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Hollywood's Distribution Dilemma

Rewriting the Script on How Films Go to Market Using Blockchain Tech

Overpriced JPEGs

Jul 10, 2023

Today we bring you another special guest post from Jon Rogers, formerly the founding executive and global head of live-action franchise development for Walt Disney Studios.

Overpriced JPEGs has teamed up with Jon to create Blockbuster, a recurring series that looks at what is happening across Hollywood, the global media industry, and the blockchain.

Jon is a brand leader with 20+ years of experience in media/entertainment, consumer packaged goods, and most recently Web3. Prior to Disney, Jon was a member of the Star Wars brand marketing team at Lucasfilm where he managed theatrical campaigns, brand partnerships, and retail marketing. Earlier in his career Jon was a strategy consultant with Booz Allen Hamilton working with clients in media/entertainment, high tech, and oil & gas industries.

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Welcome to the third installment of our series exploring the potential for blockchain tech to disrupt the value chain in traditional media and entertainment. In the first two installments I covered: Development and Production.

Today I’m digging into the vertical that gets the least attention from Hollywood and web3 teams: Distribution, or the ‘go-to-market’ phase.

Most Hollywood teams building in this space are, understandably, focused heavily on the creative and IP … the ‘concepting’ and ‘making’ phases. What’s often overlooked, however, is how to actually get what’s being built into the world and why that’s equally, if not more important.

I’ll explain below, but if you want to dig deeper into this topic, check out my recent appearance on Overpriced JPEGs.

Show Me the Money (and the Stars)

Let’s start with why Hollywood teams that ignore distribution do so to their own detriment. A look at how feature films were distributed in a pre-internet world makes it pretty clear that two of the top priorities for studios - money and access - are under major threat these days.

$$$: Media distribution is where all that great (and not-so-great) content is monetized. Movies are distributed to cinemas, and those cinemas send studios back a share of the box office revenue minus their cut. The actual percentage of the box office that cinemas get to keep for themselves is variable, but let’s call it 50% with back of the envelope math. When you read that a recent superhero movie crossed the $1B USD threshold in global box office, slice that in half to have an idea what the studio has earned before deducting the costs of production, marketing, overhead, and, well, you get the point.

Access: A second reason why distribution is important, particularly in the pre-internet world, is because that’s where the studios, filmmakers, and stars “meet” their audience. The entire Hollywood star system was built on this foundation. Audiences saw their favorite star on the big screen once or twice each year, and perhaps a little bit more in carefully prepared publicity articles. Access and engagement for fans pre-internet was something managed by the studio in measured doses, at arms-length, and only under carefully orchestrated terms.

You can argue that the foundation of Hollywood was built on top of distribution in a pre-internet world, and that foundation is crumbling in the post-internet world. The important point I want you to take away from this is an issue of centralization and control.

The pre-internet studio was a centralized gatekeeper and had all the control. Many of the challenges studios are facing today is a failure to adapt to a world where the internet and technology has undermined the studios traditional gatekeeper position.

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Failure of the Traditional Models

The New Normal

With the emergence of Web 1.0 and later, Web 2.0, the strategic importance of distribution began to change. Distribution is still where Hollywood primarily monetizes content, but it's not working as well as it used to.

There is no shortage of doom and gloom headlines digging into the failure of almost every tentpole film so far this summer. This year is particularly important, as 2023 is the year the film industry was supposed to bounce back to normal after the pandemic. Clearly, “normal” is not coming back.

The pandemic is not the cause. The pandemic only accelerated trends in changing audience demographics and technology-driven disruption that were already undermining the industry.

I worked on the first Chronicles of Narnia movie which was released in 2005. The movie opened to $65M USD in the domestic market. This was deemed internally as a slight disappointment even though Narnia had no stars and was released during a shortened holiday window. Today, 18 years later, we see the biggest summer tentpole movies, with the biggest stars in the world, open to less domestic box office than Narnia’s. These movies are being celebrated as huge successes.

Hollywood doesn’t want the public to notice they are moving the goalposts to redefine success and hide what is really happening in the film industry.

Just as with monetization, the star system has been altered forever. Star power began to unravel with Web 1.0 when the internet shortened that distance or separation between star and fan. Fans demanded more engagement and the internet gave them a bullhorn. Studios had to give-in, a little bit at least, but they still wanted control of those interactions.

Comic-Con (and select other fan conventions) is a great example of one solution the studios embraced in the post-internet world to respond to fans. By bringing talent and content to the fan conventions, particularly with big studio presentations in Hall H at Comic-Con, studios could say they were serving their fans and the talent, but in reality, the studios were giving in just a little to remain in control.

Every studio has run the numbers and learned years ago that those big Comic-Con presentations do not ROI at the box office. Why do they still attend if there is no ROI?

Because the fan conventions serve as a placebo and means of control of both fans and talent.

It is no coincidence that every studio pulled out of Comic-Con this year using the WGA strike as justification. The real reason is that studios would rather not spend the money if they don’t have to, particularly at a time when many are financially distressed. Once one studio pulled-out, the rest immediately followed.

The Role of Films in a Creator Economy

The emergence of Web 2.0, and particularly social media platforms, further altered the relationship between the fans and stars. Web 2.0 nearly destroyed the star system by offering alternative options of what it means to be a star and how to become one. The critical point here is that distribution no longer serves a role as being the place where fans meet the creators. A lot of emphasis is placed on the diminishment of movie stardom, but I think the studios, not the stars, have gotten the worst of it. Web 2.0 has eliminated studios’ traditional centralized gatekeeper role between fan and star through distribution. To some degree, perhaps small, but not inconsequential, studios have lost one of their reasons for being by losing control of choosing who gets to be a star.

Access to storytelling has also changed. Looking at modern day franchises, we need to think of them from a transmedia perspective. Transmedia storytelling is the backbone of modern day franchises. While there is a lead medium, such as a movie, there are also many other “doors” for a fan to engage and enter a storytelling universe. There is no one distribution medium for storytelling anymore. Fans have a choice of where and how they engage a story.

Studios should embrace Web 3.0 because the various tools and solutions that are possible are supportive of franchise development. Some of the Web 3.0 solutions currently available or coming soon will enable identity, community formation, participation, collaboration, voting, delegation, loyalty and rewards, and the list goes on. These are incredibly powerful tools that have never been utilized before to support franchise development.

Thinking Long-Term

When the film industry emerged, most of the early studio leaders were showmen who came from road shows and brought ‘roadshow culture’ to the executive ranks of the nascent studios. In other words, they prioritized short-term revenues because they traveled city-to-city and might not return to any one market for years. Roadshow culture still permeates Hollywood's executive ranks and this is apparent with the studio's prioritization of short-term revenue maximization.

Operating Hollywood distribution like a roadshow worked for quite some time as there were indeed similarities between roadshows and film releases. When a new movie opened, the film reels traveled on a circuit from region-to-region rather than open everywhere at once as they do today. It wasn’t until 1975, after the monster success of Jaws (pun intended), that simultaneous nationwide releases became the norm.

Starting in 2005, when Bob Iger became the CEO of Disney, Hollywood entered its franchise era. This should have been the beginning of the end of the roadshow mentality as franchises perform much better when they have a long term and strategic growth strategy.

Not long after I joined Disney to lead the Franchise Development function, a product team brought us an opportunity that would have resulted in a few hundred thousand dollars in immediate revenue. That opportunity was at a cost of potentially several million dollars two or three years later. My decision to pass and wait for the larger opportunity seems like it should be a no-brainer. But that decision was in conflict with a culture prioritizing short-term maximization.

My decision was challenged all the way up to Bob Iger, who agreed with me. I don’t blame or hold anything against the executives who challenged my decision up to the CEO. A decision prioritizing long-term growth is “just not the way things work around here” as one of them told me. Cultural change comes slowly.

A Generational Divide

It’s no secret technology-driven disruption has been chipping away at Hollywood for quite some time now. The single biggest disruptor has been the iPhone and other subsequent smartphones. Suddenly audiences may consume content anywhere and anytime they want. Besides the real world replacement of content on big screens for small screens, the smartphone also eroded more of the studio’s control of how filmmakers and stars interact and get to interact with their fans.

I am a huge fan of the Cameo platform and service. Not the business itself, which in my opinion has squandered its opportunity, but rather the concept of Cameo. Cameo represents a major step towards enabling stars to have a 1:1 relationship with fans and more direct control of opportunities to monetize that relationship.

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The Future of Distribution

Hollywood is now at a crossroads.

The business model of the film industry is in distress while the amount of debt on studio P&L’s is stratospheric. Stars don’t mean much anymore (except perhaps Tom Cruise). Technology-driven disruption is accelerating. A new generation of audiences are emerging with expectations of engagement derived from a world built on social platforms. What comes next? What can the Hollywood studios do? Is it too late?

No. It’s not too late, but it won't get better until real efforts at reinvention are taken. Web 3.0 offers us tools to help Hollywood reinvent itself. Many people like to say Web 3.0 will destroy Hollywood, others say it will save Hollywood. Both are wrong. Web 3.0 can help and serve Hollywood if the studios are prepared to be open-minded.

If I had Bob Iger’s ear, here is what I would tell him …

The time has come for a radical reorganization of the studio to embrace monetization with a prioritization on community-building first. Disney is best positioned of all the studios to do this with their leadership in franchises. Reorganization to build and support communities is a natural progression while Web 3.0 offers toolkits to assist in multiple areas.

By radical reorganization, I not only mean organizational structure, but also tear down the culture of old Hollywood that looks upon fans in the context of risk management. I can already hear the screams of horror coming from Disney’s marketing team.

This will be painful. But you’ve got the best IP in the world and a massive audience. Use that to your advantage by giving fans what they crave - more access and incentives to participate. Build communities of fans to contribute in an official way in the franchises they love and equip those communities to be your best advocates. Develop mechanisms that allow fans to share in your success. It’s a win-win scenario. It’s the web3 way.

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