The Mouse That Roared: The Rise Of A Totally Digital Disney And Theatres

“We cannot solve our problems with the same thinking we used when we created them.”

Albert Einstein.

In 1993, I was approached to develop a facility to encoded and replicate masters for the burgeoning technology of DVD’s. Always up for a challenge, I pulled together the resources to build a full-fledged media lab capable of putting out authored and encoded DVD masters. My focus was encoding and distributing movies on DVD that were low budget range or ones that somehow entered into a lapse of copyright. If a DVD in 1994 was priced less than $15… dollars to donuts I would have produced it. I did the first couple of box sets; History of The Mafia and The History of World War 2, I designed interactive menus and my real claim to fame was that I produced the first couple of Beatles DVD’s with embedded histories of Beatlemania complete with quizzes. It was great fun and I got excited about the new digital realm were movies could exist.

As a passionate movie fan and as a film producer this was great. Once a movie had been converted to ones and zeros the ability to distribute exploded. I had more work than I could handle. The entertainment world was all turning digital. I turned down a steady stream of work mastering adult DVD’s, after all I have a mother to answer to. We were producing titles like Charade, Where the Red Fern Grows, McLintock, Hunchback of Notre Dame and Snows of Kilimanjaro just to name a few. I was busy …. very busy.

Starting in mid-1994 phone companies started getting the idea of delivering entertainment content directly into the home. DSL and ethernet technologies were being slowly introduced and carriers saw the potential of widening their income stream. I was approached by a major Japanese telecom equipment manufacturer to bring the same interactive approach I had brought to DVD’s to a new home based on demand offering…. essentially interactive television or streaming. With the same abandon that I approached the DVD market with I started using what I had learned with DVD’s to producing interactive movie experiences on a test basis to places like rural Nevada, The Dominican Republic, Venezuela, Chile and Mexico. We were making fresh tracks in the digital snow, innovating and making plenty of mistakes. I soon found out that pioneers were still the recipients of a major number of arrows to the back.

I started looking for a more disciplined approach to what we were doing, and I started seeking out people who knew more than I did.

Being Digital authored by the Head of M.I.T’s Media Lab, the brilliant Nicholas Negroponte was published in January of 1995. I immediate grabbed it when I saw it on the shelf of the local bookstore. This book changed me. Being Digital, simply put is a non-fiction book about digital technologies and their possible future but it was much more than that. It was manual of learning how to think in the new digital age. It was a door that led one to realize the true nature and the possibility of this new digital world. It discussed the tsunami of a paradigm shift that was about to take place in our world due to the move from analog to digital. The transition to digital excited me, but at the same time I began to realize that we also were entering a dangerous time, especially for movies. When any item becomes more accessible, its value lessens.

Being Digital provides a general history of several digital media technologies, many that the author Negroponte himself was directly involved in developing. In the book Negroponte analyzes the advantages and disadvantages of the technologies and tries to predict how the technologies will evolve. Negroponte presented a strong belief that humanity is inevitably headed towards a future where everything that can will be digitized (be it newspapers, entertainment, sex , or movies). This was in 1995 and for the most part in 2018 all the forecasts have come to be.

Negroponte had prospectively expressed the concept that the television was merely a tollbooth on the digital highway. This is a concept that really stuck with me. It is a concept that also began to intrigue the studios. The rise of major portal economies like Google or Amazon is something most companies aspire to. Terry Semel, the former head of Warner Brothers headed over to Yahoo to expand their offering but was confronted by the juggernaut that is Google. Professor Negroponte laid out the simple premise that the new digital technology could either free us or enslave us. Being Digital provided me an entry into the discipline and gave me a base ability to think about the transition from analog to digital. After being enlightened, I set about to teach myself all I could about this new digital ecosystem, specifically how it would affect the medium I loved, movies.

I discovered a study that had been conducted internally by 20th Century Fox in 1984 regarding the following question “What would happen if the next Star Wars chapter could be released not into the theatres but directly into the home just for one night?” the admission in 1984 was on average $3.36 so the revenue numbers per household in answering this question the researchers pegged the income at $4.00 per household. The researcher toiled away, conducting interviews and surveys, checking and re-checking their data. They then presented their findings to the studio heads. The studio executives were floored by the answer to the question. At a revenue base $4 per household, the next chapter of Stars Wars would generate in one night a lofty $124 million dollars’ worth of gross revenue or of the 85 million households in America at that time, 31 million would stay home and watch the next chapter of Star Wars. After picking up their jaws from the floor…they all collectively decided that this is the future they must worked towards. In 2018, that future is now

For the past couple of years, a series third parties companies courted Hollywood with the idea of delivering movies on the date of release to homes that were willing to pay a premium price for access. First the $50 ticket was attached and then $30…now I knew Hollywood was never going to go into business long term with any of these companies because I knew they wanted to do all this by themselves. Now how about if the studios could charge $25 per household…well using the same logic as in the 1984 study that would produce revenue for the next chapter of Star Wars around $775 million. Really attractive numbers if you ask me……and the studios would not have to give 35% to the theatres. $25 a movie, well add up admission for a family of four then you realize $25 is kind of a bargain.

Let’s go back to the 90’s.

Two years after Being Digital was published Netflix was founded. Netflix’s initial business model included DVD sales and rental, although Netflix jettisoned DVD sales about a year after Netflix’s founding to focus on the DVD rental by mail business. In 2007, Netflix expanded its business with the introduction of streaming media, while retaining the DVD and Blu-ray rental service. The company expanded internationally, with streaming made available to Canada in 2010 and continued growing its streaming service from there. By January 2016, Netflix services were operating in over 190 countries.

In August of 2017, Disney announced it was pulling its movies from Netflix and had every intention of launching its own streaming platform. Disney already controlling the prolific Marvel, in 2012 acquired the Star Wars franchise from creator George Lucas for a whopping $4 billion dollars. In the spring of 2018 Disney began a sharp re-organization internally preparing for and centralizing its business model to begin establishing a series direct to consumer relationship. The launch of the streaming ESPN this month is the first salvo. The 1984 study was now going to be implemented in real life. Disney has shifted all its major resources to begin a blitzkrieg for the hearts and minds to the world’s video subscribers. It is going to be fun to watch but at the same time scary if you are at all concerned with the tradition of movie going.

Disney’s direct-to-consumer streaming service has yet to be named and it is set to launch in late 2019. Disney maintains that this venue will become the exclusive home for subscription video-on-demand of the newest live-action and animated movies in the Pay TV window from Disney, Pixar, Marvel and Lucasfilm. Along with thousands of titles from the Disney film and television libraries, it will also feature new series and made-for-tv movies. Since 2008 Marvel titles have seen a box office of $15 billion, the Star Wars box office has represented $9 billion. What would happen is that revenue was diverted away from theatrical and focused solely on streaming. Remember folks the last theatrical release for a Star Wars movie is slated for December of 2019.

Lucasfilm, now a division of Disney, announced on March 8 that Jon Favreau will executive produce and write a live-action “Star Wars” series for the Walt Disney Co.’s new streaming service. This bit of news really gave me cause to pause and raised concerns regarding Disney’s take on the theatrical market. It also caused others, internally at the studios concern.

One of the benefits of having a weekly article/essay/complainathon is that occasionally people agree with your perspective and reach out to commiserate. Even people who work for major studios.

So, if Star Wars is an ongoing live-action series on a streaming service does this take away from a theatrical presence…. well of course it does and maybe that is the intent. The Disney arrows all seem to be place into the new quiver of a streaming service.

Netflix now has 104 million subscribers worldwide and it’s growing daily. Amazon Prime now has 90 million subscribers. It was recently announced that Amazon was spending north of $1 billion dollars in its telling of Lord of The Rings. The question seeing the numbers regarding growth and then seeing that on January 7th of this year, globally Netflix subscribers streamed 350 million hours of video. This is huge. How will Disney possibly compete.

The answer is simple, forget about day and date. Jon Favreau is already typing away at scripts that will become the next chapter of Star Wars. The next chapter intended exclusively for the new Disney streaming platform. Disney, I feel will give in to temptation to use franchises like Black Panther and The Avengers to develop a quick subscriber base and ignore the theatrical market all together. These thoughts are already circulating and have been for a while. In the fall of 2019 they will begin to be implemented.

This year Netflix will spend $8 billion on new production for its service. Amazon spent $4.5 billion in 2017. All the studios combined last year spent $7 billion; a lot of it went directly to Netflix and Amazon.

In the last chapter of Being Digital the author writes, “The global nature of the digital world will erode former and smaller demarcations. Some people find this threatening. I find it exhilarating.”. For me what is striking is that this last chapter of Negroponte’s book was written on the island of Patmos in Greece. Coincidence has it that the Biblical Text “The Book of Revelations” was also compiled on the same island by St. John the Theologian. Revelations is the last book of the Bible. The one that prophesies the end of times. Another name for Revelations is The Apocalypse. I am worried that unless the theatres prepare they will soon meet their own Apocalypse.

It is obvious a major erosion is happening in this business and we are witnessing a profound re-imaging of what are the movies. It is time that players like Disney are not relied on to chart the path of movie going. The studios will argue that the tradition of movie going is now in the domain of the streaming services. As always, the studios end game has little to do with theatres. The future and the continued survival of movie going rests solely with the creativity, showmanship and the ability to innovate by theatre owners. No one else.

It is time it move past the Virtual Print Fees and truly perceive what being digital means to a theatre. There is a massive amount of potential out there, little of it resides in Hollywood. We must start talking to each other, getting input from industries that have faced a similar crisis and more importantly we must start listening more to the community that goes to the movies.