Here we discuss what types of content sell best in digital, how the business model for online distribution of movies and TV is challenging old Hollywood and how Lionsgate is handling it, his approach to original content on the Web, and why Lionsgate's new TV show "Instantly Rich" is a "stimulus package for the television industry."
(For more background on Marvis, see the introduction to part 1)
Ben Fritz: Lionsgate more than other studios has strengths in some specific genres. Do you see any genre-specific differences? Does the horror stuff overperform in digital? Does stuff like the Tyler Perry films sell less than on other platforms? What do you see doing the best in digital?
Curt Marvis: It actually in many ways I think mirrors homevideo. I think you’ll see maybe an R-rated comedy like “Good Luck Chuck” or “My Best Friend’s Girl” that didn’t necessarily blow the doors off theatrically outperform relative to the box office on digital in a significant fashion. I think there’s a lot in that R-rated comedy area where we’ve seen tremendous success, both in homevideo and on digital.
Horror always does well on homevideo and the same on digital.
BF: But is there anything that does better on digital than traditional homevideo?
CM: Definitely the R-rated uncensored versions of comedies and even action movies. I would say there’s a few cases where it may do better digitally.
One interesting thing you find about digital is placement is so huge in terms of the performance of a title. That’s true at retail too – obviously you want an endcap at Wal-Mart or wherever it is. But an interesting thing that maybe somebody will figure out – we didn’t do it at CinemaNow and I haven’t seen anybody do it yet – is I still make the argument that browsability is still superior in the retail environment than online.
We found it’s amazing people watch what’s either on the home page or the first page of the specific genre or category they go to. Very few people start to click through pages. If you go into a Blockbuster or Best Buy it’s actually much easier to take a broad swath and look over and go, “You know, I haven’t seen ‘Chinatown,’ I’m going to buy that movie.”
BF: So you think there’s still a lot of work to be done on user interfaces?
CM: Yeah, honestly I don’t know the best way to do it, but somebody’s got to figure out a more effective way to – Netflix has done a great job of it through the collaborative filtering and personalization. There’s still I think, just like Google came up with a simple way to search, somebody’s got to come up with a simple way to browse a movie library in a more effective fashion.
BF: In terms of the online digital distributors, who do you see doing really well? iTunes? The video game consoles? Amazon? Is there anybody you’ve been particularly impressed by or anyone who hasn’t done as well as you thought?
CM: Well iTunes obviously is the number one retail partner that we have for digital distribution. I’m sure it is for every studio. There are many reasons for that.
I do think that, as you’re well aware, there is device after device that’s starting to come into the marketplace. I think Amazon just announced integration with the Roku. Getting to the living room has been a holy grail that hasn’t been achieved by anyone in an economical fashion.
Clearly the new boxes from the cable and satellite providers are going to allow IP distribution. The television monitors are going to connect directly to the Internet. As that starts to happen I think you’ll see a leveling of the playing field.
But with that said, I don’t think you’re going to see see 50 different really successful e-tailers. I think you’ll see a small number you can count on one hand.
Netflix is clearly becoming a much stronger company with respect to digital distribution. Obviously iTunes.
The thing that is clearly a force in digital are the game devices. I think when we see “Wii” come into the market with the ability to stream movies, which I think is maybe going to happen as soon as this year, I think that’s going to be a big marketplace for digital distribution.
We’ll see what happens with the traditional providers. Clearly what we’re doing with Epix, our movie service, we’re launching it initially on digital because we see an opportunity for Epix in terms of digital distribution.
BF: As you know there’s a lot of debate as to whether you can bring the same pricing and model as there is for packaged media to digital. Do you think you can maintain that pricing? Are you looking at models where the pricing can be lower where the costs are lower? Can you get better margins in digital?
CM: Clearly there’s a better margin in digital. That’s certain. The question is how far can the wholesale price effectively come down so that you net out at the same number? What sells at retail at X dollars can sell at X-minus-some percent just because of the cost of goods, returns, stocking, etc.
With that said, it’s still almost too early to tell what’s going to happen on a pricing model around digital. I think everybody knows we’re not going to get back to the $89 or whatever it was when the DVD and VHS first came out.
I think it’s going to be interesting to see what evolves in terms of the windows. Clearly certain studios have chosen to collapse the windows very aggressively. We’ve been in more of a testing mode. We’re still trying to figure out what the impact is on sell-through as opposed to rental, whether it’s a shorter window or day-and-date. We’ve done a lot of testing with iTunes for our library that’s been very successful around price points, placement, etc.
That’s the evolving marketplace that everyone’s concerned about but I think there’s a lot of opportunity as well. Certainly the margins are phenomenal. If you have a large selling title and you sell 50,000 units in sell-through, your cost of goods is really delivering the file to the e-tailer and you’re done.
BF: You were talking about stuff getting into the living room. On the TV side, whether it’s your studio or Epix, there’s been a lot of concern and talk about people canceling cable because they can use a game console or other device to connect the TV to the Internet and use Hulu or ABC.com or whatever. Obviously most of your shows are on cable, so the subscription model is key. Do you have thoughts as to whether people should have to pay subscription fees to get their content on the Internet? Or does TV have to be free online and does that destroy the TV production business model?
CM: We’re thinking about that a lot. That’s the $100 billion question that nobody really has a complete clear answer to right now.
I think – there are several things we believe as a company. First of all, there have been multiple consumption models around content for a long time. You can take that same movie people have paid money to watch it in the theater, DVD, HBO, free television and then in syndication then through library use. So we don’t really see that changing. I don’t think there’s going to be a seismic change where suddenly digital distribution obliterates all other forms of movie consumption. That’s what everybody thought when VHS first came out: Movie theaters were going to go out of business. That hasn’t happened.
We’re big believers that digital is an additive part of the whole ecosystem. It’s not going to be a nuclear bomb on all other forms of consumption. So that’s a key belief.
In addition, where maybe you took one title and you had a dozen different modes of monetization of that title through it’s windowing chain – That’s now extended out so that maybe there’s 50 different ways you’ve got to monetize the title. Including mobile phones. I just got back from the mobile conference in Barcelona and I can show you video on the phone that’s incredible, the quality of it.
So what we’re really focused on is saying, “OK, here’s title X, whether it’s theatrical or television. Are we maximizing every single possible way to eke out the distribution of that title across the food chain?” My joke now internally is, you know Zucker’s famous analog dollars to digital pennies, I’ve got to figure out how to turn analog dollars to digital dollars.
And it might mean that digital dollars is made up of a lot of different subsets to be able to get there. But at the end of the day you’ve got to be focused on reaching an equal or better form of revenue generation.
It is true that digital revenue, because of margins, you might be able to do – and I’m making this number up -- $60 million or $80 million in digital revenue that’s equal to $100 million in traditional revenue, because of the efficiencies of digital distribution. So theoretically we could see top line drop off a little bit with profitability actually increased.
But that’s what every content creator in the world right now is trying to figure out – how to make that transition more successful than the music labels have been able to do it to date.
BF: Along the same line, do you think about producing for digital outlets. You talked about your SMS TV show deal. Some studios are making shows for the Web.
CM: We’re definitely looking for original Web-distributed production. With that said, everything we do is cross-platform. If you came in and pitched me an idea right now and the only outlet for it was online, I wouldn’t be interested.
If I thought it could go online and then possibly turn into a traditional television series that could go on Epix or maybe be made into a movie or distributed over mobile or maybe sell board games, then I would be interested. It’s no different than the way we would look at a TV show being able to go in the other direction. We never look at digital series unless we feel that they have validity going back the other way.
BF: So you are in a sense also serving a little bit as a production executive?
CM: Absolutely. We’re looking at projects right now – There’s one we haven’t announced yet that’s going to involve pure digital content creation. We’re going to be announcing it this month at South by Southwest.
So there’s some things that we’re definitely dabbling in. I think everybody knows there’s not a lot of money there yet. There hasn’t been a lot of success with a lot of these companies going out and trying to make real productions happen on the Web. So we’re cautiously proceeding in that direction.
If you take a show like “Instantly Rich” – the way we look at that show, that’s a stimulus package for the television industry that we’re giving right now because the business model around it involves the SMS business which is a $120 billion industry. So as everybody looks and says traditional advertising isn’t going to support television the way it used to, then let’s focus our efforts on figuring out ways to do that. That’s why we’re so excited about the program because it harnesses a completely different revenue engine and combines it with a traditional revenue engine and probably ends up with something that makes much more money for everyone.
BF: So you’ll be going to networks with a business model intact. Not, “Here it is, go sell ads?”
CM: it’s driven by a holistic approach that leverages the cell phone.
BF: Speaking of digital distribution – Do you have a majority share of Break.com?
CM: We own 42% of Break.com
BF: When you think about doing digital, are they your outlet? Or are they doing your own thing that may or may not be compatible with what you’re doing?
CM: They’re kind of doing their own thing in terms of the day-to-day operation of the business. We’re involved with them all the time. Keith Richman, who’s the CEO of Break, has done a phenomenal job of creating – that’s a difficult space to work in and maintain growth and relevancy. He’s done that. So we continue to have high hopes for Break.
That audience of 18-34 year-old males is very much in sync with the audience for a lot of the content we produce here. So I would say it’s not a passive investment by any stretch of the imagination. We try to help Break and vice-versa.
Coming tomorrow: Why did things end the way they did at CinemaNow and what are the lessons for the digital media industry?