What Filmmakers Need to Know About Games and Social Media Revenue

Facebook's primary source of revenue is advertising.

And ads are where most of the money is being generated on YouTube and many (most?) of the other successful social media sites.

So New World filmmakers need to understand how advertising can actually generate money for them when they post their content to social media.

But ads aren't the only way that money is being made on social media - and there's an interesting nugget or two of information contained in Facebook's latest financial report (for the first quarter of 2013) that entrepreneurial New World filmmakers need to contemplate...

Yes... ads on Facebook represent 85% of Facebook's total revenue (US$1.25 billion, a 43% increase from the same quarter last year). But what about the other 15% of Facebook's revenue?

According to Facebook's latest quarterly report, "payments and other fees" totalled US$213 million for the first quarter of 2013 - which is an increase of over 15% from the same quarter one year ago.

But I thought Facebook was free to the user?  

What sort of "payments and other fees" are being made to Facebook - payments that total over US$200 million per quarter?  

And what can I, an indie filmmaker, do to somehow tap into that growing revenue stream?

Here's the bad news... What Facebook calls "payments and other fees" is mostly money that Facebook collects from users who buy "Facebook Credits" to play games like Farmville.  And Zynga, the company that created Farmville, is slipping - posting a a 37% decline in payments to Facebook from the previous year.

What do apps (in general, application software or apps are computer instructions that allow the user of a device to perform certain tasks with that device) have to do with indie film?

If indie filmmakers can figure out how to create apps for their film projects, they might capture a part of the growing tide of money being spent on Facebook Credits.

Is it even possible to create apps that could generate money for indie filmmakers?

We won't know until we try.

The apps that offer the kinds of premium functionality that indie filmmakers could charge customers for haven't (to my knowledge) been written yet. But I think they could be. And, judging by the way social gaming is growing, there might be a lot of money out there for indie filmmakers who start hanging out with the right technologists. And I'm not alone in thinking that apps are a hugely promising source of revenue for filmmakers... 

Here is what Reed Hastings of Netflix recently had to say about apps and the future of film revenue: "Existing networks that fail to develop first-class apps will lose viewing and revenue.”

But Reed Hastings is talking about HBO, ESPN and Netflix - these are huge networks that already have huge audiences and the resources to invest heavily in delivering their existing content via apps.  Isn't their business fundamentally different from that of an indie filmmaker?


But there are important truths about online revenue that HBO, ESPN, Netflix and Facebook are discovering. 

Just like some of us made real money in indie films (back in the 90s) when we began to model our distribution and marketing on the big studios - I think there are lessons to be learned from what Netflix and HBO are currently doing that even the most modestly-funded indie filmmakers can copy.

For example?

Like Netflix, offer access to your newest-most-buzz-worthy content for free... at first: Netflix gambled by offering a free trial for new streaming customers - reportedly encouraging two million new customers to sign up just as House of Cards went online.  The gamble apparently worked, as Netflix claims to have retained all but 8,000 of those new customers after the free trial ended.

Or... like HBO, offer your paying customers access to a FREE premium online experience that is only available to users who've agreed to pay for another channel. In the case of HBO, that's HBO GO.  But for indie filmmakers, it might be a FREE app or a password-protected FREE online channel for customers who've already purchased a DVD or a ticket to see your film in a theater.

Maybe tomorrow's indie film apps should borrow the revenue model of the most successful game apps on Facebook. In other words, the first generation of indie film apps might be offered for free (like Candy Crush or Farmville) - but (like game designers) filmmakers could collect "Facebook Credits" from users who really want a premium experience (e.g., a film that plays like a game, or an app that creates a custom channel just for a specific user, etc.).

These are just some initial ideas.  But I suspect we're only a few hackathons away from an idea that really works for indie filmmakers.

I like to think that we are at the very beginning of a coming revolution in app-based revenue models for filmmakers.

If you think Reed Hastings and I are wrong, you can stop reading now (although you may want to jump ahead to leave a nasty comment below).  

No one really knows. But in deciding which filmmakers to back, I'd favor those filmmakers who already love games and/or whose films already resemble highly-visual genres of filmmaking (that's why I posted a YouTube video by Freddie Wong above). 

Maybe the most promising early apps will be those that find ways to use film elements that already have a strong visual storytelling aspect - maybe even apps based on films that already share some of the aesthetics of games (e.g., Freddie Wong's YouTube movies are like first person shooter games come to life). 

If you think about it, Spielberg's film version of TinTin didn't require much in the way of language skills.  And the film - even before it became a game - played like a platform game. (Isn't Speilberg's TinTin just a skinny Belgian Mario? Bouncing from adventure to adventure as he navigates obstacles to get to the next level?)

In short: The less language-dependent the app, the better.

My thought is that the first filmmaker to make big money from an app will probably come up with a game or channel that is really simple to use. It might be one that easily curates existing content (I think this is where Awesomeness might be headed) - or it might be an app that plays like a game.

If you're an indie filmmaker, the challenge may be to create a free app - with paid features that are worth the money and yet are as easy to understand and use as a lollipop hammer.

In the Old World of filmmaking, US-made content dominated the world's box-office.  In the New World - where filmmakers make money from social media apps - I think any culture might create an app that is fun to play. In fact, it might help if the app doesn't require specific language skills. 

It wouldn't surprise me to find an Asian filmmaker breaking through to a global market with an app based on a film (perhaps a game that incorporates 功夫?).  

Remember, many territories in Asia are still just getting the mobile devices that can play interactive films and apps on the go - but the culture of online gaming is already huge and growing in Asia.

According to a very helpful May 13th, 2013 analysis of Facebook's latest quarterly numbers by Jon Milani, "[A]lmost all of the increase in Facebook’s payments revenue during the [first] quarter [of 2013] accrued to the North American region, with a 20% year-over-year increase in revenue. By contrast, the company recorded only a 4% year-over-year increase in payments revenue in Europe." And, because most of the continent is just geting smartphones and Facebook isn't available in China, Facebook's payments revenue from Asia is incidental.

Those numbers, in my opinion, are bound to change.

I can report from first hand experience that online gaming is huge in many big cities in South-East Asia (there are 15 million daily Facebook users of Candy Crush worldwide - and sometimes I think most of them are on the MRT with me in Taipei).

As filmmakers begin to build apps for their films and China opens up access to its internet, the upside for revenue from apps in Asia will be simply huge - and someday soon indie filmmakers might have a role to play in that market. 

As of today, mainland China has 1.3 billion citizens, most of whom are still without access to smartphones. That's changing rapidly. And already the game business in mainland China is enormous. Just as homegrown films are beginning to dominate the Chinese box office, isn't it likely that Chinese apps - some based on Chinese films - might begin to make real revenue in a global market?

When you consider that the US is just 1/4th the size of China in population and that on average Facebook made $0.65 per person on Facebook in games revenue in North America (as compared to only $0.03 per person in Asia), the potential for big revenue and an explosion of film-based apps that originate in South-East Asia and then spread around the globe is simply too big to ignore.

Basically, what Reed Hastings and I are both saying is that the next big growth area for film revenue may be in apps. I'm simply adding the idea that these apps might come from unfamiliar places and then spread (without huge marketing budgets?) online - using the talents of non-studio filmmakers as a key ingredient.

So what's the good news for indie filmmakers?

Even though Zynga is in a steep decline - the growth in "payments" revenue on Facebook points to more and more users willing to spend real money on Facebook Credits for a growing number of apps.  

If you're still reading (bless you), we could even take this app speculation (yes, I admit it, it's all just talk right now) one or two steps further... 

What sort of content should filmmakers focus on as they begin to design the functionality specs for apps?

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