The studios and unions are fighting over how to divide yesterday's pie when they should be looking at how to cook up what their customers will want tomorrow.
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Barry Diller recently said that studios should break from streaming services and do deals directly with guilds. He’s on the right path but there’s a stronger option they should explore.
Diller is right that there isn’t good alignment right now. Traditionally the unions and distribution channels aligned because eyeballs on a movie meant more ticket sales (or ad revenue) and that translated, directly and indirectly, to more revenue for both parties, the distribution channels and unions. Some of the distribution channels, like Amazon and Apple, have other businesses they are tied to. They are not as immediately concerned with views of their content. Netflix is more like a traditional media channel (e.g., theater, TV channel) but because of the flat rate model there will always be conflict unless both sides (Netflix and unions) agree to objective measurements and ratios. Netflix, being a tech company that works on subscriptions, is not so inclined to do that. Fortunately, there’s a simple model that has worked time and again in such situations.
Let’s go back to 1999, when the world wide web was a fraction of what it is today. Airlines traditionally sold tickets to fliers through travel agents or directly the airline’s sales teams. This is like selling movies via theaters or directly through VHS tapes. Then Expedia, Travelocity, and others came in and grabbed all that traffic. Suddenly the airlines’ sales channels, direct to consumers or via travel agents (where the travel agent industry was a long-time trusted partner of the airline industry with a symbiotic relationship), were drying up.
Enter Orbitz. This was a consortium built by the airlines to meet their interests. By working together on this channel, the airlines effectively agreed to compete on price, availability, and service, but not on marketing channels. While there were some initial antitrust concerns the US DOJ ruled that there was no issue. Orbitz meets the needs of the airline industry while Expedia, Travelocity, and others provide healthy competition.
The traditional studios, along with the various unions, need to come together and create their own streaming service, one login to rule them all (or it will be whenever Amazon’s Lord of the Rings rights expire). From the user’s perspective, it will run like a regular streaming service. Just as automakers have on their board reps from the union, so, too, will this company’s governance have reps from different unions such as actors, writers, and/or directors (maybe also a combined rep from the smaller unions, as well). Being “creator friendly,” the data on this platform will be open to those parties.
This service can choose from different business models. There could be a flat rate for customers, and then a percentage of that money is pro-rated across the media the user viewed that month. There could be credits, fixed or variable, that a user gets each month and media properties can set their own “prices” on the market (including higher cost for newer releases). Other models could work as well, including ad supported. What matters is not the specific model, but that the data will allow revenue to be appropriately apportioned in some way, which ties into the residual model the unions want.
You may be thinking that this isn’t cheap or easy. It’s not, but it’s also not that expensive or hard. An e-commerce site in 1999 (when Orbitz launched) would require a team of ten to twenty engineers. A decade later it would take five engineers. Today you can spin one up with no engineers. Building a streaming service can be done for a few hundred million (to build it to scale). A single VC could fund that, let alone a consortium of studios and union pension funds. And while Netflix raised $5B some of that was for content licensing fees and for marketing as well, both to have people know of Netflix and to sell them on a new way to watch movies. The content would be provided with little or no upfront fees, as it is to movie theaters. As for marketing, people know what a streaming service is and there would be enough earned media to start (especially when every actor, director, and studio head goes on every talk show to promote it).
This actually isn’t a new idea, even for the media industry. This was the original vision of Hulu (kinda). Back in 2006 NBC was losing out on revenue to YouTube. SNL skits and other clips were going up on YouTube generating lots of ad revenue, none of which went to NBC or the actors. Lazy Sunday was the prime example of this used in their pitch. To compete with YouTube NBC launched a business unit called NBBC, the National Broadband Company. (I believe Adam Samberg was too busy working on Dick in a Box to help them come up with a better name for the business unit).
The idea was a good one, let content owners, such as the studios, put clips on the platform. Then media properties, from YouTube to tiny blogs, could access that content for their websites. The content came with ads (pre-roll, interstitial, companion, etc.) and there would be a revenue share among the content owner, the media property, and NBBC. It made sense. A small Star Trek blog couldn’t call up Paramount and ask for a clip from the latest episode, it would be too much paperwork for Paramount to deal with to license it out for such tiny revenue. But NBBC, run by NBC, could be trusted to respect IP and take care of brand conflict (e.g., not have sin-ads run against family-friendly content) and this would all be automated enough that it was cost effective for everyone.
NBC originally tried to get the other major networks to go in on this. None did. NBBC was launched in Sept 2006. I was brought in as a consultant in October because a month after launch, no one could actually log into the website. A lot of things happened the next few months that I can’t get into, but the original concept was revised and spun out in a joint venture in the spring of 2007. (I choose not to continue on the project because the company moved to LA and because of other reasons I won’t get into publicly.) The service was launched as Hulu in the fall of 2007.
Unfortunately, it never quite lived up to being Orbitz of streaming. It may not have really been seen that way by all the founding executives. These days it’s majority owned by Disney, so there is a conflict from the start.
With Orbitz, every airline agreed to share their best prices on the platform. They can still sell tickets elsewhere, such as their own website, but the best price and purchase ability must be shared with Orbitz. Every major airline is on there.
For this plan to work, enough of the major studios must agree to always make their content available on it. Amazon and Netflix may not join in, but they don’t have much content compared to historical content producers. Disney likely won’t either (and they do have a huge vault). But if the rest of the major TV channels and movie studios came together (along with the unions), it would be enough. Ideally the smaller studios and properties would join in, too. Orbitz launched without American Airlines, who did eventually join the consortium. Importantly, unlike Netflix, Amazon, and Disney, this joint entity won’t be in the content making business. They would leave that to their industry partners, and it would simply be a distribution channel.
The negotiating parties in the various Hollywood strikes are bogged down in how to divide up the pie. Negotiation experts like me will teach you to expand the pie, or in this case, bake a whole new pie that’s big enough for everyone. Whether they take this suggestion or not, I hope the representatives begin to look at new media models, and not just squabble over how to carve up traditional ones. Of course, if both sides do want to keep fighting using that old mindset, frankly my dear, I don’t give a damn.
(In the compassion article to this one, SAG-AFTRA & WGA Are Going to Win the Battle and Lose the War, I explore why the unions have the advantage in the short term, but face a difficult future.)
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