Yes, the entertainment industry is suffering and no, that is not a study

Andrew Sullivan linked to Forbes’ Timothy Lee citing a “study” called The Sky is Rising that claims to prove that the entertainment industry is not suffering.

Why We Shouldn’t Worry About The (Alleged) Decline Of The Music Industry – Forbes.

Mike Masnick (who, full disclosure, has paid me to contribute to his Techdirt blog in the past) has a great new study out today about the growth of the entertainment industry. Driven by complaints from a handful of large movie studios and record labels, there’s been a tremendous amount of discussion of the negative effects of the Internet—specifically, illegal file-sharing—on content companies. In a new study funded by the Computer and Communications Industry Association (which frequently locks horns with content companies over copyright issues), Mike nicely illustrates that if you look beyond the largest firms, the entertainment industry is in great shape by almost any measure.

Masnick himself had some very optimistic-sounding words and some impressive-looking statistics to back them up, as well as a pretty infographic to explain what he is saying.

The Sky Is Rising: The Entertainment Industry Is Large & Growing… Not Shrinking | Techdirt.

Yet, what we find when looking through the research — from a variety of sources to corroborate and back up any research we found — is that the overall entertainment ecosystem is in a real renaissance period. The sky truly is rising, not falling: the industry is growing both in terms of revenue and content.

This “study” is a great example of why you should never trust people with a clear agenda when they tell you what their research has proven. I took the step of actually downloading Masnick’s “study” and, to be blunt, it’s a load of bullshit.

I’m not sure what makes Masnick think that he is convincing, but he was obviously banking on no one who knows what they are talking about actually reading his study. He has a decent graphics designer, but even any first-year maths/economics student could tell you that his “study” is an extended polemic and not much else. For those of you out there who have never studied in this field, here’s a few of the many reasons why you should not trust a word in The Sky is Rising (aside from the fact that it’s called that, obviously):

According to who?

Take a look at this:

More recently, the movie industry has also been dubbed recession proof, due to the box office ticket sales that have held up rather well in comparison to other industries. In 2008, DreamWorks Animation CEO Jeffrey Katzenberg said, “Both traditionally as well as recently, we have seen that our product is, at worse, recession-resistant and, more optimistically and historically, has actually been recession-proof.” Additionally, according to the MPAA, total worldwide box office ticket revenues have increased by 25%, from $25.5 billion in 2006 to $31.8 billion in 2010.

According to PwC reports that include movie revenues beyond just box office ticket sales, the film industry has grown worldwide by almost 6% over the five-year period from 2005 to 2010, exceeding approximately $82 billion in value. For an industry that claims to be plagued by piracy, this steadfast level of growth during the Great Recession appears to justify the boastful statements of being recession proof.

The “PwC” referred to is presumably international accounting firm Pricewaterhouse Coopers, the issue here is that the “study” has not even said this, let alone provided a way to see the PwC data. What we do have is a nice-looking chart that doesn’t really say anything.

But wait, what about ..?

We can intimate that we are seeing the MPAA box office revenues from 2006-10, but there is a lot of information missing:

  • Obviously, the US market has been quite stagnant while the international market has been steadily growing, why is that?
  • Where has the growth been? We are told that other countries have high ticket sales, but not how they changed over the same time period.
  • How have films been doing relative to the wider world? (i.e. if Nigerian films are booming, is that a sign of films doing well or of Nigerians doing well?)
Also,

Other films that deserve to be mentioned are independent films that don’t generate mainstream box office ticket sales. In 2011, the Sundance film festival received around 4,000 entries, and independently-financed films are being produced with renewed vigor as production costs have dropped.

Again, we are not told:
  • How have production costs dropped? What are these costs? What were they before and what are they now?
  • Why don’t “independent films” achieve box office sales? Obviously they achieve some, how many do they actually get and why is it so much less than “non-independent”?
  • For that matter, what do you define as “independent”? Does that include everything outside of the major US studios? Does it exclude big Bollywood productions?
These kinds of mistakes are constantly repeated throughout the whole study. We are given results without source data and without any of the necessary context.

Oh, it’s obvious is it?

Probably the biggest error that Masnick makes repeatedly is that he simply states facts that are “clear” without any evidence to substantiate them. I have picked a few examples out, but this happens again and again (emphasis added):

In 2001, Forbes published an estimate that assumed around 13,000 video releases were created every year and pegged the entire US porn industry to be valued at less than $4 billion. The widespread piracy of these types of movies is putatively ubiquitous, but despite this copyright infringement, predictions for the demise of the adult film market seem to be dismissed easily, given that the demand for adult entertainment seems to be going strong. 

It “seems to be going strong”??? According to who? You can just “feel it”? Because the people making the movies definitely seem to think that their industry has taken a massive hit and, by the way, this has led to a competition to see who can be more “extreme” in order to capture the shrinking number of guys who actually pay for porn. This “fact” needs to have some substance, i.e. “which seems to be growing strong, as we can see from the increase in sales reported by [x]”.

Similar for these:

However, outside of advertising budgets, consumers are still willing to subscribe to television services in significant numbers even when free over-the-air broadcasts are widely available.

… These digital distribution methods for movies and shows are still in their infancy, but the convenience for viewers creates valuable services — which appear to be in growing demand as traditional television networks are beginning to provide their own online video strategies.

… A TV show or movie can be produced for a fraction of the cost compared to a decade ago, so many more kinds of shows can be developed with less risk.

What are these “significant numbers”? What is the demand for digital distribution? What fraction of the costs of a decade ago is production at now? This is actually a nice segue into my next point:

Volume published doesn’t mean anything

“Production costs” are relative, but what have undeniably dropped are distribution costs – mostly because they have gone from something (i.e. the cost of creating a physical product to distribute) to nothing (the cost of distributing a digital file). As a result, the volume of units has increased dramatically in film, publishing and music. This does not say anything about the number of people watching them or, most importantly, their quality (I have already argued that the quality of music being produced has been declining recently).

Here’s Masnick’s take:

With the cost of both production and distribution falling dramatically, different options for watching movies are more widely available than ever before, which creates an environment where a low budget film can potentially become enormously popular. Examples like Paranormal Activity, The Blair Witch Project and El Mariachi might be rare, but they also demonstrate the very real possibility for moviemakers to produce incredibly profitable films without a $200 million budget. There may be some exaggerations regarding movie budgets, but memorable (and profitable) storytelling doesn’t necessarily require an Avatar-sized budget.

Here are some numbers for you: according to IMDB, these three films, released in 2009, 1999 and 1993 have grossed $444,045,819 to date with combined budgets of $295,000 (most of which was for El Mariachi). Avatar, on the other hand, had a budget of  $237,000,000 but grossed $2,782,275,172 in two years. Even factoring in the budgets, Avatar grossed six times as much in two years than those three films did in a combined 35.

What does this say? Whatever you think about “memorable storytelling”, Avatar-style productions are immensely more profitable than their smaller, cheaper counterparts and a lot more people are willing to pay for them. If the movie industry can no longer produce the Avatars of this world, that is a problem.

Now here’s where piracy comes in: people will not be thinking long-term about the problem because we inevitably choose short-term rewards (watching Avatar for free!) over long-term ones (more Avatars being made) – see hyperbolic discounting. Ultimately, however, if we all stop paying to watch Avatar there will not be another James Cameron movie made ever.

Also,

… The line between amateur and professional video is even becoming difficult to define, as the children from the viral video “Charlie Bit My Finger” have gone on to become minor celebrities — earning enough income for Charlie’s family to afford a new house.

This proves that a 30 second video of two kids, taken with no intention of ever releasing it publicly, can now become a sensation and make a lot of money. That’s great for Charlie and his family, it is not great for film studios. I would hardly call Charlie’s parents “professionals” – they are more like the 21st Century equivalent of the winners of America’s Funniest Home Vidoes than anything else.
Personally, while I do find that video funny, I would rather watch a show like Arrested Development for laughs – you know, the one that got cancelled because it cost a lot more than ‘Charlie bit my finger’ to make and the studio could no longer afford it.

Wrapping up

I’ll stop here because this post is getting far too long, but suffice to say that I have only begun touching on the problems in Masnick’s document, it really is quite bad. I am a little angry that it was given coverage by relatively reliable media outlets given the amateurish drivel that it actually was. I know that there are some decent arguments out there for the internet having done good things for entertainment, and I will post them if/when I have time, but please do not take Masnick’s word for it.
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  1. #1 by Kevin on February 7, 2012 - 4:04 am

    The short term thinking is a killer

  2. #2 by dez./ on February 11, 2012 - 5:52 am

    hello. i have acidetnally found your site when googling for more opinions about tech dirty entertainemnt industry. i am quity happy to see, in contrary with many other sites/opinions, one which actually see how terrible the report is.

    not only they mixed numbers they find convient, they dont understand the entertaiment industry at all.

    as for bailr witch project and other microbudgeted movies, which techdirt´s mike found a movie business saviours, they have a lot bigger production budget. BWP might have cost 20 000 dollars to make, but when filmakers wanted this movie to show at sundance, they needed some 100 thounsands dollars to do a proper sound mix and actual 35mm print. movie is told to be aquired by distribution comapny for a million dollars. later, some scene had to be reshoot and a new sound mix and post production was made, which put the budget for about a million. although they used internet campaign to rpomote the movies, some millions must have been spent for advertisment as well as for aprox 3000 35mm copies a bill must have been not less then 5 millions. to sum up, distribution company whcih aquried the movie needed almost 10 millions to be able to put it into 3000 theaters. it is far from 20.000 dollars mention as an estimated romantic microbudget.

    well, behind every microbudet there are real money to be spent, if a movie is ment for a nationwide distribution. there is a trned for such microbudet movies lately, big studios had shut their indie subcompanies some years ago, now they open sub micro budget companies. yes, films can be made for 100.000 dollars, and distributed for few millions and hopefully, until this trend stays, such movies are able to bring tens millions. they will be few of them, this by no means is a way how the movie industry can monetize their assets. 😦

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