The Content Problem

Adam Ludwin Jan 15, 2012 Back to blog

In my last blog post I wrote about how, in the world of online media, viral hits are inevitable. They arise organically on platforms like YouTube with no top-down intervention.

Today over at AVC.com, Fred wrote about how movie studios are on the wrong side of history:

"Restricting access to content is a bad business model in the age of a global network that costs practically nothing to distribute on."

I agree, but let's dig in a bit more. Scarcity is not only a "shitty business model," as Fred says, but also a necessary business model for the studios.

That's because most movies are bad and the studios simply don't know in advance which movies will be blockbusters and which will be duds. They have a content problem, and that leads to a distribution problem.

Unfortunately for them, bad movies cost the same to produce and market as good ones. This means studios will try to recoup costs primarily on opening weekend by combining a huge marketing spend with distribution to as many theaters as possible (the leading factor in opening weekend revenue is the number of screens it opens on). When a blockbuster hits it accrues huge profits under this model and makes up for the others.

If studios knew in advance that they could produce good films consistently, they would be more willing to change the distribution model. I think this is the underlying problem that, if solved, would create the most value. This, in part, is why I'm excited about the potential of viral platforms like Buzzfeed to help content producers figure it out in advance.

Ryan Kavanaugh's studio start-up Relativity Media has gotten closer to solving this problem than any of the big studios. Here's a must-read if you want to learn more about how he's doing it. Pixar's hit machine might have led to innovation around distribution if they hadn't been bought by Disney (recall that, because of Steve Jobs, they were one of the leaders in distributing movies via iTunes).

Of course, the counter-argument to all this is that the content is bad because the distribution model allows it to be bad. This is why Relativity, Pixar, and even YouTube have a distruptive opportunity.

Entrepreneurs are thinking a lot about distribution these days. But perhaps the bigger win is to be had solving the content problem.

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