Resnikoff’s Parting Shot: Hollywood Casts a Good Cop

The final numbers are still being tallied, but the record industry has suffered in 2005.

Recent figures from Nielsen Soundscan pointed to a seven-percent drop, though sales from the final week have not been factored into the equation. Other estimates have been more dismal. Paid downloads are surging, though as a percentage of overall profits their effect has been mild. Meanwhile, Hollywood has also suffered a tough year, with box office receipts sinking about 5.2 percent, and audiences dipping to an eight-year low. In the middle of this forest, a host of potential problems are being suggested for the cinematic downturn, including weaker titles, an increasingly disinterested and distracted consumer, high ticket prices, and free movie downloads. But unlike the record industry, Hollywood lacks the multi-year trend needed to make an effective judgment, and every industry has its cycles. Regardless, studios are bracing for the internet effect, and have watched intently as record labels suffered a tough fate at the hands of P2P networks.


Certainly, there are studio executives talking tough, determined to stamp out the emerging piracy problem with an iron fist. But Hollywood is not stupid, and some key differences appear to be emerging in the approach to the problem. First, the movie industry appears willing to use a lot more carrot in its enforcement, a strategy that could be designed to avoid alienating consumers. Most recently, the MPAA compromised with grandfather Fred Lawrence over charges related to the downloading activities of his 14 year-old grandson. Lawrence pled ignorance, protested that his grandson had done the actual downloading, and resisted a settlement charge. But the MPAA did not respond with a strong-arm tactic. If Lawrence agreed to pay a greatly reduced fee and lecture schoolchildren on the evils of downloading, they’d let him off the hook. “The purpose of these lawsuits is not only to punish people for film piracy but to inform them about the law,” MPAA spokeswoman Kori Bernard told the Milwaukee Journal Sentinel. “With respect to Mr. Lawrence’s family, they offered help to inform people about piracy, so we are taking them up on their effort.” The result was a classic carrot-and-stick – the studios allowed Lawrence to play dumb, while glossing over the complications created by the fact that the grandson was actually doing the downloading. Compared to the RIAA, the approach was incredibly soft, and the major labels actually took a much harder line on a similar case.


Perhaps a good-cop MPAA will help to win the emotional war, something that the RIAA has had difficulty doing. Talk to the average music lover – with or without disposable cash – and the justifications for stealing music are amazing. In discussions with teenagers and educated 40-somethings, the explanations for grabbing free downloads are quite complex. I already buy CDs, I already purchased enough paid downloads, I already went to the concert, I am not going to pay for just one song from an artist, etc. Somewhere along the line, the customer reacted with hostility towards labels, and that is contributing to the current malaise. For the movie business, the results could be equally bleak. Because if John Doe decides to stay home and play video games instead of going to a movie, then he can just as easily return to see a blockbuster flick. But if that same consumer feels a sense of entitlement when it comes to downloading movies online, the problem becomes much more difficult to manage. At this stage, the relationship between the music fan and major label is acrimonious, and it is unclear if the damage can be reversed. But Hollywood still has a chance to save the marriage.


Meanwhile, not everyone is losing in the music industry. For those coming from the digital music sector, the irony at CES is unmistakable. The consumer electronics sector is booming, and devices like the iPod are part of the story. Consumers may be shifting away from CDs, but they have no problem spending hundreds on a portable MP3 player, computer, broadband connection, or elaborate car stereo system, all part of a new music listening experience. Labels may be bleeding, but the effects of the digital transformation are being unevenly distributed across other music categories. Interest in music is strong, and sites like MySpace, Google and players like ISPs are cashing in. So where does it all go from here? 2006 will be an interesting year, and “flux” is a great way to describe things. Major labels are hoping to reverse the tide by driving P2Ps out of town, pushing paid downloads, and continuing individual lawsuits. But expect a slightly different tone from the movie industry, which is hoping to win a moral battle, while preserving its proverbial “butts in seats”.


Paul Resnikoff, Editor.