Film Fund-amentals: Politics at the Box Office

 First published July 26, 2011

What do Sarah Palin, Ayn Rand and David Zucker have in common? They have all given us proof that political posturing often translates into box office poison.

The spectacular no-go of the recent release of the documentary The Undefeated may not have an effect on Palin’s own future plans, but it certainly tells us that Tina Fey doesn’t have to worry about being upstaged. Likewise, the quick defeat of The Undefeated follows a pretty consistent pattern of ultra-conservative movies and extremely empty theaters.

The pattern was first established in 2008 with the Zucker comedy An American Carol. Made for a modest $20 million, this farcical presentation of Michael Moore as the most dangerous threat since Soviet communism barely took in $7 million during its month-long run, despite heavy “grass-root” promotion through various right-wing websites and radio shows. Its DVD release has been equally lackluster, and it is now available in various $1 movie bins.

Next up to bat was the recent release of Atlas Shrugged: Part 1. Made for an extremely modest $10 to $15 million by hard-core Ayn Rand adherents, the flick barely took in $4.5 million during a singularly miserable five-week run made more lively by the movie’s producer insisting that he was the victim of a vast left-wing media conspiracy. Again, the film depended heavily on a “grass root” promotion campaign through various right-wing websites and radio shows.

Finally, the trend reached an inverted zenith with The Undefeated. Made for a meager $1 million, the movie barely squeaked out a box office return of $31.5 thousand (yes, thousand, not millions) during a disastrous two-week release in some of the most uber-conservative theater markets they could find. Again, the movie relied on a “grass root” promotion effort via right-wing websites and conservative radio shows. A re-release of the old John Wayne western would have been more successful. Heck, a few paying customers probably thought that they were going to a Wayne movie.

Obviously, the first major lesson we can learn from this is that you do not conduct a “grass root” campaign for a movie on right-wing websites and radio shows. These folks just don’t go to movies. Personally, I suspect that they are much happier venting their spleen either online or by phone rather than sitting quietly in a theater for a couple of hours.

Actually, I’m not joking. One of the problems with these films is an issue of demographics more than politics. The promotion campaigns for these movies have largely been targeting the talk radio audience model: a white male, 50-plus in age (often closer to 70). The current movie audience is primarily an ethnically mixed collection between the ages of 15 and 45, with females making up more than 50 percent. To be honest, it would be more accurate to describe these PR efforts as a “gray root” campaign, not “grass root.” Either way, they’re not even preaching to the choir. It’s more like shouting at the bass section only.

But these movies have also forgotten another important rule of the commercial film industry: The audience has a virtual Constitutional (and certainly God-given) right not to go to your movie. They just don’t have to spend their money to watch whatever you put on the screen. Even worse, the audience is quite capable of exercising this right on a regular basis. They can simply go to another film instead. This type of free and open selection by the audience is called capitalism. I don’t quite understand why I am having to explain this to right-wing filmmakers, but all I can add is, “Welcome to the pain of the marketplace, pal.”

The failure of these three films also reminds us of the old Sam Goldwyn quote: “If you want to send a message, use Western Union.” Today you would use a blog site, but otherwise Sam was basically right. As a general rule, people won’t pay money to see a movie that appears to be a political lecture, left-wing or right-wing. Ironically, one of the few exceptions to this is Michael Moore (Fahrenheit 9/11 took in over $220 million globally, more than half of that in the US alone). Sure, many right-wingers view Moore’s success as proof of the vast media conspiracy, but that theory makes about as much sense as my claim that George Clooney is stalking me. Besides, I think George has given up on me. Must be part of the conspiracy.

Nobody has a real clue as to the political convictions of the current movie audience. It is quite possible that even the audience doesn’t have a clue. But that is OK. Most people go to movies for a form of emotional engagement, not politics. In some respects, that has been the key to Michael Moore’s success. Fahrenheit 9/11 captured the anger and frustration of lots of people (while the arguably more “political” production of Sicko was vastly less successful). At his best, Moore engages the audience through a combination of smart-aleck commentary, man-bites-dog one-upmanship and a shrewd mix of farce and didactic arguments.

Otherwise, most attempts at political statements in movies end up sounding as if the filmmaker is hectoring the audience. As a rule, people won’t pay to be hectored. They come to see a story, not a harangue. Heck, they might even want a little romance on the side. OK, nobody is going to pay good money to see Michael Moore in love, but they want something more than a lecture.

Gosh, they might even want a story, and if the filmmaker is looking to send a message, he or she might just try slipping it through the back door while otherwise focusing on the story. It is an old approach to this issue, but it tends to work more often than not.

Film Fund-amentals: Just Send Money

 First published August 2, 2011

There are two ways to raise money for a movie. Dumb luck is one way. It is certainly preferable to the other method, which involves lots of hard work and a high tolerance for failure. A wistful hope for dumb luck can be found in the numerous “comments” peppered on every social networking site by people seeking rich sources of funds by way of desperate random postings. Mostly they find scam artists working every trick this side of the Spanish Prisoner.

The alternative is to create the dreaded business plan. I say “dreaded” because creating a business plan is about as much fun as beating yourself over the head with a ball bat just to see how long it takes before you pass out. But creating this plan is essential, as we are reminded by Louise Levison in her concise and excellent blog piece Why You Need a Film Business Plan. I’m sure that I’m the two hundredth person to recommend this article, and I strongly suggest that everyone should read it (heck, print it out and pin it to your desk).

Levison’s seven key points are a crucial guide, whether you’re approaching major donors or taking the crowdfunding approach. Arguably, a huge mistake some people have made with crowdfunding is the assumption that they don’t have to create such a plan. The result ends up sounding like a bad replay of Spike Lee’s old trailer for She’s Gotta Have It. The stunt worked for Lee but it will not work for you (besides, he already had the film in the can).

Of course there are some basic questions that a beginner needs to address before writing a business plan. One place to start is at the U.S. Small Business Administration, which provides a quick outline for such a plan as well as various other articles and services. At MyOwnBusiness.org you can go through a more detailed discussion on developing a small business plan along with various samples that can serve as a guide. At Bplans.com you can access an even more detailed discussion concerning the development of a business plan. They also offer a free simplified version of business plan templates from the Business Plan Pro software package.

As you pursue your business plan, you will discover that lots and lots of companies are looking to sell you various software programs to “help” you create a business plan. There are so many such “helpers” that you may need a business plan to create a business plan. The price range on the software alone will vary from $59 to $350 or more. To be honest, you ought to be able to develop your own template and other material yourself. Sure, it may take more time but it is a lot cheaper. Likewise, the cost of some of these software programs is way too high and probably should be avoided. Some are obviously borderline scams. As always, buy nothing until you have thoroughly researched the supplier. And remember, you don’t always get what you pay for.

As always, there are freeware alternatives. About.com provides some useful references to various types of free business software. Also, Cnet.com offers a wide range of free business software systems along with detailed consumer reviews. You might also want to check out the Free Film Business Plan Template page at SoftwareTopic.Informer.com. As always, keep in mind the difference between freeware and shareware.

Levison gives a great breakdown of how your business plan must operate within the movie industry. However, business is business and a beginner might learn from a wide sampling of plans written from a variety of different fields. Just Google “Sample Business Proposal” and explore the various items that pop up. Use Levison’s seven-point checklist as your guide, but also carefully study the approaches used in a variety of non-related businesses. Even if the company is simply selling hot dogs, there are still things to be learned. A good place to start is Reference ForBusiness.com.

One of the hardest parts of preparing a business plan is the first item, called the Executive Summary. Levison warns that you have to do items 2 through 7 before you can backtrack to the first item. Unfortunately, Levison is correct on this point, and you may want to learn more about the Executive Summary and how best to approach it. Both eHow.com and About.com provide a good breakdown of the process.

Another potentially tricky part on Levison’s checklist is item 5 (potential audience). Major film companies spend oodles of bucks attempting to determine what kind of audience a movie might reach. As is true with many things in life, it sometimes works and sometimes doesn’t. Your best estimate will be a combination of extensive research and educated guesswork. I have previously dealt with this issue with my tongue only half in my cheek. For better or worse, the standard reference on the subject is the annual Theatrical Market Statistics from the MPAA. The single most detailed discussion on this topic available online is the MA thesis Media at the Movies: Analyzing the Movie-Viewing Audience, by Sean Michael Maxfield at the University of Florida. After you’ve done all your reading, you will still need to make some good guesses. But at least you will be better informed as to how to guess.

Or you could just fall back on the dumb luck strategy. So just go to the social networks and ask people to send you money. Let me know if it works.

Film Fund-amentals: Viral Marketing and the New Reality

 First published August 10, 2011

As Ronald Reagan once said, facts are stupid things. In light of this, the impending release of the faux documentary Apollo 18 and the viral advertising campaign surrounding it is a pretty good reminder about the slippery post-modernist nature of facts in the virtual universe.

Much like The Blair Witch Project, Apollo 18 claims to be found footage that conveniently milks thirty years worth of urban folklore and displays an odd resemblance to the equally bogus (well, most likely) “lost footage” from Apollo 20 that has been on YouTube since 2007. Likewise, everyone involved with the movie is playing it cagey (for example, no names have been released for the actors in the movie). Maybe it’s real and maybe it’s not. It’s practically up there with the Alien Autopsy video.

Viral marketing isn’t really a new concept, though the term wasn’t widely used until 1996. In the film industry, the old Hollywood studio system of peppering magazines and gossip columns with manufactured tidbits about their “stars” was a forerunner to the approach. It was a means of creating a marketing presence that extended beyond any single film by etching out a persona that represented the star as a concept.

The key has always been to create a buzz that extended beyond any conventional forum created by any PR department. At its most successful, viral marketing results in a situation in which the consumer is actively engaged in pursuing (directly or indirectly) the product (either knowingly or unknowingly), which in turn allows the product to become an increasingly major component to the consumer’s environment. At its best, the viral marketing campaign will appear spontaneous. In reality, it is an induced state.

As The Blair Witch Project demonstrated back in the late 1990s, the internet is an ideal forum for such marketing strategies. This movie created the core model for viral marketing (and distribution) that was later advanced even further by Paranormal Activity. Both films have become essential studies for indie distributors. They have also demonstrated the wild power of such marketing techniques when released through the internet.

Thanks to social networking sites, the potential for viral marketing is now greater than ever. Contrary to what some people would like to believe, the approach is neither easy nor necessarily cheap. The Blair Witch Project spent nearly $1.5 million on its viral marketing campaign. Paramount Pictures spent nearly $10 million on advertising for Paranormal Activity. Viral marketing can be done for a lot less, but so far the success ratio has also been much lower. This is lunch money compared to what is spent on a major movie, but it is still a lot of dough.

Paranormal Activity made incredibly effective use of Twitter. In a way, it was almost too effective. Some folks have gotten it into their heads that all they have to do is set up a Twitter account and then kick back. It doesn’t quite work that way and the rules for creating a successful Twitter campaign are still evolving. So far the single greatest success in Twitter awareness has been achieved by Charlie Sheen in a grim reminder that it’s all publicity. Personally, I prefer the more honest state of Twitter befuddlement provided by Roger Corman in his account.

But one of the most unique aspects to viral marketing is not the marketing itself. Increasingly, the dominant focus of any viral marketing approach is to shape (and alter) our perception of reality. When it first came out, lots of people thought that The Blair Witch Project was a real documentary. A major part of the success of Paranormal Activity was its ability to look like footage from a security camera. Leaving no trick unturned, Apollo 18 is heavily promoting itself as the “truth” behind the “vast conspiracy.”

Pretending to be real is a big factor to this marketing method. Several years ago, when The Dark Knight was filming on location in Chicago, cell phone videos began popping up online from fans who managed to sneak onto the set. Of course this was all bunk (then and now, The Dark Knight sets are guarded more zealously than the NSA) and the amateur videos had been created by Warner’s PR department. It worked (and worked brilliantly) thanks to the already heightened fan interest in the movie.

On the negative side, publicity for The Fourth Kind kept hinting that the movie was based on a real case. If anyone were to Google the name of some of the main characters, the search engine would steer them to bogus newspaper stories that seemingly confirmed certain aspects of this claim. It was all bogus, and while the movie made a decent profit, it didn’t seem to have been helped all that much by this smoke-and-mirrors stunt.

The creation of this alternate reality can, when successful, heighten audience awareness of the movie. Unfortunately, it also heightens the general state of unreality that extensively pervades our culture. A lot of the recent political debate on the debt ceiling issue has been a dark tribute to the warped power of bad information and false realities. Everything has its up and down qualities, but the unique power of viral marketing through the internet has a potent feel that is sometimes almost scary.

But for many filmmakers, it is also becoming essential. Just watch out for going to the dark side.

 

 

 

 

Film Fund-amentals: 3rd Quarter Reports

 First published August 16, 2011

The 3rd quarter reports are coming in, and it has been a great year for the major studios. Too bad they’re all still stuck making movies, because that has been the consistent downer to the biz.

Disney had a net income rise of 11 percent thanks to the theme parks and TV systems. OK, the film division plummeted by 60 percent, which is one of the reasons why they have stopped work on The Lone Ranger. The proposed $250 million budget for this sucker (which in real money means something around $300 to $350 million) suddenly looked a tad high.

Viacom had a profit increase of 37 percent. Most of this was derived from cable TV and VoD deals. Paramount Pictures (a subdivision of Viacom) had a 29 percent drop in income despite the billion-plus revenue from the latest Transformers flick.

Warner is a tougher call. They have not yet released their 3rd quarter report, and their 2nd quarter report was designed to give everything a pretty rosy spin. By the end of the 2nd quarter, their profit was up by 14 percent, partly due to the NCAA college basketball playoffs. Film returns at Warner were more of a mixed bag despite the 13 percent increase (before adjusted operating profit). In reality, Warner’s film division is largely hanging in there courtesy of home entertainment profits and video games.

What does this mean? First off, if you want to make money, then go into television. Every one of these companies is being propped up by their TV and cable holdings (well, that and a handful of amusement parks). The movies are simply an ultra-expensive hobby.

Which is the other problem. To paraphrase that modern political philosopher, the movies are too damn high. The stalled Lone Ranger production is a good example. Seemingly all you need for this movie is a couple of actors, some horses and plenty of Western landscape. Sure, I am being very simplistic (even simple-minded) in this argument, but let’s get real, we’re talking about the Lone friggin’ Ranger, for gawd’s sake. So you should be able to do this baby for around $60 million easy (unless you’re planning to strap rockets onto Silver and really make things go Hi-yo).

Unfortunately, they probably were planning something like that. The pursuit of spectacle has become the predominate focus of modern Hollywood movies. Everything else (script, actors, etc.) have taken a backseat to the “Oh wow” factor. But there is only so much “Oh wow” to go around, and a lot of people still go to movies because they’re looking for a story. This is an issue that comes up repeatedly in every study and survey done on the audience. Even people working in Hollywood are making the same comments. But this has little effect on the current plans of virtually every major studio. Heck, in the case of The Lone Ranger, Disney is squabbling over a mere $50 million differential (they want the movie made for $200 million, which means they’re willing to spend close to $300 million).

As loony as the system is, it can be viewed as half OK. After all, the steady profits from TV, cable and ancillary markets (video games, etc.) have so far provided enough extra profit to keep the screwy system afloat. The growth of the VoD market also looks good. This is especially important, since the TV and cable market is already showing the first serious sign of loss to the booming online trade. Granted, the actual theater market is dying, and increasingly Hollywood is even helping to shove it onto the ash heap.

But it is a business model that has some major holes. All of the TV, cable and ancillary markets are in a massive state of change. Much of the current change has to do with an undermining of the kind of centralized control that the major companies must depend on. In turn, the major companies and the MPAA have been busy attempting to ram through new laws that broaden the legal definition of piracy and impose increasingly harsh penalties aimed at any website that looks even half cross-eyed.

Likewise, the major studios are still banking on the dubious concept that movies are recession-proof. In the past, movies fared extremely well through normal recessions (those economic events that usually lasted about six months). The current recession started in December 2007. To be honest, this isn’t even a recession anymore. It’s more like a slow-moving depression. And nothing is about to change (at least not for the good). It is a situation that has driven many politicians to wild fits of delusional thinking and a few seasoned economists to bizarre flights of desperate fancy. But no matter what, we are now in a strange zone of political and economic inertia in which unemployment and under-employment will stay at record highs while the general public will be forced to focus on basic needs in a modern struggle for survival. Oddly enough, going to the movies is simply not one of those basic needs.

Which is why we have the current contradiction. Theater attendance is going down. DVD sales have plummeted. Production costs continue to climb, with $200 million as the current going rate. The soaring budgets are a form of unstoppable force while the economy has become one nasty unmovable object. It’s an old dilemma that never ends well, and the Hollywood majors are no exception.

Film Fund-amentals: The Curse of Exhibiting

 First published August 23, 2011

Making a movie is often compared to crawling through broken glass. Trying to exhibit a movie is the same only worse. Often, it feels as if you are on your hands and knees in an exploded glass factory and it’s a long way to the exit door.

Most indie filmmakers find themselves in a classic paradox. To get a distributor they need to get the movie exhibited, and to get exhibited they need a distributor. Oh sure, there is always that magical Cinderella moment where they get the movie accepted for screening at Sundance, and the minute the lights come up, there’s Harvey Weinstein thrusting a contract at the filmmaker. It does happen. To a few people. Of course your odds are higher that you will be hit by lightning during a shark attack.

Which is why indie filmmakers are always looking for alternative means to exhibit their movies. Even getting into Sundance is a long shot, and even if screened, the chance of getting a distributor’s attention is still extremely slim. Some indie filmmakers would argue that the Slamdance Film Festival is a better venue for finding distributors. Maybe that’s why it’s also getting harder to enter.

But most indie filmmakers are never going to make it to Park City for either festival. Or for any of the other top-listed events. Cannes is always too expensive, and the rest seem so far away (especially if you’re looking for good reasons to procrastinate). Besides, the odds are about as bad (and sometimes much worse) of getting anywhere at any of these sites.

As for all the other festivals, well it can be a little bit like bad sex. They can still be pretty good, but not quite the same as something with a strong dash of romance. Most second and third-tier film festivals do not attract distributors. So the filmmaker can get some exposure at these festivals and maybe even flip it into a move for wider viewing. But you will not actually get a distributor.

Which is why some indie filmmakers start thinking about doing it themselves. Four wall distribution is a fascinating concept. Why, it’s right up there with the Dynamite Death Chair act. The process is labor-intensive and money-draining, and most efforts to four-wall never get much further than the filmmaker’s home town (at least if they have a local theater that is open to the idea). It can sort of work for a movie that has a very fixed audience (for example, a documentary concerning a political and/or social issue that allows the filmmaker to work through an established series of organizations related to the specific issue). But in most cases, it isn’t really worth the effort.

The Pop-Up cinema has become a new (well, not exactly new) idea. The No Wave/Punk cinema movement of the early 1980s had a similar idea and was originally screened at Max’s Kansas City and CBGB in between the music. A variety of alternative venues can be explored, ranging from nightclubs to empty store fronts or even just a convenient open lot. Of course, you may get more police attention than audience, which is why you will want to make sure that you have legal clearance for both the space and its use. You would also be strongly advised to develop the presentation in cooperation with various other organizations in order to tap into a potential audience.

Perhaps the most succinct presentation of the modern ups and downs to these approaches has been demonstrated by Kevin Smith and his tribulations with releasing the movie Red State. Due to the subject matter of the movie, Smith was not attracting any major distributor. So at Sundance, he held an “auction” for the distribution rights (OK, this was more of an attention-getter than an actual auction).

Since the auction didn’t work, Smith announced that he was preparing to four-wall the movie. He started organizing the Red State tour with the enthusiasm of a politico charting a national campaign. It was sort of a national tour (15 selected cities) in much the same way that Charlie Sheen’s recent live show was theater — a very limited run that mostly built PR value. But it did get attention from Lionsgate, who were willing to sign a distribution deal.

The movie will now go for its broadest release on Labor Day via VoD. In some crazy way, Smith has taken indie distribution through a history tour as he traced his way from the early days of four-walling to the contemporary Promised Land of commercial online release. If it works, it will be a bold move that will cement the online future for indie distribution. If it doesn’t work, well, so what. Basically this is still the future, no matter what happens to this one title.

Besides, VoD definitely beats the theater clean-up after the screening. It’s a lot of work, and you don’t even want to know what some of that stuff is on the floor.

 

 

Film Fund-amentals: The 1,000 Percent Sure Thing

 First published August 31, 2011

Recent box office may be slow, but it was a hot summer for the Feds. In June a series of major arrests were made against fraudulent film companies. In each case, the federal indictments read like a primer on boiler room flimflam. The cases are also a sharp reminder that sometimes the smartest people can make the dumbest mistakes.

The two main companies that were charged, Cinamour Entertainment LLC and Q Media Assets LLC, were both running operations that promised investors large returns for movies that were either never made or, if filmed, never really intended for release. Between the two companies, over $25 million is alleged to have been stolen from investors who responded to cold calls that were based on lists purchased from American Information Strategies, Inc., which has also been indicted in the investigation.

What is most interesting about these cases is just how much money was fleeced through a pretty low-brow effort. Basically, it was the same kind of scam used by bogus lotteries (for example, the “Microsoft Lottery“) and phony investment schemes. Half of what they promised sounded half-legitimate, and many of the investors had little experience with investing, so it had to have sounded half-real. Add to that mix the tasty magic of the movies and the deal was cooked. So, too, were the books.

Admittedly, film investment is a ripe zone for fraud. Even at its most mainstream level, the business is a convoluted and loosey-goosey enterprise that more resembles an old Monty Python sketch. Often the financial details move about in a random state with a cash flow that can seem more mysterious than the source of the Nile. The names of various directors and actors and writers come and go in a willy-nilly manner that sounds like a bad game of Clue. It is extremely hard to determine who might be legitimate, but ironically enough it is pretty easy (sometimes) to sort out the offers that are highly dubious.

For example, Cinamour was promising their investors a 1,000 percent return on investment. ROI is a tricky issue in the film business, with average returns varying from between zip to 655,505.52 percent, but the harsh reality is often in the negative category. Anyone promising a guarantee return of anything — least of all 1,000 percent — is being neither honest nor realistic. Many small-budget movies will have an ROI in the minus zone or, at best, a modest 1 to 10 percent. Of course, Paranormal Activity was the film with the 655,505.52 percent ROI, but that kind of success is extraordinarily rare.

Both companies were promising well-known stars for their movies. Not surprisingly, not a single one of the performers named had a clue that they were supposed to be committed to the productions. Names are cheap, especially if the “star” has no idea that you are using their name. Likewise, an actor may have actually given a passing nod to a project but has no intention of going anywhere near the movie. Until an actual legal commitment is made, none can be taken. Of course, this assumes that the actor in question has even been contacted about the movie. The companies under indictment didn’t feel the need to bug the named performers with such testy questions.

Besides, if a major player is interested in the movie, they’ll have signed a letter of intent. The LOI is a funny procedure. Since it’s not legally binding, it doesn’t really mean much. But a written confirmation that a major performer is interested in the project is a major help in attracting investors. Sometimes the most important aspect of an LOI is the degree to which it can help demonstrate the legitimacy of the project (as long as the document is legitimate itself — if the performer has gone so far as to sign an LOI, then that performer should be available for some form of support verification to potential investors).

Which gets to the biggest rule that any potential investor should follow: “Trust but verify.” In the case of the film business, I would suggest taking it light on the trust issue and going big on the verify part. Oh sure, everybody in this business is everybody else’s good friend. No matter. As I once pointed out to some business associates, the reason why people in Hollywood are always hugging each other is that is the easiest way to find the soft spot just before the backstabbing begins. So just remember that everybody is a sweetie and you just want to make a few calls to check things out.

One thing that is interesting to note about the cases against both Cinamour and Q Media is that they were both largely running call centers to find investors. Calling (or e-mailing) total strangers in order to pump them for money is a strange experience. It does happen and it can be basically legitimate (while writing this piece I got such a call that was legitimate). In such cases I can only say “Do not trust and most certainly verify.” To be honest, I would not particularly trust anyone making a cold call, sending an unsolicited e-mail or making unverifiable contact via a social networking site. We all have to work with all forms of the new technology, but we also need to know who the other person is and what they really represent before any actual transaction can take place.

Which is why it is always good to keep the key rule in mind: The minute it is too good to be true and too easy to be believed, then something is wrong.

Film Fund-amentals: The Strange Nature of the Digital Evolution

 First published September 6, 2011

As we all know, Betamax was better than VHS. Vinyl records were superior to a CD. Personally, I suspect it is safer to take a printed book to the bathroom than a Kindle (OK, I haven’t been quite the same since I was caught sitting in the bathroom during an earthquake).

But none of this matters. Quality is not the determining factor in the digital evolution (I am calling it evolution rather than revolution because the process is closer in spirit to Darwin than Marx). Betamax lost out to VHS due to a variety of bad business decisions. CDs took over from LPs largely because of their greater portability. The sound quality became secondary. To be honest, my assumption about Kindle and the bathroom is based on personal hysteria.

The factors that determine successful change within the digital domain go way beyond the merely technical. Instead, they are a chaotic mix of business strategies, sociological attitudes, cultural assumptions and individual adaptability. Then add in the greater economic scene and the fickle (and nearly unpredictable) nature of the buying public. If you were to chart these factors, the result would resemble a PowerPoint presentation created by a deranged chimp.

Both the film and recording industries have spent more than 25 years trying to adapt and control the changes being caused by digitalization and the Internet. The mainstream record business is half-dead while simultaneously various forms of online and downloadable approaches are rapidly developing. The film industry is going through many of the same changes. Digital screenings (and digital distribution) are becoming common at theaters. The major companies are beginning to move aggressively into the VoD market. Publicly, Hollywood has taken on the digital challenge and is ready to steer its way into a future so bright every studio executive will have to wear shades.

Last Wednesday, Variety announced that the summer box office of 2011 is about to break the record set in 2009. It sounds as if the Hollywood plan is working. Or at least it does until you put it into context. For example, the cost of movie tickets has sharply risen during the past two years while audience attendance has dropped. In turn, most of the summer box office has been dismal, with only a few movies doing any amount of serious business. Ironically, the few titles that did well were ludicrously large hits, reaching over a billion dollars each (the billion mark is the new standard for tent pole productions).

However, since movies like Harry Potter and the Deathly Hallow Part Two and Pirates of the Caribbean 4 basically cost around half a billion to make (once you tally up production as well as PR and all other connected costs), that big global profit mark just isn’t too hot. The only movie this summer that actually has produced an enormous return on investment is The Help. Made for around $25-$30 million, The Help has currently taken in $118.6 million in US box office and has a near stranglehold on the number one slot. Technically, it has done more business than the last six big movies made with Johnny Depp (and Depp is one of the few marketable stars out there).

In reality, the current Hollywood strategy is not working. Privately, most studio executives know this and are feeling desperate. That is why they are so busy storming the digital playing field in a heated attempt to take control. This is part of the reason why the question of internet piracy has been a hot issue in Congress, various majors have been fighting against Netflix, Viacom is still trying to win an appeal in its suit against YouTube, and everyone is trying to cozy up to the social media sites.

But they will most likely fail because of their own mis-assumptions. The current emphasis on the over-produced tent pole movie is based on the idea that the audience will go to the theater for an extravaganza. But the audience drop is most noticeable with these movies. The current data do not support the idea that the audience is chomping at the bit for more ultra-expensive superhero movies (unless it’s Batman).

They hope that 3D will save the business. But it won’t. A few 3D movies have hinted at the superior possibilities of the new digital process. Most 3D films could have been directed by a blind man and nobody would have known the difference. The most important thing that modern 3D has done is to pave the way for total digital production and distribution. This new approach will be of great value to indie filmmakers, since it vastly reduces costs at both ends of the process. Of course this wasn’t the intention of the major companies, but it is the inevitable outcome.

The major companies will ultimately fail in their attempt to control the VoD market. They are still too bound to the cable TV distribution format to fully comprehend the radical difference in this rapidly emerging form. They are offering too few titles at too high of a fee to truly excite (or even attract) the online crowd. They seem convinced that people will pay more for quality entertainment. A few of these folks may also still have a Betamax stashed away somewhere in their office.

But the biggest problem for the major companies is the issue of centralized control. Every Hollywood studio is part of a massive corporate structure. They may or may not be too big to fail, but they are certainly too big to understand anything outside of this type of structure. By comparison, the digital world has no center, very little structure in any corporate sense, and largely floats between a wide variety of individuals and concerns. The conglomerate world is composed of massive interlocked divisions that operate in a top-down hierarchical structure. The digital world has no top, no down, and is structured in a non-linear order that often defies national borders and any single company’s control.

Which is why I keep emphasizing that the folks in Hollywood haven’t a clue what is hitting them. This is also why the indie structure is the only one that can, ultimately, withstand the massive process of evolutionary change that is beginning to take place in the business.