HITS Keynote: A ‘Perfect Storm’ of Changes for Hollywood

HOLLYWOOD, Calif. — At the Oct. 18 HITS Fall event, Michael Smith, professor of information technology and marketing at Carnegie Mellon University’s H. John Heinz III College, set the record straight when it comes to piracy and its impact on content sales.

Look around online, and you’ll find all sorts of arguments that content piracy doesn’t hurt Hollywood’s bottom line, arguing instead that it can be beneficial to content sales, Smith said during his keynote address “Streaming, Sharing, Stealing: Big Data and the Future of Entertainment” (which is also the name of a new book he co-authored). Peer-reviewed studies say otherwise.

“The exact opposite is true,” Smith said, pointing to 25 studies where only three made an argument that piracy could benefit Hollywood’s bottom line. “Twenty-two of these have found piracy does exactly what you’d expect it to do.” Smith went further: most every hit against online piracy enablers has resulted in a direct boost for legitimate content. The 2012 shutdown of file-sharing site Megaupload was followed by an 8-10% increase in digital sales. The late 2013 decision by the U.K. to block nearly 20 major piracy sites saw former users of that site increase their usage of legitimate streaming sites by an average of 12%. Following the 2009 HADOPI graduated response law in France, legitimate music sales jumped more than 22%.

That doesn’t mean Smith isn’t a realist, or that the industry can’t do more.

“You can’t put the genie back in the bottle,” he said about piracy and consumer demand for content when they want it, where they want it. To address that, the studios are already on the right track in many ways, he said, adding: “The digital consumer is different than the physical consumer.”

A 2015 study he co-authored found that by releasing a film on digital via iTunes 10 days before the DVD and Blu-ray Disc street date, there was virtually no impact on physical sales. However, the studios could do better keeping piracy in mind on the international front: a 2014 study he worked on saw that for every 10 days a domestic disc release is delayed overseas, studios can expect a 2-3% drop in sales.

But while piracy and how to deal with it was up front and center during Smith’s presentation, he noted that it’s just one part of what he calls a “perfect storm” of changes confronting the media and entertainment industry. Digital piracy, user-generated content, big data, long-tail markets, and the rise of powerful online distributors … it’s a daunting list of technological changes that Hollywood is trying to tackle all at once, Smith said.

On the user-generated content front, Smith didn’t argue that anyone with a smartphone “can create ‘Avatar’ with the HD camera in [their] pocket,” instead stressing that studios must be cognizant that “we’ve moved to a world of unlimited capacity,” where there are few barriers for consumers, in terms of seeing, storing and producing what they want.

In regards to the long tail of content, Smith made it simple: while theatrical is crucial to Hollywood, you can’t fit everyone’s tastes inside a 12-screen multiplex. Studios that create their own content hubs, dig deeper into their catalogues, and simply offer more across more services, are on the right path, he said.

But it may have been the area of big data that Smith sees the most room for improvement, with content companies still harboring siloed business units and their own siloed data. Companies that organize around data analytics will find that “the conventional wisdom about prices, the conventional wisdom about promotions, is very different from what the data shows,” he said.

“Centralized data in the organization will allow you to use data more efficiently,” Smith said.

Produced by MESA in cooperation with the Hollywood IT Society, HITS: Fall is the largest gathering of the Hollywood IT community and its technology partners of the season. This year’s annual event hosted over 350 attendees from across the Media & Entertainment industry including CEOs, CTOs and executives from major studios, distributors and top service providers.