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Monday, May 23, 2005

Behind "Special Offers"

From IP Inferno



"Open Letter to George Lucas
Or, how IP will transform movie distribution...

George,

Despite the advanced technology that serves as a backdrop for your blockbuster Star Wars franchise, your movie distribution process is firmly stuck in the 20th century.

According to a recent article in Forbes ("Special Report: Star Wars") the Star Wars media empire has earned $20 billion since the original film in 1977. According to Forbes, here is the breakdown (inflation adjusted dollars):

$5.67 billion through movie theater
$9 billion for Star Wars toys
$1.5 billion for video games
$700 million for publishing

and just $2.8 Billion for video and DVD distribution.

So here is the question which you should be asking yourself. If you released full digital copies of all of the Star Wars films -- with no DRM -- allowing anyone to duplicate and distribute to their hearts contents... would sales in the toys, video games, and publishing categories increase by enough to offset the loss in sales from video and DVD?

Now this isn't a formula applicable to the movie industry generally. After all, we are unlikely to ever see "Sleepless in Seattle" action figures. But with Star Wars the money is clearly in the physical products sold around the franchise. So the more ubiquitous the franchise, the more every child grows up thinking about the world of Star Wars, the more toys, video games, books, and magazines will be sold. The movies merely become advertising for the "Star Wars lifestyle."

Lets do the math. The franchise is today a little over 25 years old. So in 25 years, it has sold just $100 million a year in video and DVD products. In the same period $11.2 billion in toys, video, and books have been sold -- or about $450 million a year. So sales in those categories would only need to increase about 22% to replace ALL of the video and DVD sales.

Now lets think about the power of the Internet. IP distribution of Star Wars could reach 150 million broadband connected homes (as of Dec 31, 2004 according to Point Topic). Each of those homes would only have to spend, on average $0.67 on toys, video games, and books in order to replace all of the income earned from videos and DVDs. Assuming an average $40 product price (probably low) that means that only 1 in every 60 broadband connected homes would have to purchase an additional Darth Vader Voice Changer Helmet or X Box Revenge of the Siths Video game to replace this lost income.

After $20 billion dollars, George, you can afford to experiment a little. Why not at least take Star Wars, I mean "A New Hope," and make a legal digital copy available worldwide. You don't have to make it HD quality -- how about just extended TV quality? Promote a special product in the intro or trailer to the movie -- a special URL to go to where some product can be purchased which is only advertised through this free digital copy of the movie. Then sit back and watch the power of the IP world to spread your message.

In one blow you will have called into question the philosophy of fighting the unfettered digital distribution of movies and proven that the Star Wars franchise can move into the future of "...speeding spaceships, chattering robots and lightsabers..." and the Internet."





Your analysis is perfect regarding the numbers, and what you say is perfectly true.
But you do not consider also the unpredictable behind the numbers.
What if world wide is too much?
What about being fed up with it?
Man is a queer creature.
He always likes what is unreachable.
In principle, all this craziness about downloading free copyrighted material was partially due to the interest for them and a lot due to the idea of getting for "free" what would have cost a lot of money.

That is the secret behind all the "sales" and "special offers".
You forget the unpredictable psychology of the user...

Patrizia
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