H2.0 the book – Chapter 1: The Producer-Marketer

This is the first chapter of our work-in-progress book “Hollywood-2.0: An Actionable System for Developing, Producing, Distributing, & Marketing Your Project in a Changing Media Landscape.”

Chapter 1 is titled “The Long Tail of Death, The Evil Aggregator Empire, The Decline of Distribution, and You: The Producer-Marketer.” While we pride ourselves on this book’s commitment to actionable information, the first chapter is a bit of a primer on the shifts in the media creation-distribution landscape. We think it’s important to get everyone on the same page before breaking down hard-numbers and logistics.

The first section of this chapter, Rise of the Producer-Marketer, is free for everybody. The chapter continues for 16 pages after that and can be read by Members — an Early Adopter account is currently 99 cents per month, you can join here.

The sections of chapter 1 are:
- Rise of the Producer-Marketer
- “Marketing is for suits”
- “Isn’t my distributor supposed to handle marketing?”
- “What about The Long Tail?”
- “But isn’t it great that my movies will be on Amazon & Netflix?”
- “How have the Long Tail e-Tailers made all this more difficult for me?”
- “So why bother with Amazon & Netflix?”
- “Why are you telling me all this?”

Let us know what you think.

CHAPTER 1: The Long Tail of Death, The Evil Aggregator Empire, The Decline of Distribution, and You: The Producer-Marketer

Rise of the Producer-Marketer

When I was first getting started as a filmmaker, I interned at a non-profit film school in downtown NYC called Film/Video Arts. A lecturer named Dov S-S Simens was coming through to deliver a filmmaking course called The Hollywood Film School and I volunteered to be his assistant. Dov’s class blew my mind.

Without getting too far into Dov’s curriculum (his course is available on DVD and I highly recommend it), the primary lesson I took from it was this: you are NOT a filmmaker, there is no credit on a movie for “filmmaker;” you are a producer. As a producer, you may choose to hire yourself as writer (or not) or you may choose to hire yourself as director (or not). Regardless, when you call yourself a filmmaker you mean that you will be the driving force behind the creation of a new film. There is a title for that: it’s called producer.

Dov is a brilliant instructor and his course is still incredibly relevant today, but its main thesis was forged and polished in the Independent Film Explosion of the 1990s. In fact, 90% of books on independent filmmaking are based on the marketplace of the 1990s. Certain things are still very relevant: story structure, casting, cinematic composition, editing theory, lighting design, sound recording, etc. Anything antiquated about those subjects in terms of technology has been revised over the years, so this book is not going to tackle them. The basics of creating content haven’t changed drastically, but everything else has. And so in this book we’re focusing on “everything else.”

The central thesis of this book is that, in order for a contemporary filmmaker to compete today, (s)he can no longer be just a producer… (s)he must be a producer-marketer.

“Marketing is for Suits”

Generally speaking, filmmakers consider themselves artists and artists consider marketing to be beneath them… in the mind of most artists, marketing is the work of suits. But filmmakers cannot be just artists. Filmmakers are leaders, collaborators, business(wo)men, technicians, as well as artists. In truth, filmmakers are entrepreneurs. And every entrepreneur is also a marketer.

There are many colorful histories of the rugged individualist filmmaker wrassling against the bureaucratic monolith of studio marketing execs. Those “histories” are marketing. The enfante terrible is a marketing cliché. It’s hard to know which filmmakers really were enfante terribles and which ones just positioned themselves that way. The truth is, it doesn’t matter. Most marketing clichés are subjective… you’re an “iconoclast” if enough people agree you’re an iconoclast, there’s no independent arbitration process. Marketing has very little to do with empirical evidence, it has everything to do with perception. Perception is influenced by creative storytelling, so filmmakers should be great at this… and they are, except when they convince themselves it’s beneath them.

“Isn’t my distributor supposed to handle marketing?”

If this were 1996, the answer would be yes. But times have changed. Distributors basically control a pipeline to the marketplace, and they are slaves to the marketplace’s consumption demands. The marketplace has become a voracious beast that gobbles up content at a frantic pace. The life cycle of a film has shrunken drastically, so distributors have to supply more content faster than ever before. Distributors no longer have the luxury to spend a year or more developing marketing strategies, building buzz, courting tastemakers and slowly bringing a release to the market. The overhead costs are too high. In fact, even major producers barely have that kind of time anymore… that’s why most studio movies these days are based on existing brands (comic books, novels, existing movie franchises). It’s an obvious solution, if you no longer have time to market a new brand you instead acquire an existing brand. “Iron Man” did great last year, but it’s slightly less impressive when you consider the marketing for that movie started 45 years ago.

The most likely results of this shift in the marketplace and the life cycle of a film are twofold:

a-    There will no longer be a “middle class” of films. You will have tentpoles that get major marketing efforts, and you will have low-budget/low-revenue movies. Some of these low-budget/low-revenue movies will win the lottery and become breakout successes, but that will be a mix of luck, timing, and effective marketing on the part of the producer.

b-    Distributors will be replaced by aggregators. An aggregator is basically a distributor who does no marketing. Which brings us to the next question I just know you’re wondering.

“What about The Long Tail?”

The long tail sucks. You don’t want to be on the long tail.

Chris Anderson created the concept of the long tail when writing about how internet companies such as Amazon, eBay, and Netflix developed a model to make a fortune by selling very low quantities per title on a very high quantity of titles. For example, it doesn’t matter to Amazon if they sell 1,000 copies of one of your movies or one copy each of 1,000 of your movies. But guess what: it sure as hell matters to you. For one thing, you probably can’t make 1,000 movies. But even if you could, your production costs on those movies demand you sell a certain amount per-title to break even (and hopefully profit). Amazon has no such concern.

So when Chris Anderson talks about the long tail, he is not talking about anything that is helpful to you. In fact, what he terms “the long tail” is actually bad for you.

When I was an adolescent, back in the Stone Age before Amazon and eBay, there was already a long tail. Every subculture had its own long tail. I was a hardcore kid and would buy hardcore punk records that weren’t carried by Sam Goody. How was this possible without Amazon.com? People would set up tables at hardcore shows and sell records (CDs, tapes, vinyl). People would list their records in Maximum Rock N Roll and we would mail them checks or money orders and they would mail us records. Community oriented shops with low overhead would come and go. Every subculture had versions of this, I’m sure you can remember your own nostalgic memories of unique or obscure media you felt was personal to you. I had similar experiences with underground comix and underground movies. So the long tail existed before Amazon perfected it and before Anderson named it. But what’s worse, Amazon’s perfection of it and Anderson’s naming of it has made it less fruitful for you.

When I ordered a record from a listing in Maximum Rock N Roll, the person selling it had to place the ad in MRR (marketing) but received the entire amount of the check I sent her or him. When you order a record on Amazon, the person selling it is still spending advertising/marketing dollars to tell you about it, but Amazon is taking 50% of the MSRP (Manufacturer’s Suggested Retail Price). Being in MRR meant most readers would come across your ad, because it was a finite space and appealed solely to a crowd who was looking for your record. Being on Amazon is worthless without marketing elsewhere, because nobody looks at every title on Amazon. Sure, Amazon has internal structures to help browsers find new things to buy, but those structures are based on Amazon Sales Rankings, which means if your product is not selling on Amazon then Amazon won’t direct browsers to your product. So in order to take advantage of Amazon’s in-store marketing, you need not only market the product to an audience but you must also direct that audience to buy the product from Amazon… and only *after* enough of them have purchased it on Amazon will Amazon’s in-store marketing for browsers help you. Maybe.

This is important, so stick with me for a brief tangent because this will come up again. The Amazon in-store marketing structure and its relationship with the Amazon Sales Ranking demonstrates The First Rule Of Hollywood-2.0 Marketing: You must cultivate a core base of fans who will buy each of your new releases as soon as they are available (preferably as pre-orders before release date)… it is your job to galvanize the base on or before street date and then leverage that inertia into making the Web-2.0 internal structures spread the word about your release. This is your primary task, and it’s tougher than it seems.

“But isn’t it great that my movies will be available on Amazon & Netflix?”

NO!
Well, that’s not entirely true. Yes and No.

“How have the Long Tail e-Tailers made all of this more difficult for me?”

The problem with Amazon and Netflix is the seismic shift they’ve created in the retail marketplace.

When we started Halo-8, we applied an indie record label business model to distributing movies. Record labels long ago determined a formula for how to market a new release with a budget that is enough to support it at retail and stick with it in case it’s a slow burn, but not overspend to the point of irrational risk. That formula is to spend $2-3 per unit shipped on marketing… which means not just the initial shipment on street date, but re-investing as re-orders come in (which helps us stick with a slow burn for the longrun).

Understanding why this makes sense requires a bit of background on how CDs (and DVDs) are sold at retail. They are 100% returnable. Stores will say they’re “buying” 1,000 copies, but for the labels those aren’t “sales” they’re “shipments.” A shipment isn’t a sale until a person (end consumer) walks into a store, picks it up off the shelf, walks over to the cash wrap and pays for it. When it’s sitting on the shelf there, it’s a liability. It can and will get returned without warning sooner or later if it does not get purchased.

Shipment numbers are very important though, because (a) they signify the amount of support a new release is getting from store buyers, (b) they give a sense of the initial outlay of product that has to be supported immediately to prevent massive returns, and (c) shipments equal cash flow. Stores pay for the shipments, but if the label takes that money to Vegas and blows it on hookers and beer it will be a sad day a few months later when thousands of records arrive at the doorstep with an invoice for the balance. Shipments are liabilities, but they are also interest free loans to be spent on marketing the release.

If a Halo-8 DVD’s MSRP is $19.95, the wholesale cost (the price a retailer pays for it) is generally $10. We also take on various sub-distributor fees of 20-30%, so we can round that off to $7.50. It’ll cost about a buck per unit to manufacture, so now we’re at $6.50. We deduct marketing costs before splitting the profits with the producer. A healthy return rate from stores (an amount that feels like it was stocked broadly enough to get exposure to its audience) is about 25%. So we’re counting on 25% getting returned in a best case scenario. So that $2-3 dollars per unit shipped is hopefully only $2.50-3.75 per unit sold, but we never know… we could get stung with incredibly high returns if we’re in the wrong place at the wrong time. Deducting $2.50-3.75 puts us at a best-case scenario of $2.75-4.00 in profit margin, which we then split with the film’s producer.  You do the math from there… movies need to sell *a lot* of DVDs to make their money back, and in order to sell those DVDs they need to be marketed effectively.

Now allow me to compare the marketing cash flow generated by Tower Records (R.I.P.) versus Amazon (who are doing just fine, thank you very much).

Tower had roughly 100 stores. Each time we put out a DVD, they would order anywhere from 4-100 copies per store (literally). That means we could count on Tower to buy 400-10,000 copies of a new release. At $2-3 per unit shipped, Tower was giving us an interest free loan of $800-30,000 to spend on marketing. And that’s just Tower.

Amazon, on the other hand, orders just slightly more than the pre-orders they receive. How many times have you pre-ordered a DVD? I never have. It takes a special kind of fan to pre-order a DVD. Our initial orders from Amazon are generally below 100 total. So Amazon gives us an interest free loan of $200-300 dollars to spend on marketing.

But it’s not fair to compare Amazon’s $200-300 against Tower’s $800-30,000. Because Amazon is also replacing Virgin Megastore, Circuit City, Suncoast, Media Play, scores of mom and pops, and more. Amazon is already the key account for many labels. This makes it incredibly difficult to market a new release. For one thing, there’s no cash flow to cover marketing, so the marketing dollars are being spent completely speculatively. On top of that, since there’s no retail stores supporting the release with in-store exposure, there’s no basis for how much to spend. Retail buyers are like scouts on the ground feeling out how the marketplace will respond to a new release, and their initial orders are basically a briefing to distributors on how receptive the marketplace is. Amazon provides no such service, so without brick and mortar retailers the distributor is spending marketing dollars blindly.

Amazon put all those brick and mortar stores out of business because it is far cheaper for Amazon to post a webpage for a new release and keep a small amount on-hand in warehouses than it is for brick and mortar stores to fill their shelves and pay for all that real estate. In the short run, Amazon’s efficiency is putting brick and mortar stores out of business. But is it sustainable or does it ignore the broader ecology of the supply chain that those brick and mortar stores played a pivotal role in? It is very possible that Amazon’s efficiency will devastate independent suppliers in the long run… in fact, it already has.

Netflix is even worse, because Netflix is even more efficient than Amazon. When you order a DVD on Amazon, they have to ship it to you right away. Netflix? Not so much. Netflix ships it to you when they have it. And of course, they’re recycling the DVDs, they’re not buying new ones.

Netflix buys from independents at wholesale prices, and their infrastructure is so efficient that they can service the entire country by starting with an order of about 60 DVDs. If it’s particularly successful for them they’ll order another 150 copies. So we *gross* $600-1,500 from Netflix, and you’ve seen how those profits shake down… we really net a few hundred bucks. That’s it… there’s no profit-sharing, no per rental royalty. “Well,” you might think, “those sales are not returnable, though, so isn’t it still a good thing?” No, it’s really not… because Netflix is essentially giving the movie away for free, which cannibalizes sales elsewhere. Once you have a Netflix subscription that DVD is free… and so Netflix is devaluing the movie. Part of marketing is creating a “perceived value” for a product. Q: What is the value of a movie? A: Whatever someone will pay for it. The perceived value for a CD used to be $15-20. Then Napster made the perceived value $0 + the cost of a broadband connection. It took millions of dollars in marketing for iTunes to convince us music is worth $.99 per song and $9.99 per album. Netflix is just a legal Napster… they have changed the value of a movie to $0 + the cost of a Netflix subscription.

Why buy a movie on Amazon if you can get it just as easily for free on Netflix? When I was a kid, I would rent a video at the local video store for 3 bucks, but if it was too underground for the video store to stock it then I would order it on mailorder and pay the full price of $20. That was a perfectly logical system where the big guys get less per unit but make exponentially more sales while the little guys have fewer sales but make more per sale. The “level playing field” of Netflix (actually it benefits the big guys since they can broker better deals) is another factor that is destroying independent suppliers. This isn’t theory. Halo-8’s top selling DVDs are (a) releases that Netflix doesn’t carry, and (b) releases that are less suited to Netflix’s model (multi-disc sets and fitness videos designed to be watched repeatedly and consistently).

“So why bother with Amazon & Netflix?”

Because the market demands it. It used to be that if your movie didn’t play in theaters, it wasn’t a real movie. Now, if your movie isn’t in Amazon and Netflix, it’s not a real movie. Hell, it doesn’t exist. We distributed a documentary called “Your Mommy Kills Animals” that ran into some legal issues with a Washington lobbying firm. The firm’s attorney sent Cease & Desists to every store that carried the DVD. Without getting too much into the details of it, most stores ignored the Cease & Desist. However, Amazon and Netflix immediately pulled the DVD from their websites… after all, when you’re a long tail e-tailer what’s the value of defending one DVD? “Your Mommy Kills Animals” was available for sale on our website, on dozens of webstores including Tower.com and DeepDiscountDVD.com, and in retailers across the country… yet the most consistent meme on message boards, blogs, and emails was “When is this movie coming out? There’s no release date listed on Amazon or Netflix.” Even IMDb didn’t list a sales link because they’re owned by Amazon! Amazon and Netflix have gone beyond being just stores, they are cultural institutions. If your movie is not on Amazon and Netflix, it doesn’t exist.

“Why are you telling me all this?”

If you have a head on your shoulders, while reading this chapter I bet you’ve wondered “If distributors are so ineffective in the marketplace nowadays, then why the hell do I need a distributor?” And that’s a fair question.

Do you need a distributor? Right now, yes. You still do because distributors still have more muscle than you do, they still have an existing pipeline that will get your movie out in a timely fashion on a national/international scale. They also have the proper relationships in place to reach big boxes, niches, press, and tastemakers. And they’re the only ones who can effectively spend marketing dollars to grow your sales from the core fanbase you’ve cultivated.

But…

a-    You need to know where distributors are getting hammered right now to understand why a distributor’s skills these days are different than they were in the heyday of the Independent Film Explosion of the 1990s;

b-    Understanding these challenges helps demonstrate why you need to be a producer-marketer who builds a core following that the distributor can use its muscle to expand upon; and

c-    Whether you need a distributor or not, they are disappearing. They will become less viable as retailers disappear, and then you really will be on your own. Distributors are being replaced by aggregators, who provide a pipeline with absolutely zero marketing. So educating yourself on being a producer-marketer will be helpful in the short term, and absolutely critical in the medium term.

The basics of creating content haven’t changed, but everything else has changed. Filmmakers are part artist and part entrepreneur. If you’ve already mastered the art of creating content, now is the time to master everything else that your entrepreneur side will have to tackle.