Most of the business reviews of the film industry in 2017 have concluded that this has been a down year — US box office attendance continues to fall, this year even faster than prices climbed. Total box office revenues declined 1–3% compared to 2016, and the number of tickets sold fell by 4–6% from the previous year. The total theater ticket volume was about the same level as 1995, when there were 60 million fewer people living in the country.
The DVD segment of the industry continues to shrink rapidly; three of the DVDs launched in 2016 — Zootopia, Deadpool, and Star Wars VII: The Force Awakens — outsold the top DVD for 2017, Moana, and total consumer spending on DVDs fell by 39% compared to 2016.
The film industry is in the midst of one of its greatest upheavals with Netflix and Amazon aggressively investing in both new productions as well as the infrastructure to support streaming distribution service growth in more and more countries. Disney is acquiring Fox Searchlight and planning its own streaming service, currently scheduled to launch in 2019.
And, according to IMDB, more than 12,600 films were created and shown in theaters, plus tens of thousands more that went straight to streaming video without a theatrical release.
Few of these films achieve perfect ratings from the major review aggregator, Rotten Tomatoes. Here are the ones that achieved the top scores in 2017:
If a man has good corn or wood, or boards, or pigs, to sell, or can make better chairs or knives, crucibles or church organs, than anybody else, you will find a broad hard-beaten road to his house, though it be in the woods.
A few years after Emerson’s death in 1882, he was mis-quoted with the now-famous line, “Build a better mousetrap, and the world will beat a path to your door.” Thus began a never-ending quest for new and improved products, including over 4000 variants on a mousetrap.
But what makes one of these new products take a significant share, growing in popularity over all of the other innovations? What makes a new product concept transformational instead of merely offering an incremental improvement? How does a new idea disrupt and shift an entire industry? For the past 10 years, business strategists have been preaching the vision of designing and managing “platforms,” which change the industry value chain, often by upsetting traditional industry rules to serve new mass markets.
Connection: how easily others can plug into the platform to share and transact
Gravity: how well the platform attracts participants, both producers and consumers
Flow: how well the platform fosters the exchange and co-creation of value
Consider some examples of how successful platforms achieved this status. Apple’s iOS and Google’s Android platforms each made it very simple and relatively inexpensive for app creators to launch their services, especially compared to other mobile environments, such as Symbian and Microsoft Windows Mobile. Apple and Android have different strengths, but both have succeeded by offering app developers the ability to create and distribute content or services easily and to build relationships with their end users. Both of these parallel platforms have transformed the software industry, as developers increasingly make everything X-as-a-Service.
The platforms in today’s media entertainment ecosystem represent the four main monetization stages that content passes through to reach its audiences:
Over-The-Air Broadcast or Cable networks
DVD production for home purchase and (less frequently) rental
Streaming Video on Demand to smart TVs or thin clients like Roku, Apple TV, and Amazon Fire, to PCs / Macs, and to mobile phones and tablets
A different dimension of platform emphasizes the industry’s current focus on blockbuster series with myriads of films and TV shows that feature “bankable” names: DC and Marvel superheroes, Disney/Pixar’s Cars, Nemo, and Toy Story collections, Star Wars, etc. It seems that it is impossible to escape programming dominated by sequels and spin-offs, and it feels like half or more of Hollywood’s budget is going into huge, “safe” productions instead of toward edgier, creative fare.
This business architecture serves the studios quite well, since global revenues continue to climb for the major production and distribution shops. However, it is easy to see chinks in the armor of the major players in today’s industry.
The number of US domestic movie theater tickets sold each year peaked in 2002, at 1,577 million, and has mostly hovered around 1.3–1.4 billion tickets sold per year over the past 20 years. Total industry revenues have continued to climb, but this is due to inflation, increasing average ticket prices, and new viewing formats like 3D.
Both broadcast and cable viewership have declined over the past 10 years as more people “cut the cord” and seek entertainment from online sources instead of the major cable and satellite providers. Americans between 50–64 have changed TV viewing habits the least, and older Americans have seen modest growth in the number of hours of TV content consumed, +7.7% over the past 6+ years, but all demographics of younger Americans, from teens aged 12–17 through adults aged 35–49, have seen significant reductions in the number of hours of TV content viewed over this time period. The DVR, currently in 50% of American households, is the architectural control point for cable service providers. But the one-size-fits-all business model maintained by the cable and satellite provider industry is proving too expensive and too limited at the same time.
DVD sales peaked in the US in 2004 (and in 2007 for the UK market), and the revenue from DVD sales has shrunk by 30% from that peak 13 years ago. Netflix’s DVD subscription base has been falling and now only numbers 3.76 million households (2Q17), down 73% from 2011, and Redbox has been struggling with declining revenues since its peak in 2013. However, DVDs are vastly more profitable for the studios than any other format for viewership, and the huge installed base of DVD players, still in 88% of all households, means that this format will not disappear anytime soon.
What has been growing is the digital streaming segment. Netflix now has nearly 100 million subscribers, evenly balanced between US and non-US markets. While the number of films or series available for streaming is only 5,500 in the US (and lower in other country markets), Netflix has been building its library of self-funded projects such as House of Cards, Orange is the New Black, and Beasts of No Nation. Its scale places it easily in the top 10 studios and larger than all of the major cable providers combined. Amazon Prime Video has more movies than Netflix, about 18,000, but only about 27–30 million US subscribers. Amazon has also been building its catalog of exclusive content, such as Room, Bosch, and I Love Dick. Hulu, which is co-owned by four major TV content distributors, Comcast, Fox, Disney, and Time Warner, is smaller yet with 13 million US subscribers in 2016.
All three stream service providers claim to be platforms for streaming video. Hulu now offers live TV channels over the Internet along with next-day searchable content. Amazon and Netflix have integrated movies and series into their recommendation engines by genre and track consumer rating preference scores to try to lock in “eyeballs” for their offerings. Along with smaller platforms like iTunes and Google’s YouTube TV, the streaming ecosystem appears to be a weakly differentiated group of competing systems, with competition for unique and exclusive content.
The end consumers are increasingly frustrated by this ecosystem complexity. Either they have to maintain multiple subscriptions to capture all of their desired content — Netflix for House of Cards, HBO Now for Game of Thrones, Hulu for The Handmaid’s Tale, Amazon for Manchester by the Sea, etc. — and spend a lot of time sorting through hundreds of mediocre titles to find the works they want to watch before the content goes off the shelf, or they have to limit their choices to one or two preferred services and miss out on the content their friends are discussing. Either way, the tech-savvy streaming film consumer is frustrated by today’s ecosystem that serves the tech giants, but not the consumer market.
StreamSpace is different. StreamSpace is a platform for independent filmmakers to create and promote their projects to fans in search of nontraditional films. Rather than subscribing to a service that costs $8 to $20 per month that locks the viewer in to a limited set of film choices, StreamSpace is enabling an open platform for thousands of filmmakers to engage with their fans and create and share their works of art, with the filmmaker in control over pricing, viewing schedules, and geographies as they choose. Viewers pay for the films they want to watch, and community social media channels help them discover new, exciting content. The distributed blockchain storage model means that there is no central behemoth dictating terms, and the security of the blockchain immutable ledger puts the filmmaker in full control to upload the film, observe the transaction history, and decide when or if to remove the film content at will.
Come join our community as we bring a new model for film distribution to a market that is frustrated by mediocrity and expensive contract commitments.
This week, we had the opportunity to sit down with Robert Binning and James Baggett, founders of StreamSpace LLC, a young company using blockchain technology to create a novel video streaming service for independent filmmakers.
Q: Why did you choose to start StreamSpace?
A: We have been passionate about blockchain for about 4 years, since we first tried to do something different with our gaming laptops and discovered an opportunity to mine bitcoins. We wanted to solve real a world problem, not just try to reinvent finance away from the traditional banking system. We spent over a year exploring different potential applications and settled on one that is strongly associated with Austin, Texas, the Live Music Capital of the World and home of SXSW — blockchain distribution of entertainment media content.
Q: Why focus initially on film instead of music or other media content?
A: The music industry is incredibly fragmented with dozens of genres and many sub-genres underneath each one, and while there are dominant studios and distributors that rule the roost in both industries, independent musicians can and do make a living as independents — performing, self-producing and publishing, and promoting their brands and products through social media and content channels that can host hundreds of thousands of songs or sell venue tickets. But the movie industry is different. Thousands of movies are launched each year, but only a few get promoted and watched outside of film festivals. It seems that the only movies you can reliably find are superhero adventure series films and projects from a handful of bankable directors and producers like Quentin Tarantino, Woody Allen, or the Coen Brothers. The independent filmmaker is stranded with no opportunity to capitalize on his creative vision.
Q: What do filmmakers need that they can’t do themselves or get from the big studios?
A: Filmmakers often go deep into debt to complete their projects, so any financial assistance is always greatly appreciated, and crowdfunding is one technique that has been proven viable for small-to-midscale projects, under $1 million. But most of all, independent filmmakers need to connect with an audience that is looking for unique stories and entertainment. And the top studios seldom have the appetite for more than a handful of small projects. We feel there is a huge untapped opportunity to connect thousands of filmmakers with millions of film lovers that can’t get to the film festivals every year or don’t want to wait a year for the next festival.
Q: What are the advantages that blockchain technology brings to this application?
A: The three great advantages are content anti-piracy security through a decentralized storage system, a transparent payment system made possible by the blockchain ledger, and the business process advantage of being able to set and control pricing, rather than just getting a fraction based on film popularity.
Q: What has been your biggest challenge so far?
A: Like any startup, the greatest challenge is attracting the right talent capable of juggling all of the tasks that need to be completed and working as a cohesive team. We have our eye on our first business goal — being able to deliver a working platform with a business case that will attract filmmakers to sign on. Immediately after we have content to offer, we need to meet our second goal — being able to reach thousands and then tens of thousands of film lovers that are willing to work with us to find great entertainment, so we can fulfill our promise to our filmmaker partners.
Q: How do you differentiate StreamSpace from the major companies that distribute streaming video on demand content today: Amazon Prime Video, Netflix, Hulu, Google YouTube, Apple iTunes, IBM Ustream, etc.? What can a small company do that these giants cannot?
A: Most of these large companies are pursuing a model of working hand-in-hand with the major studios to deliver the kind of content that people would have gone out to their local Blockbuster ten or twenty years ago — current or last year’s movie hits and top television series. Amazon and Netflix have taken an extra step and are funding unique movies and series just for their own services, in order to differentiate from each other and from the studio-linked streaming content aggregators. While all of these streaming giants pay lip service to indie films, they see this as a limited audience genre, like foreign films or documentaries, so independent films account for less than 2–5% of their limited catalogs. But there are more than 10,000 movies released every year, so there is a huge amount of entertainment media that they are missing.
Q: What is the biggest opportunity for this industry?
A: Amazon grew from nothing to the world’s largest bookseller by recognizing that people wanted more than just the NY Times bestseller list. They wanted access to a million-title catalog of published books. The movie industry today is at the same point that books were at in the 1990s, where people want more than just the latest Academy Award winners or billion-dollar blockbusters. Today’s filmmakers have so much to offer with powerful stories and bold, new styles. And technological innovation has made it possible for filmmakers to create and produce long form content at a tiny fraction of the price that it took 10 or 25 years ago. Today’s GoPro YouTube sensation is tomorrow’s visionary filmmaker.
Q: What advice have you received that has guided your leadership style?
A: The Boy Scouts accept everybody that applies to join the association, and no new Scout comes in with experience, just a positive attitude. The Boy Scouts give young men opportunities to develop themselves by putting them into roles of responsibility long before they have proven themselves, and the teenage leaders help the youth to develop into capable leaders and experts across a wide range of interests. We are consciously looking to grow leaders who will take StreamSpace from today’s small, hands-on team to tomorrow’s industry leader. The blockchain industry is very young — no one has more than five years experience. We want people to be unafraid to write the new rules for the industry and make something happen that has never been done before. That takes people with a can-do spirit, and we are doing everything we can to make sure that we all retain that positive attitude.
In 1928–9, the Belgian surrealist Rene Magritte created a masterpiece painting called “The Treachery of Images,” a painting of a simple carved wood pipe with a subtitle that translates as “This is not a pipe.”
Disruptive technologies nearly always make for great media stories. The people involved in driving the disruption see themselves as crusaders, fighting a righteous war against an entrenched monolith motivated by its own profit stream and captive customers. The people that write business stories love the idea of a small startup with the gumption to attack an established leader — David vs Goliath! And the established industry players often act as their own worst enemies, defending a status quo with obvious hubris. When the old order stumbles, the new one often develops the same bad habits, overly confident that they have the key to sustainable value creation and that their version of industry structure will survive long into the future.
Sometimes, however, the industry dynamics are so complex that it is nearly impossible to figure out who are the good guys and who are the evil monopolists. In the 1930s through the mid-1950s, the Hollywood studio system ruled the global film industry, until television upended their business model. A new generation of film distributors emerged in the 1970s, using a tiered distribution model, theater to television to tape. Theaters changed to multimedia experience centers that still seem to make more money from popcorn than cushions, television evolved to include premium and basic cable networks, tape was replaced by DVD and Blu-Ray discs, and a new digital streaming distribution system emerged, eroding much of the profit stream associated with DVDs.
This new generation of Streaming Video on Demand (SVOD) providers are among the largest, most valuable companies in the world: Alphabet / Google, Amazon, Netflix, Facebook. Of these, Facebook has the least mature business model for digital content monetization, but all of these internet powerhouses recognize that they are competing to capture and lock in consumers for all classes of entertainment, and all of them are striving to offer “must-see” content that keeps consumers checking their home pages over and over again for the latest updates.
What they have in common are highly centralized control points driven by their proprietary recommendation engines. And those engines are all geared to keeping viewers locked onto their screens as much as possible. What this means is that the recommendation engines play it safe — they showcase the most popular, common films, because all of the SVOD providers have recognized that their shareholders want to see viewer growth that only comes with mainstream, mass market material.
StreamSpace has a radically different approach: We are about meaningful, creative ideas, not lowest common denominator dross. We are assembling a platform where independent filmmakers can share their unique visions and stories with consumers that seek out the unusual instead of the most common. We are assembling a library of radical ideas and passionate storytelling. And we are gathering a community of film lovers that want to keep pushing the art form in new directions.
The sense of community is the most powerful aspect of StreamSpace’s offering — filmmakers share their stories, and with digital technologies behind them, these stories can be tested and tweaked with feedback from each other and from their online audiences. The avid film aficionado will have an opportunity to explore content that the large internet companies bury well beneath the front page of their recommendation engines, and our feedback systems will help guide future selections based on the power of the work, not just the corporate promotion budgets.
What does this mean for filmmakers? It means that we are opening up a new way to reach the target audience, one which places the audience members in a dialogue with the filmmakers. For indie film devotees, it means that we are enabling a simple way to discover the kind of content they really want, giving them a way to engage with filmmakers directly instead of through unauthorized “fan sites.”
When a tree falls in the forest and no one is around, does it still make a sound?
If a filmmaker creates a work of art and no one sees it, is it still a work of art?
The performing arts are different from other forms of art, in that they are experiential — what makes them works of art are the feelings they leave with the viewers, whether those feelings involve peacefulness, anger, fear, relief, or awe. There is always something that the filmmaker is trying to convey to the audience. Otherwise, why spend thousands of dollars (or hundreds of thousands), when you could just sit down at your computer and type a short message on Facebook or Twitter?
Unfortunately, more than half of all film projects are never viewed by anyone other than the team that made the movie. For this, we can blame the studio distribution industry structure, whereby only a few hundred films each year go through the staged release process from theater to TV broadcast to DVD and digital release. Thousands of films are posted on the major digital content distribution portals, often for a year or some other limited period of time, but without any way to make it into someone’s recommendation algorithm, they do not attract significant numbers of viewers. And thousands more don’t even make it that far.
StreamSpace is designing a new platform for filmmakers to self-publish their work, with a creative social media set of channels so the filmmaker can promote his work broadly. Unlike Netflix or Amazon, filmmakers control their own destiny, and StreamSpace acts as a networking facilitator to attract viewers and other filmmakers with similar styles and followers.
StreamSpace does not set the price for viewing or “owning” a license for perpetual viewing of the content; the filmmaker sets his own price list. And unlike the major centralized digital content publishers who have minimum thresholds for payout and commission levels of up to 30%, StreamSpace has no minimum threshold and charges less than 10% commission on each transaction through its marketplace.
StreamSpace plans to launch its Initial Coin Offering (ICO) in late August of 2017, with a target launch date of 1Q18 for its commercial platform service. Filmmakers will see all of the following elements in this novel platform:
A secure wallet to store the payments associated with every viewer transaction, along with an immutable record of transactions associated with each film project
Metadata and similarity scores that help drive the viewer recommendation engines, but also can help the filmmaker network with peers about current and future projects. The metadata will also be shared with Amazon’s IMDB project to help boost awareness of the film.
Secure distributed storage of the content itself. The StreamSpace patented method for storage using blockchain technologies allows the filmmaker to be confident in the integrity of the content itself and to control his ability to delete the content if so chooses.
A social network tool that helps filmmakers publish channels for their projects on all of the major social media platforms, including Facebook, Twitter, Instagram, Snapchat, and Reddit. We offer design tools that make it easy for a filmmaker to self-promote, using still shots and trailer videos, audience reviews, and rating scores.
As a filmmaker, you know that the most important part of making a movie is making an impact of the daily lives of your audience. StreamSpace helps you reach your potential audience and build the social buzz to turn your film project into a success.