That’s show biz: The value propositions of bookstores and movies
April 12, 2014 | 5:35 am
Sometimes when I’m trawling through the news, I run across unrelated posts that form an interesting juxtaposition. Here’s one concerning the very similar way that technological change has affected two entirely different industries.
First, Dan Meadows (not a close relation as far as I know) has an interesting pair of posts relating to bookstores, publishers, and their respective value propositions. In the first one, he talks about bookstores and publishers in general. The services these institutions offer hasn’t changed—bookstores still have about the same number of books, publishers still offer the same services—but because people suddenly have even better alternatives, they’ve gone from being nearly the only game in town to distinct also-rans.
When you hear people talk of the role of bookstores and their value to society, ask yourself, are they referring to the value they offer right this moment or the value they offered a quarter-century ago? Same with publishers. Is what they do today valuable or are they still treading on what they did that was valuable two or three decades ago? It doesn’t matter that Borders had a great selection of books that made people happy to shop there in 1995. They’re bankrupt and gone now, not coming back. It doesn’t matter that publishers frame themselves as great curators of the written word because of their gatekeeping of the past. Their gates have been kicked down and trampled into the dirt.
In the second post, he focuses on bookstores, and how some of the rhetoric he hears surrounding them suggest that they’re looking for someone to come in and save them rather than trying to figure out how to stand on their own. He also cautions against reading too much into how the publishers are suddenly cozying up to bookstores as a buttress against the Big, Bad Amazon Wolf.
The publishers are also out there saying nice things about protecting bookstores and you’re importance. But why in the world would you believe them? Not long ago, they sold all your asses out to the big box stores and discount warehouses, quite literally putting a Target on your back. The carnage got so bad and so prevalent, it became the subject of a Meg Ryan/Tom Hanks rom-com, for God’s sake! Did you forget all that? Just block it out of your memory once they started complimenting you again?
You know why publishers are being so nice to you right now? They need your shelf space to prevent a mass exodus of writers because brick and mortar print sales are the last value hook they’ve got to hang their own hats on. The second they don’t need you anymore, they will throw you out like last week’s trash. They’ve done it before. At nearly 40 years old, one of the things I hold as a near immutable fact of life is that if someone has the will to do something to you once, if you give them the chance, they will do it to you again. Publishers are not your friends, not even by association. I’d have thought the past couple decades would have taught you that only too clearly.
It makes the indiscriminate Amazon hatred many of you show even more absurd. You should be thanking Amazon. They did you a massive solid by killing your most immediate threat, the big box stores. Amazon bought you crucial time to figure out a way to adapt and survive. If you’re just gonna sit around and bitch that people aren’t buying books like they used to, you will get burned. It might be Amazon that gets you, or the publishers. And that’s only if your own so damn customers don’t burn you first.
Dan suggests that bookstores need to figure out their new value proposition for the modern era—what they have now that should make people want to use them rather than Amazon—and emphasize that. They should probably do it soon, before they go the way of record stores.
Of course, we’ve known all this for a while, even if Dan does put it particularly well in his posts. But the more interesting thing is contrasting it to the other post I found, Lynda Obst, known for producing a number of famous movies including The Fisher King, Sleepless in Seattle, Contact, and Hope Floats, has written a book on the changing times of Hollywood, and Salon has an excerpt.
Obst talks about how Hollywood has changed from the “Old Abnormal” way it was when she started in the industry to the “New Abnormal” it is today, and in this excerpt she focuses on Netflix and its ilk—the streaming video that has enticed people away from buying DVDs. She recounts a conversation with another veteran Hollywood producer, Peter Chernin, about the way things have changed over the last decade.
It’s funny considering how hard the movie industry originally fought against the adoption of the VCR, but in the years that followed, home video began to account for a significant portion of Hollywood’s profits. According to Chernin, up until 2005, DVD release accounted for as much as half the profit margin of any Hollywood movie. (I would be inclined to be skeptical, given that I’ve heard that no movie ever makes a profit in Hollywood, but for the sake of the post I’ll accept his contention that some actually do.)
“The movie business,” Peter said, “the historical studio business, if you put all the studios together, runs at about a ten percent profit margin. For every billion dollars in revenue, they make a hundred million dollars in profits. That’s the business, right?”
I nodded, the good student, excited that someone was finally going to explain this to me.
“The DVD business represented fifty percent of their profits,” he went on. “Fifty percent. The decline of that business means their entire profit could come down between forty and fifty percent for new movies.”
And, since 2008, people have by and large stopped buying DVDs (and presumably, though the name never explicitly comes up, Blu-rays). And piracy is only part of the issue:
There it was. Technology had destroyed the DVD. When Peter referred to the “transition of the DVD market,” and technology destroying the DVD, he was talking about the implications of the fact that our movies were now proliferating for free—not just on the streets of Beijing and Hong Kong and Rio. And even legitimate users, as Peter pointed out, who would never pirate, were going for $3 or $4 video-on-demand (VOD) rentals instead of $15 DVD purchases.
Further, Chernin notes, without these DVD sales, studio heads have told him that they have no idea how to run a profit-and-loss statement—a key metric when it comes to justifying the financial outlay of a new movie—in today’s environment. They’ve been washed that far out to sea by Netflix. Consequently, if Obst and Chernin are to be believed, these old-guard movie studios currently exist in a state of paralysis, uncertain what to do so unable to do anything at all by comparison to the old days.
They’re frozen, so the gut is frozen, the heart is frozen, and even the bottom-line spreadsheet is frozen. It was like a cold shower in hard numbers. There was none of the extra cash that fueled competitive commerce, gut calls, or real movies, the extra spec script purchase, the pitch culture, the grease that fueled the Old Abnormal: the way things had always been done. We were running on empty, searching for sources of new revenue. The only reliable entry on the P&L was international. That’s where the moolah was coming from, so that’s what decisions would be based on.
And publishers think that they have it bad. At least they’re not too uncertain of the exigencies of the current market to know what books to publish at all.
This might also explain why the current string of hit movies everyone is talking about, and I just lately went to see one of, came from outside the traditional Hollywood movie system. As Marvel Comics licensed the rights to its comics to various movie studios for movies like X-Men and the Spider-Man series, it noticed that “[its] shares rose as movies opened and fell when there was nothing in the theaters. But the company couldn’t order Sony to put out the next Spider-Man film. Movie release dates would get postponed, and investors would dump Marvel’s stock.” So it created its own movie studio, and the Marvel Cinematic Universe was born.
So there you have it. Movie studios are in the same boat and up the same creek as book publishers, but they don’t seem to have as many paddles that publishers do. It’s understandable why they would have it worse. E-books are still sold piecemeal the same way books are, so publishers are still making some profit out of them. But all-you-can-eat streaming sources like Netflix have upset the apple cart with their cheap stream-as-much-as-you-want offerings. Tens of thousands, hundreds of thousands, or maybe even millions of people are watching popular movies, and the studios just got that one license fee. If the movie studios had been thinking clearly, they probably wouldn’t have so blithely licensed so many titles at the outset.
Perhaps this explains why the streaming media providers seem to keep losing titles from their libraries. Studios are seeing these providers severely affect their bottom line and are trying to claw back some of the DVD revenues for their most popular titles. At least with that $3 rental, they’re getting something out of the movie watch.
Of course, there’s not so much they can do about BitTorrent, or sites like viooz.co putting up some of their most popular titles free. That horse has left the barn already. Maybe it’s time the movie studios looked for their own value proposition, but all they can seem to find right now is making something 3D and then charging through the nose for it.