Not only does this witty animation do a good job of summarizing the current social network zeitgeist, but the live action shots at the end were filmed in Silver Lake, right down the street from my house!

Kim, you will never live that down.

No matter. I love what this deal represents, although I’m somewhat skeptical that users will adopt the model of clicking what has been defined as an advertisement in order to watch an advertisement in order to then watch a short blast of something MacFarlanely funny.

Let’s take a moment to understand what Google’s AdSense video product is and what it looks like. Here’s the ultra hip and edgy official explanation from the horse’s mouth itself. Cool music Googlers! See all the ads. That could be a problem. More on that later.

I want to stress that this is a watershed deal for Hollywood. Many of my cohorts are holding out hope that Seth MacFarlane’s Cavalcade of Cartoon Comedy is a smashing success. I’m crossing my fingers too, because in success, the value of premium, talent-driven content that can sell against advertising gets a much needed boost.

Interesting to note that while this deal registers large on my Hollywood Richter scale of importance, the tech community doesn’t agree. Case in point is the lack of coverage on TechCrunch today (I dare you to find it, try seraching for “family guy” on TC) and the paucity of comments on Silicon Alley Insider, which focus incorrectly on Google’s apparent move into the media business vs. the failed Yahoo route (Yahoo financed their own demise shows, Google is merely a distributor here).

But while I’m convinced that this deal will move the market forward if for no other reason that it’s the first instance of contextual serving of premium video content of any significant scale, I’m a realist in for all practical purposes, what we have is a lucrative partnership of Found Money for the parties involved.

The concept is that Seth MacFarlane will create 50 short-form cartoon comedic bits that will be served in Youtube hosted video units on websites that have signed up for the AdSense program and have opted in to receive the Cavalcade content. The content will be contextual to the publisher site, meaning the site itself will fall into a Seth MacFarlane genre (comedy, animation, movies, TV, young-male demo, etc). That’s great because while the idea of serving contextual ads has been an over promised / under delivered value of the web for a while, the reality of serving contextual content is only recently being realized with data portability and now, this deal.

Let’s examine the players.

Media Rights Capital (MRC), the content financing group, run by Asif Satchu and Mordecai Wiczyk, with close ties to the talent agency, Endeavor, put up the financing for the Cavalcade shows. They get a shot at selling the embedded advertising and get a cut on every click paid out by the associated advertisers.

MacFarlane (an Endeavor client no less) creates the shows. He gets a cut of the ad revenue, but most importantly, gets to work free from FCC regulators whom he has called the “taste police.” He gets paid on the creative services work he does to help the advertisers animate their brand’s passion points.

The publisher website that has opted into AdSense (for a good example of what an AdSense video player looks like, click here), gets a slice of every click.

Google distributes the content, hosts the video, reports the performance metrics and gets a cut on every click. Massive scale bringing in pennies per click can add up pretty quickly. Hello Google ridiculous-waste-o’-money project.

So why didn’t this campaign launch last year when they first announced it in August of 2007? It did. The Raven Symone how-to video’s were syndicated across Adsense (click at your own risk) then ended up on her site, but Google hadn’t yet launched the skinnable Youtube player that would allow publishers to customize their AdSense video unit. That happened in October, right before the writer’s strike put everything digital into the Han Solo Carbonite freezer. The MacFarlane show was thankfully held back until the technology and the town were thawed and ready for consumption. Which apparently is now.

So what’s not to love?

It’s pretty genius actually, as long as the ads aren’t overly disruptive, which is debatable. The AdSense publisher network is, by definition, a group of sites with varied, niche content. They’re not video sites. Contextual video delivery on non-video sites works best as a marketing tool, to expose people to a new show and ultimately send them to a video site such as YouTube.

Take another look at the sample AdSense video here. You’ll notice you can’t blow it up to full screen. That would interfere with the publisher site’s code and design. But if I’m a Family Guy fan and I visit a website, let’s say a skateboard site, and I see the advertisement / video player with a Seth MacFarlane original content clip embedded in the site, I may click on it once, then watch the pre-roll ad or the what-have-you of overlays and banners. I may enjoy what I see in which case I’ll want to see another episode. Now I’m a fan so I’m going to search out the content in the best viewing experience possible. I want full screen. Youtube is a no brainer and anything in the AdSense network is hosted on Youtube. Now I’m watching the show on Youtube, still being served ads, but I’ve cut out the publisher site where I initially was first exposed to the content. Hey, they got some Found Money at no cost.

The best news is that with Google’s scale, there’s potential to create a new market for premium content. The challenge is that with Google’s scale, there’s no one to compete with them.

And that’s so Raven.

Fathom, Turner’s first creator-owner comic book series, received numerous honors and has claimed the “Number one selling comic book of the Year”.

The Safran Company and Safran Digital Group extend our heartfelt condolences and deepest sympathy to his friends and family.

The audience was a mixed batch of over 500 independent filmmakers, television producers, sales agents and distributors who share the commonality of  currently seeing their traditional livelihood disintegrate into an infinite stream of digital disruption.

James didn’t mix words when it comes to the harsh reality of adjusting to a new world order for digital. He’s not a sugar-coater, just a straight shooter. After his speech, Jean Prewitt, IFTA President said that his was the best keynote they’ve had in the 10 years they’ve been doing the conference.

The following is his speech.

[JAMES GUNN'S KEYNOTE, IFTA 2008]
It feels awesome to be here at the IFTA. Lloyd Kaufman, the President of Troma Entertainment, asked me to be here. Lloyd actually discovered me 12 years ago. It’s a completely true story. I was in school and went in to apply for a summer job at Troma, maybe filling papers or doing some sort of gopher work, and Lloyd offered me 150 dollars to write a screenplay. The movie was TROMEO & JULIET. It played midnight shows here in LA for a year. It was a cult hit on DVD all around the world. And since then I’ve made… altogether… a hundred and fifty dollars off it.

Well, I’m here to talk about New Media, yes? Good. Awesome. Okay. Let’s go.

When I talk to people in the film industry about my excitement regarding New Media – about non-traditional content – webisodes, short-form video, alternative reality games – that are distributed through non-traditional channels – the Internet, gaming platforms, and mobile – sometimes whomever I’m talking to is equally excited about this grand adventure of New Media, but more often a sort of soft look of terror washes over their face as if I’m about to take a cheese grater to their infant.

The infant, of course, is the old world of entertainment they’ve gotten used to. They know all the rules and now, all of the sudden, something is coming in to screw it up. They are radio in 1940. And this thing television is coming at them and they don’t know what it is.

But the exciting thing to me is that no one knew what television was going to be, not even the people who created it. They had to invent it. Through the inspiration of pioneers like Milton Berle and Ernie Kovacs, and through a long process of discovery of seeing what worked and what didn’t as popular art, the modern variety show was created, the situation comedy, the soap opera, the reality show.

Specifically, what I’ve been working on for the past six months or so has been the short-form comedy series – each episode from one minute to six minutes in length. It’s been fun to help create the language of a new form. In some ways, I think of these thingies – I like to use the technical word ‘thingies’ – I think of these thingies as the heir to the TV situation comedy – for people with short attention spans like myself – but in other ways I think of them as the heir to the now nearly-dead newspaper comic strip.  People used to read ‘Garfield’ or ‘Doonesbury’ every day.  Today they watch a YouTube video instead.

Anyway, we are on the precipice of this new world.  I have – we have the opportunity to create a popular art form from the ground up, both artistically and as a business model. Today I feel like Milton Berle, only without the enormous penis.

I’m very happy to be here today with the IFTA because I believe independent producers, for perhaps a short window of time, have an extraordinary advantage over the studios in creating New Media content. As far as original programming for the web, mobile, and gaming platforms goes, the studios cannot compete at this time.

Unlike the film and television worlds, the primary distribution outlets are not one in the same with the creators of content. In the film world, Universal makes movies for Universal to distribute into Universal theaters and on Universal DVD and onto Universal television networks.

But the primary distribution outlets for New Media – Apple, Microsoft, Google, and so on – are not in the content creation business. And that is why God made us.

Each one of these guys – the studios – has set up a New Media division. But these divisions have inherited the structures of the studio system. These structures of development, production, and marketing, may work well when creating a big-budget spectacle summer film, but when creating New Media content the structure destroys everything that will allow these episodes to be successful with the public.

People on the Internet are looking for edge. And I’m not going to lie and tell you that what they’re looking for is high art. For instance, they’d probably love a web series about a drunk girl in a bikini. Well, let’s say you’ve created the web series DRUNK GIRL IN A BIKINI for Warner Brothers. Well, the first thing that’s going to happen is they’re going to say, you know, we have close ties with Budweiser, and Budweiser is a little uncomfortable with promoting drunkenness. And you say, ‘I’m not saying Drunk Girl in a Bikini is a good thing, this is the harrowing story of a drunk girl in a bikini.’ And they say, ‘Eh, let’s let go of the drunkenness part.’ And then they say they have some shareholders who are very Christian Right, and they’re offended by the skimpy bikini. ‘So, could we change it to a sweatsuit? Sweatsuits are sexy. Plus we have a deal with Juicy Couture, so everything will work out great.’ And then they say, ‘Oh, one more thing – we have a development deal with Tom Arnold and we think he’d be great for the lead.’ And you say, ‘But he’s not a girl!’ And they say, ‘Dude, it’s the only thing we’ve asked you for! Work with us. Come on.’ And then you’re producing the TOM ARNOLD SWEATSUIT SHOW and the only people that watch it are Tom Arnold’s cousins.

The point is that the studio development process is counterproductive to creating something that’s brash and fun and different. And that’s all that people on the Internet are thirsty for.

From a financial standpoint, the studios are also handicapped. Independent producers have learned how to do things on a budget. We know how to scrounge and get things for free and near free. I am able to go onto my Myspace today and put an update at the top of my page that says ‘Looking for CGI artist to work for free,’ and by the end of the day I’ll receive a hundred reels from incredibly talented kids who are able to do amazing things in their parents’ basement. (Which is a lot different than the amazing things I did in my parents’ basement. What can I say? There was Cinemax down there.) Anyway, these kids are dying for an opportunity and I love giving it to them. The studios don’t know how to find these kids and wouldn’t even be able to utilize them correctly or respectfully if they could. Also financially, the studios are supporting these entire divisions and big salaries that don’t make any financial sense whatsoever. There simply isn’t enough money in this stuff yet.

Another advantage is the Internet has its own star system. When it comes to feature films, it’s become difficult for Independent producers to compete because movie stars who actually mean anything are not affordable or easy to get. The Internet has an entirely different star system that isn’t being taken advantage of by the studios and can be realistically taken advantage of by Independent producers on a budget. It’s unlikely you’ll get George Clooney to guest on your webisode but you might be able to get Kim Kardashian, and she’ll generate more hits than he will. And there’s a lot of other people like that, both known and fairly unknown, who can generate attention on the Internet. But, be warned, if you hire that kid who cried about Britney Spears, I’ll hate you forever. I’d cut out my mother’s heart for Internet hits, but I would never do that. Everyone has to have a line.

The final advantage independent producers have over studios is one of flexibility. We’re able to move quickly and instantly. We’re able to take advantage of current topics. At a studio, an idea has to pass through so many people before it gets to the end of the line, it becomes passé by the time it does. You end up with a Fox web series with a bunch of Walter Mondale jokes in it. They’re so hopelessly out of date they’re developing a Foster Brooks web series, even though he’s been dead for years…

Seriously, Disney.com did a complete revamping of their web site in January in 2007. It cost 30 some-odd million dollars. And now, just a few days ago, they announced what? – a revamping of their web site. They just can’t stay up to date. They have to deal with too many people.

Now maybe I’m making this all too simple. I am and have been fascinated with New Media not just because I made myself, but just because I am. I’m addicted to Myspace and Facebook and Twitter – for reasons outside of meeting girls to have sex with. Because I really like the social interactivity. I love to blog, and it’s been good to me. I think I get recognized more often on the streets from my MySpace page than from movies I’ve been in, or behind the scenes documentaries. I have a one-on-one relationship with my fans which gives me an idea of who they are, what their needs are, and how I can provide them with the entertainment they want.

Maybe you’re one of the people who freezes up with fear when the topic of New Media comes up. But maybe that’s not a problem – because there are thousands of people like me out there, who get this stuff, who enjoy this world. Who are looking for people to link up with, to produce them, to help them see their potential.

And that’s one of the things I really love about working on these Internet shorts and gaming platform productions is that they’re done on a small scale on a modest budget and I’m able to take a chance on new, young talent, and give them the opportunity to do something majestic.

I don’t really care that much about traditional filmmaking anymore. This is so much more exciting to me.

But to finish off here, I used to wonder about the future of entertainment and New Media and which way it was going to go. What was the future going to bring us? But today I wonder What am I going to bring the future? What am I going to create here? I AM – WE ARE, together – forming the future of entertainment. The future really is unwritten. It is what we want it to be.

And I feel some responsibility with that.

A few months ago I was going through a crises with my career.  I was loving creating this Internet content so much it made me lose interest in the film world. And so I looked within my heart, as deep as I could go, and I prayed to God.  I pleaded with him:  ‘What do you want me to create? What do you want me to put in this empty space before me that can be anything?’

And, deep within me, I heard the voice of God, and he said five clear words:

Drunk Girl in a Bikini.

Thank you.

James Gunn

Historic Blockbuster Store Offers Glimpse Of How Movies Were Rented In The Past

The video ends with mentions of other relics of the analog past that will seem archaic in the digital future and merit their own historical museums including the Virgin Records Music Store and Border’s Bookstore.

Not sure how you make a museum experience of it, but I’d add another lost relic to the list: Privacy.

The gist of the article is that the FCC is looking into requiring TV shows to include notices similar to what political candidates must say before or after campaign ads.

“You shouldn’t need a magnifying glass to know who’s pitching you,” said FCC Commissioner Jonathan Adelstein. “A crawl at the end of the show shrunk down so small the human eye can’t read it isn’t really in the spirit of the law.” Current rules require disclosure but allow it at the end of the show.

I’m all for staying “within the spirit of the law,” and it’s no secret that product placement irks writers and showrunners who feel it limits their creative flexibility (watch this 30 Rock clip then keep reading, I’ll wait).

Despite altruistic consumer groups like Ralph Nader’s Commercial Alert pushing the FCC to step in, the reality is that explicit disclosure of product placement (or as it’s been euphemized branded integration), would be an onerous and harsh exercise, both for the show producers  and the viewers who have grown desensitized to their exposure to ads.

Let’s look at the numbers.

According to Nielsen, American Idol had over 3,000 instances of product placement in the first quarter of 2008 (and they’re not even #1, see the chart). Even if that count represents multiple brands with replicated instances, in an FCC regulated scenario you’re looking at a earful of pre-roll callouts for the sponsoring advertisers. Sound like fun to produce?

While it probably didn’t take a whole lot of brain cells to come up with that not so subtle Coca-Cola cup placement on the American Idol judges’ table, it’s going to take an army of TV ad execs and marketing wizards in loft spaces and frosted-glass conference rooms to brainstorm creative ways to morph the traditional “brought-to-you-by” messaging into something more culturally relevant.

If you’re cringing through Ryan Seacrest’s intros now, just wait until the FCC regulation means he has to call out all the brands that sign his check with a hip and edgy delivery.

Who wins in this situation? Arguably the brands themselves. They’re essentially get a subsidy for premium placement on the show’s opening. It would be tough for the networks to justify charging the advertisers if the government is forcing their hand.

But I digress.

What’s more important to me and the plethora of content creators looking to make money online is the potential affect on digital brand integration campaigns if the FCC TV regulations were to slide down to digital platforms.

According to the WSJ article, last year saw a 33% annual increase in prodcuct placement spending on TV to 2.9 billion. I haven’t seen the numbers for the same spending for online content, but I’m keenly aware of an a similar growth trend.

Right now, there’s real money for content creators, ad agencies and independent producers in branded entertainment for online. The smartest brands, and the ones ready to spend right now, are increasingly interested in viral, unbranded, culturally relevant content. They don’t want their content to be thought of as a commercial, it’s entertainment, actually it’s the hybrid of the two, advertainment.

Yes, it’s important for the brand to get its message across and to create awareness and be associated with the content, but brands want to do it on their terms, on their schedule and once they know that they content itself has achieve a degree of success measured by word-of mouth.

A great example is the Levi’s Dude-Jumping-Into-Jeans Youtube clip that had no branding  until it was outted on Good Morning America after racking up millions of views.

Part of the allure of viral marketing is the power to offer a chance for consumers to discover the reality behind an unbranded campaign. It’s what is so unique about the web and is the same concept that drives interest in ARGs, Alternative Reality Games. Create a leading piece of content that has layers of discoverable and linkable ancillary background information that can enhance and deepen the consumers experience and value of a brand, movie, video game or TV franchise (Lost has a great ARG).

But if every piece of sponsored web content, be it unbranded viral campaign or ARG, is required by the FCC to announce itself upfront, the digital handcuffs will come out and restrict the creative ability and utility of viral web marketing. And that would be FCCK’d.

Two campers are relaxing around the fire, intoxicated from a long meal and lots of beer. All of a sudden, a young, hungry, bear appears. The two campers look at each other. It’s clear that they’re about to become bear food. The first camper starts to lace up his shoes. The second camper says: “what are you doing? You can’t outrun the bear!” to which the first camper responds: “No. But I can outrun you.”

It’s an old joke that remains relevant to a varied swath of economic principles. Don’t try to beat the market, just beat the guy next to you.

But let’s extend the metaphor and add some color.

We all know the bear is the market: in our case, you can’t outrun the demands of growing population of digitally entitled consumers.

But if the second camper is the music industry (specifically the music labels), destined to be devoured and regurgitated into an unrecognizable representation of its former self, and the first camper is the entertainment industry (specifically the TV and movie studios), fighting a poly-front war against fickle fans, technology disruption, piracy, archaic business models, bloat, Google, advertising ROI ineptitude, retailer pushback and every other conceivable factor that drives this sea-change that we’re witnessing in the way entertainment content is made and viewed, then what are the shoes?

What are the instruments that the big players are using to outlast the bear? Will they ever pull ahead and tame the beast? Do these tools really allow the studios to mitigate the timeline of their own demise or are they  fast enough to provide the studios with enough time to resurrect themselves like phoenixes rising from the ashes of digital dissolution?

It’s not the most satisfying or specific of answers, but the shoes, as such, are listed in the title of this post.

I’ve bolded the above for emphasis, but no doubt you already noticed the discrepancy in the spelling of the company’s name, Schwaggin’, and the spelling of the noun in their description, swag.

It’s an all too common mistake to use the word schwag when you mean to say swag. Even Wired Magazine isn’t immune to the trappings of what amounts to dialect diligence. The two words are not interchangeable and it’s unforgivable for a sophisticated, altruistic company like The Schwaggin’ Wagon to perpetuate this misnomer. It’s time to set the record straight.

Swag means promotional items, tchotchkes, or giveaways

Schwag means low-grad marijuana.

When schwag is misused in an attempt to mean swag the detriment to society is immeasurable. Hollywood publicity flackeries, technology convention organizers and penny-pinching stoners all suffer from this egregious indiscretion because it confuses the market-at-large.

I left word with the consumer service reps at Schwaggin’ Wagon to ask them about the discrepancy. Apparently they’re busy hording green pairs of Crocs at The Hulk premiere and will get back to me ASAP.

What’s the connection between this rant and web video economics?

The confusion caused by the improper interchangeability of swag and schwag is analogous to the obfuscation of a sustainable market for original web video caused by a lack of standardized, dynamic and ROI friendly advertising metrics for social media.

Duh.

Either that or folks should just stay off the schwag.

My doctor says laughter is the best medicine.

He also gave me six months to live. When I told him I couldn’t pay his bill, he gave me another six months.

But seriously folks, is today’s announcement of FunnyorDie’s partnership with HBO a step towards treatment for the ailing web video economy or is it just another symptom of a distressed digital development system grasping for a cure from a declining distribution channel?

Say what you will about FOD’s, traffic, strategy or content, but all the noise about whether or not FunnyorDie has a real digital business, or as I argued, is irrelevant as a web property, is made moot by today’s announcement.

And that’s a good thing. Which we can all laugh about.

It’s a good deal for both parties despite the economics.

From a publicity perspective, HBO’s struggles to rediscover their voice post-Sopranos gets a shot in the arm with access to the FOD library and talent list. What’s the over / under on the usage of the word “edgy” over at HBO today? A million, and I’ll take the over.

HBO gets an equity position in FOD, which will end up being more of a burden then if they were to license content on a first-look basis. You own it… you’re married to it and better make it work.

The big win for HBO is that they get what amounts to a digital studio. A team of creators, marketers and web developers who have been working from lean web budgets, building interactive platforms and managing fickle talent relationships since April 2007. That’s a lifetime for online and is a lot harder than most people think. Just ask HBO, who launched and subsequently killed their own comedy site initiative, ThisJustIn.com, after a matter of a few dreadful months.

On the flip side, FOD gets a much needed, yet somewhat symbolic (less than $10M), revenue infusion and a financing deal to produce 10 hours of content, original or otherwise.

More importantly, they get in HBO, a marketing and distribution machine that can drive traffic, push content and offer real upstreaming opportunities.

Yes, Will Ferrell and HBO were already in bed together on a handful of projects and no, neither he not Judd Apatow nor any of the other A-listers behind FOD needed this deal to get their calls returned by HBO’s development execs. But FOD gets a big increase in brand goodwill by tying their boat to HBO, still considered the gold standard of premium niche content on the reigning king of platforms, TV.

Looking beyond the wins for the two parties, this is an important announcement for web video economics at large and there’s reason we should all be laughing along with, not at, this deal.

Studios and networks are finally coming to terms with the reality that producing compelling content for digital platforms isn’t in their DNA.

There are too many infrastructure issues, guild concerns, budget bloat, kill-your-colleague politics, bureaucratic gerrymandering, creative constipation and corporate development spam that leads to poorly produced, overpriced, irrelevant content that dies on the vine before anyone even had a chance to care.

By the way, you don’t need to be a major studio or network to produce a bad show, just ask the critics who slammed Michael Eisner’s new piece, Foreign Body. Ouch.

Today’s FOD / HBO deal is a great example of the trend towards big studios and networks striking independent production deals for web video. It’s the rough equivalent of the way of the early days of independent film an TV producers getting studio deals. Spelling Entertainment, Carsey-Werner, Miramax and many others all had independent runs producing for distributors. In some cases these collaborations led to acquisitions and in some cases it didn’t. As the market developed, studios built out their own specialty divisions. In some cases they sustain (Fox Searchlight), in some cases they succumb to the death knell, (Paramount Vantage).

Studio have always gone to third-parties to produce their content. For the most part, today’s major studios are essentially banks that finance projects and teams of marketers whose jobs are to ensure that the studio investment sees a return. This, coupled with access to distribution through exhibitor relations makes up the skeleton of the studio system. But the content comes from good partnerships.

Studios and network need production houses that can not only deliver compelling content on a budget, but have the resources to cover legal, equipment and personnel support. Liability and E&O insurance isn’t cheap and if you want to do a deal with a major distributor, you need to have those areas covered. This is a barrier to entry to many of the smaller, independent producers looking for financing and distribution partnerships.

Here’s the corollary to today’s web video deals. FOD gets their HBO deal. EQAL, the new company from LonelyGirl15 creators Miles Beckett and Greg Goodfried, has a first look deal with CBS. Here at SDG we have an Xbox deal.

I’m a big believer that the independent digital studios aligned with major distributors is the immediate future of premium, original production arrangements. But not everyone agrees. Yet.

Some studios and networks have opted for on-the-lot type deals. ABC and Disney have Stage 9, Warners has Studio 2.0, Sony has its various digital production teams working on Playstation 3 content and beyond. Thomas Lesinski at Paramount has what I would consider to be the purest example of an in-house digital team.

The macro is that we’re getting closer to a real market for premium digital content production and distribution. For that market to exist, we need scarcity in both the resource that is the content producer and the real estate that is the distribution pipeline. That means a shakeout on both ends, which we’re seeing now.

Consolidation will move the needle in helping to set the value of content, one of the major roadblocks in the development of sustainable web video economics. The good news is that there’s plenty of room in the digital market and viewership fragmentation means more demand for long-tail content. Let’s all hope this FOD / HBO deal works out and opens the door for additional layers of content and broader paths for producers to tell great stories and laugh all the way to the bank.

NPR’s Claude Brodesser recently asked Wired Magazine’s Chris Anderson for his thoughts on the size and effectiveness of movie marketing budgets. Claude suggested that the new Indiana Jones movie was so highly anticipated, had such awareness and pedigree that despite opening to over $311 million worldwide, Paramount must have overspent in its $100 million plus marketing campaign. Right?

Nobody knows anything.

Oscar-winning screenwriter William Goldman’s famous dictum about Hollywood starts to answer the question, Chris Anderson completes it.

Chris pleaded ignorance in the specifics of the movie business, but his general assumption was spot on: marketing spends are the studio equivalent to taking out an insurance policy to cover the risk against the movie not opening.

Insurance is a bet. You pay upfront for protection in case something happens that you couldn’t predict. You’re betting against your ability to tell the future.

Because no one knows anything. Remember? Malcolm Gladwell, recounting Goldman’s line in the New Yorker, says:

“Not one person in the entire motion picture field knows for a certainty what’s going to work. Every time out it’s a guess.” One of the highest-grossing movies in history, “”Raiders of the Lost Ark,” was offered to every studio in Hollywood, Goldman writes, and every one of them turned it down except Paramount: “Why did Paramount say yes? Because nobody knows anything. And why did all the other studios say no? Because nobody knows anything. And why did Universal, the mightiest studio of all, pass on Star Wars? . . . Because nobody, nobody—not now, not ever—knows the least goddamn thing about what is or isn’t going to work at the box office.”

Gladwell articulates this best in his piece on box office predictions, but the point is that forecasting box office success is ridiculously speculative. Traditional research and tracking companies like NRG, OTX and MarketCast are notoriously inaccurate, leaving studios in relative ignorance as to whether they have a box office winner until the Friday numbers come in.

Because box office predictions are so speculative, marketing spends become bigger gamble. As digital distribution and technology innovation continues to disrupt and reform the norms of consumer behavior, marketing costs have risen. The studios are forced to make bigger bets partly because they don’t know where or how to engage audiences.

Sometimes bets pay off and everyone keeps their jobs, sometimes they don’t and heads roll.

One of the problems is that because the current tracking services are ineffective, there’s an inherent conflict in the studio marketing philosophy:

Spend on media and marketing, but don’t throw good money after bad. If your movie is tracking in the dirt , cut back your spend wherever you can. Sounds easy enough, but at what point do you know if your product is a lemon if your tracking metrics aren’t giving you good information?

You don’t really know until you open.

So you have to make a bet and take out an insurance policy. How often do you feel like you’ve overpaid for insurance?

In hindsight, Indy’s success might be a no-brainer, but until positive reviews started to come out of its first screening at Cannes, no one knew what to expect. By the time the film’s word of mouth was clearly positive, the marketing budget had been spent. Studios run their media spend up until the movie’s release. If the film does well, they may push a modest second week boost campaign through with updated messaging (#1 Movie in America!), but for the most part marketing is a sunk cost.

On the other hand, Warners put almost $250 million into making and marketing Speed Racer. The movie opened to only $20 million. My friend at Mattel tells me they’re going to sell more in licensing and merchandising than the studio will ever gross domestically. Probably not what they had in mind at Warners or Village Roadshow.

Movie marketing is a gamble measured against the unpredictability in box office forecasting. The more unpredictable your movie, the higher the risk. That’s one reason studios like to mitigate risk by greenlighting relatively safe commercial fare.

It would seem reasonable that the opposite were true. As Claude pointed out, the more predictable your success, the less you should have to pay to insure against failure. However, the studios have a gambling problem and as anyone in the insurance game knows, you pay a premium for risky business.