First published on SAR, 07/99.
ALERT! New community-based email virus on the loose!
This virus, called the “DON’T GO” virus, primarily targets major Hollywood studios, and is known to proliferate within 24 hours of the release of a mediocre movie. If you receive a piece of email from a friend with a subject line like “Notting Hill: Don’t Go”, do not open it! Its contents can cause part of your memory to be erased, replacing expensive marketing hype with actual information from movie-goers. If this virus is allowed to spread, it can cause millions of dollars of damage to a Hollywood studio in a single weekend.
Hit-driven industries (movies, books, music, et al.) are being radically transformed by Internet communities, because the way these industries make money is directly threatened by what Internet communities do best – move word of mouth at the speed of light. Internet communities are putting so much information in the hands of the audience so quickly that the ability of studios, publishing houses, and record labels to boost sales with pre-release hype are diminishing even as the costs of that hype are rising.
Consider Hollywood, the classic hit-driven industry. The financial realities can be summed up thusly:
Every year, there are several major flops. There are a horde of movies that range from mildly unprofitable to mildly profitable. There are a tiny core of wildly profitable hits. The hits are what pays for everything else.
This is true of all hit-driven businesses – Stephen King’s books more than earn back what Marcia Clark lost, the computer game Half-Life sells enough to pay for flops like Dominion, Boyzone recoups The Spice Girls latest album, and so on. Many individual works lose money, but the studios, publishers, or labels overall turn a profit. Obviously, the best thing Hollywood could do in this case would be to make all the movies worth watching, but as the perennial black joke goes, “There are three simple rules for making a successful movie, but unfortunately nobody knows what they are.” Thus the industry is stuck managing a product whose popularity they can’t predict in advance, and they’ve responded by creating a market where the hits more than pay for the flops.
For Hollywood, this all hinges on the moment when a movie’s quality is revealed: opening weekend. Once a movie is in the theaters, the audience weighs in and its fate is largely sealed. Opening weekend is the one time when the producers know more about the product than the audience — it isn’t until Monday morning water cooler talk begins that a general sense of “thumbs up” or “thumbs down” becomes widespread. Almost everything movie marketers do is to try to use the media they do control — magazine ads, press releases, commercials, talk show spots — to manipulate the medium they don’t control — word of mouth. The last thing a studio executive wants is to allow a movie to be judged on its merits — they’ve spent too much money to leave things like that to the fickle reaction of the actual audience. The best weapon they have in this fight is that advertising spreads quickly while word of mouth spreads slowly.
Enter the Internet. A movie audience is kind of loose community, but the way information is passed — phone calls, chance encounters at the mall, conversations in the office — makes it a community where news travels slow. No so with email, news groups, fan web pages — news that a movie isn’t worth the price of admission can spread through an Internet community in hours. Waiting til Monday morning to know about a movie’s fate now seems positively sluggish — a single piece of email can be forwarded 10 times, a newsgroup can reach hundreds or even thousands, a popular web site can reach tens of thousands, and before you know it, it’s Saturday afternoon and the people are staying away in droves.
This threat — that after many months and many millions of dollars the fate of a movie can be controlled by actual fan’s actual reactions — is Hollywood’s worst nightmare. There are two scenarios that can unfold in the wake of this increased community power: The first scenario (call it “Status Quo Plus”) is that the studios can do more of everything they’re already doing: more secrecy about the product, more pre-release hype, more marketing tie-ins, more theaters showing the movie on opening weekend. This has the effect of maximising revenues before people talk to their friends and neighbors about the film. This is Hollywood’s current strategy, having hit its current high-water mark with the marketing juggernaut of The Phantom Menace. The advantage of this strategy is that it plays to the strengths of the existing Hollywood marketing machine. The disadvantage of this strategy is that it won’t work.
Power has moved from the marketer to the audience, and there is no way to reverse that trend, because nothing is faster than the Internet. The Internet creates communities of affinity without regard to geography, and if you want the judgement of your peers you can now get it instantly. (Star Wars fan sites were posting reactions to “The Phantom Menace” within minutes of the end of the first showing.) Furthermore, this is only going to get worse, both because the Internet population is still rising rapidly and because Internet users are increasingly willing to use community recommendations in place of the views of the experts, and while experts can be bought, communities can’t be. This leaves the other scenario, the one that actually leverages the power of Internet communities: let the artists and the fans have more direct contact. If the audience knows instantly whats good and what isn’t, let the creators take their products directly to the audience. Since the creators are the ones making the work, and the community is where the work stands or falls, much of what the studio does only adds needless expense while inhibiting the more direct feedback that might help shape future work. Businesses that halve the marketing budget and double the community outreach will find that costs go down while profits from successful work goes up. The terrible price of this scenario, though, is that flops will fail faster, and the studio will have to share more revenue with the artist in return for asking them to take on more risk.
The technical issues of entertainment on the Internet are a sideshow compared to community involvement — the rise of downloadable video, MP3 or electronic books will have a smaller long-term effect on restructuring hit-driven industries than the fact that there’s no bullshitting the audience anymore, not even for as long as a weekend. We will doubtless witness an orgy of new marketing strategies in the face of this awful truth — coupons for everything a given movie studio or record label produces in a season, discounts for repeat viewings, Frequent Buyer Miles, on and on — but in the end, hit driven businesses will have to restructure themselves around the idea that Internet communities will sort the good from the bad at lightning speed, and only businesses that embrace that fact and work with word of mouth rather than against it will thrive in the long run.