Guerrilla Filmmaking: INVENTING THE MOVIES a must read! (PART II)

CHAPTER 10. COMING TO TERMS WITH THE NET.

"In a suburb south of Los Angeles, it looked as though a band of cell-phone-obsessed nomads had set up camp in the parking lot surrounding an office complex: a small village of tents had sprung up overnight, and white trailers were parked in neat rows.

A yellow AMC Gremlin was being towed slowly around the neighborhood by a truck; inside the car were the actors Morgan Freeman and Paz Vega, and a movie camera was mounted on the bed of the truck to capture their conversation.

The movie they were making, 10 Items or Less, tells the story of a famous actor (Freeman) who enters and then alters the life of a convenience store cashier (Vega). It was fairly typical for a low-budget movie made without studio support: costs were being kept under $10 million, the shoot would be completed in just fifteen days, and the script didn’t call for any flashy visual effects or elaborate sets. (In 2006, when 10 Items was made, the average cost of producing a studio movie was $65 million.) It was also being shot on 35-millimeter film, like most movies of its vintage."

"What made this particular production unique was that it would be the first movie with recognizable stars, and made by an established director, Brad Silberling, to be offered as a legal Internet download only a few days after it debuted in movie theaters.(Silberling’s last movie, Lemony Snicket’s A Series of Unfortunate Events, starred Jim Carrey and had earned more than $200 million at the box office.)

Relaxing in his trailer, Freeman was sprawled out on a leather couch. Freeman and his producing partner, Lori McCreary, had created a partnership with the microchip company Intel to set up a Web site called ClickStar, which would offer the downloadable version of the movie, along with a selection of others. Freeman was convinced that new approaches to distributing movies – especially making them available in whatever form the viewer wanted, at whatever time – were “going to change the whole nature of filmmaking.” The big unknown, he continued, was how soon it’d happen.

10 Items wasn’t the first movie to devise a strategy to make the most of consumers’ intense interest in newly-released movies.

Just one month before the10 Items shoot began, an even lower-budget movie, Bubble, had surfaced briefly in theaters. Like 10 Items, it was made by a well-known director – Steven Soderbergh, who’d begun his career with Sex, Lies and Videotape, and had most recently made the sequel Ocean’s Twelve, starring George Clooney, Julia Roberts, and Brad Pitt. But unlike 10 Items, Bubble’s cast was made up of people who’d never acted before, and Soderbergh shot it with a digital camera. (It relied on a rig similar to what had been used for Lucas’ Attack of the Clones, with a CineAlta camera from Sony and lenses from Panavision.)

The movie, about the tense relationship among workers in a doll factory in the aftermath of a murder, was financed by 2929 Entertainment, a production company founded by the technology entrepreneurs Mark Cuban and Todd Wagner. With Soderbergh’s OK, their plan was to put Bubble in theaters on the same day that they aired it on a cable channel they owned, HDNet Movies. The DVD would show up in stores the following week, distributed by a new company that Cuban and Wagner had started.

Their experiment in releasing the movie through several avenues simultaneously – rather than sequentially, as was the standard practice – was motivated by three things. One was a desire to promote their inter-connected businesses (Cuban and Wagner also owned the largest chain of independent theaters in the U.S., Landmark Theatres, which would show Bubble.) The second motivation was advertising-related: they felt it was illogical to spend money on two separate ad campaigns for a new movie, first to get
people to see it in theaters, and then again several months later to get them to buy or rent it on DVD. The third reason was the tendency for Internet users, especially young men, to hunt down movies they wanted to see online, and download an illicit copy from file-sharing networks. More profit-driven rings of movie pirates produced DVDs and peddled them on the sidewalks of Manhattan and Beijing.

“Name any big-title movie that’s come out in the last four years,” Soderbergh said. “It has been available in all formats on the day of release. It’s called piracy. Peter Jackson’s Lord of the Rings, Ocean’s Eleven, and Oceans’s Twelve – I saw them on Canal Street on opening day. Simultaneous release is already here. We’re just trying to gain control over it.” Soderbergh predicted that within five years, all movies would be available on the day of their release in any format.

But while a few innovators such as Soderbergh and Cuban, or Silberling and Freeman, were trying to prepare for that eventuality and exploring the implications for their bottom lines, the major studios were sticking to their traditional releasing practices. Movies played in theaters first; four months later, on average, they were offered as DVDs, and after that, on cable; years later, they’d be shown on freetelevision.

Studios continued sailing that course, despite evidence that hundreds of thousands of consumers were ignoring the law and using high-speed Internet connections to download movies before they were released on DVD. In the fall of 2005, a research firm called BigChampagne released an unusual Top Ten list: the most popular movies that were being downloaded illegally from the Internet. In position #1 was The Wedding Crashers, with an estimated 821,390 downloads in a single week; occupying the #10 slot was Star Wars: Episode III – Revenge of the Sith, with an estimated 687,477 downloads. Neither was yet available on DVD.

It wasn’t only pirated movies that Internet users were watching, however. They’d begun to develop a taste for short, homemade videos posted on the Internet. Hollywood directors tended to dismiss these videos as “dogs on skateboards,” since most were mildly amusing clips that lacked any sort of narrative. The camerawork was shaky, and the editing non-existent. (Many of the videos resembled the short films that had been made a century earlier by Edison’s engineers: a single, unedited take of someone dancing for the camera, or doing a trick.) A Web site called YouTube launched in 2005, allowing Internet users to upload
and store their videos for free, or watch videos that the site’s editors spotlighted. It became a magnet for clips of the “dogs on skateboards” variety (as well as clips from TV shows posted without permission), and before long YouTube was the fastest-growing site on the Web.

The Internet wasn’t a new technology; its roots dated back to 1969, as a project of the Department of Defense. In the mid-1990s, when companies like Apple and Progressive Networks began making it possible to deliver video files over the Internet, movie studios started to employ it as a promotional mechanism, offering trailers and clips from upcoming releases – just as they’d done with television 40 years earlier. But they were slower to explore the opportunity to deliver full-length features to Internet users, since that had the potential to disrupt the studios’ existing businesses. How would it affect sales of videotapes and DVDs, they wondered, or change the value of their licensing deals with cable and broadcast networks?

In 1955, NBC bought the rights to broadcast Richard III on the same day it premiered in theaters, paying $500,000. The movie was directed by Laurence Olivier, who also played the lead. While the television audience may have been as large as 40 million, Richard III tanked at the box office. And Olivier was disappointed by the broadcast: most of the blood and gore had been snipped by censors, and he was bothered by the commercial interruptions.

Using the Internet to check e-mail and visit Web sites was becoming a daily habit, and a growing number of people had access to high-speed connections, which provided a better experience for viewing video (even if it still didn’t equal TV’s quality). Still, studios and the operators of theater chains didn’t want to tinker with the established “theatrical release window” – the exclusive exhibition period guaranteed to theaters, before movies were available elsewhere. Even some directors spoke out against making movies available online, on television, or on DVD while they played in theaters. (The verb “preserve” popped up an awful lot in their comments.)

Universal vice chairman Marc Shmuger told Variety, “We would like to preserve the windows where they’re at now. We’re not eager to push them forward any closer. We want to preserve the uniqueness of the theatrical experience.” Dan Fellman, the president of domestic distribution at Warner Bros., drew an even sharper line in the sand: simultaneous release of a film in theaters and on DVD was simply “not going to happen at Warner Bros.,” he told the Hollywood Reporter.

Major theater chains snubbed the notion of simultaneous releasing, too. AMC Theatres, Loews Cineplex, Cinemark USA, National Amusements, Regal Entertainment Group, and Pacific Theatres all declared that they wouldn’t show movies that were available in the home market. “I just think it’s a wrong-headed approach,” said Tony Karasotes, chairman and CEO of Karasotes Showplace Theatres in Chicago, in the Hollywood Reporter. The release strategy for Bubble, he continued, “is ass-backwards, and I don’t want to encourage that kind of approach, because I own motion picture theaters.”

Among directors, M. Night Shyamalan, was the first to speak out against altering the windows. In the fall of 2005, Shyamalan gave a speech to theater owners at the ShowEast trade show in Orlando. (He was at the event to promote The Lady in the Water, his seventh film as a director.) He told the audience that he believed there was a “collective soul” that existed among the people in a theater. “The ideal form is the movie theatrical experience,” he said. “If they try to convince us otherwise, they are lying.”

“I don’t believe this is inevitable,” Shyamalan told the ShowEast attendees. “If this goes through, you know theaters are closing down. It’s going to crush you guys.” He’d earlier told the Reporter, “If there’s a last film that’s released only theatrically, it’ll have my name on it. This is life or death to me.”

Another speaker at ShowEast that year was John Fithian. He openly referred to the idea of eliminating release windows as a “death threat” against the exhibition industry. The traditional theatrical release, Fithian said, served as a promotional platform for new films, building awareness and helping studios sell DVDs.

Fithian acknowledged that if consumers were asked whether they wanted a new movie to be available in all kinds of formats on the day of its release, “their answer is ‘yes.’ But what if some of your local theaters go out of business, and you don’t have the choice to see movies that way? Their answer changes.”

One of the first movies to be offered online in its entirety was Lance Weiler and Stefan Avalos’ The Last Broadcast. Shortly after the movie was distributed to make-shift digital cinemas via satellite, the Independent Film Channel made a streaming video version available on its Web site, on November 15th, 1998.

But Cuban and Wagner felt simultaneous releasing could benefit theater owners. One idea they proposed: sharing one percent of a movie’s eventual DVD revenues with theater owners who showed movies like Bubble, since by showing the movie they were helping market it (as Fithian rightly observed.) But when asked if he thought a simultaneous release could help exhibitors in any way, Fithian didn’t need much time to consider the question. “No, I don’t,” he said curtly.

Cuban had five defiant words for the skeptics: “I don’t give a shit.” At every moment of transition, innovators have encountered doubters, he said. “You can’t find a great business where somebody didn’t say the exact same things at the beginning,” Cuban said.

After all of the rhetoric had been thrown down, only 32 theaters agreed to show Bubble when it was released in January 2006 – and 19 of those were part of the Landmark Theatres chain that Cuban and Wagner controlled. With a budget of $1.6 million, the movie earned just $145,000 at the box office during its U.S. release, prompting snarky headlines like “Bubble Bursts.” But Wagner later declared victory, claiming that DVD revenues and sales of foreign rights had helped the movie turn a respectable profit.

Around the time that the studios were laying the groundwork for Digital Cinema Initiatives, they were starting another joint venture to determine the best way to make full-length movies available online.

The venture, which was named Movielink, was in development for almost two years before it launched a Web site in November 2002. The studios, with Sony as the prime mover, selected as Movielink’s CEO Jim Ramo, a careful and conservative executive who’d been part of the founding team at DIRECTV, the satellite television service. (Another site for legally-downloaded movies, CinemaNow, began offering full-length features in 2000 – mostly in the martial arts and horror genres. It had been funded by theindependent film company Lions Gate Entertainment and Microsoft.)

While Movielink was in the works, the studios decided to start battling underground file-sharing networks where users could search for and download digital copies of movies for free. The Motion Picture Association of America, the lobbying group backed by the six major studios, joined forces with the music industry’s lobbying group to try to shut down several file-sharing services that both viewed as major copyright-infringers. They targeted services like Grokster, based in the West Indies, KaZaA, based in Amsterdam, and Morpheus, based in Tennessee. One suit called the services a “21st century piratical bazaar where the unlawful exchange of protected materials takes place across the vast expanses of the Internet.”

A month before the Movielink service was launched, the MPAA also sent letters to more than 2,000 colleges, alerting them that their students had been using school networks to swap illegal copies of movies; while the letters didn’t threaten a lawsuit, they asked school administrators to do their best to stop the illegal activity.

At the outset, Movielink was more notable for what users couldn’t do than what they could. The site offered “more than 170” titles, including Harry Potter and the Sorcerer’s Stone, Psycho, and A Beautiful Mind. (There were no titles from Disney or Fox, which were exploring whether to create a download service of their own. That never happened, and Disney and Fox titles showed up on Movielink in 2003 and 2005,
respectively.) Only users in the United States could access the site, and then only if they had a computer running Microsoft’s Windows operating system. Once a user began playing a movie, she had to finish watching it within 24 hours, or else the movie would expire. There was no way to download a movie in digital form and keep it in a collection for repeated viewing.

Disney chairman Bob Iger was the only studio chief to publicly express interest in tinkering with movie release timing in the Internet era. “I think windows in general need to change,” Iger told Wall Street analysts in mid- 2005. “They need to compress. I don’t think it’s out of the question that a DVD can be released, in effect, in the same window as a theatrical release, although I’m sure we will get a fair amount of pushback on this from the industry.” Within days, John Fithian, president of the National Association of Theater Owners, labeled Iger’s comments a “death threat” against his members.

The number of movies in the inventory grew slowly, too, since the studios couldn’t just hand movies to Movielink; making a movie available required the attention of attorneys who needed to make sure the studio had the rights to deliver the movie online. Getting those clearances, Ramo complained, was expensive and time-consuming.

The studios “almost certainly know that Movielink won’t make them any money,” Hollywood journalist Ben Fritz wrote in 2002. The site, he said, was “pure PR.” “Movielink’s primary purpose…is to demonstrate that the studios are providing a legal alternative for Internet movie pirates.”

Meanwhile, in Silicon Valley, a start-up company had just raised $82 million by going public, and its plan definitely did involve making money.

The company had chosen the name Netflix because its founder, Reed Hastings, knew that movie delivery would eventually take place over the Internet. But for the time being, Hastings believed that delivering DVDs through the mail was less expensive, and would give him access to a vast audience: the 110 million homes served by employees of the U.S. Postal Service. For a monthly subscription fee of about $20, Netflix members could rent and return as many DVDs as they wanted each month – and hold onto a disc until they got around to watching it, without incurring any late fees.

Netflix also offered more than 11,000 different movies – far more than Movielink, CinemaNow, or other movie download services. Netflix didn’t have to secure special rights or guarantee the studios a minimum amount of revenue from each title, as the download services did – all it needed to do was purchase copies of the DVDs it wanted. (With most studios, though, Netflix signed revenue-sharing agreements that gave the company access to large numbers of discs when a popular movie was released, and gave the studios a percentage of the rental revenues in return – a very symbiotic relationship.)

“We see our future as the downloadable DVD,” Hastings said in 2001. “Our ten-year plan is to be the world’s leader in that. But the way to win is not to focus on the technology. It’s to get the customers – a couple million subscribers, who are addicted to the Internet for choosing their movies. Those are exactly the people who will do downloading. It’s the customer relationship that will be valuable.”

Hastings said he was happy to see the other downloading sites getting started, but that Netflix wasn’t in a rush to deliver movies that way. “They’re going to spend the bucks necessary to create a market in downloading,” he said. “But we have no fear. Video rental is a $10 billion market today. We may wait for downloading to be a $1 billion market, and someone has to go and create that market. Those are expensive investments.” He didn’t plan to be the technological innovator, but instead intended to poach customers from traditional video rental stores. Netflix started 2002 with half a million subscribers, and had hit the one million mark by 2003.

To the studios, Internet services like Grokster, KaZaA and Morpheus were starting to resemble a threat from 20 years ago: the VCR. And Jack Valenti, on the verge of retiring as the CEO of the MPAA, was once again mounting a vigorous defense.

“There are more than nine and a half million broadband subscribers now,” Valenti said in 2002. “Once those large pipes and high-speed access subscribers begin to increase, we can be terrorized by what's going on.”

“In a digital world, who on earth is going to invest large sums of venture capital in a movie if they believe it is going to be ambushed early? The value of that movie is going to be diminished. You don't have to be a Nobel Prize winner to figure that out.”

Valenti frequently quoted a statistic about how much money the U.S. movie industry lost to piracy. In 2004, the number was $3.5 billion a year, and that, he noted, didn’t include Internet piracy – only illicit sales of bootleg DVDs and tapes. When the numbers were revised to include digital trafficking, they rose to an estimated $6.1 billion in annual losses.

Sid Sheinberg, Valenti’s old ally from the Betamax battles, was now a producer, real estate developer, and philantropist. But he couldn’t help noticing what was happening. “Somebody told me that Universal’s remake of King Kong was lousy,” Sheinberg said. “I said, ‘Did you go to the premiere, a sneak preview?’ They said they’d downloaded it. So you not only have the prospect of people seeing a movie before it’s released, but they can also bad-mouth it before it comes out.”

By some estimates, on file-sharing networks like Grokster, as much as 90 percent of the material being sent from one computer to another was protected by copyright. (The networks could also be used, of course, to send a home movie or a batch of high-resolution vacation photos – which would’ve been perfectly legal.) Some of the movies had been “ripped” from already-released DVDs and converted into digital files, but others came from videotapes made by someone operating a camcorder in the back of a
theater. Valenti and the MPAA were on a mission to shut down the file-sharing networks. But several courts, referring back to the 1984 Supreme Court decision that allowed Sony to continue selling the Betamax recorder, ruled that the networks couldn’t be held responsible for what users did with their software.

The MPAA didn’t give up, and eventually, the case against Grokster and Morpheus, two of the most popular file-sharing networks, wound up in front of the U.S. Supreme Court. This time around, Sony (which now controlled a movie studio of its own, having purchased Columbia Pictures in 1989) had allied with studios like Disney, Fox, Universal, and Warner Bros. in branding a new technology as a threat to the business. And helping to finance the defense of Grokster and Morpheus was Mark Cuban, who worried that a victory for the studios would squelch innovation. As the majority of people’s photos, music, documents, and video were stored in digital form, new networks would be needed to get them from place to place, Cuban thought.

“What innovations will be condemned by law before they have a chance to come to market because they could have an impact on Hollywood and the music industry?” Cuban asked on his blog. “We have no idea, and that is a very scary prospect.”

In June 2005, the Supreme Court issued a unanimous decision that diverged from its ruling on the Betamax case two decades earlier. A company that created a new technology “with the object of promoting its use to infringe copyright…is liable for the resulting acts of infringment,” Justice David Souter wrote. The court didn’t provide any sort of litmus test that would indicate whether the developer of a new technology was actively encouraging its users to infringe copyright, however. The Grokster decision didn’t undermine the Sony ruling from 1984, but it made the waters much murkier.

On the steps of the Supreme Court during the Grokster case, a Grokster supporter with a sense of historical precedent handed Jack Valenti an old Sony Betamax tape, asking him to autograph the label. Valenti agreed, and within hours, photos of the signed tape were posted all over the Internet. (The tape contained a recording of Woody Allen’s Sleeper, taped from a television broadcast.)

Dan Glickman, who had taken over Valenti’s post in 2004, rejoiced, calling the ruling “a historic victory for intellectual property in the digital age. The Supreme Court sent a strong and clear message that businesses based on theft should not and will not be allowed to flourish,” he said.

Morpheus vowed to keep pressing its case in the courts, but Grokster shut down its file-sharing service in November 2005, and paid $50 million to the movie and record industries in a settlement. The company posted a message on its home page that read, “There are legal services for downloading music and movies. This service is not one of them.”

Around that time, Apple Computer mailed out a cryptic invitation to journalists. On the front were red curtains, and the words “One more thing…” Apple’s CEO, Steve Jobs, habitually used that phrase to introduce a surprising new product at the end of his speeches.

With the media assembled in a San Jose theater, Jobs unveiled a new Macintosh computer, before discussing the company’s portable music player, the iPod. Jobs said Apple had shipped almost 30 million of the pristine white devices. “It has been a huge success for us,” he said, a wry smile on his lips. “And therefore, we’re going to replace it.” A new version of the iPod would store up to 150 hours of video, which could be played back on a screen the size of a Saltine cracker. (The solitary viewing experience
harkened back to the days of Edison’s Kinetoscope.) The price was $399 for the most capacious model. Apple also added television shows and music videos to its online marketplace, the iTunes Store, along with six short films from Pixar Animation Studios. (Jobs still served as CEO of that company.) The videos cost $1.99 – but unlike the rental movies on CinemaNow or Movielink, they belonged to the customer once the purchase was complete. Within 30 days, Apple announced that it had sold more than a million videos.

iTunes, Movielink, and CinemaNow began vying with one another to be the first to introduce various features. In 2006, Movielink and CinemaNow began offering full-length films for purchase, rather than rental; consumers griped that the downloads often cost more than buying a DVD at Amazon.com or Wal-Mart. CinemaNow was the first to allow its customers to burn a downloaded movie onto a DVD, so that it could be more easily viewed on the living room TV set. Amazon launched its own download service, called Unbox, in September 2006, and shortly after, Apple added full-length movies from just one studio, Disney, to its iTunes Store.

Other studios withheld their movies from Apple, both because they worried that the anti-copying “locks” integrated into iTunes’ digital files weren’t tough enough, and because they didn’t want Apple to become the sort of dominant digital retailer with movies that it had become with music – a kind of Wal-Mart of the Internet. (In 2006, Apple sold about 67 percent of all digital music downloads.)

Quickly, that started to look like a mistake. After the first week of movie sales on iTunes, Bob Iger, Disney’s CEO, announced that the studio had sold 125,000 downloads, generating $1 million in revenue. He said he expected iTunes to generate about $50 million for Disney over the coming year.

Andre Blay, the first videotape dealer, was semi-retired, but he saw most of the studios fretting once again that “their golden goose is going to be hurt, that the Internet is going to be disruptive rather than supportive. But my instincts tell me that sometime in the next ten years, the Internet will be a major source of revenue for the studios.”

None of the other download services released information about how many movies they were selling or renting. Four months after it started offering full-length films, Apple said it had sold more than 1.3 million of them, knighting itself “the world’s most popular online music, TV, and movie store” in a press release. Slowly, other studios began to put their wares on the shelves of the iTunes Store, starting with MGM and Paramount.

Jobs had a clear vision for making entertainment products, whether movies, songs, or TV shows, easier to buy in digital form than they were to obtain from one of the illegal file-sharing sites. He simplified pricing: TV shows cost $1.99, older movies were $9.99, and new releases were $14.99. All the content was fluid: it moved easily from a computer to an iPod. (There were even rumors that Apple was developing a new device that would sit atop a television, and allow consumers to watch iTunes content in the living room.) The studios didn’t want to let Apple develop into a gatekeeper, but that seemed to be happening anyway, by virtue of the new approach to buying and consuming digital entertainment the company had pioneered. Jobs’ influence in Hollywood seemed like it would only grow. In 2006, he joined Disney’s board of directors, once Disney’s acquisition of Pixar was finalized. Movielink, meanwhile, was lagging behind, renting or selling only about 75,000 movies a month.

The studios hired an investment bank to try to sell the joint venture, but discussions with prospective buyers like Blockbuster, Comcast, and AT&T went nowhere. Ramo’s allowance was running out: he had spent most of the $150 million in start-up funding that Movielink had been given by the studios. When Blockbuster sniffed around Movielink a second time, the price tag mentioned was $50 million. And when the video rental chain finally bought Movielink, to make digital movie rentals available to its customers, the Wall Street Journal reported that the deal was a fire-sale, valuing Movielink at just $20 million. As the download services were trying to win over consumers, Hollywood was also introducing two new physical media products: high-definition DVDs called Blu-ray and HD DVD. By packing more digital data onto the surface of the disc, both offered crisper images than a standard DVD (and certainly better resolution than the Internet sites offered – legal or otherwise.) The studios’ hope was that as consumers’ purchasing of DVDs started to level off, the high-definition discs (priced as much as $10 higher than regular DVDs) would encourage them to keep buying – and perhaps even replace some of their existing DVD library.

But despite the fact that both formats relied on the same technological advance – a blue-violet laser that could read more information from the surface of the disc than the red lasers built into older DVD players– the Blu-ray discs wouldn’t work in HD DVD players, and vice versa.

Sony Electronics led the group promoting Blu-ray, and Toshiba the HD DVD camp. HD DVD hit the market in the US first, in the spring of 2006, and the HD DVD players were about half as expensive as the Blu-ray players that arrived later in the year. Disney, Sony Pictures, Fox, and MGM decided to release their movies on Blu-ray discs, and Universal Pictures supported HD DVD. Paramount and Warner Bros. opted to release movies in both formats.

To help the Blu-ray format find its way into consumers’ homes, Sony decided to integrate a Blu-ray player into its PlayStation 3 gaming console, which went on sale before the 2006 holiday season – even though the high-definition capability would bump up the price of the console.

Numerous attempts to combine the two formats failed. Warner Bros.’ home video division developed a disc called Total HD that contained a single movie in both formats, one on each side; LG Electronics announced a player that could play both kinds of discs.

2006: Hollywood studios announce they will no longer release new movies on VHS tapes, slightly less than ten years after the DVD format was first introduced.

But as they’d done when they were offered a choice between the incompatible Betamax and VHS formats thirty years earlier, consumers largely decided to postpone their purchases of a high-definition DVD
player. “One would hope that we’d learn from history, but sadly, sometimes we don’t,” said Pat Wyatt, a former president of Fox’s home video division. Forcing retailers to decide which format to carry, and forcing consumers to guess which format would prevail – or risk being stuck with an obsolete high-def DVD player – quickly started to look like a losing proposition.

Consumers seemed to be falling out of the habit of going to see movies in actual movie theaters. The reasons were debated endlessly over lunches in studio commissaries. In 2005, 1.4 billion movie tickets were sold – the lowest total since 1997. One possibility was that Americans were spending more time on the Internet (perhaps surfing the Web, playing games, downloading free videos to watch, or tracking down
pirated movies from the file-sharing sites.)

But another possibility was that people were setting up home theaters that were becoming their first-choice venue for movie-viewing, liberating them from sticky floors and fellow patrons who answered cell phones during climactic moments. They were popping in DVDs from Netflix, or ordering movies through their cable or satellite provider’s pay-per-view service.

An Associated Press-AOL poll found that 73 percent of adults preferred watching movies at home. Newspaper stories profiled consumers who were investing more than $10,000 in their home theater systems – which inevitably led to fewer visits to the local multiplex.

In a front page story headlined “Why movie fans are staying home,” the San Jose Mercury News profiled a California family that had purchased a $13,000 home theater system. They’d once gone to the movies almost every weekend, but now, they preferred to watch DVDs with their new surround-sound speakers turned up high.

One response to the increasing quality and plummeting costs of home theater technology was the second coming of 3-D. Dimensionality wasn’t something that a home theater system could offer (yet), and the new digital projectors could offer a crisper 3-D image than what had been possible before.

For Chicken Little, a Disney cartoon released in late 2005, Dolby Laboratories and Real D, a California start-up company, outfitted 84 theaters in the U.S. to show the movie in digital 3-D.

They used a single digital projector showing 144 frames each second – half of them intended to be seen by an audience member’s left eye, and half by the right. Dolby spent $7 million installing servers and projectors in the 84 theaters, and theater owners spent about $25,000, on average, for each auditorium that received the upgrade. That money paid for modifications to the projection booth, new silver screens, and special
3-D gear from Real D that polarized the images coming out of the projector. Audience
members received a pair of green plastic 3-D glasses that resembled those worn in the movie by the lead character, and the glasses’ polarized lenses ensured that each eye saw only the frames intended for it – which produced the illusion of depth.

Just as some actresses had expressed their reluctance to appear in a Technicolor production in the 1930s, as television switched to high- definition broadcasting in the early part of the 21st century, actresses were once again speaking out – and taking action. Blythe Danner said she was “appalled” by how she looked on a cable TV show broadcast in high-def. “I don’t think I am terribly narcissistic, but you don’t want to look your worst.” Danner admitted to seeking ”a little [cosmetic] help” after seeing the broadcast. A Canadian company even introduced a line of make-up called “blu_ray,” intended to help women look better in front of the all-seeing digital lenses.

Disney and Dolby branded the Chicken Little release a success, though the reality was a bit hazier. The movie earned $40 million in its opening weekend, and more importantly, the version shown in digital 3-D generated more revenue than the 2-D version. During the opening weekend, Chicken Little grossed about $11,000 per theater in 2-D, but $25,000 per theater where it was being shown in 3-D. (And the difference
wasn’t just due to the fact that some theater owners were charging $1 or $1.50 more for tickets to the 3-D screenings.) But the Hollywood Reporter said that it had cost Disney about $8 million to have the 3-D version of Chicken Little produced by Industrial Light & Magic.

“This chicken has legs,” Disney distribution chief Chuck Viane boasted after the movie’s opening. He had committed Disney to producing a string of movies in digital 3-D, just as the studio had promised several years earlier to provide a consistent supply of digital cinema releases.

One person who viewed the Chicken Little results as a half-empty glass was John Fithian. He observed that theatre owners would have to bear the cost of the Real D equipment necessary for 3-D screenings (not including the cost of the digital projector or servers). “As a technical proposition it is way cool,” he told the Los Angeles Times. “As an economic proposition it clearly doesn’t work everywhere.”

But some directors and producers were getting excited about digital 3-D.

Producer Jon Landau compared the transition from 2-D to 3-D to the shift from mono to stereo in the recording business. “We think of movies as a great visual presentation, and there has been no quantifiable advancement in the visual presentation of the movies since the late 1950s,” he said. “With music, why did we go to stereo? It heightened the experience. 3-D is like visual stereo. It’ll heighten the experience that much more, whether you’re making a drama, a tragedy, or an action movie. It’s not about gags coming off the screen. It’s about creating a window into the world, so that the screen goes away.”

Landau was working with director James Cameron to make the science fiction movie Avatar in digital 3-D. They were shooting with a new camera system, called the Fusion and based on a pair of digital cameras from Sony. Cameron had designed it, in collaboration with Vince Pace. At DreamWorks Animation, Jeffrey Katzenberg announced plans to release its future movies in digital 3-D, starting with 2009’s Monsters vs. Aliens. Other directors, including George Lucas and Randal Kleiser, had allowed a start-up company called In-Three to convert portions of their older movies (including Star Wars: Episode IV and Grease) into digital 3-D, with an eye toward eventually re-releasing the movies.

Not long after YouTube launched, allowing anyone to publish video content to the Web, other video sites began to appear that allowed anyone to edit video online. These sites, which included JumpCut, EyeSpot, and Motionbox, offered fewer advanced features than systems like Final Cut Pro or Avid, but they had the advantage of being free – and users didn’t even have to supply their own footage to edit; they could play with music and video footage that had been uploaded by others.

Bands began inviting their fans to use the sites to assemble music videos, supplying the soundtrack and some generic video clips. One independent producer/director, Leone Marucci, used one of the sites to solicit audition videos for a bit part in one of his upcoming movies. Would-be supporting actors and actresses could edit their audition videos together with footage that Marucci had supplied of the movie’s stars reading their lines, in a scene set in a pizza shop.

2007: More than 10 percent of the 35,000 movie screens in the U.S. can now show digital releases, due in large part to the aggressive conversion campaign of a New Jersey company called Access Integrated Technologies. Access predominantly uses projectors made by Christie Digital.

One well-known independent director, Richard Linklater, agreed to allow his fans to use JumpCut to edit together their own version of a movie trailer for A Scanner Darkly, a dystopian animated movie scheduled for release in the summer of 2006. The editor of the best trailer would win a trip to the movie’s premiere. The contest generated hundreds of trailers promoting the movie, at little cost to the studio that released it,
Warner Independent. Editors who created the trailers no doubt showed them to friends and family members, creating a grassroots marketing campaign for the movie.

But many directors and studios worried about the loss of control inherent in giving amateur editors footage to play with – even if the potential existed to help build a larger audience for a given movie. “That’s one of the reasons the Director’s Guild of America exists,” said Randal Kleiser, a DGA officer who helped to organize the guild’s annual new technology showcase. Kleiser, who’d been in the vanguard of using computer-generated effects, digital cameras, and virtual sets, was responding to the idea that someday, dozens of editors might create dozens of different cuts of a finished movie, giving the studio dozens of different products to sell rather than just one: a shorter cut, a funnier cut, a more serious cut. “The DGA is there to prevent people from editing our work without our approval,” he said.

In advance of its December 1, 2006 opening, Morgan Freeman made the talk show rounds to promote 10 Items or Less. He was on “Live with Regis and Kelly” and “The Tonight Show with Jay Leno,” and his co-star, Paz Vega, appeared on several second-string talk shows.

At the age of 69, Freeman said he was enthusiastic about the experiment’s potential to help independent movies find new ways to reach audiences. “I’m just a firm believer that things continue to grow, get better,” he said.

But like Bubble before it, theater owners froze out 10 Items, since it’d be available on the Web site ClickStar just two weeks after its theatrical debut. (Online, the movie was priced at $11.99 for a 72-hour rental.)
Only Mark Cuban’s Landmark Theatres chain was willing to show 10 Items in the U.S. The movie earned less than $100,000 during its U.S. theatrical run. But the movie made five times as much overseas – where would-be viewers weren’t able to access to the ClickStar version.

Neither ClickStar nor Freeman ever released figures about how many people had rented the digital version of the movie, or how well the DVD release had performed. 10 Items earned the distinction of being the first movie available legally on the Internet while it was still in theaters. But it was the second movie, after Bubble, to be boycotted by cinema owners for using a new technology in a way that seemed to threaten the stability of their businesses.

2007: Netflix begins allowing its subscribers to view movies on its site in digital form, through a feature called “Watch Now.” Movies can be viewed on the Netflix site, but not downloaded for later viewing. Because of difficulty securing download rights, Netflix starts the “Watch Now” service with just 1000 titles, at a time when its DVD library contains 70,000 titles.