May 18, 2020
How decentralization and Blockchain Technology will change the Film industry, providing transparency for filmmakers?
Movie and show/event financing will become a liquid market creating a new asset class!
In this blog, I would like to share some views and thoughts on how recent developments in decentralized web and blockchain technologies could transform the film industry.
One of my last blogs showed the different forms of film finance available to independent film producers and directors, this blog looks at how the blockchain will change the film industry, which I believe could help further the independent film sector, with this exciting technology.
I will touch on a few aspects, leaving them for future discussions. My last blog showed the different forms of film finance available to the independent film market.
“Film and show/event financing will become a liquid market creating a new asset class”
At this moment any film or show producer/director faces the daunting and unenviable task of raising funding, with available options being traditional debt, tax credits (subject to that jurisdiction), equity financing and most recently — crowdfunding on platforms like Kickstarter and Indiegogo.
The whole $100B+ global filmed entertainment market is notoriously opaque, and lots of value is accumulated by all sorts of intermediaries at the expense of both filmmakers and the consumer.
It’s impossible to say who’s got or lost money in the process from making a movie or show, why this film costs that much to rent or to own.
While making a movie is a risky venture by definition (like starting any business), industry opaqueness creates additional risks.
This is because the film/show financing market is illiquid — you cannot easily acquire or sell an interest in a certain creative work — the cost of money is higher, and the created value is much, much lower.
With blockchain platforms like Ethereum, it is possible to tokenize any asset, including an intangible creative work, like film or show.
Issued crypto-tokens entitle their owners to a certain value, like use a product or service or receive profits, proportionally to the share of tokens owned. Such events of initial tokens sales, commonly referred to as ICOs (initial coin offerings), has boomed over the past 24months, with total value raised by the issuers — predominantly tech startups — being well over $2B.
Interestingly, there have already been at least 3 cases (“The Pitts Circus”, “Braid The Movie” and “21 Million”).
Such first examples, while being important milestones towards the democratization of the film and show financing, still lack common ground in terms of legal status and may operate in a grey area with regards to various financial, tax and legal regulations and restrictions.
When blockchain and crypto-token markets mature, as the much-needed legal framework becomes available and standardized, the world will see the film and show financing market opening to people, content tokens being traded on exchanges and the new asset class being created.
Bringing people as investors into the content value chain, typically very closed, will certainly create additional network effects, helping to spread the word about the content being created, and reaching interested audiences well ahead of the usual start of marketing efforts, which over the years only the “major” studios have the budget and clout to make this happen.
Will digital content licensing will migrate to blockchain?
When the content is successfully created, a public blockchain — decentralized global immutable ledger, like Ethereum — looks like a perfect solution for storing transactions involving licensing, rights assignment and transfer for the following reasons:
It’s not controlled or operated by any organization or entity; rather, any transaction is confirmed by a protocol and enforced automatically via smart contracts’ code;
It enables transparency (it’s easy to count transactions of any type and their values), while maintaining privacy (a user is represented by a digital id, like a wallet number).
The license will take the form of a piece of code that will be able to check the license term, any restrictions and so on.
Recording all license value transfers on an immutable blockchain will make industry revenues transparent and accountable; content owners will know exactly how much money each film or show made in each window/channel — right now reliable numbers are only available for the box office.
Lots of problems still remain unsolved in this area, the most important being:
Lack of supporting legislation;
Need for mass adoption;
Backward compatibility with existing systems and solutions.
There are good signs that work in this direction has started a while ago and is well underway, which make us believe that the inevitable future will bring lots of additional value for the two most important parties — content creators and consumers.
Content storage, delivery and protection will evolve:
Right now, for whoever works in the content industry, working with digital content itself is complicated.
Master copies, originals, formatted distribution copies are being stored and transferred zillion times by multiple parties causing delays, errors, theft, not to mention wasted resources.
Hundreds of distributors around the world will receive, ingest, transcode, encrypt, store content files and upload them onto CDNs.
Moving towards a decentralized permanent web, establishing a single source of truth and trust in digital content will bring massive efficiencies and make content more available and more protected at the same time.
Distributed protocols like (IPFS), where all resources are content-addressable using Merkle trees, make it possible to permanently store content originals, while underlying P2P networking creates efficient ways to deliver required content to end-users.
Content owners will gain control over the downstream chain:
In a new decentralized world, a license to use creative work which is essentially a contract between the end-user and the rights owner will be represented by a smart contract, an auto-enforceable piece of code stored on a blockchain.
Instead of using a third party — a distributor, like iTunes — to operate the licensing process, content owners will be able to use any combination of standard smart contracts to license a film or a show directly to an end-user.
Essentially, the task that will need to be solved for each content piece is to maximize revenues over the lifetime of the content using the following parameters:
Types of windows / licenses (theatrical, premium VoD, transactional VoD, subscription / Pay TV and finally ad-supported VoD / free-to-air TV);
Flexible pricing (a combination of auction-based pricing for window openings and moving to standard tiered pricing levels in time).
I believe that using new pricing models together with transparency of the process will help maximize the seamless value for each content asset.
Examples of such novelties could be:
Using supply-demand matching before opening of premium VoD window (2–4 weeks after theatrical premieres instead of current 9–12 weeks) to establish fair starting price for the eager first watchers (could be $50–100 for a much-expected blockbuster premiere, for example);
Using automated auctions to establish pricing for unique real-time events (sports games, etc).
Content licenses will become portable and platform-independent:
Because film/show licenses will be stored in an immutable public ledger, it will become possible to exercise end-user rights, i.e. watch a film or show on any platform, very much like we can watch a DVD disk that we own on any compatible DVD player.
One interesting feature that I believe will become possible thanks to blockchain and smart contracts, is reselling of digital licenses on a secondary market, pretty much like selling used disks on eBay or flea markets.
Existing legislation (first sale doctrine in the US) allows selling used physical DVD disks and prohibits selling “used” digital rights precisely because the former tend naturally degrade in quality, i.e. have a finite useful term, whereas the latter doesn’t.
I believe that using smart contracts could achieve the same effect with automatic time-based value degradation. Hence, the new type of license can appear, that will live for a certain amount of time, and/or its useful term will decrease with each title transfer.
Once the legislation changes to embrace such a case, the large secondary market of digital licenses will appear.
Transactional platforms like iTunes will become less relevant:
Because of the shifting of value chain control upstream, towards the content owner, the role of distributors will be significantly diminished:
Licensing operations will shift to blockchain;
Payment operations will shift to blockchain and payment providers;
Content operations (transcoding, delivery, subtitling etc.) will be largely gone towards CDN providers and content specialists.
The remaining possible differentiators will lie in the user-related areas:
Being better in marketing and content discovery, i.e. getting the most relevant content in the least possible time;
Providing better viewing experience (content quality, support of devices, offline viewing, languages and subtitles, etc.)
As such, transactional content distribution platforms will evolve into discovery platforms, could embrace different licensing models (subscription) or will cease to exist.
Marketing and content discovery will be essential as ever:
As more content becomes available each year reaching target audiences gets more and more complicated tasks, especially for smaller and niche content creators/owners.
On the consumer side, the problem of choice is also getting more and more acute.
Right now, one of the biggest problems is the absence of a “true digital self” for every person online.
Our preferences, browsing/viewing history, a network of friends, ratings and so on are owned by a bunch of well-known global corporations and are being heavily monetized without our participation (if you use the product for free, you are the product).
On the one hand, the more our favourite providers (Netflix, Amazon, etc). know about our tastes, the better their recommendation systems work.
On the other hand, no single provider has got or will have all the video content in the world, so my Netflix history doesn’t help iTunes and vice versa.
Using some third party to keep and share preferences would do little help and will not let us really control our digital selves.
On the other hand, creating a decentralized blockchain-based system that is capable of storing pieces of digital identity that could be safely used by trusted providers and will be controlled by us makes perfect sense.
A lot of stuff covered, however, there are still open questions and unexplored areas, like:
Is it possible to create a true decentralized DRM (digital rights management) system that will replace current proprietary tech like PlayReady, Widevine, FairPlay?
Could the move towards decentralized content distribution with a direct link between owner and end-user create a new type of content economy with much more fair value distribution and incentives, so that piracy would gradually make less and less sense?
There are a lot of discussion points, which is always a good way to start thinking about how you are going to progress forward, the more knowledge we have the better in my book!
By: Peter Moore
