Blockchain’s Building Blocks for the Entertainment Industry

In a recent segment of This Week Tonight, comedian John Oliver described the blockchain, and its most popular application, the bitcoin, as “everything you don’t understand about money combined with everything you don’t understand about computers.” And Oliver is probably right. Despite countless articles and explainer videos, for most of us, a mention of the decentralized digital ledger system of the blockchain elicits a furrowed brow.

Creatives and producers may at first think that blockchain and cryptocurrencies are not part of their universe, but recent developments both in Canada and abroad suggest otherwise. A 2017 global benchmarking study conducted by the University of Cambridge revealed that 8% of blockchain applications are focused on media, entertainment and gaming. This is the same percentage as for those built for the healthcare industry.

Here is a handy mental shortcut when it comes to the blockchain and entertainment industry: anywhere a transaction involving an intermediary or middleman exists, the blockchain can probably prove useful. Creative examples of using the blockchain include for micropayments, settlement of royalty payments, automated billing, simplification of rights management and copyright tracking.

Though these are early days in the evolution of the blockchain, the space is abuzz with activity because the blockchain represents an entirely new way of doing business. Instead of a world of people, paper and offices, it automates transactions and does so in a way that is updated and constantly verified in real time. This does not mean that no one is in charge, but rather that no single entity holds sole power.

“The whole world runs on supply chains that are contracts between dozens of people. On blockchain, it could be one contract,” explained Christine McGlade of Toronto’s Analytical Engine Interactive, during Canadian Screen Week, which took place in Toronto in Spring 2018.

She invoked the example of a cup of Starbucks coffee and how it took a journey of many stops along the way to go from coffee bean to the palm of her hand. At each of these stops, transactions occur and each one of these transactions becomes part of a supply chain that costs money to operate and therefore adds costs to the final product.

In a recent Forbes article, UK-based Nick Ayton, co-founder of The 21 Million Project—which is said to be the first film and TV production company living on the blockchain—claims that working around the usual industry intermediaries can have a significant impact on budgets. Just how significant? By as much as a factor of 6, claims Ayton. Is this a hyperbolic claim? It may well be, and amid the frenzy surrounding both bitcoin and blockchain, wild claims are going to be made and aggressive believers (or salespeople) are going to try to get us to buy into their vision of the future. We probably won't know how things will really take shape until, say, 2025 or 2035, so for now the best we can do is survey the landscape of possibilities.

                                   
“One needs $100 million in Hollywood to make a film and grease the middlemen,” said The 21 Million Project’s co-founder. “In [our] production there are no middlemen… so a $5 million budget delivers $30 million.” Furthermore, anyone can invest and/or make creative contributions to 21 Million’s productions. “Fans […] can influence what gets made and can enjoy the benefits of success and receiving royalties while knowing that the production process was gender equal, pay equal, fair and transparent.”

There are costs and there is value, and artists and producers are increasingly asking if the costs charged by middlemen are worth the value that is ultimately created. One of the solutions proposed to solve this problem is the blockchain-based smart contract, a piece of code that creates automated, yet still trusted, contracts that make it possible to remove the middlemen from transactions and agreements. In the case of the entertainment industry, a smart contract could ensure that everyone in the supply chain receives the payments due to them, without delay and without additional fees and percentages being added on by third parties.

During Canadian Screen Week, Christine McGlade mentioned the importance of thinking about agreements in Canada’s entertainment industry that are value-based rather than money-based. In this category fall budgetary items such as in-kind contributions and deferrals, which have a dollar value but only become revenue flow if and when a production is profitable.

There may be no better illustration of the utility of smart contracts than the now famous picture of a Degrassi royalty cheque in the amount of $8.25 posted by Drake on his Instagram account last summer. The cost of the labour required to make the calculation, draft the cheque, place the cheque in an envelope and send the physical cheque to wherever Drake receives his correspondence had to exceed the amount of the cheque.

The issue at hand isn’t that the $8.25 payment could have been, say, $15 if it was handled by a smart contract, but that payments in the amount of $825 or $8,250 due to artists could potentially become $1,000 or $10,000 or more in the world of automated workarounds enabled by blockchain technologies.

Ed. Notes: 

For a follow up post on a more skeptical view of blockchain & the creative industries, click here
This article is an edited version of a post that originally appeared on the CMF's Trends Blog

OTT is not just Streamed TV

While both over-the-top (OTT) platforms -- the likes of Netflix, Amazon, and Hulu -- and traditional television offer similar content their respective business models are radically different. Whether you're coming at it from a viewer's perspective or a producer's perspective the way these seemingly similar yet actually very different systems operate is significant.

“My main thing is that we’re in the consumer satisfaction business,”said Netflix’s Chief Content Officer Ted Sarandos in an interview with Variety last year. And this wasn’t just a glib mission statement from the C-suite. Rather, it was an encapsulation of the quantum leap the industry formerly known as television is making, from a world of a broadcast-based, advertising-supported business models to the more direct to consumer routes made possible by subscription-based OTT platforms offering on demand streams of movies and TV shows old, new, and custom-produced for the service.

OTT vs. TV at a glance ·       OTT platforms have real time individual-level audience data, so unlike broadcasters that work with weekly or monthly averages, they use and deploy big data analytics for everything from recommendations to program creation. ·       With more data, OTT platforms can take more risks. ·       OTT platforms live on recurring revenue from subscribing customers, not advertising deals. ·       The OTT customer is not a passive couch potato, but an active consumer who may go elsewhere if they’re not getting what they want.

At the 2018 Prime Time conference, a get together of creators, producers, broadcasters, and platforms held annually in Ottawa, one of the most vigorously discussed topics, in both panels and hallways, was adapting content creation strategies for the burgeoning OTT marketplace. Few things have shaken up the television and film landscape like Netflix et al have, with their global reach, their advertising-free formats, their existence outside of the cable bundle, and their array of on-demand programming have become nothing short of obsessions for viewers around the world. Prior to their existence 'bingeing' was something we did with a family-sized bag of Doritos or a pint of Haagen Dazs. Arguably, it still is, but now we combine high salt and/or high fat bingeing with hour after hour of series about drug lords, cult leaders, politicians, and royalty.

OTT is direct to consumer channel, TV is not

At Prime Time a variety of points of view were offered to help frame the key differences between the mediums, one of which was that conventional television is a B2B business, as opposed to OTT, which is a B2C business.

Admittedly that’s a lot of acronyms in one place so let’s break them down.

B2B, or business-to-business, is a way of doing business in which products and services are sold to other companies, vs. end users. Think, for example of ad agencies, a classic B2B scenario.

Marketers wanting to sell their product, say, a new breakfast cereal, turn to agencies to help them craft the creative campaign and also to buy the media space such as television, print, or radio where the ads will run, and through which consumers become aware of the new offering. Trusted relationships form the basis of most B2B transactions, sales cycles tend to be long, and cost mark ups happen at various links in the supply chain. Traditional broadcast TV and film have B2B written all over them. Producers sell to broadcasters and/or distributors, sometimes with agents, managers, and lawyers involved, each of whom receive a percentage or flat fee for their involvement.

Now contrast the B2B model with B2C, or business-to-consumer pipelines, which are a hallmark of business done on the internet. Many intermediaries are cut out of the supply chain, and the manufacturer can also be the merchant. Think of eCommerce sites or Amazon vs. physical retail, or, in the world of music think of Spotify and Apple Music vs. radio. Or, to return to the focus of this article, think of Netflix, Amazon Video, and Hulu vs. terrestrial broadcasters and cable companies. And yes, the platforms themselves are intermediaries, and yes ‘pure’ B2C in film and TV would look more like a purchase from the iTunes store, but there is some room for elasticity with these definitions.

The point of distinction to note is that transmission of programming by way of OTT platforms provides a direct channel of communication between the platform and the viewer. Not only that, but granular consumption data is available with OTT -- e.g. every stop, start, and pause – compared to the broad brush strokes of largely undifferentiated audiences that Nielsen ratings have historically provided.

And that's why OTT companies can take more risks

How does this more direct to consumer channel affect producers? During the Prime Time panel New Forms of Content, which explored both new form factors for content and new channels for its distribution, Cream Productions President Kate Harrison pointed out that “ [OTT streamers], not being advertising-based like broadcasters, can take more risks." Not needing to be concerned with content being 'advertiser-friendly' is certainly a big point of distinction between OTT and TV, but there's even more going on at the level of the new architectures of the industry. In his article Why did Amazon build a studio rather than buy one? Jeffrey Cole of USC Annenberg's Center for the Digital Future takes a closer look at the changes in the entertainment industry as tech companies start putting their tent pegs in the market. To answer the question posed in the article's title --  Why did Amazon build a studio rather than buy one? -- Cole offers the following insights, which demonstrate how the emerging new rules of production and distribution freed up both Amazon and a new generation of creators.

• "Amazon understood that they could create a new playbook for entertainment as they did in retail and for the book business The company recognized that there was a tremendous pool of creative and business talent that would flock to the large budgets, creative freedom and new rules as one of the world’s biggest companies moved into entertainment. Quickly, they saw they could rent whatever studio space they needed (why own it?) with their content partners."

• "Streaming meant no network sales force to sell advertising and no worldwide distribution team to book content into theaters. Netflix already showed how easy it was to compete with major networks and studios. OTT meant no local stations or movie theaters to deal with...Funding was one thing Amazon had plenty of, and large Hollywood budgets were small in Amazonian terms...All this talent was attracted to the new rules of entertainment: Amazon didn’t have to cater to advertisers and therefore could be freer than almost all television. This gave them the freedom to appeal to underserved parts of the television audience such as the very young and those over 50."

Click here for the full article by USC's Jeffrey Cole.

OTT as an eCommerce business

OTT also has impacts outside of the creative production side of the business, and these came to the fore in the panel Four Vantage Points On The Future. Jay Gardner, Shaw’s VP of Product Development, noted that OTT has turned many in the content business into distributors as well. “And it’s a hard business. You have to worry about rights, tech support, back office billing, and customer service.” John Penney, EVP of Business Development and Partnerships at 20thCentury Fox put an even finer point on things. “The business model of OTT is just not comparable to broadcast”, he said. “OTT is an eCommerce business that uses content to bring in recurring revenue.”

As with eCommerce businesses, the focus with OTT is on digital platforms that are customer-centric, vs. the broadcaster-centric, schedule-driven world of broadcast TV. The couch potato of the broadcast world, whose time on the sofa could be engineered with lead-in programming and programming bundles such as ‘Must See TV’ and the Thursday night lineup, has given way to an empowered viewer with the freedom to watch shows on demand, on a schedule determined only by them, and on the device(s) of their choosing.

The once almighty broadcast network no longer loads the schedule on behalf of the viewer. Furthermore, the data-rich nature of OTT platforms ensures that success or failure are swiftly determined by the people who actually consume the programming, as opposed to network executives' best guesses.

For more on the industry changes in play with the shift from TV to OTT see Chapter 3 “New Channels and New Platforms“, in the White Paper I recently wrote called Adjust Your Thinking.