Will Piracy Ruin Hollywood?

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Gabriel Rossman suggests that although piracy has had little effect on the quantity and quality of music, it will probably have a bigger effect on movies:

In the music industry the ratio of promotion to production costs is about 10:1….This means that over the long-run a drop in music revenues will in large part be felt by radio stations and others who specialize in promoting music.

In contrast, the promotion to production ratio in Hollywood is about 1:2. That is, the rule of thumb is that prints and promotion cost about half as much as making the film in the first place so a film that cost $100 million to make costs an additional $50 million to distribute. This means that decreased profits will mostly hit Hollywood itself rather than a related industry. Since stars are residual claimants and below-the-line workers make solid middle class livings, some of the pain will hit in the form of lower labor compensation, however you can’t lower production costs without eventually hurting production values.

The whole piece is interesting, but I wonder how long the promotion-to-production ratio in Hollywood will stay at 1:2. After all, the fundamental reason that the ratio is high in the music industry is that music is relatively cheap to produce — and recent technology has made it cheaper still.

The cost of movies, on the other hand, seems to keep going up and up and up. But how long will that remain the case? I can imagine that in the not-too-distant future movies will become 100% digital: no actors, no cameras, no sets, no nothing. Just some high-powered computers constructing voices and faces and surroundings that are indistinguishable from real life. It still wouldn’t be a one-person job, the way a novel is, but it might reasonably be a 20-person or 50-person job for six months or so. In others words, even big-budget films might cost no more than a million or two to produce.

Alternatively, maybe costs will remain high even in my brave new all-digital world. By way of comparison, the cost of videogames, which hovered around $1 million once upon a time, has risen to $5-10 million over the years, and game developers now estimate that this may rise to around $50 million in the future. So maybe costs will stay high, with movies simply using up their large budgets on the latest and greatest technology no matter what it happens to be. Or, maybe audiences will simply never cotton to digital actors.

I’m not really sure. This is just food for thought. Whenever the conversation turns to the effect of piracy on Hollywood, it’s something I think about. In the end, the technological supply side might turn out to be just as important as the technological IP enforcement side.


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