YouTube, the Internet, and the Future of Movies
Abstract
Like many popular consumer products and services, the internet was first developed as a tool for the military. While some argue the true origins of what we now call the internet, many contend it was first developed in 1969 for computer research by the Defense Department (Histories of the Internet, para. 1). Others maintain the internet of today was spearheaded by DARPA in 1972 by utilizing the idea of open-architecture networking (Histories of the Internet, para. 3). Regardless of which implementation can be credited with the creation of today’s internet, both achievements aided in the creation of the largest collaboration effort and information repository in the history of humanity.
For users, the internet provides significant opportunities to share information instantaneously to an audience encompassing nearly 29% (roughly 1.97 billion) of the world’s population (Internet Usage Statistics, usage tbl). In the last ten years, the adoption rate of internet access has increased over 444%, adding roughly 200 million users each year, increasing the effective audience for content publishers. The popularity coupled with the inherent efficiencies of the internet has transformed not only how we collect, distribute and interact with information; it has transformed the way we do business. This case study explores the ways in which the internet has challenged the traditional practices of the media industry, specifically the broadcast and motion picture industries.
Introduction
The internet has changed the way we approach business in many industries. The rapid adoption, constant technical advancements and evolving delivery methods have increased efficiencies, opportunities and pioneered new industries. Users, companies and industries that do not adapt quickly, run the risk of being left behind. One such example is the struggle the music industry has had battling piracy and the integration of electronic content delivery within their more traditional distribution networks. The inability of major record labels to recognize the emerging opportunities of the internet has proved to be costly. The RIAA estimates the music industry loses roughly $12.3 billion annually to piracy and indicates additional costs (For Students Doing Reports, para 2):
- 71,060 Lost Jobs (United States)
- $2.7 billion in lost workers’ earnings per year
- $422 million in lost tax revenues per year
- $291 million in personal income tax per year
- $131 million in lost corporate income and production taxes per year
It is my opinion that the lack of a viable delivery method caused the growth of music piracy among internet users. The introduction of music purchasing services such as iTunes and Amazon have proved users will purchase content that is reasonably priced, easily accessible and provides increased publishing capabilities to personal media devices. The technical frameworks of these services, coupled with advancements in digital rights management, aggressive marketing, pricing and selection as well as intuitive profit sharing business models have allowed the music industry to increase revenue and market saturation while protecting their copyrights.
With the increased availability of internet access, specifically high speed connectivity, the broadcast and motion picture industry has begun to realize the adverse effects of the internet. As Laudon states, “Increased levels of high-speed Internet access, powerful PCs with DVD readers and writers, portable video devices, and leading-edge file sharing services have made downloading of video content faster and easier than ever” (Laudon, 2010, p. 117). While this allows the movie industry to capitalize on new opportunity, slow adoption, flawed delivery and pricing models have hindered early efforts. Due to this, free and often illegal video downloads currently outpace paid video downloads four to one (Laudon, 2010, p. 117). It is estimated that 23.8% of global internet traffic is infringing on content copyrights (Envisional, p. 2). The introduction of new services such as YouTube, Vimeo, Blip.tv, etc. provide the broadcast and motion picture industries with popular delivery methods…but are they sustainable?
Analysis
Today, the movie industry faces several competitive challenges. A weak economy, advancing technologies, interpretation/enforcement of copyright laws, and what I feel is the largest threat to the movie industry; electronic distribution. With the advancement of technology and development of so many personal media devices (smartphones, tablets, laptops, media centers, internet connectable televisions, etc.); this broad delivery method has challenged the more traditional VHS, DVD, Blu-ray circulation mediums. A few of the electronic channels threating traditional business are:
- Online Media Stores (iTunes, Amazon, etc.)
- Video Streaming Services (YouTube, Vimeo, etc.)
- Subscription based Rental Services (Netflix, Blockbuster, RedBox)
- BitTorrent Services
- Hosted File Sharing Services (HotFile, RapidShare, 4Shared)
The introductions of online stores such as iTunes and Amazon have brought both opportunity and challenges to the movie studio. While this channel reduces production costs, operating expenses and reimbursement timelines, it has required the movie industry to adjust release timelines, reduce markup, and has restricted the control of distribution. The typical lifecycle for movie productions followed a standard release schedule. The first three months the production is presented in box offices, DVD release followed within six months and premium cable (Showtime, HBO, etc.) a year after initial release. To combat electronic piracy, studios must release digital content in conjunction with traditional DVDs. Due to the delivery method, the studios earn less money on downloads than physical media. By releasing the media on both channels simultaneously, it reduces the ability of individuals to purchase the DVD, decrypt the movie and publish to a piracy source.
In February 2005, YouTube was created and subsequently changed the landscape of internet video. However pure the intentions, the popularity of the service skyrocketed and copyrighted material began to surface. This proved to be a significant resource and burden to content publishers. This new distribution channel provided amateur, non-profit and non-traditional publishers the opportunity to showcase work to the ever growing internet audience; however it became an uncontrollable infringement liability for professional publishers. YouTube measures to discourage its users from posting illegal clips included limiting the length of videos to 10 minutes and removing videos at the request of the copyright owner (Laudon, p. 117). While these efforts curbed some content infringement, controlling user generated content is considered one of the most difficult things to accomplish on the internet. To aid in the efforts to reduce copyright infringement, YouTube introduced a system to compare uploaded videos to a database of copyrighted content. This newly created service coined Video ID was unable to prevent legal action.
Recognizing the potential losses services such as YouTube could cause, copyright owners took action against YouTube. In 2008, Viacom claimed that over 150,000 unauthorized clips of its copyrighted television programs appeared on YouTube in a federal lawsuit (Laudon, p. 117). This lawsuit was rejected in June 2010 in a summary judgment which stated that Google was protected by provisions of the Digital Millennium Copyright Act.
Currently, several movie studios and television networks utilize the YouTube service to promote new releases and shows. With over two billion (yes…2,000,000,000) video views daily, YouTube provides significant opportunity for publishers to generate excitement about products, services, shows, movies, etc. without a significant marketing investment. In addition, publishers are now able to generate ad income from uploads and while there has been limited success, this additional revenue stream will continue to grow as does the YouTube audience.
Recommendations
The partnerships between content providers and distributors benefit the entire entertainment industry as well as the end users. Using the internet as a delivery method, producers are able to streamline their revenue sources and distributors are able to implement advanced technical frameworks to protect copyrights while increasing the user experience. In my opinion there are several opportunities that still exist in the marketplace that have yet to be capitalized. Some of these include:
- Industry wide subscription models
- Ad supported BitTorrent profit sharing
- Device wide content streaming
- Personalize content delivery
In the marketplace, there are several subscription based services that currently exist. Unfortunately, due to the fear of market cannibalization studios and television networks are unwilling to share content. Services such as Hulu allow users to stream television content directly to their internet connectable devices such as televisions and computers; however, the content is limited to specific networks. I feel all providers would benefit from a single source/service distribution which provided tiered service levels. For example, a free service that restricts the number of hours per month that is also ad supported a paid service in which the time restriction is lifted but still contains ads, and a paid service that removes ads and time restrictions. In my opinion, a fragmented market reduces the effectiveness of content providers ability to reach the broadest audience.
Other considerations to a service of this magnitude are the demographic, psychographic, as well as technical metrics that could be collected. These metrics would allow studios/networks to analyze usage data that is more detailed and accurate than what is currently at their disposal.
Another area that content providers should continue to develop is the personalized user experience. Netflix has implemented a service that will provide movie suggestions based on the user’s previously selected movies and ratings; however, I do not feel this service has matured appropriately with market potential. Utilizing user preferences, the entire experience of selecting, watching and discussing content, as well as the user interface should be personalized. By increasing the personal involvement the end user has when using these services, the fee margin, customer loyalty and participation will increase.
Conclusion
While the increased pressure of the internet has hindered profits in the movie and music industries, I feel it has created an opportunity that far outweighs the disadvantages. Through the use of various technologies such as the internet, powerful computers, emerging devices, etc. content providers can utilize various digital channels to diversify their revenue streams. As Laudon states, “distributing movies online offers movie studios some cost-cutting benefits, including avoiding expenses from handling distribution themselves and from returned products. It may also allow movie studios to earn revenues where their products might otherwise have been distributed illegally” (Laudon, p. 118).
References
Leiner, B, Cerf, V, Clark, D, Kahn, R, Lynch, D, Postel, J, Roberts, L, Wolff, S, & Kleinrock, L.
Histories of the internet. (n.d.). Retrieved January 20, 2011, from http://www.isoc.org/internet/history/brief.shtml
Internet Usage Statistics. (n.d.) Retrieved January 20, 2011, from http://www.internetworldstats.com/stats.htm
For Students Doing Reports. (n.d) Retrieved January 22, 2011, from http://www.riaa.com/faq.php
Envisional. 2011. An Estimate of Infringing Use of Internet. Retrieved January 23, 2011, from http://documents.envisional.com/docs/Envisional-Internet_Usage-Jan2011.pdf
Laudon, K, & Laudon, J. (2010). Management Information Systems. Pearson Education Upper Saddle River, New Jersey.
thank you for this.. by the way, your layout is great.