Saving King Kong

by on April 28, 2006 · 20 comments

Here’s David Levine’s response to the King Kong question:

The short response is pretty simple: until they lost the VHS tape case, the only source of revenue for movies was for theatrical releases. Even if DVDs can be freely copied and given away for free, the revenue from theatrical releases can still sustain large scale productions. The key point is that it is wrong to focus on the copies to which copyright applies as the sole source of revenue to pay for creative efforts. Open source software works because the complementary good produced – “expertise” – in the process of producing software, is scarce and so commands a premium in the market. So even if copies generate little revenue, as long as something else complementary is scarce, there is still a revenue source to pay for creation. In the case of movies the obvious candidate is theatrical sales.

I don’t think this works because the scarcity of theater viewings is based on the fact that most movie theaters still rely on primitive 20th century technologies to play movies. Canisters with photographic film in them are bulky, expensive, hard to steal, and difficult to duplicate if you don’t have the master. So it’s reasonable to expect that you can protect all (or virtually all) the film copies of a movie from piracy, and thereby ensure that only authorized theaters can offer customers the big-screen experience.

But this is changing fast. As projector technologies improve and bandwidth costs fall, theaters will increasingly move to all-digital distribution technologies. A theater will download a (probably encrypted) copy of a movie from the studio and play it on a high-end LCD projector. Once that happens, the task of preventing leakage without the benefit of copyright would become all but impossible.

Here’s how I imagine the theater industry would work in a copyright-free world: There would be large chains of pirate movie theaters, who specialize in showing bootleg copies of movies. They offer large cash payments to anyone who can slip them a pristine, illicit copy of the copyrighted movie. Once they get the copy, they redistribute it to all the theaters in their chain, and begin showing the movies for free (they can make the money up on popcorn).

Now, the relevant question is how quickly the pirate theaters could get their hands on the movie? In the status quo, the peer-to-peer networks generally have copies of movies (albeit far from perfect) before the theatrical opening, leaked by studio insiders or people who went to previews. Clearly, the studios would tighten up their operations, but on the other hand there would also be a much stronger financial incentive to pirate, since the illicit copy would be so valuable. So it’s hard to predict with any precision whether leaks would become more or less common.

But the important point, I think, is that a lot of big-budget movies would leak within weeks, if not days, of their release. That would mean two things. First, the window of opportunity for charging full freight on them would be rather short. For the majority of movies, opening weekend would probably be the only weekend in which authorized theaters would have exclusivity. Secondly–and more devastatingly–consumers would know that if they waited a week or two, they would be able to see the movie for free. So even if you did have a monopoly for a week or two, you’d only get the consumers who were aching to see your particular movie. Most consumers would simply wait the extra week or two when it would be available for free.

So I don’t think I buy it. In the absence of copyright, I think it’s unlikely there would be any movies with 9-figure budgets. We can debate whether that’s a bad thing (I think it would be for reasons I hope to lay out in a future post) but I think that’s definitely what would happen.

  • http://crescatsententia.org PLN

    In a world without copyright, people might nevertheless want to use authorized channels rather than illicit ones. So, yes, the licit theatres would be competing with a lower price version, but they would also be selling a slightly different product: the Feel Good Experience.

    Also, a large part of Levine’s response is that the *costs* of production would drop drastically as stars started seeing their salaries move closer to their opportunity costs. This would have a pretty real effect. Compare the fees actors are willing to settle for in independent films, for example. (Yes, it’s not a perfect comparison for various reasons, but it is suggestive.)

    I agree that there would be fewer big-budget movies, even considering these effects. But it seems odd to design policy around, not just this one tiny category, but the *best* of that category (for every Kong there’s something pretty awful). Elimination of copyright would make big-budget extravaganzas a problematic strategy, but it would simultaneously make micro-budget films much, much cheaper (no more clearing music rights, ability to adapt books without a license, etc.).

  • http://crescatsententia.org PLN

    Also, I wouldn’t entirely rule out Street Performer Protocol / Assurance Contract ways of financing. Take Lord of the Rings, for example. First movie cost about 150mil, a third of that for advertising/prints. I really wouldn’t rule out the worldwide fan community having been willing to put up even that kind of money, in a world where they knew they *could* do so and go ahead with it.

    This would, of course, especially apply to things that have dedicated fans–but this might be a good thing. You’d tend to get big-budget movies backed by true believers, which are often (though not always) the best sort.

  • http://crescatsententia.org PLN

    In a world without copyright, people might nevertheless want to use authorized channels rather than illicit ones. So, yes, the licit theatres would be competing with a lower price version, but they would also be selling a slightly different product: the Feel Good Experience.

    Also, a large part of Levine’s response is that the *costs* of production would drop drastically as stars started seeing their salaries move closer to their opportunity costs. This would have a pretty real effect. Compare the fees actors are willing to settle for in independent films, for example. (Yes, it’s not a perfect comparison for various reasons, but it is suggestive.)

    I agree that there would be fewer big-budget movies, even considering these effects. But it seems odd to design policy around, not just this one tiny category, but the *best* of that category (for every Kong there’s something pretty awful). Elimination of copyright would make big-budget extravaganzas a problematic strategy, but it would simultaneously make micro-budget films much, much cheaper (no more clearing music rights, ability to adapt books without a license, etc.).

  • http://crescatsententia.org PLN

    Also, I wouldn’t entirely rule out Street Performer Protocol / Assurance Contract ways of financing. Take Lord of the Rings, for example. First movie cost about 150mil, a third of that for advertising/prints. I really wouldn’t rule out the worldwide fan community having been willing to put up even that kind of money, in a world where they knew they *could* do so and go ahead with it.

    This would, of course, especially apply to things that have dedicated fans–but this might be a good thing. You’d tend to get big-budget movies backed by true believers, which are often (though not always) the best sort.

  • http://www.withoutbound.net/blog/ Amanda

    I’m wondering whether, in a world without copyright, the movies shown in the pirate theaters would be the same as those in the official theaters. I don’t mean that they’d show different movies (though they might), but that they’d show different versions of the same movie.

    King Kong might be the best example of this: it’s a good movie, but would have been much better with significantly tighter editing. Could a pirate house make money by doing the editing that should’ve been done in the first place and showing a 2-hour version of King Kong?

    Many people would probably want to see the official version, the one they’d read about in reviews. (Could reviewers be induced to write about pirate-edited films? Professionals probably wouldn’t or they’d lose industry perks, but internet buzz is becoming a larger and larger force…)

    However, some people avoided seeing King Kong *because* of what they’d read in reviews – it was too long, the insect scenes were too disgusting, etc. You might be able to get a decent-sized audience by advertising a shortened version with a smaller gross-out factor.

  • http://www.withoutbound.net/blog/ Amanda

    I’m wondering whether, in a world without copyright, the movies shown in the pirate theaters would be the same as those in the official theaters. I don’t mean that they’d show different movies (though they might), but that they’d show different versions of the same movie.

    King Kong might be the best example of this: it’s a good movie, but would have been much better with significantly tighter editing. Could a pirate house make money by doing the editing that should’ve been done in the first place and showing a 2-hour version of King Kong?

    Many people would probably want to see the official version, the one they’d read about in reviews. (Could reviewers be induced to write about pirate-edited films? Professionals probably wouldn’t or they’d lose industry perks, but internet buzz is becoming a larger and larger force…)

    However, some people avoided seeing King Kong *because* of what they’d read in reviews – it was too long, the insect scenes were too disgusting, etc. You might be able to get a decent-sized audience by advertising a shortened version with a smaller gross-out factor.

  • http://www.cato.org/people/harper.html Jim Harper

    Tim, in your scenario, I think the authorized theaters would have more competitive advantages over knock-off theaters than you think. One is that they would be able to plan for and advertise upcoming showings. You could ask a date Tuesday night to go to opening night of a movie, where you couldn’t do so at a knock-off theater because you wouldn’t know whether they would have it. Serving the aficionado, the authorized theater would have better amenities, location, food, services, and other qualities. The knock-off, meanwhile, would be cheap in every respect, serving a different market segment.

    Amanda points out just one of the additional potential benefits of the scenario: derivative works that are better than the original.

    A lot of movie fans assume life without blockbusters would be unbearable. I’m indifferent to blockbusters because so many of them are completely bad. Thus, I find myself intrigued with the potential for better movies.

  • http://www.cato.org/people/harper.html Jim Harper

    Tim, in your scenario, I think the authorized theaters would have more competitive advantages over knock-off theaters than you think. One is that they would be able to plan for and advertise upcoming showings. You could ask a date Tuesday night to go to opening night of a movie, where you couldn’t do so at a knock-off theater because you wouldn’t know whether they would have it. Serving the aficionado, the authorized theater would have better amenities, location, food, services, and other qualities. The knock-off, meanwhile, would be cheap in every respect, serving a different market segment.

    Amanda points out just one of the additional potential benefits of the scenario: derivative works that are better than the original.

    A lot of movie fans assume life without blockbusters would be unbearable. I’m indifferent to blockbusters because so many of them are completely bad. Thus, I find myself intrigued with the potential for better movies.

  • http://www.blindmindseye.com MikeT

    Why are they spending $200M for so little content? The whole Lord of the Rings trilogy, with all of its extended features, cost only $300M to film, and they got probably 11-12 hours of usable footage from that! That’s nearly $67,000,000 per hour, whereas Lord of the Rings was only about $25-$27M per hour of footage, and it had some incredibly complicated special effects. For example, they had to write their own AIs to create the realistic battles. Hollywood’s problem is that they spend too much money to do what often ends up being nothing more than try to polish a real turd of a movie.

  • http://www.blindmindseye.com MikeT

    Why are they spending $200M for so little content? The whole Lord of the Rings trilogy, with all of its extended features, cost only $300M to film, and they got probably 11-12 hours of usable footage from that! That’s nearly $67,000,000 per hour, whereas Lord of the Rings was only about $25-$27M per hour of footage, and it had some incredibly complicated special effects. For example, they had to write their own AIs to create the realistic battles. Hollywood’s problem is that they spend too much money to do what often ends up being nothing more than try to polish a real turd of a movie.

  • http://www.techliberation.com/ Tim

    Jim,

    It’s certainly true that the theater would have the advantage of advance publicity. Clearly, that would allow them to generate some profits above what the knock-offs get. But I have trouble believing that the difference would be sufficient to produce blockbuster movies.

    I don’t think we can assume the knock-off theaters would be in any way inferior to the first-run theaters. The reason we tend to associate knock-offs with cheapness is that they invariably operate in a black market. They can’t afford to invest the capital to make the experience on par with the original. But in the world Levine envisions, they wouldn’t be outcasts. They’d be entirely legal businesses, and so therefore could afford to invest in the same amenities, food, services, etc, as the authorized theaters. As a result, it seems likely that any stigma associated with knock-off theaters would likely fade.

    As for the broader point about whether we need $200 million movies, I think that’s a point that deserves its own post…

  • http://www.techliberation.com/ Tim

    Jim,

    It’s certainly true that the theater would have the advantage of advance publicity. Clearly, that would allow them to generate some profits above what the knock-offs get. But I have trouble believing that the difference would be sufficient to produce blockbuster movies.

    I don’t think we can assume the knock-off theaters would be in any way inferior to the first-run theaters. The reason we tend to associate knock-offs with cheapness is that they invariably operate in a black market. They can’t afford to invest the capital to make the experience on par with the original. But in the world Levine envisions, they wouldn’t be outcasts. They’d be entirely legal businesses, and so therefore could afford to invest in the same amenities, food, services, etc, as the authorized theaters. As a result, it seems likely that any stigma associated with knock-off theaters would likely fade.

    As for the broader point about whether we need $200 million movies, I think that’s a point that deserves its own post…

  • Nathan

    Ummmm, maybe I’m missing something in this scenario. Piracy is an activity that thrives on anonymity. If I download a movie to my PC, burn it, and later watch it at my leisure on my home system there is a vanishingly small chance I’ll be tracked and held accountable. Same goes for buyng an illegal CD or DVD on the streets in a rushed hushed transaction. But a pirate movie theater? Like, a big building? With a marquee and parking lot? And legitimate suppliers (popcorn, candy, soda)?

    It seems highly unlikely that pirates could run a high-volume, high-visibility operation like a movie theater. And if you mean by this scenario that there will be underground movie theaters in anonymous and out-of-the-way venues like empty buildings or abandoned warehouses, then the negative consequences fail to appear, as such a hard-to-find market could never compete with the established theatres.

  • Nathan

    Ummmm, maybe I’m missing something in this scenario. Piracy is an activity that thrives on anonymity. If I download a movie to my PC, burn it, and later watch it at my leisure on my home system there is a vanishingly small chance I’ll be tracked and held accountable. Same goes for buyng an illegal CD or DVD on the streets in a rushed hushed transaction. But a pirate movie theater? Like, a big building? With a marquee and parking lot? And legitimate suppliers (popcorn, candy, soda)?

    It seems highly unlikely that pirates could run a high-volume, high-visibility operation like a movie theater. And if you mean by this scenario that there will be underground movie theaters in anonymous and out-of-the-way venues like empty buildings or abandoned warehouses, then the negative consequences fail to appear, as such a hard-to-find market could never compete with the established theatres.

  • http://www.cato.org/people/harper.html Jim Harper

    Yes, Nathan, you are missing the point. Tim speculated in his post about a copyright-free world. In such a world, there is not such a thing as piracy of expressive works.

  • http://www.cato.org/people/harper.html Jim Harper

    Yes, Nathan, you are missing the point. Tim speculated in his post about a copyright-free world. In such a world, there is not such a thing as piracy of expressive works.

  • http://crescatsententia.org PLN

    Tim, I think the connection between illegality and stigma is more complicated, and more contingent, than that. Many people *do* think that there’s a prima facie obligation to obey the law, of course, so that does serve to stigmatize illegal things. But not everyone believes that–I certainly don’t–and it’s not clear how much force this adds overall. How much stigma is there attached to parking or speeding tickets? Not much. To drug use? Varies enormously across demographic groups. Views about the propriety sodomy and abortion tend to determine one’s views on its constitutionality, not vice-versa. So: if you think artists ought to be compensated for each use, you’ll still avoid the knock-off theatres.

    Finally, one of the great factoids in L&B’s book is how even when drugs go off-patent, the name-brand (A) still costs far more but (B) maintains a substantial market share. The same is true with every category of generic product I can think of, from cereal to bandaids.

    We (used to) let true market competition work everywhere else. Why not here? Just because we’ve put up with it so long doesn’t make it reasonable!

  • http://crescatsententia.org PLN

    Tim, I think the connection between illegality and stigma is more complicated, and more contingent, than that. Many people *do* think that there’s a prima facie obligation to obey the law, of course, so that does serve to stigmatize illegal things. But not everyone believes that–I certainly don’t–and it’s not clear how much force this adds overall. How much stigma is there attached to parking or speeding tickets? Not much. To drug use? Varies enormously across demographic groups. Views about the propriety sodomy and abortion tend to determine one’s views on its constitutionality, not vice-versa. So: if you think artists ought to be compensated for each use, you’ll still avoid the knock-off theatres.

    Finally, one of the great factoids in L&B;’s book is how even when drugs go off-patent, the name-brand (A) still costs far more but (B) maintains a substantial market share. The same is true with every category of generic product I can think of, from cereal to bandaids.

    We (used to) let true market competition work everywhere else. Why not here? Just because we’ve put up with it so long doesn’t make it reasonable!

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