Disrupting the Hollywood Business Model

Around 1.3 billion tickets were sold in North America in 2011; that is about the same number of tickets sold a decade ago. This is because the upswing in mobile and tablet usage, and the popularity of streaming services like Netflix and Hulu, have increased the sources for movie consumption, beyond just the theatres.

The upshot to all this has been the trend towards fewer, bigger mass hits like Avatar, X-Men, where big studios release massive number of prints worldwide, support them with mega marketing budgets, and hope to recover their investments quickly and move on to the next big project.

One would assume that the ‘indie’ films [those produced by independent film makers and mostly low-budget flicks] would be the collateral damage in all of this; they would be struggling for funds, equipment and distribution as box office revenues stagnate, but something disruptive is brewing in there!

First, let’s talk about the funding: A 50-minute film adaptation of the play Anomalisa recently raised a record $0.4 million via Kickstarter which is a crowd-funding platform for creative projects.

The Oscar-winning screenwriter, Charlie Kaufman, used a quirky but highly effective video pitch to raise funds from 5,770 people on this site. On Kickstarter, people support these projects because they admire the person they want to support or they are inspired by an idea.

[youtube]http://www.youtube.com/watch?v=eJnOwVAA9tg[/youtube]

Platforms like these open up an entirely new avenue for independent film-makers to make films without the interference of the typical studios; this also allows them to stay true to their original idea.

The other trend that is helping indie films is distribution and marketing. New global platforms are helping these films to go beyond film festivals and reach new audiences while also achieving commercial success.

Tribeca, started by Robert De Niro in 2003 as a means to revive the New York film industry post 9/11, has grown large enough to bill itself as a ‘diversified global media company’. It also has a film distribution arm to provide films a platform to attract new audiences and broaden the access point for consumers to experience independent film and media. Tribeca is putting this distribution into play by making films available to home viewers during the festival, showcasing certain films on pay-cable for $6.99 each.

Suddenly, the indie film-maker isn’t competing against the big budget films for a limited number of screens at the theatres. Instead, he has the platform and the means (think Netflix, Amazon) to distribute, and not only recover costs of the film but also make decent profits.

The aforementioned trends are also changing the marketing of films. Typically, a studio would spend a sizeable amount of money on saturating TV and outdoor advertising.

But Tribeca is leveraging what is already the foremost way to market indie movies–word of mouth. Social media tools and their ability to rapidly generate word of mouth at almost zero cost is helping these films break the traditional model of marketing. Finally, we talk about the disruption in film making technology. Quite simply, cheap high-definition cameras and digital editing tools have transformed the cost model.
The tools and the technology used by big studios are becoming increasingly affordable for indie film-makers to make movies that are as technically polished as the big budget blockbusters. For instance, Skyline, an indie sci-fi thriller, was shot on a small budget but has the look-and-feel of a large Hollywood production.

As you see, a lot of this is being helped by dramatic changes in technology. You now have the ability to reach out to millions of people around the world for the opportunity to ‘pitch’ your idea; there are more channels to distribute your content; and equipment costs continue to go down to allow even indie films to look spectacular.

How should big producers or the ‘incumbents’ reflect upon these emerging trends in film funding, distribution and technology?
All these trends – increasing access, reducing costs, and non-participants in the market – are signals of what we call the Disruptive Change Pattern; and this pattern has run across industries, from computers and tablets to full-fare airlines and budget airlines where the incumbent has lost eventually.

We’ve noticed that the incumbents dismiss startup activities as small, ‘fringe’ ideas, because in the initial stage, the quality of output from the disruptors is just not good enough for the mainstream users. So for all the success of Skyline, the fact is that The Hobbit is going to make a lot more money.

But ignore these disruptors at your peril because industry after industry, we have seen that these pesky disruptors gradually keep improving their quality, develop new (and lower-cost) business models, and one fine day there’s a tipping point, after which the incumbent is completely blind-sided and the king is overthrown.

As we’re seeing in the US, the disruptions taking place at the fringes are helping indie film makers realise their dreams to be truly independent. And at the same time, it might be time for the ‘big boys’ to start paying a lot more attention to these disruptors before they themselves get disrupted.

By Akshay Mehra
Akshay is a Principal at Innosight. He has worked with clients in consumer product companies, medical devices and pharmaceuticals to identify disruptive innovation opportunities in their industries. Before Innosight, he has worked in brand management at a consumer products company, and was heading a start-up in Bangalore. During his downtime, Crime Fiction and History keep him occupied.

The thoughts and opinions shared here are of the author.