The music industry has been significantly impacted by the internet, leading to a decrease in physical CD sales and an increase in downloads for portable music players. Moreover, the industry is still grappling with the issue of illegal downloading. Now, there are worries about whether the film industry will face a similar scenario. With the advancement of high-speed internet access, DVD capabilities on personal computers and portable video devices, as well as file sharing services, downloading video content has become faster and more convenient than ever before.
Currently, there are four times more free and illegal video downloads than paid video downloads. However, the Internet provides new opportunities for movie and TV studios to distribute and advertise their content, causing them to seize this opportunity. In early 2006, major film studios partnered with websites such as Cinema Now and Movielink (now owned by Blockbuster) to offer movies for sale through online downloads. Before this development, these platforms only provided movie rentals under a video-on-demand approach where users could access the content for just 24 hours.
Warner Brothers joined forces with Guba.com and BitTorrent, two video-downloading services, to enhance its online presence. The objective was to benefit from the triumph of the iTunes music store, which demonstrated that customers were willing to purchase legitimate downloads of copyrighted content. Moreover, the studios aimed to address piracy within their field by venturing into the sales market for downloads, thus bypassing issues encountered by the music industry.
It remained uncertain whether the studios could reproduce the success of iTunes. The initial pricing strategies were not as appealing as Apple’s rate of $0.99 per song or $9.99 per CD. Movielink priced new movies at $20 to $30, while older movies were discounted to $10. Movielink relied on customers being willing to pay more for the convenience of downloading movies at home rather than shopping at physical or online stores like Circuit City or Amazon.com, where new DVDs sell for less than $15.
Despite customers being willing to pay more, they were receiving fewer features for their money. Additionally, movie downloads lacked common DVD release extras. Furthermore, these downloaded movies were specifically designed for viewing on computer screens, making the process of transferring them to a TV screen more complicated than most consumers were willing to handle. Neither Movielink nor Cinema Now provided a movie format that could be burned onto a DVD and played on a standard DVD player.
During the emergence of studios in Web distribution, another challenge arose with the rise of YouTube in February 2005. YouTube rapidly became the leading video-sharing website globally. While its primary goal was to offer a platform for amateur filmmakers, it faced issues regarding digital rights management. As expected, unauthorized video clips of copyrighted Hollywood movies and TV shows started spreading on YouTube alongside other content.
Despite YouTube’s efforts to prevent the upload of illegal videos, their attempts were unsuccessful. They tried strategies such as limiting video duration to 10 minutes and promptly removing videos upon copyright owners’ request. However, users found ways to bypass these measures and still shared unauthorized clips from popular movies and TV shows. Frequently, these clips would be reposted shortly after being taken down. Although it was inconvenient to watch a two-hour movie split into twelve separate 10-minute segments, many users believed it was worth it in order to obtain free access to the film.
Estimates indicate that a substantial percentage, ranging from 30 to 70 percent, of Hollywood content on YouTube is uploaded without the studios’ permission. Back in 2008, Viacom filed a lawsuit asserting that over 150,000 unauthorized clips of its copyrighted TV shows were discovered on YouTube. In response, the media conglomerate initiated legal proceedings against the platform with a demand for $1 billion in damages. Google’s acquisition of YouTube in 2006 for $1.65 billion elevated the site’s influence within the media industry.
With daily video views reaching 100 million, YouTube has emerged as a highly popular website on the internet. This surge in popularity has raised concerns among major production studios, which have invested an average of over $106 million in movie production expenses. In order to address this issue, NBC Universal has assigned three employees to continuously monitor YouTube and detect any unauthorized content. However, it is still unclear whether this effort will yield positive results.
Rather than striving for an unattainable objective, major studios like NBC Universal, Warner Brothers Entertainment of Time Warner, and Twentieth Century Fox of News Corporation opted for more feasible approaches. They engaged in negotiations with YouTube to establish licensing agreements enabling lawful access to copyrighted content. YouTube had already implemented this licensing model with various prominent music companies. Moreover, YouTube had previously forged successful partnerships with major studios to facilitate movie promotion on its platform.
The studios strongly acknowledge the importance of receiving publicity for their movies on a popular Web site like YouTube. Marc Shmuger, chairman of Universal Pictures, mentioned that his company’s marketing team sent out promotional video clips of their new films to websites like YouTube. It made sense for the movie industry to adopt the approach of the music industry, which changed its focus from eliminating illegal uploads to utilizing digital music as a new source of income. In early 2007, YouTube announced its plan to investigate a sharing of revenue model with content creators.
YouTube has developed Video ID, a filtering and digital fingerprinting technology. This enables copyright owners to compare their videos’ digital fingerprints with content on YouTube, thereby identifying any infringing material. Video ID can also filter unauthorized videos before they are published on the YouTube website. If any infringing videos do manage to go live, they can still be tracked using Video ID. It is important to note that YouTube does not delete all infringing content.
YouTube has partnered with CBS, Universal Music, Lionsgate, Electronic Arts, and other media companies to allow them to claim their videos and display ads alongside them. The revenue generated from these ads is currently minimal as they only appear on a fraction of YouTube’s millions of videos. However, these ads are believed to generate excitement among the media companies’ customers about their content. It remains uncertain whether streaming video can be profitable for the motion picture studios despite their association with YouTube.
According to London research firm, Screen Digest, 44 billion video streams will make up 55 percent of video content watched in the United States in 2010. Despite this large share, these video streams will only generate 15 percent of revenue. The lack of attractiveness to advertisers is a major issue for the most popular online videos, which often contain inappropriate, objectionable, or boring material.
Partnerships and revenue sharing appear to be the most advantageous option for maximizing revenue streams in the movie industry, encompassing game-studios, video-sharing sites, rental companies, and others. The introduction of online movie distribution has posed challenges for the industry, particularly due to the decline in DVD sales. In 2008, DVD sales dropped from $16.5 billion to $15.9 billion, marking the first decrease in years.
Movie studios can benefit from distributing movies online by saving costs associated with distribution and product returns. Additionally, online distribution can help prevent illegal distribution and generate revenue for the studios. As a result, movie studios are actively seeking more partners for movie downloads. Wal-Mart recently became a partner, joining iTunes, Cinema Now, Amazon, and other platforms that already offer movie downloads.
All competitors in the movie industry are now vying for customers based on the prices and user-friendliness of their websites. It is certain that technology will continue to progress, and lawyers will still be engaged in legal debates surrounding liability and fair use. Here are the questions to consider when analyzing this case study:
1. Which competitive forces have posed challenges to the movie industry? What issues have these forces generated? How have these issues prompted changes within the movie and television studios?
2. Explore the impact of disruptive technology on the companies mentioned in this case.
3. How have the movie studios responded to YouTube?
The text asks several questions regarding the goals of the response, the lessons movie studios can learn from the music industry’s experiences with digital music and copyright infringement, whether motion picture companies should continue using YouTube for film promotion, and what can be found on YouTube when searching for videos from one’s favorite movie or television show. It also inquires about the presence of advertisements attached to the videos and whether this method of advertising is effective. The answer to question 1 is not provided.
The movie industry is being challenged by several competitive forces. Film corporations are currently facing challenges from websites that offer free downloadable movie torrents as well as DVD readers on computers and portable video devices. Additionally, the start-up of the website YouTube in February 2005 has added to these challenges. Free online film downloads are now four times more popular than paid legal film downloads. This new industry is empowering customers to challenge the prices of movie stores, as customers are choosing to substitute expensive blockbuster rentals with free online downloads.
The movie rental establishments are being transformed into price takers rather than price makers. The online market is a new market for the movie industry and the problem arises when big film corporations overcharge for their online products. They fail to realize that customers are not interested in paying twenty dollars for a 24-hour movie rental. In addition, the movie industry is also dealing with the issue of unauthorized submission of Hollywood content to YouTube, which amounts to 30 to 70 percent. YouTube is making a profit from movies that cost major production studios more than $129 million to create.
Film companies are being compelled to embrace digital advancements in order to facilitate digitally enabled business relationships. They are opting to collaborate with online platforms like CinemaNow and Movielink, leveraging the opportunity to sell and distribute their products through online downloads. Consequently, this has revolutionized the film industry’s marketing approach. The strategic significance of venturing into the online realm is imperative for the industry’s mere survival. Furthermore, the emergence of YouTube has posed additional challenges for film production, leading companies to recruit more personnel for website monitoring purposes.
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. 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.
Due to disruptive technologies, companies like NBC Universal must now create new job positions dedicated to daily searching of YouTube for unauthorized content. As a result, they not only suffer financial losses from decreased sales revenue, but also have to spend additional funds on filing lawsuits and hiring employees to combat this disruptive technology. To address this issue, rather than following Viacom’s decision to file a lawsuit, studios are opting for a more positive approach given YouTube’s influential status.
Companies like NBC Universal, Warner Brothers, and Twentieth Century Fox are in discussions with YouTube to create licensing agreements. They are adapting to information system trends, utilizing websites such as YouTube for advertising purposes. The objective is to optimize revenue streams facilitated by this emerging technology, enabling companies to generate profits rather than facing unauthorized distribution of their products. This lesson has been derived from experiences in the music industry.
The movie industry should learn from the music industry, particularly the iTunes music store, where songs are sold for 99 cents each. By reducing the cost of online movie downloads, the movie industry could greatly benefit. The music industry has faced copyright infringement problems for years. It would be beneficial for the movie business to partner with the online music conglomerate, not only to gain insights from their experience but also to develop a more effective solution against copyright infringement.
The suggestion to continue using YouTube for promoting new films is endorsed. YouTube attracts a vast number of daily visitors with over 100 million video views, making it an ideal platform for film industry companies to gain exposure. Embracing the ongoing advancements in Information Technology is essential for the film industry as it enables them to benefit from this revolution. Neglecting to do so could lead to obsolescence, similar to VHS tapes and cassette tapes.
