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Hollywood as We Know It Is Over (vanityfair.com)
416 points by jamessun on Jan 30, 2017 | hide | past | web | favorite | 516 comments



Production cost is a problem, and technology has made it worse. Look at that long, long list of animators and technicians at the end of any effects-heavy film today. A cast of thousands.

In the late 1990s, when I was working on physics engines for animation, I was talking to a major Hollywood director. He'd done some of the first films that had both live and photorealistic CGI characters. He wanted to get the cost down, so he could make $20 million movies. At $20 million, he could direct; at $100 million, he was running a huge operation that had to have everything pre-planned in great detail.

His model was the early CGI cartoon, "Reboot". Reboot was a weekly half hour cartoon made by a staff of about 30. He wanted to get to that level of productivity at theater quality - make a 2 hour film in a month with 30 people.

That didn't happen. Not even close.

It's been tried. "Sky Captain and the World of Tomorrow" started as a low-budget picture rendered on Macs. In that film, if nobody touches it, it's CG. Ended up costing $70 million. Worldwide box office $50 million. Fail. "Iron Sky" was made for €7.5 million. Worldwide box office $11.5 million. Fail.

There were successful low budget directors in the past, Roger Corman being the prime example. (His autobiography is titled "How I made a hundred movies in Hollywood and never lost a dime".) It's harder to do that today. Viewers today expect incredible production value. Most TV shows have more production value today than 70s movies did. Hollywood has so many people on set because they bring a team together on short notice to do a job, then disband the team. They need many competent people with different skills to make that work. If you cut corners, it looks like Youtube crap.

On big movies, we've mostly replaced set painters and carpenters with people who sit at workstations and do the same job with CG models. "Big" is now cheap, but "detailed" remains expensive. Procedural visual content generation can generate good landscapes and vegetation now (check out SpeedTree), but as yet, nobody has been able to procedurally generate one convincing block of a city street seen at ground level. Making GTA V cost $265 million. Not seeing an incoming reduction in production cost.

Netflix has no huge advantage. HBO is in the same position - they make content to sell to their own customers, and know exactly what sold. Data collection is retrospective. Trying to figure out what movies will be box office failures in advance remains hard. That's why Hollywood generates so many sequels - predictability.


> Viewers today expect incredible production value.

Not really, no. I expect interesting movies, and I'd say being an interesting movie doesn't have anything to do with CGI. I'm a film buff through and through and it almost literally pains me when I see that people involved in the movie industry don't seem to understand what their problem is: they don't make films for grown-ups anymore.

The only outlet that has provided interesting movie-like content in the last 10-15 years was television. There's almost no CGI in shows like The Wire, The Sopranos, Black Mirror (to just name a few), shows that have made me casually think about them while I was riding the tramway and the like years after I had last seen them.

I miss great movies.


Agreed.

I don't think there's any CGI in Pulp Fiction (1994) and it cost around $9 million to make in 1994 dollars. It made around $200 million worldwide. Whiplash (2014) , a more recent movie with little to no CGI, cost $3.3 million to make and made around $49 million worldwide.

The point is that people want interesting, well written movies with great stories. If that warrants CGI sure, but it's not a requirement.

A boring movie is not good. But a boring and expensive movie is terrible and that's what's mainly being put out: boring and expensive movies.

As far as movies with huge production budgets for every great movie with a justified fair amount of CGI there's tens of crappy ones many that break even or don't make their money back.

Creatively speaking there's probably never been a worse time for big Hollyood movies.


Pulp Fiction was one of the first movie that came to my mind as well. It's a beautiful movie (visually), and could be made today for the same cost as it was in 1994.

Looking back at movies from several decades ago, the credit scroll had a few hundred people at most. Now there are a few hundred animators for something like Arrival. Interestingly, Arrival's credits list about the same number of people as Terminator 2. Both excellent movies, but one is small and intimate, and the other grand and explosive - same size crew, much higher balance on visual effects in Arrival vs. practical engineering and effects in T2. Would Arrival have been significantly different or less effective if made with 1991 technology? Probably not.

"[They] were so preoccupied with whether or not they could, they didn’t stop to think if they should."


How "accurate" are credits lists though? Couldn't it be that the credits simply list every employee of every company that did any contract work for the film? It seems plausible that many of the people listed didn't even work a full day on the film.


Credits aren't accurate at all. When you "subcontract" out something, it usually includes a fixed number of credits no matter how many people worked on it.


While this is possible, longer credits mean more filmstock to be duplicated and fewer showings per theater screen, so there is an economic incentive to keep them as short as possible. I know when I worked in the VFX industry an artist had to clock a certain number of hours on a given show to be given credit for the work.


Surely the difference is nearly negligible. With the exception of movies with popular after-credits scenes, I assume people leave when the credits start anyway, and I suspect the employees can begin cleaning when people clear out even if credits are still running.


However, Pulp Fiction wasn't created at a time where home movies were so widespread. If a movie is character-driven, there's not a lot of benefit to seeing it in a cinema these days, as opposed to the comfort of your own home. Big effects on the other hand, they benefit from the cinema experience.

> The point is that people want interesting, well written movies with great stories.

If they did, then these films would be the blockbusters. Whereas Adam Sandler's films were routinely panned for being crap, yet routinely pulled in 8 figures.


I slightly disagree with everything you said.

    > Pulp Fiction wasn't created at a time where
    > home movies were so widespread
VHS: 1976

Pulp Fiction: 1994

I'm not sure what you mean, then, by "home movies." If you mean "home theater," well, even middle-class people were spending loads of dough on big-screen TVs and hi-fi surround sound.

By "home movie" do you mean the ultraconvenience of streaming Netflix, Amazon, and Youtube? Then you probably have a point, even though it wasn't that hard to drive down to Blockbuster.

  > If a movie is character-driven,
  > there's not a lot of benefit to seeing it in a cinema these days
  > as opposed to the comfort of your own home.
  > Big effects on the other hand, they benefit from the cinema experience.
I think seeing a movie in a theater is more social than technical.

  >> The point is that people want interesting,
  >> well written movies with great stories.

  > If they did, then these films would be the blockbusters.
  > Whereas Adam Sandler's films were routinely panned for being crap,
  > yet routinely pulled in 8 figures.
I think you two are talking past each other. He's talking about Star Wars and Lord of the Rings, which check all the boxes in Joseph Campbell's The Hero with a Thousand Faces. But you think he means The Remains of the Day or some other literary adaptation that nobody really likes. So as a contrast you pull out low-brow comedies, the cinematic equivalent of going out and getting drunk. But those same audiences also went to see Lord of the Rings.


> VHS: 1976

"were so" != "nonexistent". Compare the home movie experience of 1994 to that of 201x. 'On-demand' wasn't even a pipe dream in 1994.

> I think seeing a movie in a theater is more social than technical

Maybe for teens who gather in cliques, but otherwise we're just going to disagree there.

> He's talking about Star Wars and Lord of the Rings,

The Star Wars middle trilogy was schlock. They were terrible stories. They sold on hype, colour and motion, and brand recognition. The first one even had a damn half-hour advert for a podracing videogame in the middle of it. And Lord of the Rings was an adaptation of the most successful fantasy novel ever (the genre-defining one at that); not exactly a typical datum. How many times can you do that?

Don't get me wrong, I'm of the opinion that hollywood should spend a million less on special effects and a million more on screenplay, but the whole "people prefer good stories" just doesn't pan out when it comes time to open their wallets. For example, Lord of the Rings had been done a couple of times before in movie and TV form, and it wasn't that popular in that form... until it had mindbogglingly massive special effects and money thrown at it.

Anyway, if you think that the Star Wars prequels were good stories and that pulled the punters, I strongly recommend you watch Plinkett's reviews of them[1] - the voice is annoying, the reviews are mostly funny, but really he eviscerates the exceptionally poor storytelling in them. In there there's even an excerpt from an editor's session where Lucas and Co. are talking about a problem with the ending, where they have the viewer rotating through four very different emotions from four different plotlines in only 90 seconds, none of which can be excised as they're all concluding at the same time... and the mood is very much "we've fucked this up".

[1]http://redlettermedia.com/plinkett/star-wars/


It's not spending, it's culture - or lack of it. Adult audiences are tired of getting beaten around the head by constant explosions, emotionally empty CGI, childish plots and scripts with breathtakingly bad writing, and tuneless Zimmer-esque BWAAAAAARRR!!!! scoring.

It's not that Hollywood has stopped making movies, it's more that it's taken to making the same movie over and over, using the same (expensive) visual cliches and script tropes. After a while the spectacle stops being spectacular. Incredible CGI turns into "Well, that's just CGI" visual filler.

LOTR was an exception because it was already well known. I'm fairly sure a Generic Fantasy Movie with similar effects would have crashed and burned.

If studios want to survive, they need to diversify by becoming less like corporate waterfall-management giants, and more like try-this-and-see experimental startups.

For the price of a single blockbuster, Hollywood could fund an entire generation of new directors/producers/writers.

Find ten or so promising YouTube shorts, give the production team a small budget and some prosumer equipment, get out of their way, and see what they do on a shoestring.


It isn't just about culture. It's like the form of entertainment has changed from being something like a theater production with deep and interesting characters to something like an amusement ride with friendly but not terribly interesting cliches.

As much as you want the movies to go back to the first, the people who are paying to go to the theater now are looking more for the second. Television has taken over most of the role that used to be for movies because it allows viewers even more time with interesting characters than a two hour movie.


No, I didn't mean the prequels.


Add Good Will Hunting to that list. It was made for around $10 million and generated $225 million at the box office.

Also My Big Fat Greek Wedding (got solid reviews at the time). $5 million budget, $368 million box office.


You mention two movies which made their budget back more than 10 times. It is safe to say that if there was a formula for creating movies which made the budget back 10x without the large financial risk the "tentpole"-movies with lots of expensive CGI carry, then Hollywood would do nothing else. But the fact is movies like these are the exception and cannot be manufactured.

It like saying to the gaming industry they should just write games like Tetris: Can be written in an afternoon and makes billions.


For an even more fascinating look for someone who is working the way he wants to work, in a budget that he can work with, see this keynote by Joe Swanberg at SXSW a couple years ago....

https://www.youtube.com/watch?v=hNDMo0ax17E


12 of the 20 top ROI movies of all time were made after 2000:

http://mentalfloss.com/article/68552/20-most-profitable-movi...


CGI and visual effects are one way to attempt to mask the lack of a compelling story.


I think the real issue isn't that those movies don't have value to consumers, it's that anything other than an "event" movie doesn't get people into theatres. We can happily watch visual media with complex stories and characters from our living room.

Then, of course, there is the whole point about international distribution mentioned in the article. Movies for grown-ups literally don't translate well into other languages.


Why do we need to get people into theatres? I think half the reason they still exist in any great number is because they get time limited exclusivity. Now that a lot more people have huge TV's and decent sound systems theatres are even less compelling.

I'd much rather much just about any movie from the comfort of my couch, sitting in my undies (depending on company), with popcorn I made for 20c and the sound not drilling into my skull.


Theaters used to be the only way to watch movies, then they became just the best way, and now they're just an experience separate from home viewing.

Theaters exist because they're the biggest consumers of movies and, because they're the biggest consumers, studios give them limited time exclusivity exists to benefit their continued existence. It's a bit of a catch 22 and change is slow.

I watched Rogue one in a regular non-3D theater and the projection was not great. The black levels were horrible. The actual 24fps (x2) frame rate bothered me. I expect to watch it again at home, streamed from Netflix, and have better viewing experience.


> Theaters used to be the only way to watch movies, then they became just the best way, and now they're just an experience separate from home viewing.

When I can choose between going to a theater and paying +$10 just for the ticket and extremely marked up prices for popcorn and a soda (close to another $20) for a single individual, or I can wait 3-6 months, watch it in the privacy of my home without people bringing crying babies to an R-rated movie, talking during the movie, texting or otherwise using their phones during a movie, yeah, I'm going to wait until I can get it at home. The reasons movie theaters suck basically boils down to: 1. it's expensive, and 2. other people suck, are assholes, are completely self-centered and common courtesy no longer exists.


And they eat like pigs at a trough. I don't go to the cinema anymore, I can't endure the 'human' element in between the quiet moments on-screen.


Go to a matinee. I see most movies at 10 or 11 AM on Saturday and Sunday mornings. The theaters are usually no more than half-full. The ticket prices are about half-off, so I have over-priced popcorn for breakfast.


> they don't make films for grown-ups anymore.

In NYC there is an entire indie film district with four or five theaters within a few blocks. There is still good stuff being made, just not by Hollywood.


Is there a distro channel you can recommend to get access to some of this work?


Check out mubi and filmstruck. Mubi has 30 movies at any given time. Every day the oldest drops off and a new one gets added. I've watched many movies there that otherwise would have been on my to watch list forever. I've discovered incredible, small movies because of it. Filmstruck has an enormous catalog of indie and old movies. Unfortunately both services happen to end up buffering much more frequently on my devices than the big streaming services do. Might be my connection though.


Look for indie movie theaters in your area. I'm a little spoiled in that the town I grew up in had an amazing indie film theater (Cinema Arts Centre) and now I live in NYC where I can go to the IFC Center or Sunshine Cinemas to see indie films.


Cinema Arts Centre In Hton? i live here and its great! lol


Just look for French and Italian movies, for starters.


Bad recommendation. French movies also have their own industry just as poisoned as Hollywood.


Of course, unless you prefer an independent community that does not revolve around French and Italians movies. :)


> they don't make films for grown-ups anymore.

This right here is the truth, and it's been known for a while:

> " Adults were treated as adults rather than as overgrown children hell-bent on enshrining their own arrested development."

> "That leaves one quadrant—men under 25—at whom the majority of studio movies are aimed, the thinking being that they'll eat just about anything that's put in front of them as long as it's spiked with the proper set of stimulants. That's why, when you look at the genres that currently dominate Hollywood—action, raunchy comedy, game/toy/ride/comic-book adaptations, horror, and, to add an extra jolt of Red Bull to all of the preceding categories, 3-D—they're all aimed at the same ADD-addled, short-term-memory-lacking, easily excitable testosterone junkie."

> "the degree to which children's genres have colonized the entire movie industry goes beyond overkill. More often than not, these collectively infantilizing movies are breeding an audience—not to mention a generation of future filmmakers and studio ecutives—who will grow up believing that movies aimed at adults should be considered a peculiar and antique art. Like books. Or plays."

From http://www.gq.com/story/the-day-the-movies-died-mark-harris which was written in 2011.


The best movie I've (finally) seen in recent months was El Mariachi. He made that for like $8K. Assault on Precinct 13 (the original one): $150,000. The list goes on and on. The Way of the Gun, a more recent favorite of mine with a bunch of big actors in it: $8.5M.

Another factor might be exorbitant star salaries. However, I think that's a symptom, not the disease. The real problem is that Hollywood is greedy. They won't touch a $10M film with no big stars in it because it's not likely to make an 8-figure profit.


Sounds like the real problem is that audiences disproportionately respond to big stars, so Hollywood disproportionately favors them.


Not really. It's just that spending that amount of money on a movie makes you really risk averse; you go for the actor with the good resume rather than the brilliant newcomer with no track record.


> The Way of the Gun

I'm fairly surprised that they were able to make that one so cheaply. Not only is it full of well known names, it was extremely well done (it's also a favorite of mine). I imagine most people involved didn't take their normal rate (or worked on residuals).


Great movies require great writing, and then good-to-great acting. CGI? None is fine, but if there is any, it also needs to be good-to-great.


Indeed, bad CG can ruin an otherwise great movie. My go-to example is the high-concept 2008 Mexican Sci-fi thriller Sleep Dealer - had the director simply chosen to have the biggest action setpieces happen off-screen or be otherwise implied, it might have been enough of a success to make back its modest 2.5M investment, but the abysmal CG they were able to get on that budget brought the whole film down.


I enjoyed babylon 5 a couple of years ago which has poor special effects by today's standards. The bad CGI did not detract from it at all.


Hey, it had poor visual effects by its day's standards as well! Great writing though.


I thought they were cutting edge at the time,everyone else was still using scale models weren't they?


It wasn't cutting edge at the time. I started doing pro VFX about that time. What was revolutionary with their VFX though was that they were using Lightwave (and Amigas, presumably PCs later too) which cheapened their VFX workflow by a significant margin. Workstations and software at the time were a significant cost. Like, REAL SIGNIFICANT.


It was cutting edge technology, but looked inferior to the physical models used by shows like Star Trek TNG or DS9 (I say sadly as a huge B5 fan).


I was a Star Trek fan back in the day and the effects were one of the reasons I never gave the show a fair chance. It just looked so low quality compared to the practical effects in other shows.


> Great movies require great writing, and then good-to-great acting.

I would argue against that last part; great movies do require great writing, but you can get good to great performances out of mediocre actors if you have a great director. No amount of good acting will overcome a bad director.


Depending on the episode, Black Mirror uses tons of CGI, but it's usually subtle and the focus is always the story, which is simply served by the effects, not the other way around.


> "I expect interesting movies"

I'd say you want an interesting but expect incredible production values

Which is to say I don't think it's a situation of expect in the sense of demanding but rather "expect" in the sense of "habituated to".

Production values might not be the explicit choice of that many people but a good proportion of people would choose X movie with high production values over X movie without. And that's something that's reliable. Things like plot, character and dialog are hit-and-miss if you are looking for quality. Not that they can't sell but they can't reliably sell.

Altogether, "grooming" gets added to everything because it can reliably move people's choices a little bit. Other factors may influence people more, other factors may be what people say they want but a lot of these factors are less reliable, there are a lot of factors where a change might turn as many people off as it attracts but surface unambiguous can be added. And there-in lies the secret of the mass-market surface appearance arms race (similar to the music "loudness wars").


> I'd say you want an interesting but expect incredible production values

Smoke was an interesting movie, and cost $7M. (It didn't make much more but it wasn't a failure.)

Moon was a fantastic movie, and cost $5M. The little CGI it had was pretty obvious but didn't affect the viewing experience. (It also made near-zero returns.)

Requiem for a Dream was - and remains - an outstanding film. It flopped in box office but must have made pretty penny on home sales.

Dead Man is an interesting movie, and still one of my favourites. It works on the audience for the same reason Apocalypse Now does: episodic films in general are considered "artsy" and hard to chew, but turn them into thoughtful road movies and the audience enjoys the experience.

Pan's Labyrinth is just damn good. It cost €13.5 to make, and grossed $37M. Home sales must have added even more since then.

All the films above are both interesting and, in terms of bloated Hollywood budgets, were cheap to make. I would take any one of them over the perfumed sewage that floods the film theaters. And for reference, I did see Doctor Strange in a cinema so I do have a metric for calibration. My opinion stands.


Snowpiercer was stellar. 40 million.


But what percentage of viewers do you represent?


A pretty small percentage, obviously. The top grossing movies of 2016 were Rogue One: A Star Wars Story, Finding Dory, Captain America: Civil War, The Secret Life of Pets, and The Jungle Book. All of these movies would be impossible to do without CGI.

Viewers want movies to be spectacles. If we're watching something in a theater, we have high expectations of the production value. Otherwise, why even waste the time and money going to a theater? We can watch the "good", low production value movies at home.


I think the home is starting to turn into the movie theater. It's fairly common to see 4k 55" TVs in people's homes; I'm wondering how far they can take the sizes for a residential area. The accompanying sound systems for these home theaters are high quality as well. I guess it's an arms race to out-spectacle what you can get out of an increasingly performant screen from Samsung, et al.


This is a good point, the experience at the theater used to be drastically different that what you'd get at home (VHS, non-widescreen, stereo audio, etc), but the gap is certainly closing. Combine that with highway robbery concession prices, being surrounded by a bunch of strangers... the theater is starting to look less appealing.


    > Rogue One: A Star Wars Story… would be impossible to do without CGI.
It's a prequel to a movie that had exactly one computer generated element in it, which was a wireframe model that took so long to render that they couldn't re-render it when the final design changed.

They _chose_ not to make it without CGI. It wouldn't have been impossible.

edit: I'll just leave this right here - http://www.imdb.com/title/tt0034928/


The original still had big budget special effects, only the technology changed. So I think that's being a bit pedantic.


My point was that they would not have been impossible without CGI. All four of those movies could have been made prior to the mid-80s, with different technology. I chose Rogue One and Jungle Book because one comes from a family of movies that excelled in practical effects, optical compositing, and modeling and the other has a version which was made in the 1940s.

Decades ago, Finding Dory would have been hand animated (though, even that had moved begun moving to computers in the late 80s). I haven't seen Captain America, but I would guess similar types of movies existed before hand (the 80s and early 90s are full of over the top action movies and practical effects; some of which still hold up today).

Visual story telling doesn't require CGI. It might be the most pragmatic way to do things now (due to time, cost, complexity, etc.), but it's not the _only_ way.


> It's a prequel to a movie that had exactly one computer generated element in it

Well, no, it's a prequel to the 1997 version, not the 1977 version you describe.


In what way? It didn't contradict the 1977 version in any way (that I'm aware of). It's been nearly 20 years since I've seen the 1997 version (we watch the 1993 version at home). Had you never seen the special editions, rogue one would not appear out of place.


He's saying that the original move we've all seen had its special effects upgraded over the years :)


I understood his point; mine was that _I_ don't watch the 1997 (or later) version of Star Wars (though I've seen it). My children have only seen the 1993 release of Star Wars. If my son was old enough, he'd watch Rogue One and have no issues having never seen the "upgraded" releases.


It hursts. But you are right.


I'll take low-effect, nice plot Ex Machina over pretty much every over-CGI'd, Power Ranger plot scifi/superhero Hollywood film in recent memory.


Ex Machina had hella CGI, it won an academy award for their visual effects!


If it's done right, CGI disappears.


I didn't realize how much of the sets in Game of Thrones are done on computer until I watched a making-of for one of the seasons. Even knowing, I can't tell when watching.


But the costs certainly don't. :)


Ex Machina's budget was around $15 million, that's extremely low.


"Zodiac" is a great example of that[1].

[1] https://www.youtube.com/watch?v=-sZS8OVyVr4


Ex Machina had huge amounts of effects. CGI is a case of "When you do things right, people won't be sure you've done anything at all."


One of the three principle characters had a transparent body through much of the film. It amazes me people could think it was light on GGI, or not be sure anything had been done.


But it had a tiny ($15m) budget, which is opposite of what this thread is saying is possible (lots of CG, not much money).


You're right. But I did enjoy movies like The Martian (2015), and Gravity (2013).


if you expect anything but production value in a movie, you haven't been watching movies recently.


Lol, winter oscar-bait season is supposed to be their offering to that market. Too bad all those movies are the same too.


CGI exists for international viewers...

Who can't appreciate nuanced localized plotlines.


> but as yet, nobody has been able to procedurally generate one convincing block of a city street seen at ground level.

This is an interesting point. In the past, we had the Hollywood backlot. Maybe we need the digital equivalent in the future. Instead of each production company making chunks of New York in CGI, what if there was a shared one that production companies could take as a base and alter as needed? I'm not sure what incentive structure would work best for something like this, but as long as studios don't get greedy about adding their work to it and expecting money back (which might be a tall order), open source might work.


I was joking that if Sony ImageWorks doesn't already have a relatively complete digital backlot for just about all of Manhattan between the Spider-Man and Ghostbusters franchises alone, then what have they been doing...

The interesting/tough part would presumably be inter-effects house sharing/community work. I'm almost surprised that there doesn't seem to be a company focused entirely on reuseable digital backlots because that does seem like a niche that someone in Hollywood would already be exploring.

You could also see it coming from an outside direction, too. If I was Rockstar and already throwing hundreds of millions of dollars at digital open world simulations, I'd probably be shopping that around as the basis for digital backlot work. "Filmed 'on location' in GTA V's Los Santos" sounds almost silly right now, but I've got a feeling it won't for much longer. (Also, I would suspect it's Vancouver-based genre television that would be in the market for this before films.)


There is some model reuse, but the economics of piracy work against it: if it's just a copy of something that's been seen before, nobody wants to pay anything substantial for it. One reason I stopped working full-time in film was the constant pressure to slash my prices. I was able to make enough to stay afloat for a decade or so, but not to grow my business. by investing in a large stock of equipment or hiring permanent staff of my own. No matter how good you are you are constantly being asked to work for free or below market rate, because distribution income is like a black hole; production money goes in but it's not obvious where it comes back out. In the indie world the typical distribution deal covers the costs of production, legal etc. and only that. So your film gets distribution - yay! - but you won't see any revenue from it until the production cost has been paid off and the distribution company has made a profit, so possibly never. Once you get distribution the project is dead and has to be forgotten about other than as a line on your resume - the fact that you can mention the existence of a distributor tells potential investors that they have a better-than-even chance of getting their money back if they spend it on you.


Sony Imageworks had a reusable digital library for the buildings in Manhattan. The fire from GhostRider also saw reuse. These models are tied to the production pipeline at Sony: the shaders, data formats, texture pipeline, effects pipeline etc. A reusable backlot company does not exist because a standard studio production pipeline does not exist.


This is an interesting point. As an outsider to all of it, I'm curious if the open source work Pixar started and Disney has continued in standardizing various asset pipelines is helping, or at least might eventually help the landscape here.

Again as a relatively pure outsider, it is interesting to watch the internal competition between Disney Feature Animation's renderer [Hyperion] and Pixar's RenderMan, and similarly have been curious about how much of that externally visible open source standardizing work on at least the pipelines leading to the renderers contributes and/or constrains the friendly seeming internal rivalry. Similarly with Disney now owning ILM, if ILM has or has not been building on top of some of the same production pipeline standards...

Historically, a lot of the benefit to the Hollywood studio system was that a lot of the parts were standardized and interchangeable between studios. While a lot of studios did experiment with innovations in camera technology, very few studios had to reinvent the camera from scratch.

Given how many special effects houses work on a blockbuster level film these days, I would imagine that the efficiencies in shared asset pipelines between corporate boundaries would eventually win out. It seems silly (at least as an industry outsider) that every company working on, for one example, an Iron Man film would have a different set of models/textures/shaders for Iron Man. (I get that on the one hand it's a bit like stunt work in that you don't need your A-list actor in every stunt or B-roll shot, but on the other hand, digital "actors" don't get fatigued or injured and can be in multiple places at once, they don't need body doubles/stunt actors...)


There has been standardization in many areas since the days of Toy Story: Autodesk Maya, Houdini, Nuke are now standards in the industry.

It took a while for forward thinking technical managers to convince studio executives that open-sourcing some internal tools and data formats would benefit the studio by making it a standard within the industry. OpenEXR (image format, ILM), Alembic(data format, Imageworks), OpenSubdiv(subdivison surfaces, Pixar), Ptex(texture mapping, Disney) are examples that were quickly adopted across studios. It helps that artists and engineers tend to move across studios bringing with them ideas about what worked best at the previous studio.

In general, the software teams at the studios fall under the line item of "Overhead" in a producers financial spreadsheet. There is pressure to reduce this overhead by adopting standardized tools and not reinventing things in-house.


You really need a whole city's worth. People's expectations are really really high in this area, and their intuition is also pretty good - I can generally ID a composite shot before I even know what I'm supposed to be looking at, in much the same way as you can tell you're looking at a flat before you recognize what it's meant to depict. Eye candy is what people pay $$$ for, it's a lot harder (though not impossible) to get paid for a personal story that doesn't require any special effects.

There used to be a joke in the no-budget world - what's the difference between an indie movie and a studio film? In the indie movie you end with a car crash. In the studio film, the car explodes at the end of the first act.


There's some model reuse. Pixar does it as a joke; the truck from Pizza Planet in Toy Story shows up in other movies. It's a minor business, like clip art. What can be a low-resolution detail in one application may need much higher detail in another, depending on how the camera moves.


I smell a startup. Leased CG sets.

(Just realized 'leased' may not be the correct term here, don't hold that against me I am not an entrepreneur by any means.)


^^^^ This is why you research an industry before you go into it unless you want to lose your shirt. If you build or own something physical, people will pay to rent it from you. If it's something virtual, they'll put the same value on it that you put on completed movies as a consumer, a few bucks that bears no relation whatsoever to the effort you had to invest.

In hollywood you are nobody until you have some credits, and you don't get any credits until you have done some work, and you don't get hired if you're a nobody so you'd better be prepared to give it away and keep giving for a while until people come looking for you, at which point you practice saying 'no' a lot and meaning it. One of my more memorable gigs was on a film that I turned down because the pay was too low. So they went with someone else but he did such a bad job they dumped him and came back to me offering twice as much midway through the production. Sadly the film never got released, as they tried to cheap out on everything the same way, resulting in injuries, some unusable footage, and an absentee director who vanished rather than get sued. Oddly enough I got a lot of follow-up gigs from that disaster - suffering builds bonds and boy did we suffer on that job.


> If it's something virtual, they'll put the same value on it that you put on completed movies as a consumer, a few bucks that bears no relation whatsoever to the effort you had to invest.

I would think there's a clear difference between consumer and B2B solutions here. As a business, it's a clear trade-off, pay X for the base models I can presumably get for some percentage of X, or just pay someone X dollars to do it, and presumably that percentage is well under 100% because the company has already done (and hopefully used) the work once, so it's just a way to monetize and existing resource. For a consumer, I don't really have the option of making a movie myself rather than paying for it. B2B products routinely cost tens of thousands of dollars.

Now, if you're saying specifically that industry will value it that way because of the way they are, well, that might be true. Sounds like you would know better than me. At the same time, may a service like that isn't marketed towards the studios, but towards the special FX houses, and they just factor it into their costs, bids, etc.


You may think whatever you'd like, but you'll be underbid while you're making your value proposition. Of course people pay for CG services but the money is in content creation+. If your offering is too obviously recycled then it will be devalued in proportion. It's worth thinking of every film as a startup spun off by a studio, with a correspondingly short-term view of revenue cs. expenses.

+ by which I mean every director and producer want something nobody has ever seen before, which is the surest route to $$$.

That leads to a very zero-sum approach to negotiations; if you do not have some sort of existing contract (eg by virtue of union or guild membership and the resulting standardized pricing agreements) then as a new entrant to the market you will be asked to work for nothing. Even if you're well-established this is a big problem. A good example of this was when highly-esteemed CFX house Rhythm & Hues went bankrupt a few years ago: http://variety.com/2013/film/news/rhythm-hues-bankruptcy-rev...

As a more prosaic real-life example, I once earned myself a nice cash bonus for recovering all the footage from a project after the primary and backup drives both failed (or so it seemed to the less technical people). Had I proposed making the same investment in data protection up front, I guarantee the answer would have been No. While you do expect to work with the same people again, often over many years, every individual project is its own financial entity and producers' primary job skill is to hoard cash and minimize obligations.

This isn't just because they're jerks (although being a jerk is a necessary job skill, which is why I'm bad at being a producer lol), but because when you're in production the scarcity switches from money to time. Actors have other commitments, the weather can't be controlled, locations are rented for very short durations with large overages if you exceed the rental period and so on. So the basic business strategy notwithstanding scale is to hang on to as much money as you possibly can until you go into production, at which point you start spending money like water and trying to save time instead. Obviously an unscrupulous person can exploit that phase transition profitably, but doing so deliberately will tarnish your reputation, and your personal reputation carries far far more weight than your work product, unless your work product is really world-class and people take the time to evaluate it. Of course I'm simplifying, but consider the thousands of people who have credits on a big movie. You can't exhaustively evaluate the quality of their individual contributions when you're hiring at that scale, and most producers have limited technical and even aesthetic ability anyway, so a thumbs-up from someone they've worked carries far more weight.

I'm not trying to scare you out of participating int he industry, because in many ways it's really great and really does function on a meritocratic basis - if you're smart and innovative you can go a long way in a short time. But don't bank on a rational strategy, because the film industry manufactures dreams. Our work product is literally an escape from everyday reality that can be easily reproduced and distributed. In that sense it's kinda like doing business with a drug cartel - you can make a lot of money, but you have to approach each deal like it's the last one you'll ever make.


That's why I got out of animation software. Either they're in development, and their credit card transactions bounce, or they're in production and they want a new feature yesterday.


So, the economics aren't different for Netflix et al?

maybe you need to get back in with them


I fully accept your take on this, I'm just wondering if the downsides could be mitigated by targeting a layer back from the production itself, and instead towards the graphics houses, and not making it a pay for work service, but a pay for access library, similar to scientific journal access (a loaded comparison, but imagine a less controversial system than Elsevier). If it's access to thousands of models of various levels of detail for a flat price, and it's always growing, then maybe it gets treated by Adobe CS or MS Office for those places where it's useful. You pay for it because it's cheaper than the alternative, and since you are doing paid work and running a business, pirating it isn't worth the risk.


You do realise that we need to hear more about that story, right?


Which part - the broken bones of the actors trying to run up a rain-soaked grassy hill in clogs? The 35 hour shifts in shitty weather? The time we almost killed the lead actress and he boyfriend spend the rest of the week sleeping in the communal toilet? That was one of those jobs where the production work was a lot scarier than the actual script :-D

I joke about it now but in all seriousness bad producers are always trying to cut corners and this sometimes comes at the price of human lives, and even when people go to jail over it the costs are distributed inequitably - see this example of a director getting a 2 year sentence for causing the death of a crew member in an entirely predictable way: https://petapixel.com/2015/03/10/director-gets-two-years-in-...

At the low-budget end you have to be willing to threaten to quit on the spot no matter where you are, because you will be asked to put your safety at risk. I've never worked on a project where anyone died, but I've come close a few times. That's one reason I have such strong opinions about labor codes and safety regulations - I'm used to working outside them :-/


I've worked in the low budget end of TV. Studio stuff mainly. The number of close calls I've seen are unbelievable, but nothing quite on that scale.

We did have one guy get a minor electric shock because the producer had him changing a light. He was on top of a five foot ladder but with no spotter ("Health and safety BS!") and the producer never bothered to tell him that it was still carrying current, even when the fader was right down. That's not the only time someone's fallen off a ladder, or had a shock. Not once was it reported to the health and safety people, either.

There were also cable loops standing up from the ground (we used short pieces of carpet offcuts to hold them down, never worked and people would trip up. The business manager would never authorize the cash to have flush-mount patch panels installed in the floor (a legal requirement). Also not reported.

One memory is how we had a strict uniform requirement, which often resulted in inappropriate dress for a location. There were a couple of location shoots in below-freezing conditions - in one place, three staff came down with hypothermia because they were clad in sweatshirts and jeans, another it was just one guy in a shirt and dress pants standing outside for seven hours while ice formed on car windows. That particular day, the lucky staff indoors were exposed to unsafe sound levels, with no protection, for the whole shoot. None of these incidents were reported, nor was it reported that the guy who drove the equipment truck back to the studio had been smoking pot for the whole night, in front of the senior staff at the location. Maybe he shared the joint.

Chuck in some 12+ hour shifts without breaks, people working on scaffolding who had no clue how to operate safely, or the guy who replaced an old monitor only to accidentally drop the failed unit, and ended up hauled in front of the Production Manager to account for his "unsafe" actions.

Equipment was never maintained: if something broke, it was the person using it at the time, not the 20-year-old tripod with broken spreaders and worn out fastenings. (Last time I saw that particular tripod, the spreaders had perished and were being held together by duct tape on three sides, and the tape was four or five years old.)

Oh, the stories I could tell... no, wait, that's actually a good summary right there!


Yeah, that part! Pile it all together into a script and make a movie out of it. I'd watch it! :)

(Note to folks at HN: if behind-the-scenes movies are your thing, check out Living in Oblivion with Steve Buscemi and Catherine Keener. Good stuff.)


Based on the article, he shouldn't be talking to Hollywood, he should be talking to Google/Amazon/Netflix/Microsoft/Facebook.

They don't give a rats ass about reputation if you deliver what they need.


Companies like Stargate Digital are doing exactly this. They've created things like a virtual New York and Chicago that was used by shows like Nurse Betty and ER. Saves those shows from flying their cast out of LA for location shooting and usually nobody really notices anyway.


"licensed"?


SaaS (Sets as a Service)?


I wonder whether this could be an area where Google has a huge head start on everyone else. They've literally got images of millions of city streets around the world at ground level for the Street View feature of Maps. And they're not exactly lacking in AI talent. If anyone is able to generate realistic CGI models automatically, it would be them.

I could see them offering Hollywood a service that would allow production assistants to scout locations in Maps and then, after choosing one, get back detailed CGI models which allow all filming to happen on a green screen for a fraction of the current cost of filming on location.


Microsoft is working on this too: https://twitter.com/RileyReverb/status/825146383745351681

I was surprised when I opened the map app and it had 3D imagery of the little barely-known city I live in.


In the past, we had the Hollywood backlot.

We still have the Hollywood back lots, and studios still use LA, New York, and Chicago streets as their sets. A lot of times, it's cheaper to just pay for a filming permit than it is to recreate the real world in a computer.


>> Netflix has no huge advantage.

Netflix has better data about what and how viewers watch, That gives it some advantage. than, a netflix one-hour episode cost about $5-$10 Million.Breaking Bad did costs $3M/ep. That's $5-$15 for a movie of content. About the cost of Iron Sky.

Than instead of spending a lot of money on marketing, they use their algorithm. And even if they do spend some money marketing online, it's easier, because consumption can be immediate and measured.

Than you have the favorable economics of TV series - it's basically a 20-30 movie sequels with very good customer loyalty. And there are no time limits - people can watch whenever they like, and the content has some value over years/decades.


> If you cut corners, it looks like Youtube crap.

I wonder where series like Louie and It's Always Sunny in Philadelphia fit into this mix. They're pretty low budget and do look pretty Youtubey, especially the earlier seasons. But for some reason that doesn't detract from the quality of the show at all.

Do audiences actually need high production value if they have great acting, writing, directing?


> Do audiences actually need high production value if they have great acting, writing, directing?

No.

I'd rather watch 90 minutes of random "Whose line is it anyway" segmentd in 360p Youtube than the latest Transformers rendered in 8K.


For mainstream audiences? Pretty much yes.

Downton Abbey would not have been a hit if it had 1980s BBC production standards. Nor would the rebooted Battlestar Galactica have been as popular if it had the production values of the original.


Downton Abbey had a pretty formularic script for at least the first 3 seasons though. A season based arc to try to save it, then it get fixed just for a new peril to start the next season.


Necessary but not sufficient for many genres. Guardians of Galaxy wouldn't have been nearly as fun without the amazing visual effects (imagine the raccoon guy as a muppet), but would have been Transformers slop if the writing and characters hadn't been interesting.


Probably not in It's Always Sunny in Philadelphia, but in Game of Thrones, poor production detracts.


> Do audiences actually need high production value if they have great acting, writing, directing?

La La Land was made with a $30M budget and has grossed >$220M already.


$30M may not be big budget by Hollywood standards but it's hardly "low budget" and, from what I've seen, La La Land looks like a fully professional Hollywood production.


Last I heard Louie CK was in debt after self-funding his last series. Could have been different production values / unusual business model though.

http://variety.com/2016/tv/news/louis-c-k-millions-horace-pe...


That whole story was a case of reporters not knowing what they were talking about. Every television/movie production is in debt at that point of the process. All the money is spent up front and it takes a while to recoup those losses and turn a profit (the whole long tail thing). The difference was this was self financed so the debt was his and not some studio's.

It is very similar to what happens at startups. No one expects revenue from day one but the losses can start immediately. Louie CK basically founded a startup and decided not to take any VC money. That means when it came time for his IPO (the digital streaming deal he signed with Hulu), all the money went directly to him making the entire endeavor profitable.


horace and pete was great, but it was definitely not for his core audience. it's not comedy or really a show. It's more like a filmed stage performance. A lot of people I know bought the first 1-2 episodes thinking it would be hysterical and never bought more after they realized what it was, and never even gave it a chance since it caught them off guard.


One of the things that caught my attention watching the credits for Louie was that Louie CK himself was listed as editor in addition to his other roles.


I love the real-life quality of shows like Louie and Broad City.


Your examples are comedies, which can get away with it as the audience isn't expected to take things seriously.


>Viewers today expect incredible production value.

Great point. I'm always a bit shocked at the level of effort put into lighting etc. for even simple corporate talking heads sort of video. Technology has driven down the costs associated with good cameras, editing software, and CGI. But expectations have risen at least as much. (HD is also a lot less forgiving.)

There are some genuinely low-ish cost hits but they're very much the outliers.


Maybe it's a supply-side effect: Movie-making is an attractive field, like computer games and rock bands. Those also enjoy high investment compared to payoff. People keep doing more of them even though they often lose money.


...but as yet, nobody has been able to procedurally generate one convincing block of a city street seen at ground level...

I'm wondering if technology might also make it much easier to shoot on location. For example, given modern digital camera systems it might be possible to shoot in low-light conditions (late in the day, overcast, etc.) and correct the lighting in post to appear like broad daylight. I've also wondered if it would be possible to shoot in 3d (i.e. using 2 cameras in a parallax setup) then use the 3d data to selectively remove foreground or background parts of the image which can then be replaced with CGI. So we can continue to use the real world to provide detail, while using CGI just for the parts that give us the most bang for the buck.


The reverse has been done. In "The League of Extraordinary Gentlemen", the dark, rainy look of London was added in post.

Removing backgrounds is more manual than you may expect. There are commercial "clipping path services" in low-wage countries. Even when green screens are used, the boundaries may need a bit of touch-up. It's a possible application for deep learning.


You can't make overcast look like broad daylight or vice versa because the nature of the shadows change dramatically.

That doesn't mean people don't do it all the time, it just looks like garbage.


The term you're looking for here is a depth matte. It's a technique that's been in use for many years now, but of course it's only as reliable as your depth data so it's just one of the many tools in a compositor's tool belt.


RE: Shooting on location in low light;

Yes, it was done in 28 Days later on the Westminister bridge over which Big Ben looms.

Shot at night, with a camera which had a large aperture.


> "Iron Sky" was made for €7.5 million. Worldwide box office $11.5 million. Fail.

To be fair, Iron Sky is terrible. I mean, it has a lot of "so bad it's good" value, but let's not pretend the CGI (which is actually awesome for a script this bad) was the only problem.


If anything that's a terrible film with shockingly good production values. It has no right being made as well as it was. Here I thought that was part of the joke.


I don't see anything terrible in black-made-white-brainwashed-jetpacking space nazis.


The premise is good, alas that is not enough to make for an entertaining movie.


Production cost is a problem, and technology has made it worse. Look at that long, long list of animators and technicians at the end of any effects-heavy film today. A cast of thousands.

I predict the hordes of animators and motion capture will be going away for all but the biggest productions within a decade.

Check this out:

http://www.goatstream.com/research/thesis/index.html

If you can combine this with more detailed physics simulations of the entire world, that will drastically cut down the amount of animation required.

This, combined with being able to easily capture objects and environments in 3-D via scanning it from a video file (SLAM[1], basically), and add in some basic mo-cap in-world via VR controllers. We can have much higher quality productions with Reboot-level (or machinima) levels of staffing.

Someone (not me!) needs to start putting this all together in an easy-to-use package.

[1] https://en.wikipedia.org/wiki/Simultaneous_localization_and_...


Small, but important distinction: Studios don't make content. Studios made deals.

Film production is a smiling curve: on the left you have "development"; on the right, distribution. Actual content creation is 100% farmed out to production companies and their vendors (like VFX houses, et al).


True, but the author makes a solid point about the new distribution systems being created by people who value efficiency and are experts at disrupting inefficient industries. Netflix and Amazon might currently be just buying content but I'd be surprised if soon they don't experimenting with making it themselves.


"Making GTA V cost $265 million" <-- Your point probably still stands but this number isn't completely true. The total was $265 million but 'only' $137 million was development cost. The rest ($128m) was marketing. https://en.wikipedia.org/wiki/List_of_most_expensive_video_g...


It blows my mind that approximately half the total costs of a game are marketing, especially for a series as big as GTA which presumably markets itself pretty well.


> "Iron Sky" was made for €7.5 million. Worldwide box office $11.5 million. Fail.

I wish I could "fail" by making 53% profit on millions over what is likely less than a year. :/

Edit: Actually, I see pounds and dollars now. I would guess it was about even?


Trying to guess at whether a film made money or not is a very murky science. Reported budgets are rarely accurate and do not include interest on loads taken to fund the production, or marketing costs (can be 50% of the production budget again for a global blockbuster release). These costs are offset by subsidies and tax breaks from filming or posting in certain locations, and from product placement and licensing deals - licensing alone can entirely cover the cost of main production for some big "event" movies.

Then, as others have said, the theatre takes a cut, then the distributor takes a cut, and so in the end a movie that takes twice its budget at the box office may still be in the red as far as the production company is concerned.

This is all made even more opaque by all the accounting trickery to minimize tax exposure and make sure that the studio has to pay "points" (contractually agreed percentage of profit/revenue after some break-even) to as few people as possible.


You also forget that box office money is shared between the distributor and the movie theatre, from what I've gathered the domestic cut is typically 55-60% in favour of the distributor, and some 25% in the foreign box office.

So it has to do about twice the production costs at the box office in order to break even, that said there's that whole 'Hollywood accounting' aspect to consider.


When I worked at a movie theater as a teenager, the manager explained it like so: The first 5-6 weeks, the studio make 85%-90% of the box office profits, after that the percentages start changing, to the point that at 10 weeks or so and past, the theater makes a much higher percentage. Long running movies are thus fairly profitable for theaters.

If this holds up (since it's entirely second hand info), I would expect the total split you quoted to likely be for large blockbusters that stay in the theaters for a long time. For a small movie, or one that doesn't make much money and is forced out to make room for more popular movies, I would expect that percentage going to the studio to actually be much higher.

Corrections from someone with actual knowledge is welcome though.


€ is the Euro symbol.


Also would think you have to win by more to cover all the losses.


euros


> That didn't happen. Not even close.

Oh please. Sin City: budget $40 million, box office $158.8 million. A good director who knows how to squeeze the most out of a budget can get the job done in a cost-effective way. Just ask Mr. Rodriguez.


Monsters (https://en.wikipedia.org/wiki/Monsters_(2010_film)) is my response to that. The problem with "Sky Captain and the World of Tomorrow" wasn't that it was low budget, it was that it decided part-way through to become (relatively) high-budget. A carefully constructed film with $500,000 budget made $4.2 million back on good, but limited, effects. The problem is Hollywood's approach; instead of making a handful of single-A movies, it's all either B movies or AAA.

Video games were (?) having the same problem, so-called "indie" developers have largely stepped in to make single A-quality titles.


The film Tangerine was shot entirely on the iPhone with a budget of $100k. It earned $794k at the box office.

It's still possible to produce commercially successful low budget films with lower production values. The trick is to tell an interesting and engaging story.


> "Sky Captain and the World of Tomorrow" started as a low-budget picture rendered on Macs. In that film, if nobody touches it, it's CG. Ended up costing $70 million. Worldwide box office $50 million. Fail. "Iron Sky" was made for €7.5 million. Worldwide box office $11.5 million. Fail.

I know very little about the film industry, but is the box office the end of it? I was presuming that there was always some kind of long tail of modest cash flow from stuff like video rentals (days of yore) or online streaming services (present day). Is this a wrong assumption?


I felt like I could see this in Rogue One: different parts of the film were done by completely different production companies, results varied, and they had to go with whatever they had by the ship date.


I remember listing to a radio interview someone from Pixar and he said one of their biggest advantages is that they have stable teams that keep working together from movie to movie. Whereas other movies are being made by teams that get assembled for one movie and after finishing go their own way.


I was hearing today about the Dogme manifesto today, seems like it could be relevant:

> https://en.wikipedia.org/wiki/Dogme_95

It's basically a set of rules to cut down the cost and complexity of film production, to give power back to directors. I wonder whether you could have a category of films like this, aiming specifically to exist outside the normal Hollywood system.


> That's why Hollywood generates so many sequels - predictability.

Does it have anything to do with the size of the studios/companies? Look at Disney/Pixar, can it be that they are just too big in order to come up with anything original?


It has more to do with risk management coming out of the finance dept.

The studio knows that a sequel will have a guaranteed $ minimum return just because it is a sequel. Hence they can estimate how much to sink into production to guarantee a profit. Then they green light the movie production for that budget.

Same goes for the cast. The studio finance dept can look at previous years data and predict that $ million will be guaranteed to be made just because the movie stars Jennifer Aniston or Adam Sandler. Irrespective of the what the movie is about. Just because people see the name and wander into the theatre while on a date or buy the DVD for $15.99 at the grocery store. This provides a target production budget for green lighting the movie. Then they hire a director and try to figure what the story will be about.

The China market also affects cast and story. See https://www.youtube.com/watch?v=8R-FQTY4KJk


I don't know why Iron sky returning ~50% is not considered a success, but it is a pretty funny movie. Also if budgets are what we go buy, the Blair Witch project, which grossed nearly a 1/4 billion at a budget of 60k.


Two different currencies: cost in Euros, returns in dollars.


"Iron Sky" was made for €7.5 million. Worldwide box office $11.5 million. Fail.

That sounds successful to me, actually.


To be fair, both movies you listed as low budget flops are in the same niche genre, I think that's more of a trend of people not being interested in that sort of movie right now.


I love movies. Whenever I visit my dad (other side of the country), we go to see movies. However, most of the year I live with my girlfriend who falls asleep in theaters and can't justify the cost. This leads to me not seeing movies in theaters anymore.

Now, I am subscribed to two streaming services. I don't pirate. I refuse to watch anything with ads, happy to pay, and somewhat ironically, the only ads I watch to completion are trailers that I haven't seen. I would love to catch movies as they are released but I have to wait until they're available on the streaming service. When they are available it is usually 5$ for a "rental". Is that a joke? I used to pay that at Blockbuster, and they had a physical location and employees! They've priced their digital content in such a way that I will only pay to see the movies that I really want to see. If it was cheaper, I'd be a constant consumer.

It seems that is how most things in society get priced. Not for ultimate consumption, but to maximize the profit curve. I get that is how capitalism works, but that logic doesn't make sense to me for digital goods. They are practically zero cost to distribute once they are manufactured and your competition is people pirating them. If you're worried about audience size, lower the cost. You'll enable a lot more people to see a lot more movies.


Assuming you are a software developer, I think you should reconsider your "price should approximate production cost" reasoning. I think it will hold you back if you eventually try something entrepreneurial.

When I started a small software company, I originally had a similar understanding. I subconsciously thought that the software should be priced to pay for its development cost, plus some profit. I was not very successful, until I realized that the product should be priced as a percentage of the value it delivered to the customer. Customers don't want you to do a lot of work, they just want their problem solved for a price that is reasonable relative to the benefit of the solution.

This idea reverses several of your conclusions:

1. The product should be priced based on how much value it delivers, and only those companies that can deliver the product for significantly less than that price will stay in business. Once a company finds a need that people will pay for, it generally makes sense to drive the cost of production down while maintaining the same benefit, thus maximizing profit.

2. The more value a company creates with the resources it uses (the greater its margin), the more left-over resources it will have to invest in producing still more benefits, or to return profits to its original investors.

So, going back to the cost of digital content, I am happy to pay for it, as long as I end up feeling the movie was worth watching for the price. And if they can produce great content without many resources (or with lower cost of delivery), all the better. My problem, right now, is that there is so much great content I cannot ever hope to watch it. But that is not a problem that really bothers me, I am happy to keep paying to have a long list of shows I'd like to watch, if I could just find the time.


There's another big factor for me: price should reflect how much the business deserves.

This is why I hate paying Comcast's prices but wouldn't mind them if I business I didn't hate charged the same amount.

It's also why I hate paying the same price for a Kindle book as a regular book, when I can't even hand the book to someone else after I'm done with it. If it was being bought from the author, maybe. From a publisher or distributor -- no way. I'll borrow a friend's or torrent it, just to not give you money.


Thanks for saying exactly what I think.

I am fine with people making money -- our economy is a big but closed system and the money flows in all directions. Not a problem that somebody wants to make a buck.

But when they do it in a way that most of their customers hate their guts but can't get anything else (due to monopoly or oligopoly) then eventually people find a way around you. It's inevitable.

Current prices of movies and books are insane for the value they're giving you. Not to mention Amazon has been caught red-handed several years back that they can remotely delete any file from your Kindle if they so desire. I have no doubt in my mind that Apple, Google etc. can all do the same. Business interests > consumer interests, this hasn't changed ever since the first economy in the world emerged.

It was then I took the decision to never buy digital goods from corporations. You never really own what you pay for.


> If it was being bought from the author, maybe. From a publisher or distributor -- no way.

So you'll pay the author, unless the author is only collecting royalties, in which case fuck the author? What are you paying for then? Distribution? But you say fuck them too. As usual, this kind of reasoning just sounds like trying to explain away "I just want it for free".


No, if I just wanted it for free, then I would just say I want it for free.

Yes, I don't want to give a retailer money if they're taking massive profit they don't deserve, even if that means not giving the author money either. A small profit for distribution is fine.

(The lifetime value of a Kindle format of a book is far less than that of a physical book. I try to pass on almost every physical book I buy to someone else for reuse.)

I would rather:

* get it for free

* get it for free, and give the author money some other way

* wait till I can get it in a less-undeserving way

* just go buy it from someone else to deny giving business to the big company that doesn't deserve it (say, to an independent bookstore.)

* buy a different format that they deserve to make more money on.

And I'll venture to guess that, if you don't understand this thought process, the buying behaviors of 'millennials' (which advertisers care a lot about understanding) are probably a total mystery to you.


Or... you could just not read the book.

> get it for free, and give the author money some other way

The amount of people who torrent a book/movie/show and then find a way to 'pay the creator' is so small as to be a fantasy.

> the buying behaviors of 'millennials' ... are probably a total mystery to you.

Aw... I like how you decide to change your selfish behaviour into a patronising statement. The distributor, whom the author has made a deal with, is 'taking massive profit they don't deserve', meanwhile you have no qualms not holding up your end of the bargain in coughing up some dough.

I have no real problem with this if people are being honest. Fuck, I spent the first few years of my adult life playing ridiculous amounts of cracked games for the Amiga. But to phrase it as some sort of social justice, that's just twisted and morally vacuous. If you want to be moral, don't consume the media. Otherwise, don't pretend that you're some sort of virtuous underdog.

As for the patronising "you don't understand millenials", perhaps you forget that we older folks (I'm an X-er) have been through our early 20s as well, and know what it's like to raise our defiant fists against "the man". You're not something special and new in the world. Each generation is a little different, but the basic patterns remain the same.


I'm not telling you what the virtuous thing to do is, I'm telling you what people like me actually do. The fact that doesn't fit into your system of honesty and propriety, and the fact that this doesn't read as 'selfish' to us, is the same as the fact that we are operating in different, incompatible ethical systems.

I contend that this is in no sense 'raising defiant fists against the man'. There's nothing defiant about it. It's a product of a different system of morality, but it's not a defiant action in that system. It's the result of a different formula for calculating if an action (say, a purchase) is worth it, that takes into account different variables than you use.

Patronising, whatever, but it was still obvious from your previous post that you weren't a holder of the millennial mindset, and it's still obvious from this one that you don't understand them. You're of course fully welcome to preach your morals, say that ours are bad and wrong, and call us entitled -- but nothing like that ever changes minds so what's the point?

(And I didn't say I often or even occasionally get something for free and then pay the creator. What I'll do is pick one of my listed options. That was the point of listing options. You're correct that that one is rarely picked. That's why 'get it for free' was also on the list.)


On the other hand, TACIXAT is drawing from a point-of-view as a buyer, and that position isn't rare, especially when you're selling to individuals (ie, paying with their own money). People do feel cheated when stuff costs way above what they perceive is fair, even if it's still a fraction of what they get from it. Of course, what they perceive as fair and the actual costs are often widely different, since most people don't have a good sense of what stuff costs to make.


Yeah, because copy-pasting a movie's poster in a website and then "distributing" the video file costs so much.

Sorry for being sarcastic. But maybe you should make a clearer point. If I did understand you correctly however, the digital goods cost cents for the distributors, at best.


I was making a general point, hence "often" and "most people", not about this specific case.


There is a name for that: price gouging.

Maybe you can justify selling an ebook for 800$ because when using it the customer will recover their investment.

What if your hospital/doctor/insurance starts doing that? After all, wouldn't be a good investment to not be DEAD or suffering? Wouldn't you give them a shit load of money for all that value they created for you?

It's a bullshit justification for milking people out of their money.

I prefer the Amazon/walmart approach. Commoditize aggressively and keep the competition away by having low profit margins. Make your money off volume instead of gouging a small pool of customers.

The same applies to this Hollywood crap. They are price gouging with licensing deals, geo-location restrictions, delayed releases etc. Then wonder why aren't enough people willing to pay us what we ask them to? Fuck off.


>I prefer the Amazon/walmart approach. Commoditize aggressively and keep the competition away by having low profit margins.

Yes, and pay everyone in between absolute peanuts. Enjoy your sitcoms farmed out to overworked Amazon Turk writers.

Amazon can get away with it because buying a book on Amazon is the same as buying one on Barnes and Nobles. Good content however costs money, and decent writers won't work for the same wages as Amazon warehouse workers.


Your argument applies well to commodities. Today there are so many commodity products that we're almost drowning in them. Amazon, Walmart, Costco, and others have risen because they are optimized to take advantage of commodities.

Your argument does not apply to new products and services. Let's say you've written a new AI-driven CRM product that maintains customer contact automatically without being overbearing. How do you price it? There's a lot of risk because it's never been done before and you don't know how easy it is for other companies to copy you. You need to build in a margin that allows you to fund not only your current staff but also future improvements.

So, in short, it's important to know whether your product or service is a commodity (or whether commodities compete with your product). It deeply impacts the way you develop your pricing.


> There is a name for that: price gouging.

No, it's called value-based pricing. Price gouging is raising prices beyond what is reasonable. For almost all products and services charging a percentage of the value that the product or service creates is completely reasonable.

> What if your hospital/doctor/insurance starts doing that?

Sometimes it's quite difficult or impossible to calculate the value created by a product or service and in those instances attempting value-based pricing could lead to price gouging.


Yep. Specifically, the reason digital rentals cost $5 is because of convenience. The parent poster gave Blockbuster as a counter-example. But you had to physically visit the Blockbuster store to rent and return stuff. Digital content is way more accessible.


I will keep this in mind, mostly because you described my mentality to a tee. That is absolutely my reasoning on software projects. Though I have yet to set up a payment processor on any, my intentions were to price them very low. Thanks.


Indeed. It's a hard shift in perspective from the default that we developers are biased towards given our "in the trenches, know the details" position.


This is the best entrepreneurship TLDR/ELI5 I've come across. Thank you, I plan on quoting this in the future


Surely you realize production cost and value to the customer are related?


A good friend of mine _wink_ has been a pirate since the golden age of IRC. I, uh He, always said he'd pay for digital content when they made distribution digital. And when they did, I was happy to start paying for it. I was happy to have every King of the Hill on someone else's hard drive finally.

Then the price for playing by the rules kept going up and up. Meanwhile there was less and less, and less, I cared to see. I can't even think of the last movie I actually itched to see. Maybe I've gotten old and don't have time to search for diamonds in the rough, but I don't see any more movies like Oh Brother Where Art Thou or Fight Club or Snatch that I can't get tired of.

They can't cry poverty when every time Adam Sandler squeezes one out it makes $75 million. I know creative accounting makes it seem like they break even, but I call BS on that. If companies besides Pixar would actually pay for writing that moves people, their wallets would come with them.


Yep. There have been a whole bunch of times where my fiancee has said, "Let's go see a movie."

We then spend half an hour looking at trailers, conclude that everything looks stupid, and Google "Best movies of `year`." I drink a few beers, she enjoys wine, we relax with a great movie.

Every once in a while, I'm willing to watch a movie in theaters, but it doesn't happen very often.


Ah, the good old year end list marathon - Same thing that happens here. Due to this and many other reasons, I haven't set foot in a theater for a good decade.


I have found a few decent low budget horror movies and comedies through lists. But it's work to find lists, gauge quality through reviews, and then watch 10 trailers to decide if any of them are worth a shot.


In Europe we get blockbusters with a delay (4 to 8 months), so the choice is, either you pirate now, either you go watch it in theaters in 6 months, either you pay for the DVD-with-unskippable-ads next year.

Dumbed-down movies are also a result of trying to conquer worldwide markets with massive social inequality, from Brazil to Philippines. You need a movie that everyone can understand, including partly-illiterate people and people with various cultural backgrounds (try the same facial expression in 15 languaages and you'll run into constraints). And you also need to abide by China's policy. Result: The lowest common denominator, but distributed in 158 countries.

Which is sad, because we'd prefer to see movies with half the production costs and a good scenario.


> DVD-with-unskippable-ads

A pet peeve of mine.

Fortunately, according to my religious beliefs, there is an extra circle in hell which addresses the issue. As hell goes, it's fairly benign, no fire or sulphur or pointy things, more like an open-plan office. The time that you spend there is equivalent to the cumulative amount of time that you made other people waste during the span of your earthly existence.

There are the small-time offenders, spending a few hours in limbo due to the queues which we skipped or the prank calls which we made during adolescence.

Also, there are the big fish. Like people who forced broken processes and flawed IT-systems upon large corporations, and are now spending decades trying to file requests of a computer mouse to IT departments in Kuala Lumpur, or filling out self-evaluation questionnaires comprising 380 questions.

The DVD people are there too, each with a TV set. Watching, in seemingly endless loops, the same anti-piracy alerts and ads for Barbie films designed to lower your IQ. How long have they been here, and how long will they stay? No one knows. Hey, there's another anti-piracy warning. Happy times.


> either you pay for the DVD-with-unskippable-ads

Blu-Ray seems to have avoided this slide into the adware sewer so far, which surprises me a bit. Maybe there's language prohibiting it in the spec, I dunno. They're not significantly more expensive than DVDs any more, either.

Unfortunately the content industry seems to be winning the war on ripping for BDs, so I've had to stop buying them for the time being.


To add to that, in large parts of Europe it's impossible to find showings that aren't dubbed, or don't have subtitles.

Dubbing ruins the movie entirely, and I find that I can't watch subtitled movies at all, I get obsessed with both listening to the dialog and comparing it with the translation.

Around here it costs me at least $300 to see a movie in its original unaltered format when it opens in theaters, i.e. a round-trip flight to the UK + hotel, so I just don't go.


I like soft-subbing. I prefer to watch Norwegian/Swedish/Danish/English content without subs - sometimes French and Japanese - although often I won't quite be able to follow everything.

For German, Italian and Spanish I generally need subs - and the same foes for Russian, Hindi and various Chinese and Korean content.

But even for Cantonese / Mandarin and also for animated content I prefer original audio with subs.

I recently got a Netflix account (in Norway) and just like the rest of the paid services, the selection is abysmal. I only hope these "new" big companies make a push to fix broken licencing - how else are we to increase global understanding if everyone just end up watching "their own" art - and remain forever sheltered from "foreign" influence?

Torrents aren't great - direct sharing between "librarians" like in the dc++/irc days were better. But torrents are way ahead of "legal" distribution.

It's extra sad as there's no technical reason, just people to stupid to figure out a way to organise compensation in a way that promotes cultural sharing.


I can't stand subtitles if I don't need them. Sometimes a video has captioning on by default, and I find I am totally unable to NOT read them. No matter how hard I try to ignore them, I end up spending all of my time staring at the captions and not seeing the actual video content.

And when they are useful to me, like an english translation... why doesn't anyone put the captions near the speaker's mouths, so I can read and see what's going on at the same time?


Eventually you learn to read and watch at the same time. It's harder to read the subtitle with peripheral vision, so indeed you end up focusing on the text if it's longer.

I also increase the font size (a lot) and add a slightly opaque black background to it -- again it helps to lower the amount of eye fixations.

For this (and obvious aesthetic) reasons, speech bubbles are a bad idea.

I've seen anime subtitles where characters are color-coded; I find to be distracting instead of helpful; the same with the italicized font when the line belongs to someone off screen. Though I'm sure one could argue it improves the accessibility for those having hearing disabilities.


Having grown with subtitles for all movies I watched since childhood, I think subtitles are the best compromise and no, I don't feel the need to keep reading if I understand the dialogue. Don't know how to explain it, it's very automatic.

For me it's dubbing that's absolutely awful, because I want to hear the real voices of the actors, plus I learned English and a little Italian and French by watching movies with subtitles. I don't understand countries where dubbing is the norm, I hope it never catches on in my country.


I also grew up with subtitles, and I agree they're the best compromise when you don't understand the dialog. But I never acquired the skill to ignore them once I understood what was being subtitled at a native level, and I really don't really understand how anyone could.

The human vision is drawn to quick changes & movement, when you have an otherwise immobile scene that's mostly just dialog subtitles will pop in & out, I can't help but focus on them just like I would if something else suddenly popped into the scene.

If you have words pop into your vision you also can't help but read them, at least I can't, subconsciously reading the translation and hearing the original version at the same time is really distracting.

I found the only way to deal with them was to position myself behind some sofa so I could only watch the top 3/4 of the screen, but of course you miss a big part of the movie that way.


Where in Europe is that? I live in Eastern Europe and we get most blockbusters in theaters the same day as US release date.


Supply and demand. A thing is worth what another is willing to pay for it.

Those $5 streaming "rentals" are for those actually willing to pay $5 to watch that movie right now. It's worth it to them. Eventually the $5 rental crowd is satiated, and the "not more than $4" crowd gets a chance as the price is lowered to match what others are willing to pay for it. Eventually that price tapers off to "$8/month buffet" and ends up on my Netflix queue.

They DO lower the cost - as those willing to pay higher prices do so, are satiated, and the audience temporal/economic demographics shift. It's not just about price per rental, it's price plus time per rental. Some movies I'll pay $15 to watch on day of release; some I'll happily "spend" time waiting for so I only spend $1 to watch it.

And yes, I'd happily get "that, here, now" for $5 rather than pile 4 people into the car, drive to Blockbuster, ask if they have it, find out the 2 copies are out, and wander the aisles for an hour reviewing what they do have and picking something ("Masters of the Universe"!) just to not completely waste the whole exercise (and decide that just leaving would have been better than watching "Masters of the Universe" only because it was the only thing vaguely appealing at the moment). Even with Redbox I at least have the option of looking for something new in particular and reserving it, from whichever of several nearby locations, for $2 from the convenience of my phone. Come John Wick 2 I'll have already pre-ordered it and be watching it, without the crowd, the moment it's available (and happy to pay the $19 to do so, having seen John Wick twice thanks to the $1 streaming specials).


Great point.

People complain about windowing, but it is a sign that the movie industry is flexible about pricing to maximize the value they capture, unlike the music industry, TV industry, etc.

When a movie comes out these days it often comes out in multiple editions with different features (not to mention Blu Ray, DVD or both) at different price points. If you want it right away you will pay a high price, but the movie they sell for $20 one day will probably be on sale for $10 or $5 at some point in the future.

Thus, go to a retail store, and you will be able to buy a movie at a price you can afford or you can pay extra to get a better edition of something specific.

Contrast that to music CD and track prices that are almost always the same, or the "take it or leave it" bundle offered by the cable companies.


> Thus, go to a retail store, and you will be able to buy a movie at a price you can afford or you can pay extra to get a better edition of something specific.

Nit; it's not really an option to buy above a price you can afford.

It's certainly possible to pay more than one would normally think is fair.


> I get that is how capitalism works, but that logic doesn't make sense to me for digital goods. They are practically zero cost to distribute once they are manufactured and your competition is people pirating them. If you're worried about audience size, lower the cost. You'll enable a lot more people to see a lot more movies.

This echoes a drunk-blog that I wrote once, but basically I believe our current economic model no longer makes sense when talking about digital goods. We baked the manufacturing-cost of a product into each individual item, when it cost money to make an individual item. With digital goods, it only costs money to make the first item, every duplicate is essentially free. I think Kickstarter and the like are great examples of this, because they more accurately reflect how the costs actually influence the creation of the product.


My two favorite models that reflect the digital reality are recurring patronage (Patreon, et al) that supports the ongoing work of a creator, or crowdfunded bounties (Unglue.it, Kickstarter, etc.) where the work is freely released once its production is paid for.


There's also time preference.

Kickstarter is huge, there is no "the" kickstarter model, but at least in physical board game and RPG dark corner of kickstarter, people get extremely unhappy if product shows up in retail before the backers get theirs delivered.

A second aspect of time preference is original OP claims there's only two services or whatever all $5, but I assure you the market is much wider and there's $2 at redbox, "free" if you watch TV and don't mind editing and commercials, "free" and commercial free if you pay your annual amazon prime membership to cheap shipping, "free" if you have a public library card... Everything ends up free at the public library eventually, but it could take years and years.

The theater portion of the industry doesn't handle this nearly as well as the distribution side. I have friends who have friends, etc, and somehow I got to see the very first public premier showing of Rogue One last December. Its a different experience seeing a new movie vs one where the spoilers are all over the internet, it was interesting. So you practically had to be in the mafia to get tickets, but aside from that financially my ticket cost exactly the same as a showing a month later. The theater, in an attempt to be "fair", is leaving a lot of money on the table. My son really wanted to see the movie and I think he would have been cool with $100 tickets because he's just so excited, not unreasonable to think the theater lost over $80 per seat that night. I'm sure 10% of the population is glad to pay 10x the cost for bragging rights or just being hyper-fans.

The local theater is slowly getting a clue... they have in theater bars and restaurants so if you want to blow $50/person at a movie you certainly can in extreme luxury and gluttonous comfort. They need to get a clue faster. Also the culture where I am is, OK with alcohol whereas I can see in some areas the local culture would just lead to obnoxiousness and police calls, so there are cultural aspects.


Doesn't this line of thinking lead to a race-to-the-bottom and an expectation from consumers that digital goods should basically be "free". Look at mobile apps. What is the end result for developers if digital goods are priced next to nothing?

Just thinking out loud. I understand this can lead to increased sales, also that this refers more to "content" than apps.


The thing is developers keep making apps, even when the price is so low. I suspect this will be even more true for more traditionally creative activities.

There is enough writing being done for free (in terms of e.g. fanfiction) for a lifetime's reading, if only the recommendation engine was good enough. As movies get cheaper to make it will be the same for those too.


With apps the question is if what is being made is good enough? While there is no shortage of apps being put out there is certainly a lot of developers that have been driven away from the app ecosystem.

You would be crazy these days to bet your future on being a indie app game developer.


Developers keep making apps, even when the price is so low.

So far, the cost of people willing and able to build large, complex systems in teams keeps going up.


It might lead to people thinking of digital goods as "free", but I don't think that's a bad thing. If a product has already made enough to cover the cost of creation, then I don't see that we have to charge for it anymore. I don't think that means it has to be a race to the bottom though. Things like Kickstarter and Patreon have shown that people are willing to step in and cover the costs for the developer/creator.


Realistically, digital goods should be "free." I pay my electric bill and the bill for my ISP, why should I pay for the bits on my hard drive or something to be reconfigured into an arbitrary state - everything of possible value related to it has already been paid for.

That digital media is considered to have any monetary value at all makes less and less sense the more one thinks about it. It's possible the world should have thought twice about moving everything online and making everything digital, but it's too late now, and we're stuck with concocting elaborate fictions around digital media in order to keep people fed and keep the economies of the world functioning.


And there is where you are wrong. If you cannot get them because they are "not free" and this bothers you, then you have to recognize that those bits have some value to you. You want them, and want is value. If they had no value they would be free and you would care less that you didn't have them.

I demonstrated this physicality to a friend by showing them a pad of 580 pages, a bottle of ink, two pieces of cardboard, and some slightly heavy paper stock. All totaled up they represented about $8.30 worth of material. They had physicality and they clearly had a production cost, we agreed they were "worth" $8.30. Then I pulled out the same material except that the ink had been spread about on the paper such that it told the story of Harry Potter's adventures during one of his years at Hogwarts. Now it was valued at $34.99. What changed? It had information on the pages now that it didn't have before, and that information has some value.

I've spent quite a bit of time trying to understand the economics of information, what gives it value, how is that value captured, and how is that value lost. I can tell you unequivocally that digital goods should no more be free than automobiles, and for the same reason. It takes an action to create useful or desirable information, and that effort is an economic action which we reward by sending capital toward it. When people get stuck in the mindset that the 'bits are free' they for get that the order of the bits is not free. It is that ordering that has the value, not the bits themselves. Most people agree that the value of a DVD full of zeros is different than the value of a DVD with a movie on it. They won't agree on what what the value is, but I've yet to find people who don't think there is at least some value[1].

Digital goods should not be "free" and appropriating them without economic exchange is theft, but how 'not free' they should be is an interesting discussion.

[1] For the pedantics, yes some movies could be zeros.


I'm afraid to have to say that your argument is tangential and somewhat misleading. No one is arguing that any creative work is valueless. However, it is a fundamental economic principle that the cost of a good will approach the marginal cost of production, which for digital works is zero and for physical media is still very low -- I'll take your figure of $8.30 at face value. I think you need to revise your argument, and I believe that your understanding of the economics of information would be improved by the arguments of Mr. Boyle[0]. He considers the subject in depth, and his is more or less the canonical argument against excessive copyright durations. I would be quite interested to read a detailed refutation. And not to belabor the point, but I would like to be quite clear, we all agree that cultural works have value, the argument is whether (e.g.) a one-time commission payment for the production of a cultural work adequately captures the true value to society of that work, or whether we need to create a market for the right to market those goods in order to provide further incentives for their production.

> Digital goods should not be "free" and appropriating them without economic exchange is theft

This feels like a petitio principii. Legally it is incorrect, and as an argument it is unsophisticated nearly to the point of being a slight on the intellectual abilities of our fellow commentators here. I'd like to think that we all here are fairly intelligent and well-informed, and I feel that it is incumbent upon ourselves to present cogent, well-reasoned arguments, which do not trivialize the opposing side, but which are well-supported with appropriate citations. I believe that you have a valid position and that the discussion is one worth having. I read your comments here fairly often and have never yet found anything in them which would subtract the least measure of my respect, but I do think you do yourself and your position a great deal of harm by arguing in this manner.

[0] "The Public Domain: Enclosing the Commons of the Mind" http://thepublicdomain.org/thepublicdomain1.pdf


Thanks for the link to Boyle. I happen to think he is led astray by conflating policy and a more dogmatic approach to goods economics than is warranted but he is not here to defend his point of view. You too fall into this trap as well with this very succinct summary:

"However, it is a fundamental economic principle that the cost of a good will approach the marginal cost of production."

This is fundamental to the economics of goods but it clearly doesn't hold for information. When I started researching this topic in 1995 it was exactly because I was stuck in that same discontinuity of understanding. Why were people paying for a CD that had a copy of an operating system they could download for free? A goods economist would, like you state, observe that the supply of such CD's was essentially infinite or at least very high, and the marginal cost of producing one very very low, so how could they maintain a market price that was probably 20x their marginal production cost? That price has a component that is clearly not described by classic economics, what was it? In that same store the cost of blank CDRs was pummelled relentlessly by the reduction in marginal production cost. From over $10/CDR disk when things started down to about $0.43/CDR. Why are they pummeled into the ground and not the Linux Distro of the week CDRs?

I started pulling on that thread a long time ago and haven't stopped. Starting with the question, "What gives information value?" Using what I've learned over the years it has helped me understand and analyze things like what does Google sell really? or Why do non-DRMed artistic products make more money than DRMed ones? Or why did CD sales fall faster after Napster shut down? Can you price awareness? Why did "Its a wonderful Life" enjoy greater success after its Copyright lapsed? Etc.


> This is fundamental to the economics of goods but it clearly doesn't hold for information.

Right, it is clearly true that pure information has no marginal cost of production. This does not contradict anything I have said. If you think it does, I am afraid that the fault is with your own understanding.


> No one is arguing that any creative work is valueless.

>>> Realistically, digital goods should be "free."

> I'm afraid to have to say that your argument is tangential and somewhat misleading.

???


I cannot say that I appreciate the manner in which you have chosen to express your objection. The apparent contradiction you are suggesting was the entire point of my comment. There is value in creative works, and authors should certainly be compensated for creating them, and that argument is independent of any copyright concerns. It is, in fact, a different argument. The fundamental issue of copyright is whether in addition to a payment for the work itself, an author ought to enjoy a right to the profits of copies of that work.

Fundamental principles of economics dictate that this situation will not happen naturally. The author is not needed to create copies, and therefore prior to the invention of copyright, no one had any conception that he should be compensated for each copy. It's not like he labored to make the copy himself. The guy turning the handle on the press sure isn't going to be easily persuaded that the author deserves a share of the fruits of that labor. On the other hand, we as humans do really like good books, plays, music, etc, and it is considered fair to most that if someone makes a really popular work, that he get some sort of additional compensation for that. Before the wide adoption of copyright, and even through to the end of the 19th century, copyright violation was common enough that "authorized editions" were still common. Gilbert and Sullivan's British copyright on their works was not respected in the United States. American theater companies copied G&S's work almost as soon as it was performed, but people still preferred going to authorized or licensed performances, at least if they had the option, so G&S (well, really Carte) did pretty well from licensing. I digress somewhat, but I would like to note that this is actually an argument for copyright, especially as the least-market-disturbing option. The right to officially monetize some creative work is sometimes valuable enough in and of itself for there to be a market for it, just not most of the time, and there wasn't any recourse if anyone didn't want to work out a licensing deal. This worked out pretty well because copying and distributing physical media was fairly easy to detect and punish, even if the idea of owning a particular idea was understood by most to be fairly absurd.

The other fundamental issue with copyright in the digital age is that the actual marginal cost of making a copy of Harry Potter is no longer that $8.30 in paper and ink, it's a number so close to zero as to be difficult to establish. Trying to argue for a digital copyright is as futile as arguing with the tide. Whether you or I like it or not, we are effectively in a post-copyright world, and nothing will bring the old world back -- it doesn't cost money to distribute media, so we can't give any part of those profits back to the artist. We need new business models, and as it happens, and as this article discusses, Netflix seems to be stepping up to the plate here in a big way. If you would like to actually articulate a position I am sure I would be interested in further debate rather than just having the opportunity to repeat myself in slightly different words.


You gotta break up your paragraphs more.

It improves readability.


The value is not in the information itself, but in the personal use copyright license attached to the physical medium of the book. A similar demonstration using one of L. Frank Baum's Oz books--which are no longer protected by copyright, yet still available in printed form--would reveal that the book publisher must be able to purchase paper, ink, covers, and binding glue at significantly less than your retail price. Also, the printed information found therein can be digitally copied to an e-reader device at very close to zero cost.

The limited-supply good is the copyright license, not the information. The natural value of the digital information is zero, and it is still possible to sell value added services such as printing and binding for a sufficiently popular work.

The real question is for how long should the copyright privilege--and its arbitrarily set licensing costs--be extended?

(A DVD full of ones might be worth more than a movie DVD, and is definitely worth more than a DVD full of zeroes, if it is actually a blank writable disc. The zeroed-out disc might still be of some use as a diffraction grating or drink coaster.)


"The value is not in the information itself, but in the personal use copyright license attached to the physical medium of the book."

I see it rather differently, in part because I think this statement conflates two things. One is information value and the other is how we have tried to stuff information value into goods economy ideas. Perhaps an example will help clarify my understanding for you.

This example comes from a friend of mine at Facebook who was getting his MBA from Berkeley at the time;

Imagine you have a soda machine, it is sitting there with a selection of ice cold beverages. Now anyone who has traveled around knows that the "price" for a single beverage from a soda vending machine varies, often by a lot, from a low value when it is in a company cafeteria to a high value when it sits in the floor vending nook of a high priced hotel. But its the same soda. Our imaginary machine is different. It has a variable price right in the machine! If you give it $2.00 it will immediately dispense an ice cold soda, if you give it $1.00 it will give you a ticket that will dispense your selection 60 minutes from now, and if you pay it $0.50 it will give you a ticket that will dispense your selection two hours from now. The purpose of the machine is to capture as much value for the soda as possible, from the "I don't care what it costs, give me a soda" crowd, to the "Ok that is the same as I would pay for it in a grocery store" crowd. All from the same machine.

Now you're sitting there looking at the machine and counting out $2.00 when someone walks up to you and asks what you're going to buy, they offer to sell you their ticket, which they bought nearly two hours ago, for that soda which is going to drop in a few minutes for $1.50.

Think about that transaction for a minute. What did you buy? Did you buy a soda? Or did you buy the information that a soda would drop in a few minutes? There is no copyright here, no patent, there is instead two of the fundamental ways that information gains value, it is timely and rare. Timely, in that you want a soda now and this person knows when that soda will be available, and rare in that there isn't really any other way to get that information, only the person who bought the ticket (and presumably some timer inside the machine) has it. It was always a $0.50 can of soda, but that extra $1.00 value came from information about its availability which you bought from this stranger.

There is an interesting experiment you can run which shows this effect pretty clearly, in the experiment you have three operators and a number of test subjects. Operator #1 is offering to buy the information about where a queen is positioned on chessboard in a building several hundred yards away. You get a ticket for the information that is wanted, walk over the building, show it to Operator #2 who is standing by the chess board, they look at your ticket and move the queen to the place on the board, you return to operator #1 and collect your fee. Now you have operator #3 stand somewhere in the path between operator #1 and operator #2, they offer to sell you the information about the position of the queen for 10%, 25%, 50%, or 75% of the fee value.

You can use information economics to understand the natural value of information (vs the imposed value) and when information is "intrinsically" valuable or merely "temporally" valuable, and when you can create value out of collections of "free" information.

The takeaway though is that it is the information does have a value (again if it did not then people wouldn't miss it if they didn't have access to it) but individual assessments of value differ (why will some people subscribe to the WSJ and others only read it by going to the library and reading it for 'free'[1]).

And as a PostScript I specifically picked a DVD full of zeros because as you point out a DVD full of 1's is a blank DVD that can be programmed and a DVD full of random bits is an entropy source which can be used to improve the strength of one's cryptography, so really only a DVD full of zeros has the least value.

[1] Travelling to the library has its own opportunity costs and costs of execution (getting there, meeting time schedules, keeping a library card in good standing, Etc.)


My imaginary pop machine has a second parasitic vending machine next to it that can automatically buy $0.50+2h beverages, and sell acquired stock at a variable instant price, dependent on its internal prediction model and the number of currently available bottles.

That parasitic vending machine has another parasitic vending machine next to it, which has an ever better prediction model, such that it buys from the other two machines only when it knows that the second one hasn't bought enough to meet future instant demand. For instance, perhaps it knows the schedule for a nearby convention, when the other parasite only knows average daily purchase volume. So 2 hours from the end of the headline event, the third machine puts in a big order from the first, and then two hours before the end of the expected surge, buys out the second machine so that it can't undercut using its available stock. It then sells out at a higher price and waits for the next opportunity.

So the only time anyone ever sells a drink for $2 is when an unexpected busload of thirsty tourists drops by and buys out the entire stock of cheap, instant beverages.

In your example, you have also forced my hand. What happens if I instead buy a 2 hour ticket, right in front of the guy, and ask what his price would now be to trade my ticket for his?


Heh, you've got some HFT soda machines. I like it.

A couple of interesting (and non hypothetical!) things to ponder. What is the value that motivates people to buy DVDs that are a bootable install and/or live image of a free OS for $9.99 at Fry's? Similarly, what is the purchase calculus that someone does when they buy a paperback book in an airport bookstore which is a book they already own and have a perfectly readable copy at home?


>What is the value that motivates people to buy DVDs that are a bootable install and/or live image of a free OS for $9.99 at Fry's?

We don't have Fry's here, but depending on your 'net connection it can be cheaper / more time effective to buy a physical version instead of a download. See also physical console games.


> why should I pay for the bits on my hard drive or something to be reconfigured into an arbitrary state

Because you can't do this yourself. And it's not about being technically incapable, it's about you know knowing what arbitrary state to assemble them into. It's not really arbitrary. Each assemblage has purpose.

Especially with creative works, there has always been two sides to the cost of production:

1. The cost of making the physical good itself (evaporating with digital goods) 2. The cost of remunerating the creator of the work.

The second cost still exists. You pay people to reconfigure the bits on your hard drive to represent a TV show because you can't think of it all yourself. You pay others to reconfigure the bits on your hard drive to represent a useful program because you don't know how to assemble them in such a manner yourself.

I'm very much against companies that are price-gouging and trying to maintain artificially high prices based on the obsolete first cost. But people still deserve compensation for the work they do, even is the output of that work is purely digital. Otherwise, what is the incentive for them to create anything?


Otherwise, what is the incentive for them to create anything?

I'm not entirely convinced that indirectly killing off art for profit as a market would be an even mostly bad thing. Those that remain would be those that do the work they love because they love the work, not because they were expecting a payoff of some kind.

For a direct comparison, examine the entire open source software ecosystem.


> Those that remain would be those that do the work they love because they love the work, not because they were expecting a payoff of some kind.

Yeah, until they can no longer afford the rent and grocery bill. Then they give up their passion in order to survive. Or they spiral out of control because they can't cope with giving up the work they love and because people are withholding one of the most fundamental and powerful forms of approval and validation: remuneration.

> examine the entire open source software ecosystem.

And examine how often a well-loved technology stagnates when it's corporate benefactors fold (because they can't pay the bills) or de-prioritize the OSS projects (often because they can't monetize effectively).

At the end of the day, creators need food, shelter, etc. The most historically reliable way to provide that is to pay them for their work.


The creation of the content of those bits costs money, though. How do you pay for that content? Or are you suggesting digital content should be paid for as a service, rather than on a piece-by-piece basis?

Arguably, software developers just rearrange bits into some arbitrary state. So they wouldn't be paid, either?


The point is, we need to rethink the path that currently leads from "X created it, and deserves compensation" to "Y receives a copy and should pay for it". With physical goods, it's a case that for Y to have their copy, X must make some additional marginal expense, and the obvious way to recoup this expense is to bill Y. In the digital space, it's becoming more and more obvious that Y getting a copy is utterly disconnected from X's work - X only has to make one piece of something, and copying is essentially free. Just like paying for a physical thing feels natural, paying for a copy of a digital thing feels unnatural - it does not fit the way the medium works. Hence the need to rethink the whole chain, so that X gets paid, while Y doesn't have to pay per copy.


When you purchase a bound copy of my book, a small part of that money pays for the physical object. The publisher also takes a part, and that's what they use to keep the lights on in their office. The last bit goes to me so I can feed my cat and work on my next book. How does the medium or your ability to copy it change the fact that my cat needs to eat, and in lieu of getting paid for my writing so I can feed him, I'll need to do something other than write?


> How does the medium or your ability to copy it change the fact that my cat needs to eat, and in lieu of getting paid for my writing so I can feed him, I'll need to do something other than write?

It doesn't. But "you need to get paid" != "I need to pay you for the copy of your work". It's only a possible implication. One that we accept in physical world, but that doesn't work well for digital one - hence my point about finding some other way in which you get your money for writing, without me having to explicitly pay for a copy of your e-book.


Sure there are other ways that you could pay. I don't get though why directly paying for the content giving you entertainment is so bad? Being a digital good some people will choose to avoid paying, but I suspect that would be true of any other model used as well.


If you ask nicely and otherwise don't mess with people, then this is totally fine - and otherwise indistinguishable from donation model.

The thing is, that in order to enforce the requirement that people should pay per copy, we're lobotomizing the medium. In meatspace, making a duplicate of an object requires work and resources. In digital space, a copy is essentially free (electricity expenditure aside). It's a feature, not a bug. And to restrict it, you need to put in place a lot of legislation and user-hostile technologies that track everyone and make one's life miserable - not to mention destroying the concept of ownership as a collateral damage.

Yes, we can keep the pay-for-copy, copyright-everything model. We can try to enforce the rules of physical world in the digital one. But is it worth the damage it's doing to computing? I believe it isn't, and that's why I think we need to find other ways to pay the creators for the work they do.


> When you purchase a bound copy of my book, a small part of that money pays for the physical object. The publisher also takes a part, and that's what they use to keep the lights on in their office. The last bit goes to me so I can feed my cat and work on my next book. How does the medium or your ability to copy it change the fact that my cat needs to eat, and in lieu of getting paid for my writing so I can feed him, I'll need to do something other than write?

The physical book feels like it's worth something. The digital copy doesn't. People have a moral intuition that they should pay you in the first place, and that they should not in the second, and legality is largely just the formalisation of our moral intuitions.


> The physical book feels like it's worth something. The digital copy doesn't. People have a moral intuition that they should pay you in the first place, and that they should not in the second, and legality is largely just the formalisation of our moral intuitions.

If this were the whole picture, it would be legal for anyone to take the text of Harry Potter and print their own copies of it. Or all books with the same physical "feel" would cost the same.

In the US, its constitution motivates copyright and patent law pretty clearly "[t]o promote the progress of science and useful arts." At least in that sense the laws are to ensure that people have some incentive to actually create new stuff and ideas. Furthermore, people inherently attribute value to the information within or else you would not see price differences in content with the same physical feel.


> Furthermore, people inherently attribute value to the information within or else you would not see price differences in content with the same physical feel.

We largely don't see such differences though. We would assume Harry Potter is what, 3x as good as competing knock-offs? But it's always been priced comparably to other books in the same form factor, certainly not 3x as much.


I buy your book, I read it, I give it to my friend. My friend enjoys your book - perhaps he passes it on.

This does not change the fact that your cat needs to eat.

Perhaps there's another way for you to get food for your cat, than taxing my friend for reading your book?


I was actually considering this sort of thing a while ago, and came up with a tentative idea. Basically, because the dissemination and consumption of X would work similarly to a public good (that is, anything created would immediately become a part of the public domain), a large actor - most likely at the state level - could essentially become a "patron" of all those involved in the creation of such works.

Assume that the funds required were taken as a tax (a cultural development tax, say), or, if the over-patron were a corporation, from the subscriptions of all users.

The allocation of funds for the exercise, being too easy to open for corruption, would instead be made democratic. That is to say, if you use or enjoy a work, you would indicate as such in a central repository, and some allocation of your input into the central fund would be routed to the creators. This is in effect similar to how Patreon works today.

On the creator's side, the benefits to this are a much more likely source of income; since the fund is state- or corporation-backed, they are much more likely to receive an amount of money if they produce enjoyable works. To raise initial funds to shoot a movie, we can imagine a Kick-starter like system, or the current model of loans and pitches to large individual investors. One definite benefit is that if people have already "spent" the money in this fund, they are much more likely to actually indicate their preferences and allocate money to artists or tool-makers that they benefit from.

There is, of course, the possibility that creators will resort to the normal populism and cookie-cutter approach to content creation that already chokes YouTube and the AAA media industry, but to be honest I don't think that's a problem that can be solved if people continue to pay attention to what they will. Given that that freedom is more important (IMO) than the integrity of art, it shall be so.

The obvious question, of course, becomes "What does the state, and ultimately the people who foot this bill, gain out of this arrangement?" Several things (the profit motive for a corporation doing this is obvious; I will cease discussing them any further); - All media entering the public domain as it's created means that software and culture becomes much more open and universal. Everyone has access to the same media and tools, and can iterate on all of them together. - Any state doing this gets a massive advantage in the culture war. In essence, they have subsidized the production and dissemination of their national values and ideals internationally. This has a tendency for positive knock-on effects in other economic areas, as well. - The death (or at least severe decline) of the advertisement industry. This seems a bit harsh, but these companies are frictional to the economy. I cannot stand ads and would love to see that propaganda machine shut down. - Creation of more niche content. For all its faults, Kickstarter has given small-to-medium sized creatives much greater chances in finding success, and especially when appealing to market segments that tend to be ignored by large content producers. This is an extension of that effect.

There are, of course, downsides. The further spread of echo chambers, the mere fact that this is an additional cost to citizens who may not even want it, the centralization of control of media creation to a state-level entity, possible privacy issues, etc. However, I see those as inescapable trends anyway, and it would be nice to get something out of it for once.


Thanks for the detailed outline.

The primary issue I see here is the indirectness between creator/publisher and consumer for what their receiving. Similar to cable: one reason people are cord-cutting is that they'd like to pay for what they want, not the whole bundle.

The Kickstarter model addresses this somewhat, but it doesn't account for long-term continued revenues for the creators for ongoing projects. Also, there have been significant defaults on Kickstarter-type projects, and people (including myself) are becoming increasingly wary that they'll see the fruits of what they paid for.

As for the death of the advertisement industry, they do significantly foot contribute to the income for a lot of media projects, things people aren't willing to pay for directly. While people who pay for subscriptions may think that covers a lot of publishing cost for things like newspapers, it in fact covers only a small percentage of their total revenue. Compare with something like The Information: no ad revenue, small staff, relatively low output, over $300 per year for a subscription.

And, yeah, the state-level entity (which you mention more often than a private one) is going to be hugely unpopular, at least in the US. Look at public broadcasting (NPR, PBS). A small fraction of the budget, still relies heavily on supporter drives, and constantly under the knife. Not to mention the fear that anything involved with the state is propaganda.

A really tough sell, in my opinion.


So give the state control over what gets produced rather than the market? Where have I heard something similar to this before?


The creation of those bits cost money initially, when real world and not easily replicable work was necessary. After that, the end result is more or less worthless, because the work of replicating those bits is practically nil.

There's the rub - all of that effort and money creating products with no real monetary value.

I'm not suggesting any particular model here, I like money as much as the next person, but I also believe the trend to see the price of digital media converge toward zero is valid. I don't know what the answer to that is, other than somehow convince people to pay for something they rationally shouldn't.


You're using some really dubious tricks to massage the numbers so they can be discounted.

Temporality is a nonsense argument.

Your sandwich shop worker served you and 80 other customers last Tuesday. I'm the boss, and it's time for me to cut the checks. Wait—what am I paying for here? Today's Friday, and all those sandwiches are already out the door.


>Your sandwich shop worker served you and 80 other customers last Tuesday. I'm the boss, and it's time for me to cut the checks. Wait—what am I paying for here? Today's Friday, and all those sandwiches are already out the door.

In that case, you're paying for the time your employees could have spent elsewhere - and you're likely not paying more if your employees make more sandwiches faster. Also, every sandwich is unique, and takes physical effort and resources to make - if sandwiches could be copied as easily as software, chances are you would fire all but one employee and pay that one as little as you legally could, and still charge the same price, but would that really be fair?

The problem with the economy around digital media is justifying what, exactly, the consumer is meant to be paying for.


[EDIT: I regret entering this conversation. I don't expect anything productive to come from it.]


> Your sandwich shop worker served you and 80 other customers last Tuesday. I'm the boss, and it's time for me to cut the checks. Wait—what am I paying for here?

The contractual debt you incurred when the work happened. Or, in terms of expected value received from paying, you are paying to avoid the legal consequences of not paying that debt.


Ah yes, the all too familiar, "What is art and why does it cost money?" conversation. At least we're in well-tread territory, right?


Because of the documentation of its provenance, the difficulty in reproducing it, and because people will pay for it.


There are volumes upon volumes of the ontology of art, I just wanted to point out that's where we are now, and that such questions have been asked and answered for literally thousands of years.


People find value in the experiences and services that provide no lasting tangible effects all the time. Considering these to be of no real monetary value seems seriously mistaken.


If you take the market view (value being what people are willing to pay for), then the market clearly tells you that people value digitally delivered experiences at $not-much, rapidly falling to NIL. After all, bits are near-free to copy from the market's POV too - for everyone, it's trivial to either copy a piece of digital content themselves, or ask someone who'll copy it for them for free.

Copyrights and branding piracy as theft are ways of trying to artificially control the free market here. But they're so obviously "unnatural" in the digital space, that it makes sense to think about ways of making it so that the original creator gets paid, while copying remains free.


Reading this comment and your other one above, I think we are in general agreement. I think there are two pieces here: one is a change in perception to some extent: you're right that many people value digital delivery differently and lower. To some extent I think that can change. I know it's changed for myself personally over the years.

The other is along the lines of what you wrote here, which I think sums it nicely:

we need to rethink the path that currently leads from "X created it, and deserves compensation" to "Y receives a copy and should pay for it".

What I'd like to hear is more about potential solutions as opposed to descriptions.


> (...) many people value digital delivery differently and lower. To some extent I think that can change. I know it's changed for myself personally over the years.

I know it changed for me too, and I think it's mostly because of having more disposable income nowadays than in the past. As a teenager, there was no way I could afford movies or video games. Now, my natural first instinct for media is buying / subscribing on Amazon, Netflix and Steam.

> What I'd like to hear is more about potential solutions as opposed to descriptions.

I've been thinking about one, and it turns out to be exactly what 'endominus described here:

https://news.ycombinator.com/item?id=13523515.


I'm curious about your thoughts on a question:

Consider your ISP takes every packet that is destined for your router at your house and sorted those packets so that all the zero bits were at the beginning of the packets followed by all the one bits. They deliver this sorted data to you perfectly reliably and at great speed. You are receiving exactly the number of zeros and ones you asked for, but simply in a different order. Would you pay for this service? If not then you obviously see the value in the "arbitrary state" of data.


> why should I pay for the bits on my hard drive or something to be reconfigured into an arbitrary state

Because someone else took the time to create it, you didn't, and other people have families to feed. If you don't want to pay what someone's asking, write the app/game/product yourself.


Realistically, digital goods should be "free."

If you want digital goods at all you'll learn to pay real money for them. My house & food require real money to buy, and I can either think those digital goods into existence for you to pay real money for, or I can grow that food and build that house while you don't get those digital goods at all.


But there are plenty of people who are willing to produce high-quality digital goods for next to nothing. They will undercut you.


Name one. Someone who makes something that persists longer than the 5 minutes it takes to Lets Play the latest Call of Duty.


I read Sailor Nothing about 7 years ago and it's stayed with me better than most of the books I've read (and paid for) since then. And maybe that author never wrote anything since (I honestly wouldn't know), maybe they went into paid creation... but the only reason that matters is the discovery problem. If we're assuming excellent automatic recommendation services then it doesn't matter if every creator is a "one-hit wonder".


Your one example is an obscure book from 7 years ago?

How about you enumerate all the digital content you've used over the last week (books, music, movies, games, software, tools, etc) and identify what percentage of them were created with zero expectation of financial gain? Yes, some people make digital content as a hobby and produce laudable results, but most of the time if you want quality you're going to have to pay for it because "zero distribution cost" doesn't put food on the table.


> Your one example is an obscure book from 7 years ago?

The comment I was replying to asked for one example and asked specifically about persistence, that's why I gave the example of something I remembered reading 7 years ago (the work itself is 8 or so years older than that IIRC).

> How about you enumerate all the digital content you've used over the last week (books, music, movies, games, software, tools, etc) and identify what percentage of them were created with zero expectation of financial gain? Yes, some people make digital content as a hobby and produce laudable results, but most of the time if you want quality you're going to have to pay for it because "zero distribution cost" doesn't put food on the table.

That's the wrong percentage to ask about - a better question is how much content would have to disappear before it started to noticeably impact my life. 99%? 99.9%? 99.99%? That would still leave many lifetimes' worth of high-quality content. Are you so sure those hobbyists couldn't sustain the 0.01% or less that people need?


Is it really any different from any other service economy item, such as a waitress bringing you your food in a restaurant, or the cook preparing it? Those people get paid for the service they provide, not for the materials that make up the items they worked on. The fact that all the work is "up front" for the movie/music/etc is irrelevant. Someone did the work, and should get paid for that work. The best way to do that (that's proven to work so far) is to distribute the cost of that work to everyone that wants access to the output of their service... unless the first person to get that digital asset is going to pay 100m for it so everyone else can get it for free.


The education system does not teach how prices are set. This is leading to confusion on many levels. Of course if the education system did teach how the economy works in full I'm not sure the center would hold.


My specific public education system taught microeconomics, wherein prices are set by marginal cost = demand under perfect competition, and by marginal cost = marginal revenue under monopoly.

Then we were taught "classical" Adam Smith macroeconomics, a tiny dash of Mercantilist economics, and then "modern" Keynesian economics. No mention of any of the following was ever made:

  Islamic economics
  Hamiltonian economics
  Marxism
  Georgism
  Chicago school (Friedman et al.)
  Austrian school (von Mises et al.)
  Anarchist school (Proudhon, Bakunin, et al.)
  game theory
Clearly, the state's education system is teaching only that which would tend to support its own economic policy.


100% agree. They also don't teach where money comes from. What a surprise. It will be a cold day in hell when they teach Georgism.


As a technical nitpick, it will be a cold day in Gehennom when they teach Georgism.

The Hellish mythical realms of Niflhel, Zamhareer, and Dante's Lake Cocytus are always quite frozen.

You can become quite learned about all the various mythological Hells when you think too much about how those who are guilty of gross economic crimes ought to be punished.


If the devil has done his homework he'll sit me down in front of a PC and force me to debate economics on HN for eternity...


Hah. The devil doesn't have to do homework. He just needs to set up all the devices to produce an alert whenever someone is wrong on the Infernet, and we'll all voluntarily torture ourselves.

J.P. Sartre got it right: "L'Enfer, c'est les autres." ("Hell is the other [people].")


That's if the value of something was based on the value of the cost of it's parts. It is not.

A chair is made of wood. Should the chair cost what wood costs?


The cost of a good should approach the marginal cost of producing that good. For digital goods, that cost is indistinguishable from zero.


While duplication is (almost) free, the current model do has some kind of price lowering as the "main costs" are paid. Cinema tickets are pretty much "the max" per person you end up paying. Then comes DVD/VOD (used to be VHSs). Then it eventually ends on some cable channel/bargain DVD bin


> the current model do has some kind of price lowering as the "main costs" are paid.

I'm not sure I follow what you mean by this?


The marginal cost of producing another unit of a digital good is close to zero. On the flip side, the cost of marketing that good is close to infinite.


Producing copies of an already existing digital good is, for all intents and purposes, free. Creating the original most definitely is not, and that's the issue here


An hour of labour is, for all intents and purposes, also free or 200 kcals of food at the most.


Not really. The cost of skilled labor is related to the amount of experience and training required to be able to perform that labor as well as the supply/demand for that labor. Unless all these software engineers pulling down $200/hr consulting are lying?


You've got to pay me more the 200kcals to make me not live my own life for an hour.


Until you have 0kcals available. The surfeit of labour is coming.


The difference is the opportunity cost. It's easy to see what other opportunities labour has, it's not easy to see what other opportunities copying bits has, especially in the household capacity. I certainly don't see anyone asking to use my residential bit-copying facilities in any meaningful capacity, but I do see people asking to use my time.


Additionally: I don't really have an "unused" amount of hours at the end of the day. I definitely have an "unused" amount of bit-copying capacity.


Your download server could be mining bitcoin and all those data centres are not free either.


Is the commodity hardware that people watch Netflix on really going to generate any money mining bitcoins? Or are they just going to rack up an expensive electricity bill?


I would argue that it's so close to zero as it should be considered zero.

As to your second point: Any cost could probably somehow be considered infinite: profit, insurance, warranty, etc. So I'm not sure what you mean by that?


Since digital content is close to free to distribute (distinction, not free to produce) there is an ever expanding amount of content available, approaching infinity. To stand out in an infinite sea of content, the upper bound of what you would need to spend is an infinite amount on ads and marketing.

This also works for products. The more a product or industry is commoditized, the more important marketing and branding becomes.


What is the current economic model? I'm assuming it's capitalism.

How does the duplication of digital goods being free mean capitalism no longer makes sense?

Kickstarter is essentially risky lending and charity (you put in money and possibly get rewards which may not be commensurate with the money you put in).


I'm not sure that we have a name for the economic model I'm thinking of. I think "capitalism" is too high-level or broad for the system I'm talking about.

I'm thinking of the model that: Profit should be made up by charging more than the cost of duplication.

I would argue that Kickstarter does the same thing as the current model, but has none of the same safeties in place. I agree it's not apples to oranges, but I think we could put those legal safeties in place.


> I'm thinking of the model that: Profit should be made up by charging more than the cost of duplication.

That's what we already do. Duplicating content without the copyright owner's permission is copyright infringement which is illegal.

> I would argue that Kickstarter does the same thing as the current model, but has none of the same safeties in place. I agree it's not apples to oranges, but I think we could put those legal safeties in place.

Corporate bonds are a relatively safe way to lend.


> That's what we already do.

Right. And that's the model that needs to change to reflect reality.

> Duplicating content without the copyright owner's permission is copyright infringement which is illegal.

Yes, but I don't see how that addresses my point?

> Corporate bonds are a relatively safe way to lend.

There are multiple safe ways to spend, my point is that spending up front more accurately reflects the costs in the current system.


Copyright has already been incorporated into capitalism. It's already part of the model. Intellectual property is just another form of property.


But still, I don't get how this is related. I'm not following your point. None of what I've said is related to copyright or IP


> I'm not sure that we have a name for the economic model I'm thinking of. I think "capitalism" is too high-level or broad for the system I'm talking about. I'm thinking of the model that: Profit should be made up by charging more than the cost of duplication.

That's the existing scenario/how the world works. The model is an intended effect of copyright.


I think that's partially right. I think that's more of a leftover from when manufacturing physical items cost resources to create. The current problem is that we've carried that over to the digital world for IP reasons, as you've stated, but it doesn't make any sense to keep.


Nope that's just a misconception on how prices are set. Prices are set by what the seller believes most people will pay.

Why do you think housing is so expensive? Because land got more expensive to make? Because they forgot how to make bricks cheaply? Credit sets the ability to pay and this sets the price.


In a perfectly competitive market, competition, in the long run, drives the market price down to the marginal cost of production and the traded quantity to the level at which that price is also the maximum price the market will bear.


Yes when all the assumptions that hold in theory are in place, in reality I wonder.

"Markets are never in equilibrium, thus don’t be fooled by prices, but consider quantities: The short side exerts power."

http://www.globalresearch.ca/shifting-from-central-planning-...

In this situation none of the tenants hold. Information is not perfect, it's not a free market as only certain channels can provide the IP, prices are fluid.

For the balancing of supply and demand supply would have to be finite. In a digital world it is in practice infinite.

None of this guff works in the real world. Time to put all our econ 101 books onto a big boat, push it out to sea with a burning torch.


I'm not disagreeing with that; I was pointing to what basic economic principle was at issue in the upthread claim.

Clearly, the reality of digital goods markets underlines how distant reality is from ideal markets.


That's true, but only for fungible goods.

If you don't want to pay $5 to rent a digital copy of Frozen for your kids, then you can go to archive.org and pick a movie to watch for free. Your kids might be disappointed though.


> That's true, but only for fungible goods.

That's essential to the definition of competition, yes.


Not always.

I can watch baseball for free on television or I can go to the ballpark and pay to see it in person.


You pay in the first instance by way of constant commercial interruptions. (And if you wait and DVR it to remove the commercials, it's not really comparable to a live game you can visit in person anymore)


Have you been to a baseball game lately? Ads are everywhere.

Anyway, when I can, I watch baseball on the MLB streaming service where there are very few ads. Usually, they just blank out the screen during the commercial time which is almost as annoying.


> Nope that's just a misconception on how prices are set.

Your "misconception argument" doesn't seem to contradict what I'm saying. The seller sets the price, sure, but part of that price goes back to cover the cost of manufacturing, otherwise it will stop getting manufactured.


>When they are available it is usually 5$ for a "rental". Is that a joke? I used to pay that at Blockbuster, and they had a physical location and employees! They've priced their digital content in such a way that I will only pay to see the movies that I really want to see. If it was cheaper, I'd be a constant consumer.

I don't see anything wrong with that pricing. Physical store and employees = time consuming and inconvenient. You should expect to pay a little more not evening having to leave your home to rent a movie, nor having to leave it again to return the movie.

That said, good point about a lower price driving more sales. I assume the current price is optimized for total revenue, but who knows. And yes, the more expensive the rental, the more some will pirate it instead.


5$ in the digital age just seems ridiculous. That's 50% of my Netflix subscription for one film! If it was 1-2$ I would feel much better about renting a film online. At 5$ I'm halfway to a movie ticket, which is a much better experience (for me at least).


> I would love to catch movies as they are released but I have to wait until they're available on the streaming service.

To be fair, the wait time used to be at least months, and then you still had to drive somewhere and hope they had something worth watching among their paltry selection. Things have gotten much better (yay progress!), but it has mostly been on the technology side. I also don't balk at the price so much, mostly because I am willing to go with SD (I don't judge the quality of movies by their resolution), and figure in inflation. Also, I am picky about what I watch, but that wouldn't change if the price came down . . .

I like movies too, but I haven't been to a theater in years. I mostly have my own adventures now instead of living vicariously through others', but it's more than that. I feel that Hollywood has lost it's way, and it's partly due to pandering. One of my all time favorite articles is about the decline of movie quality:

http://www.gq.com/story/the-day-the-movies-died-mark-harris

That was written in 2011. Now the article here talks about inefficiency, but I feel that if you aren't making good product, it doesn't matter how efficient you are.


that logic doesn't make sense to me for digital goods

It makes some sense. There is (effectively) no first sale doctrine for digital goods. One organization gets to set the price for every single consumer. There may be middlemen, but the licencing deal will (at least implicitly) control the lowest price the middleman can offer without turning the "rental" into a loss leader. The copyright holder can sacrifice possible sales/"rentals" today, to maintain the market's perception of what such a product is worth tomorrow.

A lot of people expected all digital stores to take Steam's approach to pricing. The steam store is known for the price of games dropping rapidly after release, and multiple deep-discount sales throughout the year. Even outside of sales, steam's "new" digital copies of aging games can be (and are often are) priced lower than physical shops selling used copies.

But things generally trend towards the PSN and Xbox route. Their stores are notable for keeping prices high. Even on aging titles, their prices can be higher than physical retailers selling (new, not used) copies. Retailers need both the shelf space and to cut their losses from over-ordering at release.

I'm sure they both have spreadsheets and models that explain how they'll make more money in the long run.

But, for either model to work AT ALL it was important to find a way around the first sale doctrine for digital goods. If resale existed on any of these platforms, prices would be forced to respond to market forces.


I'm kind of the opposite. I'm not a big fan of movies, and I only see a few a year. My problem is that I'm pretty picky, and it's tough to tell if a movie is worth seeing. When in doubt, I'll pass it up and do something else instead.

When I'm looking at a movie I think I want to see and it's a $5 rental, my thought is always, what if it sucks? And then I usually decide not to risk it.

What I don't get is why they don't offer the first 30-60 minutes of the movie for free. I'll be able to tell fairly confidently by then if it's any good, and would happily pay to see the rest once I'm hooked. Instead, I have to take a guess from badly edited and misleading trailers, and reviews from people whose tastes may vary enormously from my own.


I like the idea of getting the first part of a movie for free, although I can imagine movies would eventually be written and produced in such a way to hook you in at the beginning with less attention given to the ending.


Well, you just changed my mind. My idea might be great in isolation, but the secondary consequences would be terrible. Hollywood, please ignore the above. I was briefly overcome with insanity.

(In case the strength of the above is mistaken for sarcasm, I'm being completely serious here.)


Reviews, trailers, etc.

Not perfect of course but it's pretty rare that I rent a movie after having done a modicum of research that causes me to think I've completely wasted a couple of hours. (That's not to say that movies don't ever disappoint but that's a different bar from "it sucks.")


I did mention those.

That works for me, with a healthy bias towards "I won't risk it." Without that bias, I'd get a lot of stinkers. But I'm picker than most.


Part of the problem is their model is based on people really wanting to see a movie. Then they fail to produce movies people really want to see. Star Wars 8 may be profitable, but Disney failed to make Star Wars 7 awesome and people are just not jumping through hoops for the next one.

There are plenty of stories worth telling, but Hollywood tends to lag between what people want to watch and what they started making 5 years ago. Making great movies is hard, and playing it safe never works for long.


Terrible analogy. Star Wars fans everywhere loved it to the tune of 2 billion dollars + and 90%+ on rotten tomatoes. As for the next one, Rogue One, earned over a billion dollars, making it the second largest opening this year. Episode VIII will do very well.

Yes, there were issues with Ep VII. No, those issues did not make it not awesome.


Consider 8 had a $306,000,000 budget, 9 had a $200,000,000 budget. I have no problem saying it was profitable, but so was The Land Before Time 9. When a movie pulls in ~1/2 has much as the previous film it's a sign.

http://www.the-numbers.com/market/2016/top-grossing-movies

Just looking domestically we have Finding Dory (squeal), Rogue One (franchise), Captain America: Civil War (squeal), The Secret Life of Pets (kids movie), The Jungle Book (kids movie), Deadpool (franchise), Zootopia (kids movie), Batman v Superman: Dawn of Justice (franchise), Suicide Squad (franchise), Doctor Strange (franchise), Moana (kids movie) etc. Down at #14 The Revenant was at least nominally an original movie, though very similar to several other films.

I don't think any of these where bad for what they where, but there was nothing new for the 14-40 group. 2015 had #6 American Sniper, #9 The Martian, but was again mostly rehashed movies until #17.


> When a movie pulls in ~1/2 has much as the previous film it's a sign.

A lot of missing context here. "Star Wars 8" has not been released, so if you're drawing effect of 7 on 8's performance, I'm not sure how you're doing it. Budget alone does not necessarily tell you expected gross.

Perhaps you were talking about Rogue One? There's a lot of context there that would temper any direct comparisons.


Without the Episode you default to the release order.

https://en.wikipedia.org/wiki/List_of_Star_Wars_films_and_te...

"The Clone Wars", "Rogue One" are both on this list. http://www.the-numbers.com/movies/franchise/Star-Wars#tab=su... So 8 is "Star Wars Ep. VII: The Force Awakens" and 9 is "Rogue One: A Star Wars Story"

Ignoring https://en.wikipedia.org/wiki/Star_Wars_Holiday_Special which was never in theaters.


Then I think you missed a lot of context regarding the star power, the prior franchise separation, etc. It's not really a 1:1 comparison.


That's reasonable, but again this is the #2 grossing film for the year in the US. #1, #4, #5, #7 where PG kids movies. #3, #8, #9, and #10 where comic book movies in a long string of comic book movies.

So, yes revenue was down, but the movies where also very derivative. The top grossing films adjusted for inflation are Gone with the Wind, Avatar, the first Star Wars, Titanic, The Sound of Music, E.T. the Extra-Terrestrial, The Ten Commandments, Doctor Zhivago, Jaws, Snow White and the Seven Dwarfs.

The Force Awakens might make #10 on that list while being the only franchise movie to do so. But, no movie from 2016 is even close.


No movie from 2016 is in the top 10 revenue list? OK. Is it the expectation that this should happen every year?

And you can't discount franchises, kids movies, whatever. Tastes change. One decade people want high flying, heavy-action westerns. The next they want gritty, brooding introspective crime dramas. Then fantastic/sci-fi movies. Public tastes change, and you can see that all over the history of the cinema.

No doubt that consumption patterns have changed, almost assuredly due to the glut of options available at home + technological improvements that have improved the quality of home viewing. I think it not unreasonable to suggest that Hollywood is splintering between the theatre and the home theatre at this time. Measuring ticket sales is a pretty shallow & simplistic way to measure the health of huge entertainment conglomerates.


These trends did not suddenly change from last year where a movie made twice the revenue. So, I don't think you can really blame trends. Not getting in the top 10 is completely reasonable for a given year, not getting 1/2 the revenue of 10th place is less so.

Every movie has some people that like it, but mass appeal takes more. Shrek I is rare, but this year had 15 significant misses and no big wins.


PS: And no: https://www.rottentomatoes.com/m/rogue_one_a_star_wars_story...

It got 85% and 88% from fans and this is the #1 movie globally for 2016.


I think that SW7 analogy does not work here. Disney is exception to this article and their movies are profitable, big time.


Profitable yes, but the question is how many hoops you will jump through to see the SW movie next year and the year after that.

Remember, Disney put out 'Land before time 13' because they made money on the first 12 'Land before time' movies. But, 13 was never going to see a movie theater.


I plan on seeing 8 and 9 (and the intervening Han Solo movie) in the theater on opening day with my brother, like I have for the previous 2.

You keep comparing "Star Wars" to "The Land Before Time". I think you vastly underestimate the popularity of Star Wars, particularly the past 2 movies.


It was #2 for the year and wildly profitable. So, no I am not doubting there where plenty of people who loved the movie. The movie was above average and that's the problem. Hollywood depends on movies like The Sorcerer's Stone, The Fellowship of the Ring, A New Hope, Bourne Identity, even Iron Man to drive future revenue.

Movies that build off of that success make money, but they don't prime the pump.


Especially since the former is targeted at broad appeal, while the latter is more specifically a series of children's movies.

Also, "The Land Before Time" was a Universal Studios product (per Wikipedia), not a Disney product, so the starting approach is very different.


Ops yea, George Lucas put out the first 'the first land before time' movie but after that there was no real connection.


Disney has nothing to do with The Land Before Times


Ops, George Lucas and Steven Spielberg put out the first The Land Before Time movie which is why I was making the connection to Star Wars.


Check your local public library and interlibrary loan system. You'll probably find a great selection, and you can't beat the price!


I get your point that blockbuster had rent, tax, utilities, and employees' salaries to pay. but its worth pointing out that blockbuster also went bankrupt. not sure if that supports your point or detracts from it.


It also peaked about 15 years ago.. there's been some inflation since then. I hate grocery shopping, I'm not sure if I'm just old, or if everything is getting to be too expensive.


Inflation wouldn't be such a problem if wage stagnation wasn't a thing too.


Absolutely.. the middle class in particular has been significantly eroded... There are some quality of life bits that have significantly improved, but overall it could prove to be interesting. Rent/property costs are a much larger portion of expenses, and though I don't know that food costs will ever reach pre-wwii levels, it's getting expensive too.


I feel the same on groceries. ~12 years ago a $120 bill at the store meant an overflowing cart and an armful that wouldn't fit, without even coupon-clipping or anything. Now it seems like it means a 1/2 full cart at best. And I don't buy expensive meat or similarly-pricey things (much). Seems like prices took a big jump around '08-09, but I'm not sure the data backs that up so maybe it's just in my head.

[EDIT] then again I guess I buy maybe 1/20th as much cart-(and caloire-count-)filling cheap garbage food like breakfast cereal and potato chips as I did back then. Maybe that's the "problem". Eating junk is hella cheap.


> I'm not sure if I'm just old, or if everything is getting to be too expensive.

Yes.

(I say this a someone else who is getting old and everything is too expensive).


Blockbuster was bankrupted by Netflix + streaming making their product obsolete and overpriced.


> When they are available it is usually 5$ for a "rental". Is that a joke? I used to pay that at Blockbuster, and they had a physical location and employees!

We're never going to get anywhere until people understand that cost+ pricing is not a thing.


Doesn't change the fact that my consumption would explode if the price were half.


Would it though? I don't question that there would be some increase, but will it really be an explosion of consumption?

Personally, the biggest constraint on my ability to watch the large amount of films that are on my "to view" list is not the cost of the individual rentals but the availability of time in which I can actually devote to sitting down to watch a 90-, 120-, 150-, or 180-minute long film.

The ability to split up my viewings over multiple sessions helps but with the way that most online streaming rental services work for current films, 24 or 48 hour windows, I've had a number of films I've rented age-out before I've had a chance to finish them.


It really depends on the relative utility of that $5 to you. For some it would be a barrier, in that they would have free time that could have potentially been spent watching a movie but they didn't want to spend the $5. For others, the $5 is such a small amount that the barrier is time.


It's unlikely you like films enough to watch many more of them than you do now.


Not true, I enjoy them a lot but won't spend $5 to watch a twenty year old temporary digital copy when there are so many other options available. Even a brand new movie I will hem and haw about---only about two or three a year manage to pass the test.

(Not to mention the 24 hour window is problematic if you have a sleepy wife. It is not uncommon to start the movie, stop it halfway, they try to resume the next night at the same time and lose access.)


iTunes regularly has 99 cent rentals. Check it out.


Even if it's free of charge, using iTunes doesn't justify the cost.


In a competitive market, cost+ pricing is a thing.

In a monopoly market, value- pricing is a thing.

Neither one is more inherent than the other, but the latter favors humanity in general over a narrow few.


You bring up a big issue I have with the streaming model. I used to be an avid movie watcher. A year before I moved to a different country, I watched 60 movies in the theaters, that is about 5 a month. This did not even include the hundreds of movies I watched at home. Now I don't have the time to go to the theater even if I want to. All the streaming services get the movie 3-4 months after the release. At which point I usually would have lost interest. To add insult to the injury, rental is very expensive for the flexibility it provides (24-48 hours once you start watching) and the different price for SD vs HD (who watches SD anymore?). I would gladly pay $20 (which is more than what the theaters typically charge) per movie if the studios let me stream the same day it released in the theater.


Off-topic, but my dad went through this and his quality of life has changed dramatically. Yes, I am a little paranoid now.

Sleepiness is when you fall asleep at a time or place that is not what you intended. You may fall asleep at a movie theater or while sitting with someone at lunch

Tell your GF to read this page [1] and check her symptoms.

[1] http://sleepcenter.ucla.edu/sleepiness


I'm not sure what your economic situation is, but I feel that $5 is pretty reasonable - at least in the US.

Remember going to Blockbuster and then discovering the movie you wanted wasn't in stock? Along with the 2nd and 3rd options in your mind? I don't know about you, but I went home empty handed several times. (Yes, I had already gone through the greatly limited back catalog of interesting movies at all my local movie stores).


RedBox will rent you a physical DVD for $1.50, and IIRC, $2 for a BluRay.


Yeah, but then you have to go get in your car, drive to the corner store, get out, wait in line, browse to find your movie, pay, get back in my car, drive back home. Ugh!

I know I know, #firstworldproblems ... but some markets like where I live in Orlando, FL, driving is a pain in the arse (not a walkable city), so I just pony up the $5 for the digital rental to save me the hassle.


Do you ever buy groceries? Or do you have a personal assistant who does all that stuff for you?

Maybe you don't buy groceries, but I do. I need to eat, so I buy food from a grocery store. Conveniently enough, my local RedBox is located at my local grocery store. There's always something I can buy there to restock my refrigerator or panty. And if I wanted to watch RedBox movies, it'd be very convenient because I could pick it up there, along with some food.

If driving to your local grocery store is such a pain, you might want to re-evaluate your choice of city to live in. I've lived in a bunch of different places around the US and never seen a place where just getting to the local grocery store was that much time or trouble. (Work, sure, because the commute can be long and rush-hour traffic congested, but not the grocery store.)


The nearest RedBox is only a 5-10 minute drive away. But renting that way still usually involves making a special trip to either pickup or drop off. Not really worth it to save $3 most of the time. I use RedBox but it's a very occasional thing--especially as I still have a minimal Netflix DVD by mail subscription.


They are usually in grocery stores where you need to go anyway.


I go grocery shopping once a month.


"Back in the day" Redbox didn't exist. :-D I've gone to Redbox and have the same problem.

I feel that queuing up a guaranteed watching experience from Amazon is worth the hassle of an extra few bucks compared to getting in my car and driving somewhere. (Yes, I assume I could walk or ride my bike. I've never actually been to a nearby RedBox so I don't know how far it is.)


There is the option of hopping online to check the specific RedBox you'd be going to, to see if there's a copy and if available, reserving it for yourself.

Still possible for it to not have a movie you want, but at least you'd know that before leaving the house.


Or, I can just rent it from Amazon. :-D


I think the biggest failure of RedBox is that people don't seem to realize you can complete the entire transaction online and reserve the movie. I can reserve a movie Friday morning, then drop by the grocery store Friday night to pick it up along with whatever I need for dinner. So easy, and I get to watch in BluRay quality for $2!


What isn't reasonable is the difference in cost between different formats. SD should be the same price as HD, 2D should be the same price as 3D, etc. At least that's what I say.


I'm curious, why?

If you're OK with having a price tag and sharing restrictions on digital content in the first place (most likely involving some kind of DRM), why not let them set different prices on different versions of it?

I'm on the fence myself. I dislike DRM in principle, but movies and TV shows need to be funded somehow, and I hate ads, so I'm happy to pay a reasonable price.


I feel the same, however the way I see it, the price you pay is to access the content, the delivery medium should be up to me (within reason - I'm not expecting a bluray or dvd release without having to pay shipping costs etc).


Personally I am paying for the experience of seeing a movie in the theater, and I don't like 3-D. Last weekend I wanted to see Resident Evil. The local theater has seven 3-D showings times, and only two 2-D showings. If a theater is only going to mostly offer 3-D showings, I might go of the price was the same. Since I'm not interested in paying a premium for 3-D, I simply won't see the film if there isn't a 2-D option. If it is reasonable to not offer the product I want to buy, then so be it.


SD & HD I can see being the same price but 3D takes way more effort to create than 2D.

I found that BBC sell HD content for [~40%] more - which to me is crazy if it's more than a few pence more, all the people are paying for at the sale end is the cost of a little more storage. In a way the SD should be more as you have to transcode it, they're filming it in HD already.


> It seems that is how most things in society get priced. Not for ultimate consumption, but to maximize the profit curve.

Of course that's how things get priced?


The point being that you get a different price point when you want to maximize societal good or when you maximize revenue. Look at how expensive college textbooks and scientific papers are. Clearly making knowledge accessible to more people would be a great thing, but that's not what we optimize for. It's right to stop and ask why.


> The point being that you get a different price point when you maximize societal good and when you maximize revenue.

In a competitive market, the equilibrium price will maximize total social surplus: http://www.colorado.edu/economics/morey/2010/2010BookChapter.... And as Netflix, Amazon, HBO, etc. are showing, the entertainment industry is highly competitive. They're toppling the giants by creating competitive products (original shows and movies).

You have to remember that this is a coupled system. At the margin, lowering price will increase circulation (and thus consumer surplus), but it will also reduce producer surplus, and in the long run the incentive to produce.

E.g. Netflix has a 30%+ profit margin. They could cut prices significantly and still make a profit. But that would also dramatically reduce their incentive to invest $5-6 billion per year creating new content: https://www.wired.com/2017/01/netflix-investing-original-sho....


"In a competitive market, the equilibrium price will maximize total social surplus: http://www.colorado.edu/economics/morey/2010/2010BookChapter.... A"

No, totally not. Totally not.

The market clearing price is a function of supply and demand - that is all it is.

It has nothing to do with 'maximizing social surplus'.

Yes - it maximizes economic surplus, in the narrow context of that transaction, but that economic surplus does not necessarily reflect social good - moreover - supply and demand are functions of other things entirely.

The easiest way to see this is to look at Monopolies. Monopoly players of a critical good can extract vast, vast profits. What they actually 'do' with those profits is critical to understanding total social good.

Imagine a monopoly provider of gasoline to the US, that takes it's profits and puts them in a room - and does not invest it back into the economy.

This is not 'good' for anyone but the owner of that monopoly.

The same can be seen in rent-seeking in any number of places.

Also - BTW Netflix has about 1% EBITDA [1]. Their gross margins are not that important when you figure you have to pay for 'staff', R&D, 'networking', 'advertising' :).

[1] https://www.google.com/finance?q=NASDAQ%3ANFLX&fstype=ii&ei=...


Video streaming is a winner-takes-all market. The party with the most premium content will get the most subscribers which means they make the most money to reinvest in premium content which completes the circle. So they're all racing to acquire market share.

This means Netflix, Amazon, and HBO have a very strong incentive to engage in _anticompetitive_ behavior to lock the other players out, because in order for one to win the others must lose. This is not a market where people can pick and choose individual shows they want to watch, no, everything gets bundled. Even if you want to watch just a single HBO show you have to pay for all of them. Nothing about this looks like an efficient market to me.

Investors are willing to invest billions in Netflix in the hope that Netflix _wins_ and value can be extracted in the coming decades. This is how it works, and the manic pace at which the different platforms are currently creating premium content isn't meant to be sustainable.


And then higher prices reduce the incentive for the consumer to consume.


What if the producer does something totally insane, and keeps producing, because someone there likes doing it?


I would interpret that economically in the following way: the cost to that particular producer is lower than other producers because their time spent producing is partly leisure if they enjoy it. To the extent that they have a lower relative cost of production than others then it's their comparative advantage to be in that business and they will turn a nice hefty profit (economic profit that includes how much they enjoy their work, not necessarily an accounting profit).


Textbooks are an slow-moving, entrenched market with unusual incentives. Many students are paying with loan money, teachers require books with little concern to cost, etc.

Scientific papers is also not your typical market. I remember reading that university libraries are somewhat compelled to subscribe to the status quo publishers, even if they are disliked. It's an industry where pedigree and tradition is quite important.

I fully agree it's good analyze why the system outputs what it does. I would question the idea a lot of the observable dynamics in the system have been consciously chosen for. That's not to say we shouldn't make the effort now though.


I'm not suggesting that the college textbook market has been designed by moustache-twirling evildoers, just that we should look at, as you say, the observable dynamics in the system. Regardless of market dynamics I think it's immoral to restrict academic knowledge to those who can afford it, when it can be distributed at 0 marginal cost.


Definitely. I believe amazing things can happen the more we make the collective knowledge of humanity accessible to all. Thankfully, I think we are moving in that direction.


The unfortunate bit is that it is done against the better judgement of consumers and is only sustainable because of monopolistic behaviour.


> When they are available it is usually 5$ for a "rental". Is that a joke? I used to pay that at Blockbuster, and they had a physical location and employees!

Blockbuster did not have to operate a huge IT infrastructure to bring you a movie.

Also, with Blockbuster you had to make a trek to the store, hope the movie was there behind that huge wall of movie boxes, wait in line to check it out, take it home, rewind it (in VHS days), and then make a trip to return it. With streaming or cable video on demand, you push a button and get better picture quality than DVD or VHS too. Even the device is cheaper: I can get a Roku or similar for less than $100, while VHS and DVD players were more expensive than that for a long time.

So in absolutely every respect it's a better product than Blockbuster, yet on an inflation-adjusted basis it is cheaper.

But if you are really looking for cheap content with potential for being a constant consumer, Netflix still ships DVDs, and cable operators are always offering free on demand movies.


> Blockbuster did not have to operate a huge IT infrastructure to bring you a movie.

This gets it backwards, doesn't it? Surely the numbers for digital distribution are orders of magnitude better than those for physical distribution.

Streaming Transmogrifiers 3 to 1000 people is much easier than ensuring at any given time 1000 people can walk into your last-mile distribution center and find a copy on the shelf.


Blockbuster did not have to operate a huge IT infrastructure to bring you a movie.

No; they just had to operate a huge logistics network to contract, (re)purchase, ship, store, catalog, track, and dispose of physical media. That's on top of the labor costs for 60,000+ employees over 8,000+ physical locations.

Shifting bits around, even at Netflix scale, requires far fewer people and far less investment.


>I used to pay that at Blockbuster, and they had a physical location and employees!

If due to piracy, newer entertainment options, etc., the number of people who digitally rent a movie is smaller, and the cost to make a movie is the same (or higher), then it doesn't matter whether blockbuster had employees, the costs could be similar to getting the digital version.

In other words, the differences in operating costs between digital Netflix and store-based Blockbuster might not be the major factor of the actual cost (and thus the price to rent).


I would guess brand perception might play into it too. I know I've read before (can't find a source though) about a concept in economics where even if you can afford to price your product/service super low, you shouldn't because customers will perceive your product of lower quality.

suppose netflix had an ala carte option, and the shitty straight-to-dvd movies and shows were $0.25 to watch, but later block busters were $5-$10 per view. If you see too many $0.25 shows on your screen, you will (I think) begin to perceive netflix as a vendor of crappy, cheap content, which ultimately hurts their whole brand.


Your post reads as if you chose digital streaming as an alternative to theaters. As such, streaming is ridiculously cheap - especially if you have multiple people watching.


I have a "good-enough" home theater. I don't want to watch movies in the theater anymore, because the experience sucks. I don't mind waiting for the movie to be out of theaters, but once it is, I really want it to be available for purchase. I would pay $20 for the blockbuster movies on iTunes, since that's less than the cost of 2 tickets. But they usually make me wait for months, usually until the end of the year, so I pirate it, guilt-free.

Until they make the proper decisions and make them available quicker, I will continue to pirate movies until they make them available when I want to watch them.


Exactly. Prices for digital content is insane. 5$ for American might be pocket money, but in some developing country that's still considerable amount of money and despite that, distributors charge the same. A good example is Netflix - in Eastern Europe it cost the same as in USA, but you can only watch a fraction of available content due to stupid regional restrictions. The problem is that entertainment industry is stuck in the golden age of 1960-1990 and refuses moved on.


> You'll enable a lot more people to see a lot more movies.

In addition to ttcpj's comment, it may be worth observing that this elasticity is only true up to a point. People only have so much time and, at some point, even if you give films away, people have some upper limit to how many they'll watch.

In fact, I'd argue that--among people willing to pay any non-zero price--I'm not sure renting movies in the $2-$5 range is a significant impediment to most people watching as many as they want to.


> 5$ for a "rental". Is that a joke?

Pretty much. Redbox rents new release DVDs for $1.50/day; if you are in the US, you probably have a few boxes near you.


> if you are in the US

http://myrling-art.tumblr.com/post/153093626457/afusionoffan...

(click for the pictures)

fandom for an American TV show: don’t watch it online! watch the show on TV when it airs so the ratings go up! show your support!

me, a mere European: No channels here.

fandom for an American TV show: then at least watch it for free on their own website and support them through ads and hits

me, a mere European: Geofence here.

fandom for an American TV show: ok fine, then AT LEAST buy the DVDs when they come out and support the show through that!

me, a mere European: No release for Europe.


itunes charged the cost of a DVD/Blu Ray PURCHASE at one time for rentals, so 17-18 dollars


I don't intend this in a mean way, but has your girlfriend went to the doctor about narcolepsy?


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