Growthology

Unrestricted Consumption: Developments in Digital Rights Management

Via Mark Thoma, Joshua Gans reports on JK Rowling's Pottermore website and the planned distribution of Harry Potter eBooks. Rowling has negotiated with the big distributers (Apple and Amazon, etc.) to sell the eBook exclusively through Pottermore. There is clearly a strong profit motivation for Rowling, a superstar author with a large following, to try independent distribution and minimize revenue sharing. But the big deal for consumers is that when buying through Pottermore, the eBook will reportedly be transferable across devices. Comments to Gans’s post point to other examples of the transferability for eBooks, depending on the distributor. I think the real breakthrough is that Pottermore defaults the consumer to purchasing a device-independent file by forcing some distributors who don’t offer this to send the consumer to Pottermore, which does.

Rowling’s foray reminds me of comedian Louis C.K.'s experiment with independent distribution.

Traditionally, one of the ultimate career achievements for most stand-up comics has been to sign for an HBO (or similar) stand-up special. Under these arrangements, typically the performer is paid a fee for a performance, and HBO produces and pockets most of the profits from the sale of the show (the theatre tickets, the revenue from airing the taped special, and DVD sales). Unfortunately for comedy consumers, HBO puts a lot of restrictions on the consumption of the special (limited TV airings and typically high-priced DVDs with regional restrictions).

In 2011, Louis C.K. decided to try something different. He produced his own special and released it DRM-free on his website. For $5, anyone can download a video file of the special playable on any device, without restrictions—the file can be copied, burned to DVD, etc. Many warned that Louis’s distribution method wouldn't work without a studio backing the release, and that without any DRM, the video would quickly be pirated. C.K. reported the experiment being an overwhelming success, with the special generating over a million dollars of sales within 12 days. It has surely made more money since then (full disclosure, I purchased the special the day it was released and thoroughly enjoyed it).

I imagine Rowling will enjoy similar success. Both C.K. and Rowling have large, dedicated fan bases. C.K. stated that at least part of his motivation was to avoid DRM and make it simple for people to enjoy his production. I do not know if Rowling has similar motivations, or if it’s more about building the Pottermore brand.

I am hopeful that developments like Rowling and C.K.’s will further nudge industries that deal with electronic media to adapt to a world where marginal costs of delivery are low and consumers own multiple products designed for media consumption, needing easy transferability of content between them.

If you think of this in terms of entrepreneurs versus the incumbents, the C.K. and Rowling situations clearly are outliers due to their fame. But they can serve as needed reminders to startups, even if you have only a fledgling flock of customers. If you build good relationships with your customers and want to work around or outside an established industry structure, you can leverage your customer loyalty to deliver something you both want—for your customer, a higher quality product and service experience; for you, being able to do things your own way, and profiting because of it. Lean Startup is a recommended book from many of my colleagues here at the Foundation that talks about the importance of knowing your audience. Delivering Happiness, the Tony Hsieh and Zappos story, is a good read and an example specific to successfully revamping your product distribution and delivery model.

 

Predicting Sci Fi Movie Returns

Guest post by Charles Johnson

In the latest issue of Esquire, there’s a fascinating profile of Sam Worthington, the leading actor of James Cameron’s new, $300 million dollar film, Avatar. (The trailer looks downright amazing.)

Apparently, Cameron wanted the Australian actor to play the part, but the studio opposed this casting, as they hoped that a big name actor might draw more people to the film and help recuperate their initial expenditure. After much discussion, Cameron got Worthington to play the part.

The real question, though, is why did they think that a big name star would gross more money?

What if stars and the director are totally irrelevant? And that all that matters is the story? So are the findings of Epagogix, a British firm that uses neural networks and scanning scripts, makes a tidy sum predicting with uncanny accuracy. (You can read all about their work in Malcolm Gladwell’s article or in Ian Ayres’s book, Supercrunchers.)

So if Epagogix finds that the story, not the stars, masters most to a box office return, and they predict box office returns better than the studios, why do studios continue to insist that pretty faces are what gets people to see the movies?

If history is any indication, sci fi films tend to do well based upon how good of a world they have created, not on the value of the actors that are in them. Star Wars, E.T., and Jurassic Park all come to mind. Most recently, District 9, put together on a shoestring budget of $30 million dollars, grossed $37 million opening weekend, without any big name stars on its payroll. As of right now, it has grossed over $81 million and continues to grow. 

The gains don't seem to be limited to sci fi. Another film, Slumdog Millionaire, grossed over $375 million worldwide on a budget of $15 million, with totally unknown actors. 

So why haven't studios gotten around to realizing that star power is limited and why haven't wages for moviestars adjusted? Is there a lack of entrepreneurial studio executives?