April 20, 2004

Is it 1999 in Hollywood?

Around five years ago, I remember a buddy of mine telling me about this thing called "Napster."

"You can download any song you want for free," he told me. I gave it shot on my dial-up connection, and while it was painfully slow, the novelty of free, on-demand music was addictive.

Now I don't download much of anything these days, but I have to admit -- when I moved up to broadband in early 2000, it was an MP3 feeding frenzy. A typical song download took a minute instead of an hour. Practically any obscure song that came to mind was at hand in just a few moments. I think at Napster's high point, there were more people swapping songs at any one time than watching all three of the networks combined.

And at that point, no marketing, however clever or skillful, was going to get me (or millions of others, for that matter) to shell out money for a CD.

So is it 1999 for Hollywood? 2 out of 5 users have fast connections now. According to an article in today's Financial Times:

Ipsos-Insight, a worldwide marketing research firm, reported Tuesday one out of five Internet users who swap files have downloaded a full-length motion picture. Almost 10 percent did so within 30 days of the research product conducted by Matt Kleinschmitt, senior analyst.

Some people may argue that Hollywood has more revenue streams than the music biz or quote box office figures as proof of the industry's financial health.

But in reality, the theatrical release is more of a marketing effort for ancillary revenues, and is rarely a profit center in and of itself. And when you combine actual marketing expenditures with production budgets, most films are still bleeding red when they appear at the local video store.

Accounting tricks aside, if people stop buying DVDs, it'll be quite the blow to the movie industry's kneecaps.

We'll take a look later this week at how the Film Industry is dealing with the issue.

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