Part of the fun of the business side of Hollywood is that every aspect of it changes at lightning speed. On one side, the blizzard of technological developments means that contracts written today might be the subject of litigation tomorrow, because film rights can be splintered into a thousand pieces with a few pieces of paper, and none of them might have predicted tomorrow’s laser wristwatch video.
Add to this chaos the constant change of financing sources (from state tax credits to foreign subsidies) and the mountains of legislation and regulations that get dumped on the industry every year, and you have to drive full throttle just to stay current. So knowing what is happening today just won’t suffice; you have to be able to predict the future to have any advantage. So here are the top nine ways technology will change Hollywood for 2014.
1. Digital kiosks: Streaming works just fine, but try downloading a film to own, and it can take hours and multiple tries, because the U.S. does not yet have an optic-fiber system, as many other countries have. That leaves a big opportunity for digital kiosks — think Redbox, but downloading in seconds to a USB flash drive by direct connection or directly to your computer via wireless. You can download to own or rent, and you can play the film on any device you choose. The leader in this technology is Digiboo, which is initially rolling out these kiosks at airports, where travelers can choose any film they want before jumping on a plane. Expect to see these kiosks in 2014.
2. Optic fiber: Which brings us to optic fiber. A strand of optic fiber can carry more data in one second than any other system can carry in a day. Download speeds are instantaneous, with no slowdown just because your neighbors are also online. Remarkably, Google is taking the lead here, building systems in Kansas City and Austin, which is spurring other companies to do likewise. The result will put the film industry on the same footing as the music industry for downloads, which has its pluses (fast speed) and minuses (more piracy).
3. Collapsing windows: Which brings us to collapsing windows. Right now, we have the theatrical window, the piracy window and the video/video on demand (VOD) window. This lunacy has just got to end, or the film industry will be Napsterized to death. We might not get to full day and date releases in 2014, but the delay from the theatrical release to the video/VOD release will get substantially shorter, to not more than 60 days.
4. 4D seats and 3D sound: Which brings us to 4D seats and 3D sound. In order to compete against collapsing windows and high-def, surround-sound, home entertainment centers, theaters are going to have to offer a better experience, and a big part of this is going to be 4D seats, which move to match the film (where you feel like you are flying when a jet is onscreen), and 3D sound, which seems to come from different angles at different times around you, like raindrops falling near you. I have experienced both of these, and the results are astounding. Theaters are going to have to get on this bandwagon or be relegated to bowling alley locations.
5. International reach of VOD: The VOD companies (think Netflix) are working mightily to expand their reach worldwide. By the time they are done, people in every part of the world will be their customers, and those customers will be able to toggle what language they want to watch a film in. The VOD companies might get close to this goal in 2014, which will have a huge effect on how independent films are financed. Right now, independent filmmakers raise funds by selling their films through “presales” on a country-by-country basis to local distributors, but a worldwide VOD reach will rip the heart out of these sales, because it will destroy the value of DVD and pay TV to the local distributors. The net result will be that independent films will be financed by presales to the VOD companies, not the local distributors. Instead of going to the Cannes International Film Festival, filmmakers could be going to Las Vegas for a digital convention.
6. Investment by advertisers: Advertisers are being pushed out of television by TiVo, DVRs and VOD, and they are fighting back by investing equity in films and TV series in order to integrate their product into the message in a way they can control. The boundaries of this trend are being pushed by Hasbro, which was so enthralled with the success of its toy line from “Transformers” that it invested in the film “Battleship” (based on a Hasbro board game) and has gone to the logical extreme of opening its own studio on the lot at Universal for creating TV shows for a network it co-owns with Discovery Communications. Other companies are following that example, and you can expect a substantial increase in direct ownership and funding of content by advertisers in 2014. And if they do it right, the products will integrate into the film — think “Castaway” (FedEx), “The Italian Job” (MINI Cooper) and “Transformers” (duh). So if you are looking for film financing in 2014, advertisers might be a good place to start.
7. Investment by 'retailers': An extremely important recent development is the disintermediation of the studios through the creation of content by companies that have a direct link to consumers (think of them as retailers). This trend is accelerating on many fronts, including the creation of content by Internet companies (Netflix and YouTube), theater chains (Open Road), premium cable channels (Showtime) and DVD retailers (Walmart). These retailers now provide a vibrant, important source of new financing that disrupts the studio system and bypasses standard distribution channels. This trend is going to accelerate in 2014, resulting in continued disintermediation of the studios, because they won’t be needed to produce or distribute this content.
8. Advertising of film offerings: Independent films have long relied on private investors for the critically needed equity to at least get through development and preproduction. Almost all of these transactions trigger application of the securities laws, because raising equity is treated as the issuance of a “security,” and all these transactions rely on an exemption from registration for “private offerings” that historically prohibited advertising in connection with the offering. However, private offerings to “accredited investors” are now permitted to advertise by new SEC rules, and film companies are going to wake up to this by 2014. So instead of watching trailers for upcoming films, you might find yourself watching trailers for upcoming film investments.
9. The death of film: We don’t call it the film industry for nothing, and the “P” in “P&A” stands for prints, but all this is going the way of the dinosaur. Based on rapid improvements to digital filming cameras and the transmission of films to theaters digitally, 2014 might witness the final burial of actual 35 mm film. We will live in a seamless digital world, from the camera to the theater, home or mobile device.
* Schuyler M. Moore is a partner in the corporate entertainment department of Stroock & Stroock & Lavan LLP. He has been practicing in the entertainment industry since 1981, and he represents a broad spectrum of clients throughout the entertainment industry, including producers, sales agents, foreign distributors and financiers, and he has handled some of the largest financing transactions in Hollywood. He is the author of "The Biz: The Basic Business, Legal and Financial Aspects of the Film Industry and Taxation of the Entertainment Industry."
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