Let's compare Louis CK's Live at the Beacon Theater to iFart

Y-Combinator's "Kill Hollywood" request for startups [http://ycombinator.com/rfs9.html] triggered a discussion on Quora [http://qr.ae/R5Q1F], where the top-rated answer starts with: "Everything about this question shows why Silicon Valley fundamentally does not understand Hollywood."

I was surprised to see the skeptics, when all around us we can see every media industry in the throes of disruption, so I had to chime in with my own take [http://qr.ae/ROUxC]:

The assumption in many of the comments here is that film production is what needs to be disrupted, and that disruption means a timely destruction of the incumbent system. Both of these assumptions are wrong.

"Low-end disruption" means that the disruptive video content will not have the quality of Hollywood films. It will provide some kind of value to customers that the establishment can't or won't provide. The disruption takes time; it could possibly take many decades.

Production is not the main issue. As Amal Dorai pointed out, that's already being disrupted with cheaper equipment, post-production software, etc. And Kickstarter provides a way for indies to get financing.

No, it is DISTRIBUTION that's the key problem. The technology for distribution already exists, but no one has created the right kind of open marketplace for video content.

Let's look at what happened with the iOS App Store as an analogy. Prior to the App Store, the mobile apps market was fairly limited. There were walled-garden carrier decks that were generally restricted to publishers who could afford to license brands, and the mobile operators would take 50-70% of the retail price. In addition, they might require certification fees. Alternatively there were PDA/smartphone stores (like Handango, Handmark, PocketGear) for Palm/PocketPC/Symbian where the distributor would take a 50-60% retailing cut.

The popularity of the iPhone and the App Store created a marketplace where small developers were able to distribute their content quickly and cheaply, and could easily monetize their content. Consider these salient aspects, keeping in mind what's available to indie filmmakers:
~ Apple promoted the store and featured the content in massive TV, print, and outdoor/billboard advertising campaigns.
~ Apple took only 30% of retail, which at the time was a phenomenally good deal for the developers.
~ Apple allowed corporations and individuals to register and publish content. Joining the developer program cost only $99/yr.
~ Apple covered the storage & delivery cost. Developers did not have to pay for bandwidth when customers downloaded their content.
~ Apple covered the cost of testing/certification.
~ Apple provided different purchase models: one-time and in-app purchase. (No subscriptions, but that is available to iBooks publishers.)
~ Apple provided ways to discover content in the store (Featured, Genius, Top Charts, Categories, Spotlight search).
~ Apple curated the content, gave age/content ratings, and provided parental controls so customers could generally trust what was safe to purchase. The purchase page included customer ratings and screenshots.
~ Apple attempted to provide developers with other ways to monetize the content (iAd).
~ Apple allowed the developers to update their content titles, descriptions, categories, and prices, so developers could experiment to see what improved sales.
~ Apple provided detailed sales reports. And there were other ways to get information about the customers, so developers could analyze their conversion/engagement funnel and could experiment to improve sales.

At first many apps were worse than what you could get for free on the internet, but customers paid for them. Initially, the value was novelty: remember iFart? How about that app that let you pretend you were drinking a beer from your iPhone "mug"? No one would say an app like that was competing with top-selling console/PC games of the time, like Call of Duty, nor would they say that such apps needed to be like a console game.

You don't see low-quality novelties at the top of the app charts anymore; they've been displaced by better competition. And yet even now, premium iOS games are not as good quality as console games in terms of production values, but they are much cheaper and provide value to consumers. There are huge PC/console game hits (e.g. Skyrim, on Steam), but no one says that iOS games need to compete with them.

iOS gaming has become a huge market in its own, and still growing at an impressive rate. (At any position on the top grossing chart, revenue has approx. doubled from the year before.) The rest of the gaming industry has matured and is stagnant, with the exception of freemium mid/hard-core Facebook games. A whole ecosystem developed around the App Store, supplying services such as ad networks, ad mediation, promotion & cross-promotion, analytics, app reviews sites, mobile industry commentators, and more.

Now after a 4 year gold rush of iOS app development, it's becoming apparent that mobile gaming will eventually disrupt console gaming. That doesn't mean console gaming will disappear. Note that Hollywood did not cause Broadway to disappear.

For indie filmmakers, the problem with the current situation is that there's no good video marketplace for them to promote and make money from their content. You can put your film on YouTube or Vimeo, but how do you monetize it? It's difficult to get your indie film on iTunes or Amazon, and even if you could, there's no clear way to promote the film without a big advertising budget. You have to enter film festivals and win some awards.

If you can get sponsors, you don't have to charge for your content. Felicia Day's "The Guild" episodes each cost $10k to produce and were sponsored by Sprint and Msft, so those are freely available on Youtube. But this isn't a model that will scale for the long tail -- there aren't enough sponsors. (Imagine if all iPhone developers had to get sponsors in order to make a profit.)

A couple years ago when I wanted to watch the David Choe "Dirty Hands" documentary, there was no way to buy it; it was only available as a torrent bootleg. Now they've made a DVD that's for sale on the website but that just happened in the past year. Not many people are going to stumble across that movie when browsing around the web, but if it's in an online video store with 100 million customers, and this store has featured content, directory listings, social recommendations, and "people who watched this film also watched that film" sort of recommendations, then it's going to be found. But DVD is not the way to distribute.

Louis CK sold "Live at the Beacon Theater" for $5 direct download from his website. He has the clout to get away with that (110K downloads in the first 4 days, and doubled after 12 days). Indies don't. A hundred thousand people aren't going to buy an indie DVD online and wait for it to be delivered without first knowing it's worth the wait, but they might stream it. It needs to be instant video-on-demand.

"The Guild" and "Dirty Hands" and "Live at the Beacon Theater" are not Hollywood blockbusters. That's exactly the point. They don't have to be. No one needs to compare them to Titanic or even Casablanca. (But to illustrate the nature of disruption, as much as I like them, I am comparing them to iFart.)

The world has plenty of people who are going to make videos even though they can't match Hollywood production values. The hard part is how they'll get an audience who'll pay for those videos.

Create the video marketplace, promote it, curate it, and let the filmmakers figure out how to find their audience from amongst the store customers. Once there are a few high profile filmmakers with offerings on the store, they'll attract more customers for everyone else selling videos in the store.
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