[Reader-list] HP Labs Innovation Research Program / the Future of Independent Movie Production

[rohitrellan at aol.in]

Collaborative Research With HP

HP Labs is Pleased to Announce the IRP 2011 Call for Proposals

HP Labs' Innovation Research Program (IRP) is designed to create 
opportunities at colleges, universities and research institutes around 
the world for collaborative research with HP. Through an annual, open 
Call for Proposals, we solicit your best ideas on a range of targeted 
research topics with the goal of establishing new research 
collaborations. Proposals are reviewed by HP Labs scientists and 
selected to receive funding awards based on their alignment with the 
chosen research topic and expected impact of the proposed research.

Awards made through the IRP are primarily intended to provide financial 
support for a graduate student to assist the Principal Investigator in 
conducting a collaborative research project with HP Labs. Awards 
provide cash support for one year, typically in the range USD $50,000 - 
$75,000 inclusive of overheads, renewable up to a maximum of three 
years at HP's discretion.

Educators interested in HP’s Social Innovation in Education programs 
should visit HP Global Social Innovation for more 
information.http://www.hp.com/hpinfo/socialinnovation/index.html

Program Guidelines
Please read the Guide to the 2011 IRP carefully before submitting your 
proposal.http://www.hpl.hp.com/open_innovation/irp/HPL-IRP2011.pdf

The 2011 call for proposals will have two rounds. In the first round, 
participants are asked to submit an abstract of their proposed 
collaborative research project. All submitted abstracts will be 
reviewed and selected authors will be invited to develop and submit a 
full proposal in the second round. Award decisions will be made in 
early May after full proposals have been reviewed.

Participants must ensure that no confidential or proprietary 
information is included in submitted proposals. HP will treat all 
information submitted in proposals as non-confidential and 
non-proprietary.

All IRP awards are made subject to acceptance of a HP Labs 
Collaborative Research Agreement (CRA) by the awardee's institution. No 
action is required in respect of the CRA in the first round of the call 
for proposals. Full details will be provided to applicants who are 
invited to participate in the second round.

If you received an award in 2010 you will be contacted in March 2011 
regarding renewal of funding and should not re-submit your proposal 
through the call.

Research Topics
Submitted proposals must align with one of the research topics 
described in the Guide to the 2011 IRP. Please read the topics 
carefully before submitting your proposal. If your proposal applies to 
more than one topic area please select the closest match and note the 
fact in your submission.

-- 30 December: Please note that the Guide to the 2011 IRP now includes 
an additional research topic under "Information Analytics" --

Proposal Submission


The online submission system will begin accepting proposals for the 
2011 IRP on Monday 3 January. The deadline to submit a proposal is 5:00 
p.m. Pacific Time on Friday 4 February 2011.

Go to the proposal submission system 
https://www-apps.hpl.hp.com/irp-2011/


Important Dates
December 2010 - 2011 Program Guidelines published
Monday 3 January 2011 - Proposal submission system opens
Friday 4 February 2011, 5:00 p.m. Pacific Time - Deadline for abstract 
submissions
Monday 7 March 2011 - Notification of abstract decisions begins
Friday 1 April 2011, 5:00 p.m. Pacific Time - Deadline for invited full 
proposal submissions
Monday 2 May 2011 - Notification of 2011 award decisions begins


Frequently Asked Questions (FAQs) 
http://www.hpl.hp.com/open_innovation/irp/faq.html
Additional information is available in the IRP FAQs.

----------------------------------------
No Hollywood Ending: Filmmaker James Kerwin on the Future of 
Independent Movie Production

Published: January 05, 2011 in Knowledge at Wharton

Aspiring filmmaker James Kerwin had an image in his mind -- a 1940s-era 
Lauren Bacall wearing Humphrey Bogart's trench coat and walking through 
city streets at night. That image was the genesis of his first feature 
film, Yesterday Was a Lie, a black-and-white noir-style science fiction 
mystery starring Kipleigh Brown, Chase Masterson (who also served as 
producer) and John Newton. The independently produced film draws on 
myriad arcane influences ranging from Jungian psychology to quantum 
physics.

To fund the film, Kerwin used an approach that is uncommon in motion 
picture production: He established a tax exempt non-profit organization 
to raise the roughly $200,000 he needed. He was also fortunate enough 
to be awarded a grant from Panavision, which supplied most of his 
equipment.

Yet, as Lance Weiler, another independent filmmaker, previously told 
Knowledge at Wharton, "the real struggle comes when it's time to 
distribute" your movie. "Making the film is easy in comparison." If you 
want your film to be exhibited in a theater or your DVD to be available 
through the major retail chains, you need to have your film picked up 
by a major distributor. And working with a well-known one doesn't 
guarantee you'll generate enough revenue to fund your next project.

The economics of filmmaking are not unlike the "Tarzan economics" 
described by music industry consultant Jim Griffin: Everyone wants to 
swing forward to grab the next vine of the digital future but is afraid 
to let go of the old vine first.

In the case of filmmaking, the current vine is already slipping through 
filmmakers' fingers. The revenue streams from media sales -- DVDs and 
Blu-ray discs -- are eroding. The revenues from the new digital 
distribution methods that are replacing these media -- online streaming 
and digital downloads -- have not advanced sufficiently to fill the gap.

Knowledge at Wharton recently met with Kerwin in Los Angeles, Calif., to 
discuss the business of independent filmmaking, his film's long journey 
 from concept to distribution, and his views on the business models -- 
and the perils -- of movie distribution. Kerwin takes a dour view of 
the business model behind Netflix's streaming business -- believing it 
is not economically sustainable -- and he sees Internet piracy as a 
growing threat to content producers.

An edited version of that conversation follows.

Knowledge at Wharton: After some student film projects and a period 
directing live theater, you wrote and directed your first full-length 
movie, Yesterday was a Lie. What was the impetus to do a feature film?

James Kerwin: I started feeling a little constricted directing theater. 
You have such a huge pallet when you're directing film. It's not just 
the performances and the blocking and the lighting. It's the mise en 
scène, where you're placing the camera, f-stops and exposure levels, 
sound design, and musical score. The way you cut scenes completely 
alters their feel. Many of these cinematic tools are not available to 
you as a theater director.

Theater is more of an actor's medium than a director's medium. Once the 
curtain goes up, you have turned your show over to the actors. You 
can't re-take. You can't alter a performance slightly by editing. That 
feels somewhat constricting if you have a background directing film.

So, I said, "I really need to get back into film." I'd been developing 
some script ideas on the back burner for several years. But this script 
idea -- to use science fiction/noir and the theme of the nature of time 
as a metaphor for people's relationships -- just came out of nowhere.

Knowledge at Wharton: Can you recall when you first had the idea for the 
film?

Kerwin: The very first image I had was of Lauren Bacall, dressed like 
Bogart, walking the streets at night. It just came to me out of the 
blue. I knew [the film would deal with] science fiction and the nature 
of the way our consciousness experiences reality. When that one shot 
appeared in my mind, I knew right then, "I've got to make this."

Knowledge at Wharton: The movie deals with a number of unusual topics, 
such as quantum physics and Jungian psychology. Were you concerned 
about doing something so out of the mainstream for your first feature?

Kerwin: It was a calculated move. If you become more established, 
you're going to be restricted from doing something that's kind of out 
there. It's your first film that you get to be a little experimental 
with. If you look at Darren Aronofsky, Richard Kelly, Shane Carruth -- 
their first, low-budget films were [unconventional].

The independent film market has been flooded for 15 or 20 years -- 
since Reservoir Dogs -- with people all making the same film. When I 
was touring around film festivals with my short in the late 1990s, I 
remember thinking, "Every film in these festivals is the same 
independent film over and over and over and over again."

It's the ones that are totally unique that stand out. [Darren 
Aronofsky's early feature film] Pi is a perfect example. It's like, 
"Whoa. I've never seen an independent film like that before." So, it 
was a calculated move to do something totally different than anything 
you'd ever seen before.

Obviously the concern is: Is that going to find an audience? We knew 
 from the beginning that it wasn't going to find a broad audience. The 
intent was for it to find a specific audience that would like it and be 
very loyal to it.

Knowledge at Wharton: Did you try to shop around the screenplay to find a 
distribution partner before going into production?

Kerwin: No. I knew that this screenplay would probably never sell. And 
if it did, it would be altered before it was made. I wanted to direct 
it. I don't consider myself a writer. I'm a director. I didn't want to 
sell the script to somebody else to make it.

Knowledge at Wharton: This approach meant you had to raise all the funding 
yourself. Was that a challenge?

Kerwin: Yes. It took a couple of years.

Knowledge at Wharton: How much did the film cost to produce?

Kerwin: $200,000.

Knowledge at Wharton: The film was produced under Helicon Arts 
Cooperative, which is a 501(c)(3) tax-exempt nonprofit arts 
organization. What is the advantage of that approach? Does it make the 
financing easier?

Kerwin: Financing any piece of art through a non-profit has pros and 
cons. Many theater companies, operas and visual artists operate that 
way. Not a lot of films are financed that way, but it can be done.

It's not a traditional investment model. You're not going to investors 
saying, "If you buy a share in my LP, or LLC, you hope to get this type 
of return on investment." Instead, it's patrons of the arts donating to 
an arts organization, a private operating foundation that is designed 
to create pieces of art. They're not going to get their money back. 
It's a tax write-off.

If you happen to know people -- family, friends, relatives, your 
dentist, people you went to school with, friends of friends -- who are 
looking for tax write-offs, and we happened to find ourselves in that 
particular situation at the time, then that might be a route to go for 
you. But I wouldn't necessarily recommend it for everyone.

Knowledge at Wharton: As you said, this approach is fairly common for 
plays and musical productions, but is rare in cinema. Why is that?

Kerwin: I think there's just an idea that live theater is more artistic 
than cinema. And, frankly, it often is. Motion pictures are a business, 
whereas live theater is primarily about the art. But that doesn't mean 
that motion pictures can't be about the art.

Also, plays generally cost less to make than a film. Even [the budget 
of] a film like Yesterday Was a Lie, [which] is considered in SAG's 
[the Screen Actor Guild's] ultra-low-budget category, seems like a 
fortune [when compared to the cost of] a play. But that's pennies for a 
motion picture. People are much more hesitant to donate large sums of 
money. And you have to get more people in order to raise that much 
money. It becomes counterproductive at a certain point. People who are 
willing to shell out that kind of money usually are doing so because 
they're looking at it as an investment and they want a return.

Knowledge at Wharton: What are the ramifications of this approach? If the 
film becomes a runaway hit and brings in millions of dollars, what 
happens to that money?

Kerwin: As a 501(c)(3), if Helicon Arts Cooperative were to make any 
type of, quote, "profit" from the film, that money could not be 
dispersed among individual people. It would have to go into Helicon's 
mission statement, as a 501(c)(3) registered with the IRS, to produce 
more pieces of art.

Knowledge at Wharton: What are your real costs for a feature film like 
this? Where does the $200K go?

Kerwin: There's one major cost: Talent, the actors. And your 
above-the-line crew gets paid a significant amount for their work -- 
[although], on this film, [it was] not a significant amount. [Then 
there is] renting equipment, post-production expenses, renting time at 
editing suites and mixing studios, costumes and things like that.

The majority of it usually goes towards equipment rental. You need a 
10-ton grip truck, a lot of lights, jib arms, and [so forth].

You also need a camera. For this particular film, we did not want to 
shoot with a consumer or "pro-sumer" camera, the way a lot of indie 
filmmakers think they can do.

Knowledge at Wharton: And now some established directors like David Lynch.

Kerwin: Some established directors -- like [Steven] Soderbergh -- will 
do it because they think it adds a charm or genuineness to their 
projects. But there's a world of difference between a consumer high-def 
camera and a cinema high-def camera. You can't buy a good high-def 
camera to shoot a movie that's going to be released at a movie theater 
for a few thousand dollars. The type of high-def cameras that are used 
to shoot real feature films -- the CineAlta or the Genesis -- cost 
hundreds of thousands of dollars. They're very expensive pieces of 
equipment.

We could not afford that. So, thank God, we got the Panavision New 
Filmmaker grant based on the strength of the script. Panavision reads 
hundreds of scripts a year that apply for this program, and they [award 
the grant] to only a few a year.

Panavision donated the use of a complete camera package: The [Sony] 
CineAlta, the sticks, the heads, the video feedback system, the lenses, 
everything. [The film] was shot with very high-end camera equipment 
that we never would have been able to afford.

Knowledge at Wharton: Did you have a plan B?

Kerwin: Plan B would have been to shoot it with a pro-sumer camera -- 
buy a Sony-Z1U at Best Buy. The problem is that you're never going to 
get a theatrical release. You're even not particularly likely to get a 
home video release through a real studio, because the image quality 
just is not there. The CCD [imaging sensor] is [small], there's one 
zoom lens that's usually not that high quality, and there's massive 
amounts of compression being applied.

We now have digital SLR cameras that shoot high-def video. You see 
those used on some television shows for some second unit [ancillary 
footage]. And those are good, although they have problems. They have 
overheating problems. You get shutter flicker problems, especially when 
you move the camera. And, even in the good ones, you're recording 
compressed video. It looks okay for broadcast, because things coming 
over your cable line are already pretty compressed. But you can't 
project that in a movie theater.

Knowledge at Wharton: After showing the film on the festival circuit for a 
year or so, you found a distributor with Entertainment One 
Distribution. Can you explain that process?

Kerwin: There's no real trick to it. It's just playing on the festival 
circuit. If your film is good, you're going to win some awards. That 
gets distributors' attention.

Distributors don't tend to attend festivals. It's a bit of a myth that 
if you play at a lot of festivals, a distributor will see it and then 
make an offer. It's extremely rare for a distributor to make an offer 
because they saw something at a festival -- even at Sundance. It can 
happen, but it's rare these days.

More often than not, you're cold-calling the distributor and saying, 
"Have you heard about this film? I'll send you a press package. Let's 
send you a screener copy and see what you think." You do that for 
dozens and dozens and dozens of distributors. Some bite and some don't. 
And we had some of them bite, and of those, we went with the one that 
made us the best offer.

Knowledge at Wharton: How do you determine what the best offer is? Is it 
the largest percentage of revenue share or access to theatrical or 
retail distribution channels or something else?

Kerwin: When I say, "makes you the best offer" it's not necessarily 
what percentage of the sales they're going to give you. It's: What 
channels do they have? On what shelves are they going to get the DVD?

A smaller distributor might say, "We're going to give you a huge chunk 
of our sales." But if it's a distributor that you've barely heard of, 
and you look at the other titles they've released and you've never 
heard of those, that's a warning sign that people are never going to 
hear of your title.

If you go with a distributor like Entertainment One that releases a lot 
of films and television shows on DVD -- and their DVDs are at Barnes & 
Noble, Best Buy and Wal-Mart -- you know that your product's going to 
get more visibility. Those things are more important than what 
percentage they're going to give you.

Knowledge at Wharton: There are a number of songs in the movie. Initially 
you obtained musical clearances only for the festival circuit because 
it's more economical at that stage -- is that right?

Kerwin: Yes. That's pretty typical, actually.

Knowledge at Wharton: But when you got the distributor, you had to go back 
and renegotiate for the broader rights. Because the film is already 
completed, doesn't that put you in a bad bargaining position?

Kerwin: Horrific bargaining position. And you better know going into it 
that you're going to be at a major disadvantage.

You have to weigh the pros versus the cons. In our case, we thought it 
was worth it, because the jazz in this film is so important to the 
storytelling. The songs aren't just there as background. They further 
the story. When you have one of the two main characters who is a singer 
and she is singing these songs specifically to the other character in 
order to teach her lessons, we thought that if we had sound-alike 
songs, it would be pretty transparent to our audience.

So, we made the creative decision that it would be worth it to take the 
risk and include real jazz songs, negotiate for the festival rights and 
have clauses that say, "If this film sells to a distributor, both 
parties agree to negotiate in good faith for what those broad rights 
are."

The problem is that "good faith" means different things to different 
people. When we finally got a distributor, one of the music licenses 
did not negotiate in good faith. And that song had to be cut and the 
film had to be re-edited for its commercial release.

Knowledge at Wharton: Why is music licensing such a morass for filmmakers?

Kerwin: The music industry is still stuck in the 1980s. The rights they 
sell are completely fragmented: theatrical, non-theatrical, digital, 
videogram -- which means DVD -- videotape, Blu-ray, laser disc. The 
videogram rights [are distinct from] the digital streaming rights or 
the digital download rights. If you want the right to screen your film 
in a hotel, that's different than the right to screen the film in a 
movie theater. It's an absolute accounting nightmare. Why are we 
defining these things as different when they're really not?

Knowledge at Wharton: What's the practical impact of all this for a 
filmmaker?

Kerwin: It makes it impossible to move quickly. The release of 
Yesterday Was a Lie was delayed not because E1 didn't license the film 
 from us, but because the song licensers took forever to agree to the 
cost and the release in all the various territories.

The rights are so fragmented. The people who own the rights to the song 
everywhere else in the world had no idea who owned the rights in 
certain Caribbean countries. It went on for, like, six months. And then 
finally, they said, "Oh, we found a piece of paper in a file cabinet in 
a closet that said we actually own them." That's how bad it is. It's so 
fragmented. And it just takes forever.

The irony is that the companies are paying the lawyers to draft these 
contracts and sort through file cabinets to figure out who has the 
rights. In many cases, it's costing them more to pay their lawyers to 
draft these complicated contracts than they're making.

Knowledge at Wharton: Now that the film is available on DVD, what 
techniques did you use to promote it?

Kerwin: We didn't have a marketing budget. E1 has their own marketing 
department that markets through their channels -- magazine ads, online 
ads, catalogs to third-party DVD vendors, renting booths at Comic-Con 
and bringing in [actors from the film] like Chase [Masterson] and Peter 
[Mayhew] to sign at the booth and give out promotional fliers about the 
movie.

We also hired our own publicist to publicize the film before the DVD 
release. They sent out press releases, contacted the trades magazines 
and things like that.

Because we didn't have much of a budget, you've got to work the social 
networking sites. I know that sounds clichéd, but you do. You have to 
do viral stuff. You have to use YouTube and Facebook and Twitter to 
your advantage. That's how you generate interest.

Knowledge at Wharton: The film is now available through several channels 
-- for download through iTunes, through streaming through Netflix, for 
purchase on DVD. What are the relative merits of each of these from a 
financial standpoint?

Kerwin: That's difficult [to say]. Netflix streaming is a weird beast 
right now. It's new and people aren't quite sure how to deal with it 
yet. And studios definitely aren't quite sure how to monetize it.

Netflix pays a flat license fee to the studio for the right to stream a 
film for one year. [The film] can be streamed an unlimited number of 
times by all Netflix subscribers. [Subscribers] don't pay Netflix per 
stream and Netflix does not pay the studio per stream.

So it's a weird gamble: If you didn't sell the streaming rights to 
Netflix, would you sell more DVDs? Our entire fan base -- tech-savvy 
people -- is Netflix subscribers. They can now watch the movie for an 
unlimited number of times for free whenever they want to. Why would 
they buy the DVD?

You have to hope that you're selling those streaming rights to Netflix 
for more than you would have made in DVD sales. Because --  no doubt 
about it -- it cannibalizes your DVD sales.

Paramount and several of the other studios just signed a deal with 
Netflix where Netflix has complete access to their entire library, but 
Netflix had to pay a fortune for it -- and Netflix can't release the 
films on streaming until three months after they've been on cable.

Knowledge at Wharton: The studios have forced Netflix to push back its 
release window in an attempt to protect DVD sales.

Kerwin: Everybody's trying to figure out how that's going to work 
monetarily. It's not sustainable the way it is right now, frankly, 
because Netflix is giving away so much content effectively for free to 
their subscribers.

Netflix streaming now accounts for 20% of all landline Internet usage 
during peak hours in America. A massive amount of people are watching 
movies for free now. And that is why a lot of studios have been 
resistant to sell streaming rights to their new titles. They're like, 
"Dude. We're losing a fortune on it. Look at how many people are 
watching our stuff for free!"

This is not sustainable. It's like a car dealership where you pay $10 a 
month and get an unlimited number of cars. That sounds great, but the 
roads are going to start collapsing pretty soon, because everybody's 
going to keep taking more cars. And, after a while, the people who make 
the cars are going to say, "Wait. This isn't worth it."

Digital distribution is the wave of the future, but we're not at the 
future yet. In order to get there, Netflix is going to have to jack up 
the rates that their customers pay and/or they're going to have to 
limit the number of videos that a customer can stream per month -- 
because the studios are going to start demanding higher rates. 
Otherwise, this is just going to implode.

The other problem is the streaming quality of Netflix videos. Netflix 
claims they stream in 1080p, which they do, but it's so compressed. 
Buying an HD movie on iTunes, which is 720p, you're going to see much 
higher quality than streaming it on Netflix in 1080p. Even a DVD, which 
is standard definition, is going to look just about as good or better 
than Netflix streaming. The other advantage of the DVD is you get all 
the special features like a commentary track. I'm very much an advocate 
of buying films on DVD rather than streaming them.

Knowledge at Wharton: In the case of Yesterday Was a Lie, who makes these 
distribution decisions? Is it E1, is it Helicon, is it you?

Kerwin: It's all E1. This is an E1 film now.

Knowledge at Wharton: If it were under your control, would you not do the 
Netflix deal?

Kerwin: That's a tough one. Netflix paid a nice sum for the rights, 
 from what I'm told. But I don't know if it is as much as E1 would have 
made in DVD sales. I have a sense that it's not. We have run into a lot 
of people who say, "Oh, I'll just watch it on Netflix streaming. I 
don't need to buy the DVD." That's frustrating to hear.

Knowledge at Wharton: In a case like this, where you have a distribution 
deal with E1, do you get a percentage of the revenues from these 
channels -- the DVD sales, the iTunes downloads, the amount Netflix 
pays -- or do you get a lump sum from E1? How does that work?

Kerwin: Legally, I can't get into the specifics of our deal. When a 
studio licenses a film from a production company, sometimes they pay an 
advance, sometimes they won't. Sometimes they will cover costs to 
finish the film or the debts that were incurred on the film.

Theoretically, as far as percentage of DVD sales or streaming rights 
sales, the distributor's not going to start giving the money back to 
the production company until they clear their expenses.

Knowledge at Wharton: In the world of Hollywood accounting, does that ever 
happen?

Kerwin: Yes, it does. There are distributors that are jerks. E1 is not. 
They have a reputation for being extremely transparent with their 
filmmakers. We know how much they spent on releasing the film, 
marketing it and manufacturing the DVDs. We know how much money they 
need to make back before they would give any money to us. In which 
case, that would go to our union percentages, residuals, and then 
deferred salaries and things like that.

There's a whole other [issue] with royalty percentages that 
above-the-line talent often negotiates with production companies. 
You'll hear cases where a writer will say, "In exchange for this 
screenplay, I want 10% or 20% of the production company's net revenue 
 from the project." And then, inevitably, the writer will get nothing. 
He'll sue them and people will say, "Oh, those jerks in Hollywood. They 
cook the books to make it look like they didn't make any money."

What people don't understand is that the budget of a film is not the 
complete cost of making the film. There's also P&A -- which is prints 
and advertising. The cost of actually releasing the film is often 
double the budget.

Knowledge at Wharton: And in the case of your film, that is over and above 
the $200,000, which is just the production cost?

Kerwin: Right. The writer says, "That movie made $200 million at the 
box office, but they claim they never made any money." Well, they 
didn't make any money because they spent more than that on advertising 
and marketing the project.

Where they made their money was in DVD sales. So, if above-the-line 
talent were smart, in my opinion, they would stop negotiating for a 
percentage of theatrical box office net because there's never hardly 
ever theatrical box office net. Even for big films, the theatrical box 
office is usually a loss leader for DVD sales. It's an advertisement 
for your DVD. If writers who negotiated a percentage on the back end 
were smart, they would negotiate for a percentage of the gross DVD 
sales.

Knowledge at Wharton: Gareth Edwards, who directed the modestly-budgeted 
film Monsters, pointed out that there is a good business model for very 
inexpensive films like Paranormal Activity. If your film cost $10,000 
or $20,000, you can easily make your money back. And if you're a major 
studio and you're spending tens -- or hundreds -- of millions of 
dollars, you can often make the money back through theatrical 
distribution and DVDs. It's the in-between films -- those in the 
low-hundreds of thousands of dollars -- that are particularly 
challenging to monetize. But that's exactly the space that you're in.

Kerwin: You're right, that's the problem. If you're making a $200 
million blockbuster, the studio is going to put everything they can 
behind it, advertisements will be all over the place and you're going 
to make money on DVD sales. With the theatrical box office, you'll 
probably break even once the marketing costs are taken into account, 
even for huge films. But with DVD sales, you're just making gold there.

[On the other hand,] Paranormal Activity will make lot of money because 
it only cost them $10,000 or whatever to make. But there's no real 
business model for a $200,000, $500,000, or even a million-dollar film. 
It cost too much to make its money back from a small amount of DVD 
sales, but it didn't cost enough for a distributor to put a huge 
marketing campaign behind it.

Knowledge at Wharton: Since DVD sales are decreasing and, as you've said, 
streaming models like Netflix don't fill the gap monetarily, how will 
the industry sustain itself?

Kerwin: I don't know. You have a two-pronged assault on the 
distribution model. One is the advent of streaming. The other is 
piracy. Those are eating up DVD sales. If the industry's going to 
survive, the distribution model has to change.

[We need] a smarter way to monetize digital distribution. iTunes 
figured out a way to do it with music. Before the music industry 
collapsed under piracy, [Apple] said, "Make it easier to buy the song 
for $.99 than to search for it on BitTorrent." They were successful, 
and the music industry -- at least the artists -- are recovering from 
that dip in the early part of the decade when everybody was afraid the 
music industry was going to collapse.

The film industry hasn't had that happen yet. Yes, you can buy a movie 
on iTunes, but it is fairly expensive. And it's competing with 
streaming on Netflix, which is effectively free if you have a Netflix 
subscription. Who's going to buy a movie for $14 on iTunes if they can 
easily BitTorrent it or stream it for free on Netflix?

Knowledge at Wharton: Many of the early attempts of the recording and 
motion picture industry to stop piracy have not been successful. How 
should the movie industry respond to piracy?

Kerwin: The way to stop film piracy -- and I know this is not a 
particularly popular idea with some people -- is to allow ISPs to cut 
it off. We simply do not have the legal infrastructure to go after all 
those people, particularly when they're in Eastern Europe or Sweden or 
wherever The Pirate Bay is.

You have privacy advocates saying, "That's a violation of my First 
Amendment rights. Net neutrality, net neutrality, net neutrality." A 
lot of people don't like to hear this, but a lot of money is being 
pumped into the net neutrality lobby by companies like Google and Yahoo 
-- companies that profit off piracy, to a certain extent.

And there's no doubt about it, Google profits off piracy. They own 
YouTube. People put pirated content on YouTube and [the rights owner 
has] to find it and take it down. It takes them about 24 hours to take 
it down. In the meantime, thousands of people have watched your movie 
illegally and Google has sold ad space. Google has no vested interest 
in stopping piracy.

A lot of those companies have tricked people into thinking that net 
neutrality is about protecting your rights. But, to a certain extent, 
it's also about letting pirates run free.

FedEx can scan your package to detect if there's a nuclear weapon and 
stop it. You have to give your shipping service the right to detect if 
you're shipping contraband. Otherwise, it's going to become a huge 
black market. Piracy of movies is turning into a major problem. I don't 
know how we're going to get over it, unless we let ISPs block it.

Knowledge at Wharton: What are you working on next?

Kerwin: I don't know what's up next. I have a few scripts that I would 
like to explore. We've been so busy promoting Yesterday Was a Lie after 
the DVD release, that I haven't really had time.

We are almost finished shooting a web series, a spin-off of Yesterday 
Was a Lie, where we spin off a couple of the supporting characters from 
the film into a seven-episode web series that's going to drop [in the 
near future]. It's been fun to explore those themes within the rules of 
physics that were established in the movie.

There's a graphic novel that has been completed. Some pre-release 
copies were released at Comic-Con. It has not found a publisher yet, so 
we're still looking for [one].

And then there's also the CD soundtrack, which we're hoping is going to 
come out [early in 2011].

We're focused on all that right now.


Additional Reading

The Movies Meet Web 2.0: Lance Weiler on the New Economic Model for 
Independent Cinema : 
http://knowledge.wharton.upenn.edu/article.cfm?articleid=1783

'Tarzan Economics': If Music Is Free, How Do Artists Get Paid? : 
http://knowledge.wharton.upenn.edu/article.cfm?articleid=2452

Joss Whedon's Plan to Monetize Internet Content (Watch Out, Hollywood): 
http://knowledge.wharton.upenn.edu/article.cfm?articleid=2152

Will Online Streaming Work Out for Netflix? : 
http://knowledge.wharton.upenn.edu/article.cfm?articleid=2652