Hollywood's blind spot

Hollywood executives are probably correct in that AI will have a significant effect on the movie industry.

Hollywood executives are probably underestimating the effect that AI will have on the movie industry.

AI, right now, can create images. Given some prompting text, an AI engine can form an image that matches the description in the text. The text can be simple, such as "a zombie walking in an open field", or it can be more complex.

It won't be long before AI can make not a single image but a video. A video is nothing more than a collection of images, each different from the previous in minor ways. When played back at 24 frames per second, the human mind perceives the images not as individual images but as motion. (This is how movies on film work, and how movies on video tape work.) I'm sure people are working on "video from AI" right now -- and they may already have it.

A movie is, essentially, a collection of short videos. If AI can compose a single video, then AI can compose a collection of videos. The prompting text for a movie might resemble a traditional movie script -- with some formatting changes and additional information about costumes, camera angles, and lighting.

Thus, with enough computing power, AI can start with an enhanced, detailed script and render a movie. Let's call this a "script renderer".

A script renderer makes the process of moviemaking cheap and fast. It is the word processor of the twenty-first century. And just as word processors upended the office jobs of the twentieth century, the script renderer will upend the movie jobs of this century. Word processors (the software on commonplace computers) replaced people and equipment: secretaries, proofreaders, typewriters, carbon paper, copy machines, and Wite-out erasing fluid.

Script renderers (okay, that's a clumsy term and we'll probably invent something better) will do similar things for movies. If an AI can make a movie from a script, then movie makers don't need equipment (cameras, lights, costumes, sets, props, microphones) and the people who handle that equipment. It may be possible for a single individual to write a script, send it through a renderer, and get a movie. What's more, just as word processors let one print a document, review it, make changes, and print it again, a script renderer will let one render a movie, view it, make changes, and render it again -- perhaps all in a few hours.

Hollywood executives, if they have seen this far ahead, may be thinking that their studios will be much more profitable. They won't need to pay actors, or camera operators, or build sets, or ... lots of other things. All of those expenses disappear, but the revenue from the movies remain.

But here's what they don't see: Making a movie will simply be a matter of computing power. Anyone with a computer and access to a sufficiently powerful AI will be able to convert a script into a movie.

Today, anyone can start a newsletter. Or print invitations to a party. Or their own business cards.

Tomorrow, anyone will be able to make a movie. It won't be easy; one still needs a script with the right details, and one should have a compelling story and good dialog. But it will be much easier than it is today.

And create movies they will. Not just movies, but TV episodes, mini series, and perhaps even short videos like the old Flash Gordon serials.

I suspect that the first wave of "civilian movies" will be built on existing materials. Fans of old "Star Trek" shows will create new episodes with new stories but using the likenesses of the original actors. The studios will sue, of course, but it won't be a simple case of copyright infringement. The owners of the old shows will have to build a case on different grounds. (They will probably prevail, if only because the amateurs cannot pay the court costs.)

The second wave will be different. It will be new material, away from the copyrighted and trademarked properties. But it will still be amateurish, with poor dialog and awkward pacing.

The third wave of non-studio movies will be better, and will be the real threat to today's movie studios. These movies will have higher quality, and will obtain some degree of popularity. That will get the attention of Hollywood executives, because now these "civilian" movies will compete with "real" movies.

Essentially, AI removes the moat around movie studios. That moat is the equipment, sound stages, and people needed to make a movie today. When the moat is gone, lots of people will be able to make movies. And lots will.

Streaming services

Streaming services have a difficult business model. The cost of producing (or licensing) content is high, and the revenue from subscriptions or advertisements is low. Fortunately, the ratio of subscribers to movies is high, and the ratio of advertisements to movies is also high. Therefore, the streaming services can balance revenue and costs.

Streaming services can increase their revenue by adjusting subscription fees. But the process is not simple. Raising subscription fees does raise income per subscriber, but it may cause some subscribers to cancel their subscription. Here, economics comes into play, with the notion of the "demand curve", which measures (or attempts to measure) the willingness of customers to pay at different price levels.

Streaming services can decrease their costs by removing content. For licensed content (that is, movies and shows that are made by other companies) the streaming service pays a fee. If they don't "carry" those movies or services, then they don't have to pay. Cancelling their license reduces their cost.

For content that the service produces, the costs are more complex. There is the cost of production, which is a "sunk cost" -- the money has been spent, whether the service carries the movie/show or not. There are also ongoing costs, in the form of residual payments, which are paid to the actors, writers, and other contributors while the movie or show is made available. Thus, a service that has produced a movie can reduce its costs (somewhat) by not carrying said movie.

That's the basic economics of streaming services, a very simplified version. Now let's look at streaming services and the value that they provide to viewers.

I divide streaming services into two groups. Some services make their own content, and other services don't. The situation is somewhat more complicated, because the content-making services also license content from others. Netflix, Paramount+, and Roku all run streaming services, all make their own content, and all license other content to show on their service. Tubi, Frndly, and Pluto TV make no content and simply license content from others.

The content-producing services, in my mind, are the top-tier services. Disney+ makes its own content and buys (permanently) other content to add to its library, and is recognized as a top-tier service. Netflix, Paramount+, and Peacock create their own content (and license some) and I consider them top-tier services.

The services that don't produce content, the services that simply license content and then make it available, are the second-tier services. They are second-tier because their content is available for a limited time. They don't own content; they can only rent it. Therefore, content will be available for some amount of time, and then disappear from the service. (Roku, for example, had the original "Bionic Woman" series, but it is not available now.)

For second-tier services, content comes and goes. There is no guarantee that a specific movie or show will be available in the future. Top-tier services, in contrast, have the ability to keep movies and shows available. They don't, and I think that damages their brand.

Services damage their brand when they remove content, in three ways.

First, they reduce the value of their service. If a service reduces the number of movies and shows available, then they have reduced their value to me. This holds in an absolute sense, and also in a relative sense. If Disney+ removes movies, and Paramount+ keeps its movies, then Disney+ drops in value relative to Paramount+.

Second, they break their image of "all things X". When Paramount+ dropped the series "Star Trek: Prodigy", they lost the right to claim to be home to all things Star Trek. (I don't know that Paramount+ has every made this claim. But they cannot make it now.)

Third, the services lose the image of consistency. On a second-tier service, which lives off of licensed (essentially rented) content, I expect movies and shows to come and go. I expect a top-tier service to be predictable. If I see that it has a movie available this month, I expect them to have it next month, and six months from now, and a year from now. I expect the Disney+ service to have all of the movies that Disney has made over the years, now and in the future. I expect the Paramount+ service to have all of the Star Trek movies and TV shows, now and in the future.

By dropping content, the top-tier services become more like the second-tier services. When Netflix, or Max, or Peacock remove content, they become less reliable, less predictable, less... premium.

Which they may want to consider when setting their monthly subscription rates.

Twitter, Elon Musk, and dignity

A lot has been said about Elon Musk's actions at Twitter. I will add a little more, with some ideas that I have not seen anywhere else. (Also, I recognize that Musk has stepped aside and is letting Linda Yaccarino run the show. But I don't know if Musk is still involved.)

Musk's behavior at Twitter has been described as chaotic, petulant, and just plain wrong. He has made decisions with wide-sweeping actions, and made them hastily and with little respect for the long-time employees at Twitter. Those decisions have had consequences.

I'm going to focus not on the decisions, and not on the consequences, but on the process. Musk is running Twitter as if it were a start-up, a company with an idea of a product or service, perhaps a prototype or minimum viable product, and few or no customers. Start-ups need to find a product or service that resonates with customers, something that makes customers ready to pay for the product or service. It is common for a start-up to try several (sometimes quite varied) approaches.

A start-up looking for its product (or its value proposition, to use MBA-speak) needs to move quickly. It has limited resources and it does not have the luxury of waiting for multiple levels of bureaucracy to review decisions and slowly reach a consensus. The CEO must make decisions quickly and with minimal delay.

That's the behavior I see in Musk at Twitter: unilateral, arbitrary decisions made with no advance notice.

While such behavior is good (and sometimes necessary) at start-ups, it is not good at established companies. Established companies are, well, established. They have well-defined products and services. They have a base of customers who pay them money on a regular basis. Those customers have expectations, based on the previous actions of the company.

Arbitrary changes to products and services, made on short notice, do not sit well with those customers. Customers want predictability, just as you and I want predictability from our internet providers and streaming services.

(Note to self: a future column might discuss consistency and predictability for streaming services.)

Back to customers of Twitter: They want predictability, and Musk is not providing it.

The users of Twitter, distinct from the customers who pay for advertising, also want consistency and predictability. Arbitrary changes can drive users away, which reduces advertising view counts, which reduces advertising rates, which reduces income for advertising.

It seems to me that Musk is well-suited to run a start-up, and poorly suited to run an established company.

(Note to self: a future column might discuss the transition from start-up to established company.)

Perhaps the best action that Musk can take is to remove himself from the management of Twitter and let others run the company. He has done that, to some extent. He should step completely aside. I'm not commenting on Yaccarino's competency to run Twitter; that is another topic.

Sometimes the best way to solve a problem is to let others handle it.