4. Current Challenges In The Film Industry
This section is for those who want to have an understanding of the actual challenges currently facing the Film and media industries. Consider it an overview of a very complex subject.
4.1 – Access To Audience And Barriers To Market: Since the year 2000, and the advent of digital technology sufficient to stream video of acceptable quality, a number of changes have occurred in the industry which have made it more difficult for producers to get to market. The major studios, of which there are only six, control either directly, or through contractual relations, virtually all distribution in North America and a good part of the rest of the world
Regardless of the quality of a Film, a producer or any independent distributor or streamer, is effectively hampered or barred entirely from reaching its audience. On the other hand, audience is denied access to original motion pictures and other media products. The effect, of course, is to keep any Film producer whom is not owned by the MPA, in a state of poverty. It also suppresses free exchange of ideas and artistic concepts.
The free exchange of ideas is the lifeblood of the Film industry, as well as the basis for freedom of thought, freedom of speech and liberty for all humanity. It is not overstating the case to say that the current centralized control over media threatens the very existence of democracy and freedom throughout the world. The controlled access to audience and the market barriers erected by major studios is intolerable, and must be circumvented, in fact, it must be defeated entirely.
4.2 – More Barriers To Entry: The inability to reach an audience without the participation of a major studio, or in some cases a social media platform, exacerbates other barriers to entry into the film industry. Another important but often overlooked barrier to entry, which also interferes with access to audience, is the de facto control by major Studios of theater (cinema) screens. This is due in part to overt and behind the scenes industry arrangements between the Studios and theater chains, and in part to the industry culture that has evolved because of those controls. Cinema operators typically refuse to carry films which do not have extremely high marketing budgets attached to them. This means, effectively, that most producers are denied the any word-of-mouth that is the major benefit of a theatrical release.
4.3 – License Fee Reporting and Payments. The current distribution and payment paradigm, again resulting from top-down major studio controls, denies the film producer the ability to see receipts, or even examine accounting in most cases. Film receipts are collected at numerous places in the distribution pipeline. Some of these cross international boundaries which allow the Studios (which are transnational corporations) to account differently in different jurisdictions, but which are practically and legally opaque to the original producer. In practice, the producer takes on all the financial risk of the Film, and in most cases hands it off often without any advance payment to a distributor controlled directly or indirectly by the Studios. In other cases, the few remaining independent distributors, also typically take the film product without making any up front payment. The producer is then required to wait for many months to several years before receiving any payment. The producer’s practical ability to track actual Film receipts is nonexistent.
In other words, the independent producer creates a product, and the distributor, including the Studio distributor, get that product for free. They share receipts, of at all, only when they feel they must.
4.4 – Film Finance: Film is a very expensive enterprise, even at the so-called low budget levels. However, the Studios have maneuvered so that financiers and investors insist upon Studio being partnered either as Executive Producer or as distributor before even considering any funding arrangement. The producer is therefore restricted to novel ways of raising funds, such as locating private equity through accredited investors, or selling the Studios the Film before it is even created. The latter happens, of course, only if the Studio feels the Film fits with their current catalog and image. In some cases, they may even take on a Film simply to kill it - ensuring that it never gets to compete with their own fare.
“Studio” and “Studios” in this White Paper means one or more members of the Motion Picture Association cartel (MPA), or one of the AMPTP member companies, which are in fact directly or indirectly controlled by a member of the MPA. The MPA cartel controls access to audience, finance and distribution through direct or indirect ownership or contractual controls through these groups.
4.5 – Distribution Generally: There is an urgent and serious need for a Direct To Audience delivery pipeline. This would benefit both Film producers and audience. Currently, distribution avenues in the traditional sense are disappearing. The Studios are pulling away from outside streaming services to their own proprietary platforms. They see no need to be on services which might feature Films which they themselves do not control. With some of them having nearly 100 years of history behind them, they have catalogs large enough to sustain revenues while producing small numbers of Films. Producers try to avail themselves of smaller independent streamers, but most of those streamers have actually been purchased by major studios, and either do not take independent content any longer or through their own algorithm use that content to generate traffic which they bait and switch to their own Films. Amazon is blatant in this, and Netflix is known to pay tiny license fees for a successful independent Film, then to use the traffic it generates to switch audiences to it’s own preferred content. Amateur platforms such as YouTube have always done this.
4.6 – Marketing And Getting Heard Above The Noise: Traditionally, initial marketing for a Film was up to the producer. However in the 1960s through the 1990s Film distributors would expend sometimes significant sums of money and effort to market Films for which they purchased licensing agreements (and during this period, they also paid an advance on royalties). Since the 1990s and especially after the year 2000, distributors spend less and less, usually nothing, to promote non-Studio Films. Major Studios of course spend millions of dollars on marketing for their mega budget fare. Any other Film producers, even when getting distributed to major platforms, are more less left on their own. Even if a Film is picked up by Netflix (for example), Netflix may only list it in its catalog, or simply use it to generate traffic for its own shows.
Social media is a greatly misunderstood marketing outlet, though it is often thought to be one of the most important ones. Practically speaking, when you market on social media, you are not marketing to the world. You are marketing to a restricted subset of users on that particular platform. In other words, if you market on Instagram, the only people you are marketing to are those whom the Instagram algorithm permits to see your post. Therefore, social media marketing has far less impact than many people assume.
If major Studio ideas valued storytellers and artists rather than corporate accountants, the audience would not be subjected to continual reboots, reruns and rehashes of previously produced films. Generally speaking, independent producers are good at creating Films which reflect original and diverse viewpoints, and the Studios are not, being increasingly focused on repetitive and out-of-touch formulas and reworking IP they already own.
4.7 – Audience Choice Is Limited: The de facto Studio monopoly over media distribution necessarily limits the audience to only Studio ideas, Studio voices and Studio statements. This is intolerable in any environment which values free speech and freedom of thought. It is intolerable in any population which values the free and open expression of ideas.
This does not benefit the audience. A Direct To Audience distribution paradigm (that is, direct from producer to the audience without interference of distribution or corporate gatekeepers) is required.
4.8 – Product vs. Content: There is a tension between an expensive and difficult to produce Film, which is a commercial product, and ephemeral, free, community-generated content. The latter, such as you see daily on TikTok, has a place in social media. But it is not valuable enough for an audience to pay for. Film is valuable enough for an audience to pay for. The Studios make billions of dollars charging audiences one way or another to see their commercial product. Their control over distribution keeps Film producers from doing the same.
The MRT and the Filmpod facilitates a Direct To Audience connection between producer and consumer of a Film.
5. History Leading To The Current Film Environment
This is a very brief, incomplete history of the development of the film industry, focusing of course on the North American industry we all refer to as Hollywood. It is not intended to be exhaustive in any degree. It is intended to familiarize those who are completely in the dark as to how this industry has developed to its current state.
5.1 – Film To 1948 Overview: The motion picture as a commercial enterprise really got going in the early 1900s and became a global phenomenon very quickly, on into what we now call today the Silent Film Era. In the early days, film was created by individual producers and often a financial partner. They would often write and direct their own production and then be responsible for exploiting that production to make a living. It was common to create a film and take it on the road, renting theater stages one after another. In this way, a film would make money over time, and word-of-mouth would be built at a grassroots level. This paradigm is the origin of the label "traveling roadshow". It required visionary entrepreneurs, a group which is still required today in anything but major Studio Film. As film became more popular, theater stages began to turn more and more to be film exhibitors, and dedicated cinemas began springing up. These dedicated cinemas were independently owned. Larger studios, including Goldwyn, Metro, Meyer, United Artists. RKO, and many others, grew and merged in the 1930s and 1940s.
Theatrical distribution is a zero-sum game. There are a limited number of screens available at any one time. So if a Studio has a Film on a screen, that screen is taken out of the market. Another Film is denied access to the audience, and the audience is not exposed to that other Film.
So the more screens a Studio can monopolize both increases Studio revenues, and decreases the revenues of other producers. Then, as now, every film with different and audience reaction to any particular film was unique. the Studios saw as a means to control the market, so that the only choice and audience had was to see their Film. The quality of the Film was less relevant because it was the only Film entertainment available.
One can readily see the parallels to the environment today.
5.2 - The DOJ Antitrust Order: The Studios, including Paramount Studios, embarked upon unethical gangster practices which forced theater chains to take their films and refuse films from other producers. Independent Film producers were effectively barred from accessing audience. The unethical Studio practices were so blatant they resulted in an antitrust investigation. This in turn resulted in a 1948 Consent Order in a lawsuit styled The United States vs Paramount Studios, Inc., applying to all the Studios. The Studios consented to this Order to avoid being broken up. It restricted them from a number of unethical, monopolistic practices. This included owning theater chains and forcing theater chains to take their product.
5.3 – Independent Film Thrives Into The 1970s: With the Studios restricted in their practices, independent Film thrived. So the Studios began to compete in other ways. The “Studio System,” as it had been called, was slowly abandoned in favor of a new method of control: “Star System.” Essentially, Studios released their cadre of actors who had been contracted exclusively to them, colluded with talent agents to create an “A-List, B-List” paradigm among the now independent talent. The strategy included higher and higher budgets, higher profiles (and pay) for “stars”, and higher marketing budgets to justify both. While they could no longer force their product upon dealers through contractual means or direct intimidation, they had the financial might to persuade theater owners to prefer their films, since the marketing budgets and the film budgets themselves were so larger.
But in the 1950s 60s and 70s independent Film producers could access audiences. One would produce the Film, and put it on a roadshow, or obtain a theatrical release through an independent releasing agent. This was a golden age for independent Film, and brought many memorable Films into the culture. It is likely that any Film that you remember from that era was in fact created by an independent producer. Films such as Saturday Night Fever, Shaft and others, for instance were independent Films.
5.4 – "Sell-through" – A New Market: In the brick-and-mortar world of movie theaters and actual, physical “film,” distribution was expensive and sometimes complicated. With the advent of VHS tape, and inexpensive VHS players, the rental market and the retail “sell-through” market was created. Now, anyone could rent a film and watch it at home at their pleasure. They could also actually purchase their favorite Films and build their own library of movies. This was a boon to independent, non-Studio producers. One could create a lower budget film with the target audience, and one could get directly to that audience without going through the brick-and-mortar theaters.
5.5 – The Expansion Of Theatrical Zero-sum: Major Studios and their distributor subs in the 1980s and 1990s began what we now call “wide release.” This would be coast-to-coast release of sometimes thousands of screens for a specific Studio Film. Prior to this, one had to wait for film to come to your town. Now, Studio Film was available virtually anywhere within driving distance on the same date. This strategy expanded upon the big-budget strategy, and further ensured that theaters would prefer Studio Films over independent Films. Once the theatrical run was over, the Film would go to the sell-through market, rental market and television and it would not come back to theaters. So a theater owner would miss out if they did not get the major studio film when it was first released. This had the effect of course of restricting access to screens, and therefore access to audience, for the independent Film producer.
5.6 – MPA Studios Make "Independent" Films: One of the Studio answers to audience preferences became to find an independent filmmaker and fund them, but to own that Film. With this method, the already reduced number of screens available to independent producers became even more limited.
It was very clear that the audience overall preferred independent film as it had original ideas and less formulaic approaches. Corporations are uniquely incapable of original thought, and major film studios are no exception to that.
5.7 – Independent Film Is Locked Out Of Theaters: The last year in which an independent Film could realistically have a reasonable theatrical run was 2000. By that time, the major Studios had effectively blocked independent film from theaters with contractual relationships and behind the scenes deals, bolstered by the strategy of ever-larger budgets. One could still get a theatrical run, albeit limited, or one could make a deal with a major Studio distributor, but the Studio would take most of the receipts. Prominent producers such as Roger Corman, who had successfully made Films from the 1950s up until that time, increasing abandoned even trying to get a theatrical release.
5.8 – The Rise Of Netflix: Evolving from the brick-and-mortar film rental and sell-through market, Netflix took over the rental market with clever marketing and inexpensive rentals. Their rental by mail service for DVDs was a big hit for audiences because it was inexpensive and so very convenient. DVDs themselves were very expensive to produce at the time, and relatively expensive in the sell-through market. Crafty people at Netflix negotiated a lot of inexpensive deals for their rental service, and it seems that the rights they negotiated for in these deals left it open for the emerging market of streaming. In this, they outmaneuvered many otherwise experienced distributors and filmmakers, who felt such a market was going to be small, or never would exist at all due to technological challenges.
However in January 2007, Netflix launched it’s streaming platform. This capitalized on the new trend in Film distribution. Netflix drew upon its huge catalog of independent Film and Studio product that it had negotiated in its rental days, to populate its platform. Initially, the majors were skeptical about the Netflix model, but of course they did experiment with it themselves. Hulu, for instance, being created by a consortium of major Studio players, Sony launching its Crackle platform early on.
5.9 – YouTube And Copyright Infringement: In 2005, YouTube formally launched and using what by that time had become the standard internet model of economics, launched a platform based on user-supplied content. YouTube itself did not create anything. It simply provided a “free” service for users to upload their own videos and share it with others. YouTube would then monetize that video content, and keep the money.
You might consider this theft, and you would be right. But that was then, and it remains now, the main economic model for platforms such as YouTube (with or without video content). The model is to simply provide a structure (the “platform”) and invite the world to populate it with something and encourage them to bring traffic which you can then monetize in some manner.
In those early days, the law had not caught up with the technology of streaming. Taking advantage of this, YouTube tolerated, in fact encouraged by its actions, copyright infringement, because it generated more traffic. By allowing any and all content, provided to YouTube for free, it put the costs of acquisition and the risks of copyright infringement on the user.
5.10 – Aggregators & Marketplaces: Following the rise of YouTube and Netflix, a host of independent platforms grew up. Platforms such as a Vudu and Pluto grew up on independent Film. This differentiated their offerings from major Studio fare, and attracted growing audiences. Most all the new services uncritically emulated the NetFlix “subscription” model.
However, subscription fees were low and AVOD at the time was both technically difficult and a hard sell to advertisers used to television and print media. Therefore, receipts for these services were smaller than hoped for, and licensing fees available to pay Film producers for their Films was also small.
It quickly became the best strategy to get one's Film on as many platforms as possible. But, every platform had its own technical requirements and its own legal requirements, and its own specific legal contracts. And every platform had its own process for on-boarding Film, once it decided the Film was something that would fit into its catalog. It became onerous for the filmmaker to comply with myriad different requirements from so many platforms. This spurred the rise of the “aggregator.”
An aggregator was essentially a middle actor between a streaming platform and a Film producer. The aggregator would, for a fee, take a Film and place it on as many streaming services as possible, taking care of the various technical requirements and documentation for the producer. The aggregator would charge and up-front fee for this, and would also take a percentage of the receipts from those platforms, as if it were a regular distributor. The aggregator would handle the receipts and, in theory, would remit them to the producer, retaining only it’s own fees.
This structure effectively inverted the economics of the Film industry. Now, instead of getting paid for her product, a producer not only had to supply it without up-front payment to a distributor, but had to pay for the privilege of letting someone control their Film and the receipts it generated.
At this point, the full structure was in place to force independent producers to supply their Film to Studio controlled distribution, at no up front cost to the Studios or other distributors.
Of course, Studio films were (and still are) treated the same as ever: one paid license fees up front and ongoing percentages.
While many smaller platforms were building an audience, the two big names for professional producers were Netflix and the last one, Amazon, who had the money to promote its new service to everybody. These two, having a huge number of titles between them and spending untold millions on marketing, took the lion’s share of the market and the major destination for Film acquired by the aggregators. The aggregators quickly became one-trick ponies, relying almost solely on Netflix and Amazon. Even though neither NetFlix nor Amazon have ever paid much for Film licensing, the aggregators stopped pursuing other avenues for the films they represented, to the detriment of the producer.
5.11 – MPA Admits Netflix: In 2018, Netflix was admitted to the Motion Picture Association, begrudgingly, as the unwanted ginger among the Studio-distributors. As part of its preparation to join the MPA, Netflix and severely restricted its licensing of independent Film in 2017. The aggregators, which were all reliant upon Netflix for their income, went bankrupt. Distribber and Tag, which had been the destinations for non-Studio Films, were suddenly gone. While Netflix continues, to accept Films outside of North America, it effectively does not even consider non-Studio North American Film any longer, with few notable exceptions which are not relevant to this White Paper. Currently, NetFlix also restricts the number of Films it takes in Europe and elsewhere around the world. What it does take, it uses to attract traffic which it can switch to its own titles. This effectively turns any initial licensing fee into a marketing fee, and avoids payment of future licensing to those Film producers (because the views have been bait-and-switched to NetFlix’s own titles).
5.12 – MPA/AMPTP Purchase Independent Streaming Platforms: Around the same time the MPA and its subs directly or indirectly purchased most all profitable streaming platforms. Platforms such as a Vudu and Pluto, which formally focused on independent film, now showed the same Studio Films that could be seen on the major Studios own platforms. Independent Film was restricted and dropped. In 2019, Fox, which itself had been purchased by Disney, purchased TubiTV. TubiTV at the time had become the last bastion for independent film. It had created its own platform, on an AVOD paradigm, and showed predominantly non-Studio film, and in many cases digital re-releases of Studio films and older television. Since being purchased by Fox, TubiTV has been steadily shifting its algorithm to focus on Studio film and major network TV shows, albeit older titles, and has been steadily dropping independent Film. It has changed its algorithm to promote major studio fare, particularly Films owned by Fox and Disney. The inside word is that TubiTV will continue to prune its catalog of independent film until it is all but gone. In 2021, Fox purchased Marvista Entertainment, a formally independent Film producer, and designated that company, now a Studio sub, to solely produce “Tubi Originals.”
5.13 – DOJ Sets Aside 1948 Antitrust Order. In 2019, without articulating a sensible reason, the DOJ set aside what had become referred to as the “Paramount Decree” which had restricted the MPA and it’s members from certain unethical practices.
You can speculate how the MPA and it’s subs have behaved since.
6. Technological Changes Affecting Distribution & Receipts
Digital technology has changed most every industry and lifestyle on the planet. The Film industry is no exception. Here are some of the developments which affect current distribution and receipts in the film industry.
6.1 – Broadband And Global Distribution. Development of broadband delivery networks with low latency, and sufficiently robust to deliver high-quality video might be the most obvious technological development affecting Film delivery. Alongside this is the evolution of high quality audio and video codec schemes. These compact the copious data of video into smaller files, so that they can be delivered faster and with less loss in quality.
Producers can technically pursue a Direct To Audience distribution. But one challenge to Direct To Audience delivery is in the always limited number of simultaneous streams possible for a single. However, that challenge is getting less and less relevant. One can readily see what this capability does to the Studios who are fighting to control a producer’s access to audience on the one hand, and audience access to Film on the other.
Reliable broadband now permits a properly encoded Film to be delivered to the entire globe from one's own website. As a result, the major Studios are finally standing before the same precipice that the major music studios stood on about 20 years ago.
6.2 – The Music Industry Experience. Prior to the wide application of digital technology to music production, a small corporate cartel had iron control over music distribution worldwide, the same way as the MPA does over Film. Through the use of draconian contractual arrangements and outright intimidation, the major music studios kept any independent music artist from becoming successful unless that artist signed with one of them.
As technology developed, the music industry, very wrongly, decided that digital technology would help them put a further lock on the music distribution. They forced compact discs on a skeptical public and artistic community. For a number of years the only way to produce a compact disc in North America was through a single supplier who was beholden to the major music studios.
However, as the technology developed, and high quality MP3s became available, a music artist could distribute their work worldwide from their own website. Although it was more convenient to do so through a platform which was devoted to music, a single artist could make money on their own. Further, digital process enables a talented artist to produce studio quality albums from their own home.
When the technology arrived for independent music artists, the music cartel lost control over distribution. In less than five years nearly all the major labels had gone bankrupt. The industry sold out almost entirely and today the largest music distribution entity on the planet is Apple, which is, of course, a computer company not a music studio
6.3 – Film Is Hard To Create. The one saving grace for the major Studios is that unlike music, Film is exquisitely difficult to create. Even today, with both economies of scale and advanced digital processes, it is also exquisitely expensive. One cannot produce a quality Film by oneself in one's own closet, as can be done with music. Film takes many people with many special skills, even at what a modern audience has come to think of as low budget. This has saved the Studios up to now. But general economic factors and their own poor decisions are making the future very uncertain for the major Studios.
6.5 – Internet Economics: "content is free.” As the internet became commercialized, the observation "if you're not paying for the product, you are the product" came into use. As stated before, the economic model of business on the internet in many places is simply to provide a platform, usually an interface, and invite the public to populate it with content, for free. The platform then uses the traffic which those people bring to bait-and-switch on to things that it wants to sell them, or to monetize it in another way.
6.6 – Entertainment Product Is Not Free. The inevitable application of this economic paradigm to Film has had disastrous economic consequences for the industry, regardless of whether the producer is a major Studio or an independent. Film is an expensive product to produce, and it always will be. Somebody must pay for that product or else it cannot be created.
But not all media has been forced to go the way of free content. For example, up to now, the interactive gaming industry has been able to avoid giving away free product. In fact, the use of in game purchases and other merchandising integrated within the product has made it an industry that rivals the film industry in economic power.
The Film industry and the Film consuming audience must come to terms with the fact that Film must be paid for fairly, as any other product.
6.7 - SVOD Is A Loser In An On-Demand World. SVOD cannot sustain reasonable revenues for Film, with some specific exceptions. The reason is that most film platforms, including major Studio platforms and Netflix, seek a general audience. This means they are looking for a broad audience and trying to provide genres and entertainment across all audiences.
But audiences in an on-demand environment will binge-watch everything they want to see within a very short period of time. This means that on a general platform like Netflix, one must provide an ever expanding catalog of titles to satisfy a finite level of subscription fees. The result is that one must either lose money and go bankrupt, or pay Film producers less and less. Netflix has done both. Amazon’s streaming service has done both. Neither has ever been in a profit position (as of June, 2023, and NetFlix was over $14 billion dollars in debt).
The exception to this rule is a curated streaming platform. For instance, a number of documentary streamers keep only a specific number of titles, and rotate titles within that number. This allows them to bring in new Films for their subscriber base, while theoretically paying a somewhat reasonable licensing fee to the Film producer.
7. MRT Flow Of Receipts
