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Serial Entrepreneurs at the Movies 6 June 2005
"There is nothing more fun than blowing up tired traditions to create better business models and better customer experiences." Mark Cuban, serial entrepreneur, in The New York Times
Mark Cuban’s work has taken him from technology consulting to internet broadcasting to owning the Dallas Mavericks basketball team. He’s made hundreds of millions of dollars along the way. His newest venture, with his serial business partner Todd Wagner, is called 2929 Entertainment. This holding company owns positions in all aspects of the film business, from production through distribution. Its aim is to create an all-digital movie supply chain. Wagner and Cuban want to eliminate film from films.
Obsolete?
Celluloid filmstock, first developed in the late 1880s, seems like a relic in the high tech world of movies. Many animated movies are produced digitally and only converted to physical film for distribution to theatres. Even non-animated movies convert their filmstock into digital form for editing, and then move the content back to film for distribution.
All of this film costs money. According to The New York Times, converting to a digital supply chain, from production to distribution, would save about $600 million in print and production costs.
When this happens, there will no longer be any need to make physical prints of film. A studio would “release” its movies by sending them over broadband to servers at the movie theatres, where the movie would be displayed with a digital projector.
Digital distribution would require a significant change in the timing of movie releases. Because of the fear of digital piracy, studios would want to release digitally both to theatres and to the home market. Consumers would then be able to choose whether they wanted to see a movie at a theatre or watch it in another venue.
Currently, studios release DVDs about 4 months after theatrical release. As a result of this lag, studios run two marketing campaigns for the movie about four months apart. The first set of ads introduces us to the new film; the second set reminds us that the movie is now available on DVD.
Marketing is one of the major costs of moviemaking – overall, it represents almost half of the total cost of the business. Simultaneous release would eliminate duplicative marketing costs. The marketing is done once, and moviegoers could decide how they wanted to watch the movie – at home or in a theatre.
Many more viewers are choosing to watch movies at home. In 2004, home video and DVD sales generated $24 billion in revenues for the movie studios; theatrical release generated $9 billion, and revenue from theatres has been declining over the past three years.
The industry is evolving slowly from the era in which theatrical distribution was the dominant form of revenue generation, and there are still many elements of this older approach.
For moviegoers, digital distribution adds choice – it opens up new channels while maintaining the older ones. Digital production and distribution yields some cost reductions to studios, but the companies run risks of piracy and losing control of distribution. These new technologies also require changes in operations and business relationships.
This kind of situation, in which technology changes threaten existing industry structures, seems to be particularly attractive to serial entrepreneurs. The owners of 2929 Entertainment have the resources (and egos) to build an alternative distribution system that can force changes in the movie industry, and that’s what they’re doing. At the end of April, the company announced a deal with director Steven Soderbergh to make six films, all digitally. The company bought The Landmark Theatre chain, and has converted its projection system to a digital one.
"I'm going to change the world. I did it before. Why not again?" Jeffrey Citron, CEO of Vonage, in The New York Times Jeff Citron, at Vonage, doesn’t have much to do with the movie business. But like Mark Cuban and Todd Wagner, he’s a young entrepreneur who has moved across industries with new business models. With money to invest and the economic logic of new technologies behind them, these serial entrepreneurs are actively re-structuring reluctant industries.
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