The Connection Between the Collapse of Theatrical and DVD - And the Studios' Support of SOPA

In a few days, a Congressional Committee will resume their 'mark-up" of the Stop Online Piracy Act ("SOPA") - a new internet censorship law. As 2011 draws to a close, it seems increasingly likely that SOPA will make it out of that House Judiciary Committee - then on to both Houses of Congress - and perhaps to President Obama's desk (where the outcome is uncertain) in early 2012.

The biggest financial backing for SOPA comes from the legacy movie studios and other old media and old money businesses. So far, these established supporters of SOPA have experienced no pushback from internet users, although a threatened boycott got domain registrar and Web hosting company GoDaddy to change from backing SOPA to pulling its support almost overnight in late December 2011.

While the 20th Century media titans are gearing up to push SOPA through Congress, we are just getting word that 2011 will be the worst year for motion picture theatrical attendance since 1995.

Is it a coincidence? Or are these two events - the ongoing collapse of theatrical and the push for a new internet piracy law - related?

The studios are redoubling their efforts to pass SOPA - a law intended to protect their online revenue stream - just as theatrical (the oldest revenue stream of motion pictures) appears to be dying.

And the collapse of theatrical attendance is not the only threat to movie studio revenue in 2012. In 2010, the DVD market also began to unravel. Consumers switched from buying DVDs to low-cost rentals from Netflix and Redbox. According to SNL Kagan, revenue collected by studios from DVDs dropped 44% in 2010. And that collapse of DVD sales appears to have continued in 2011: While seven movies saw DVD sales that exceeded $100 million in 2010 (lead by Avatar, which pulled in more than $183 million in 2010), no DVD did $100 million in sales in 2011.

In the face of declining ticket sales and lack of interest in DVDs, does the studios' SOPA strategy make sense?

Can the studios stave off dwindling theatrical and DVD numbers by enacting a new law that attacks offshore piracy?

Probably not.

As I've already explained on this blog, almost everyone who understands how the internet works thinks SOPA (if signed by President Obama) will fail. The mechanisms for blocking and censoring in SOPA may actually (paradoxically) harm internet security. And SOPA almost certainly will not deter the ardent pirate from the un-permissioned copying and sharing of Hollywood movies. In fact, SOPA workarounds have already been created.

Instead of making the theatrical experience more profitable or finding ways to rekindle interest in DVDs - the studios are focused on stopping online piracy - even though most experts agree that the new tools of SOPA will do little to deter determined pirates.

And is piracy really the problem?

Judging by recent statistics, piracy seems to be waning and SOPA may not even be necessary. There is growing evidence that illegal copying is already declining - without any new laws. There are many possible reasons for this drop in illegal copying - one likely factor is the increasing availability of convenient and LEGAL quality streaming services (like Netflix). Apparently the great majority of consumers are choosing to pay for films and music online - even for titles that could be downloaded from torrent sites for free.

So why are the studios pushing for a new law if losses from piracy are growing smaller, online revenue is growing larger, and the problems of illegal copying and file-sharing probably won't be solved by the new law?

Why are the studios (that employ many smart people) so adamant about SOPA?

Do the studios think that the revenue from streaming will offset the lost theatrical and DVD receipts?

Outsiders, who have looked at the numbers, are not optimistic. The drops in theatrical attendance and DVD sales are not being replaced by streaming: "Though the online movie business has been growing at a healthy clip for the last few years, driven in large part by the majority of Netflix's 24 million U.S. subscribers who stream video, it hasn't come close to making up for the rapid drop in DVD revenue." Add in a decline in theatrical revenue - and the studios are facing a looming financial disaster.

The legacy motion picture businesses (i.e., Hollywood) are clearly suffering through a truly disruptive time. Theatrical box office and DVDs were the lifeblood of the industry. In 2011, both were in rapid decline. And the studios seem helpless to stop these trends.

Instead the studios are focused on fighting piracy with a new (ineffective?) law. And even if SOPA passes and works, streaming is unlikely (in the short term anyway) to generate enough revenue to replace the theatrical and DVD revenue that has disappeared over the last few years.

As Ross Pruden suggests: "The time [for the studios] to identify, develop, and implement a more sustainable business model is now."

But what business model? How will the big studios generate revenue in the remainder of the 21st century?

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