Tuesday, September 11, 2012

Wishful thinking: "Silicon Valley Will Write The Next Big Check For Original Video Content"

At TechCrunch's Disrupt Conference today, Dana Brunetti, Kevin Spacey's partner in Trigger Street, a motion picture and television production company, said that "...Silicon Valley will likely become a major funding source for original content soon. For a company like Google, after all, offering a few million dollars to produce the next episode of a show like Mad Men and to put it on YouTube is pocket change." Perhaps, but that in no way means that it would be money well spent.

For decades, Hollywood producers and movie studios have solicited investment from people outside the entertainment business. The "term of art" for this kind of investment is "stupid money." Producers and studios go from country to country, convincing government leaders that tax breaks and credits for investment in films would results in thousands of jobs, not to mention great publicity for their countries. That's why you see credits for production funds you've never heard of and production sites far from Los Angeles in the end titles of movies. Germany, South Korea, Canada and the U.K. are just some of the countries that have been tapped for production money and tax credits over the last two decades. Almost every U.S. state has offered some form of movie production tax credits or incentives at one time or another. These programs dry up as lawmakers learn that the jobs created and revenues generated don't compensate for lost tax revenues. Producers look for more stupid money elsewhere, and the cycle repeats.

Individuals who invest in movies very rarely get a positive return on their investments. Entertainment industry accounting makes integral calculus look like simple arithmetic. Once money becomes available, a seemingly limitless number of hands reach out for it. Last week, for example, director Christopher Nolan had to file suit against his current and former talent agencies so that a court could decide which ones he must pay commissions to, as well as how much and on what projects. No one in their right mind would build a movie or television production system, or rules for employment, as they work today.

The approach that YouTube has taken with its channels makes sense. YouTube originally funded each of 100 channels with up to $1 million (some channels were rumored to have received as much as $2 million.) That's enough to "move the needle," but not enough for anyone to get rich on. The funding was an advance on advertising revenues, not an unrestricted grant. As YouTube gets actual performance numbers on each channel, it's offering additional advances to some, cutting others off and identifying new candidates for funding.

I have very real doubts about Netflix's original content strategy, which has funded House of Cards, a television series produced for Netflix by Trigger Street. The network television production model calls for hundreds of scripts, which are culled down into dozens of pilots, which are further cut to become the new shows for the next television season. Even at the most successful network, the success rate is pretty low. Netflix is cutting out most of the process and is going directly to production on the basis of scripts and the people involved. Choosing on the basis of name talent is far from a sure bet--for example, look at HBO's Luck, which had Dustin Hoffman in the lead and the directing/writing team of Michael Mann and David Milch. It was a disaster, and not just because three horses died during production.

If you want to invest in a movie so that you can rub shoulders with stars or see your name in the credits, and you have some "mad money" lying around that you can afford to lose, then by all means enjoy yourself. On the other hand, if you're investing in content in order to generate revenue, you've got to be a lot more systematic and much more hard-nosed.
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