production values, while two and three-man shops are making respectable livings from sub-$10 downloadable games.

I personally think the middle-ground will bounce back eventually. If only as a place where smaller studios bet their past success on a passion project.

[jonnathanson]

On the movie side, I think the middle ground will reconstitute itself by way of vertical integration. The big studios will snap up the successful indie studios, and you'll have conglomerates once again.

The future is less certain on the TV side of the business. I don't know if TV networks exist 20 years from now, for example. I mean, the companies and the brands will still exist, but they'll probably all function like today's premium cable networks do: monetizing carriers of their content based on userbases. This will be an extremely painful adjustment for the big network congloms.

[warfangle]

They don't have to vertically integrate for the indie studios. What they do instead is create daughter companies that hang out at sundance and cannes and look for potential hits.

This is Fox Searchlight, etc.

[jonnathanson]

This is their model now, yes. But what I'm suggesting is that the economics of the business 10-20 years out might not even support Searchlight-level movies. They might not support any studio economics. We may well see a world, at the low end, where individuals or small production houses sell their wares directly to the Netflixes and iTuneses of the world and have no need of theatrical distribution or DVD distribution. We're not living in that world yet, but there is no reason why we can't or won't.

[cageface]

This point isn't made often enough. The bits of a film or record aren't scarce, but the talent, focus, inspiration and dedication it takes to make arrange those bits are all too scarce. Sit through the entire end credits of a Pixar film and ask yourself if such films would exist without the "artificial" scarcity of copyright paying all those salaries.

[hxa7241]

This is a seemingly persuasive argument, but it does not really work. It is an argument that makes us smaller than we are.

It asks us to compare what we have with nothing at all. Of course it is easier to think of what we have -- it is right in front of us. But the alternative is not nothing, it is to create something new. And it is not beyond the wit of humans to do exactly that. (And is not one of the quite orthodox appreciations of capitalism that it spurs innovation?)

When a real physical constraint is lifted -- i.e. everyone can now communicate and copy as much info as they want -- the thing to do is spend effort inventing ways to realise this advantage. You do not spend effort inventing ways to stop using it, as the content corps want to -- it is perverse really, is it not? it is a degenerate economy that does that.

[cageface]

Unfortunately many of us really are are quite small. There are far too many people out there who are all too happy to enjoy the work of others without feeling any obligation to compensate them for it. I like the Netflix subscription model but a $9 a month subscription isn't going to fund an Avatar or Toy Story 3.

[theflyingswami]

Keep in mind that's, $9 x 20+ million subscribers a month.

[cageface]

I'm a big fan of Netflix but that means that Netflix grosses less in one month than it costs to make one movie like Toy Story 3.

[WalterBright]

We may see a crash in the salaries paid to actors and directors.

[CWuestefeld]

When a real physical constraint is lifted... the thing to do is spend effort inventing ways to realise this advantage.

That's a little too glib. I think we are better off not looking for more ways to use our ability to kill more people faster. The right response to the atomic bomb wasn't to use it more, but to find ways to avoid using it.

I don't completely disagree with you, so I suppose there must be more nuance to it than either of us are picking up right now.

[hxa7241]

But we are not talking about harmful stuff are we? The whole question here is about making good stuff. If we have deemed it good to make, how can it then be bad to have more use of it? That seems a rather insurmountable puzzle, which an overlooked nuance seems unlikely to cover.

(A common answer might be: the bad effect is that it harms producers' ability to make money and survive. But this is circular: it only harms them because they are using a system that means they will be harmed.)

(A more sophisticated response would be to give the example of betting tips: there is info that is not really nonrival. But there we are not valuing the info as itself, but as it works as part of a system of rules of a game. That is not really like the info in question.)

It is reasonable to be cautious about practical matters, but these corporate interests have turned it into the grossest FUD. Ignore them and be forward-thinking.

[true_religion]

How about instead we have a project like Kickstarter for movies? For say $100 a year, you join a movie club and get access to the movies that they make for your enjoyment.

Movie makers get a concrete source of funding, and a defined demographic to design for.

Movie lovers get the movies they love.

Of course, theatres---excepting small private showings--are cut out from this new model. Likely, everyone would turn to streaming movies.

I already purchase HBO---not because I cannot get their content elsewhere but because I want them to make more of it, and I know they take into account the tastes of their paying customers.

[narcissus]

You never can tell with some sites, but I wonder if this is something that vodo.net will evolve into? At the moment it seems to be fairly 'generic' as far as 'investments' are concerned (I don't really know... I don't have a membership) but I do agree with you: I'd love to be able to put some cash towards a particular genre or something similar.

[sledmonkey]

"Another theory is that we're going to see a hollowing out of the middle tier of the film and TV businesses. You'll have giant studios making giant movies, and you'll have tiny indies making tiny movies. But there will be no middle ground, because it will no longer be profitable."

It seems to be the with many things these days. Many markets have moved to a more bifurcated structure. You see it in things from airline classes(how many have coach, business, and first), economic classes, video games(as mentioned in other comments here, the list goes on.

[ZachPruckowski]

I blame the hollowing out of the middle on distribution. Denzel Washington and Leonardo DiCaprio are fine actors, but you don't need an actor of their caliber or pay to make a decent movie. There's plenty of "just below top-flight" talent in acting, writing, and directing (and arguably some of it is better than the "top-flight" stuff), more than enough to make some perfectly serviceable and entertaining movies/TV.

Hollywood movies in theaters can sell loads of tickets, and smaller movies can subsist off of rabid fans, but there's not really a mid-line distribution path where I can (a) reach out to a few million people and (b) get them to pay some amount between $5 and $15. Yeah, there's Netflix, but Netflix+DVD sales isn't much money, and Netflix doesn't promote, so it's hard for people to stumble across your movie.

Someone below suggested that video games have the same problem, and I'd argue that's distribution-related as well. On the high end, there are commercials and promotions and E3 demos for games like CoD or WoW, and on the low end, most of the guys making money depend on getting promoted through "featured game of the day" deals or "top rated" sections in their app stores or viral marketing or by just being so cheap it's an impulse buy. There's no real mechanism for a $15-$30 game to receive enough exposure that large groups of people will choose to buy it. Promotions and deals on Steam help with that, but it's not a big channel.

[billybob]

"Denzel Washington and Leonardo DiCaprio are fine actors, but you don't need an actor of their caliber or pay to make a decent movie."

Paying millions for DiCaprio isn't necessarily because of acting talent at this point. It's because of name recognition. If you think that $X in actor salary will get you $5X in box office net, you'll pay it.

From the moviegoer's standpoint, if you have seen movies with DiCaprio that you liked, you'll be more likely to see another movie with DiCaprio. Ergo, the "big name" strategy pays and continues to be used.