September 15, 2003

Do movie downloads mean doom for Hollywood?

Ben Voyles

Though many industries are struggling, Hollywood is having another great year. Summer movies are doing well at the box office. DVD sales are skyrocketing. And industry spokesmen claim their business is the only U.S. sector currently running a trade surplus with every country in the world. But are the credits about to roll on this picture?

“The thing Hollywood is terrified of right now is unregulated access to their product on the Internet, and the fear that films will soon be swapped, as indeed they will be, like MP3 files,” said David Cook, professor of film studies.

Or as Jack Valenti, president of the Motion Picture Association of America, colorfully put it to a Congressional committee last April, they fear “the mysterious magic of being able, with a simple click of a mouse, to send a full-length movie hurtling with the speed of light (186,000 miles per second) to any part of this wracked and weary old planet.”

Already, the MPAA estimates more than 350,000 movies are downloaded illegally every day, and Valenti has predicted this number will rise to 1 million by year’s end. In January 2002, a survey by the Yankee Group found that 23 percent of the nation’s 21 million broadband households had downloaded movies in the prior six months.

The industry is trying to fight back. Last October, for example, the trade group and the Recording Industry of America sent a letter to 2,000 colleges and universities asking them to make a “substantial effort” to cut down on the trading of digital movie and music files among their students. Court battles against Napster-clones continue. And, perhaps most significantly, the studios recently launched their own online film service., a joint venture between Metro-Goldwyn-Mayer Studios, Paramount Pictures, Sony Pictures Entertainment, Universal and Warner Brothers, enables users to legally download copies of new and old movies to their computer for one-day use for $2 to $5. But it’s still definitely in the experimental stage: Downloading a film from MovieLink takes two to three hours on a DSL connection, and consumers with middling technical skills may find themselves watching their movie in a window the size of a large postage stamp.

Wenli Wang, a professor of decision and information analysis in the Goizueta Business School, is critical of the service. Wang, who has written a paper with Cook on the need for the film industry to learn to work with the new technology, said MovieLink doesn’t go nearly far enough in giving consumers a warm welcome.

In her view, a friendlier online service is essential if the industry is going to maintain its market share of entertainment dollars. At a time when it’s already fairly easy for DVD renters to make their own perfect copies of films at home and share them with friends and family, Wang says, the industry needs to provide a reliable, legal and cost-effective alternative to illegal copying.

As for the industry’s lobbying efforts, Cook is skeptical that court battles will ultimately stem the tide. “As bandwidth increases and other technological barriers fall, as [download] time goes down, then it’s going to become, I think, unstoppable unless they can somehow legislate a solution,” he said.

However the good news for the film industry is that, if the past is any guide, the end of the world as they know it may not hurt them as much as they think it will, according to Cook. In the 1970s, film studios fought videocassette recording technology all the way to the Supreme Court. The studio chiefs were trapped in an old industry prohibition against selling their films.

“That’s the block they had against the VCR,” Cook explains. “It didn’t take them very long to figure out that video represented a huge new revenue stream for their movies. They just couldn’t see it because of this fixed idea they had about outright sales.”

Almost immediately after the Supreme Court’s ruling against the industry in 1983, Hollywood got into the video business. “They were all ready to roll with prerecorded videos as soon as the Supreme Court decision was rendered,” Cook said. “Within weeks of it, Fox, for example, had 150 titles in the market and was charging $150 each for them, and then over time prices dropped. They realized that volume was the answer here.

“By 1984, something like 60 percent of all Hollywood revenues were coming from video,” Cook said. “It had flip-flopped in half a decade.”

Over time, Cook is confident that movie executives will find or stumble on a business model that can coexist with file-sharing. He points out that media has a history of innovative business models; in the 1920s, the advertising broadcast model for radio was a very innovative idea.

But one thing probably won’t change. Even when everyone has wall-sized plasma screens at home, Cook predicted they still will want to go out to the movies.

“People are always going to want to go out and have the experience of sitting in a theater with other people,” he said. “It’s part of the thing, being surrounded by other people and hearing them laugh and sharing a common experience.”

This article is reprinted with permission from Knowledge@Emory, the Goizueta Business School’s free online publication.