Biz bigwigs bristle over demanding auds

Panel: Consumers largely in charge

By DAVID S. COHEN

News Corp.'s Peter Chernin, left, and Activision chief Robert Kotick discussed intellectual property issues at the Milken Institute confab.

It's an on-demand world, consumers are in charge, and if film, television and videogame companies don't start giving auds what they want, they run the risk of going the way of the record companies.

That was the message Wednesday at a trio of panels on media and entertainment at the Milken Institute's Global Conference at the Beverly Hilton.

AOL chairman Jonathan Miller sounded the theme for the day when he told the conference, "There's a new player on the field, and that's the consumer" exercising greater choices."People are their own programmers," he said. "They have much more choice and expect more choice. Once they have that they never go back."

The most dire notes were sounded in the panel "Intellectual Property and the Future of the Entertainment Industry," featuring News Corp. prexy Peter Chernin, Activision chairman Robert Kotick, Sony Pictures Entertainment chairman Michael Lynton, Warner Bros. chair Barry Meyer and former Recording Industry Assn. of America chair Hilary Rosen, moderated by Forbes magazine managing editor Dennis Kneale.

In keeping with the day's theme of audience empowerment, the 90-minute discussion focused far more on peer-to-peer networks and consumer downloads than on organized piracy.

With Kneale often playing devil's advocate and Rosen warning that the industry may not benefit from suing its own customers, most of the execs argued strenuously for vigorous enforcement of intellectual property and antipiracy laws against individual consumers.

'We're more flexible'

Chernin called piracy "under any scenario the biggest issue facing Hollywood" but tried to sound a hopeful note as he compared film and television to the record industry.

"Piracy tends to thrive where the product is inconvenient and the price is out of whack. We have a much more flexible business model (than the record biz)."

But Lynton warned that like the music business, the movie biz may be forced by changing technology and audience tastes to move away from a very successful business model -- separate windows for theatrical, pay TV and homevideo -- just as the music biz had to give up selling entire CDs to consumers who want only one song.

"If the consumer is able to disaggregate the windows the same way they disaggregate the tracks on a CD, that's a serious threat to the movie business," said Lynton.

Rosen warned that while the business still has the chance to act and avoid meeting the same fate as the music biz, "I don't think it's happening."

The panelists all agreed that while there's nothing that rivals the experience of seeing a movie in a theater, there may not be a way to continue protecting theatrical windows.

And Chernin said, "If you force the industry to make a 'Sophie's choice' between theatrical and DVD, there's no doubt which way they'll go."

'Theatrical is value-added'

Still, Meyer pointed out, auds lined up for Warner's new Shanghai multiplex even though they could buy cheaper DVDs of the same pics on the street outside. "It may be that in certain territories, theatrical is the value-added product," he said.

When the topic turned to the upcoming Supreme Court decision in the Grokster case, Meyer called the peer-to-peer service "basically a fence, a receiver of stolen property," but Rosen warned that even if the court rules against Grokster it won't have any affect on how consumers behave.

"There are 300 million copies of file-sharing software in the marketplace," she said.

"The biggest mistake that the music industry made was thinking that technology will wait until we're ready," said Rosen, and she cautioned that the movie industry was risking the same mistake.

The discussion echoed themes of an earlier panel exploring the balance of power between content creators and distributors. DirecTV prexy Chase Carey, Sirius Satellite Radio CEO Mel Karmazin, Lions Gate chief exec Jon Feltheimer, Sony Pictures Entertainment prexy Yair Landau and AOL's Miller participated.

This group, too, said that piracy would force windows to change, probably within five years.

Landau said, "Where the movie business resembles the music business is that consumers are saying we want it right away. That's where piracy is pushing us, to shrink those windows."

Feltheimer said that Lions Gate correctly bet five years ago that new technologies would provide new ways to resell movies and TV shows that are long since paid for.

Still only 24 hours in day

But Karmazin told the group, "The thing that worries me the most is that there's still only 24 hours in a day, and there are still more opportunities for you to get content. If you're watching video-on-demand, that's going to cut into what you used to do."

None felt that television was likely to disappear. On the contrary, said Miller, research shows that TV viewing is actually boosted by broadband Internet as so many people go online and watch TV at the same time.

But Feltheimer said that download-to-own is the wave of the future.

"It's going to be the killer app in this space, once we find a way to do it that doesn't hurt our retailers. This is a technology that works, and it's just a matter of finding a way to use it."

Even radio is seeing an explosion of consumer choice thanks to satellite radio, noted Karmazin, adding that its ability to generate revenue from both subscriptions and advertising has put terrestrial radio at a tremendous disadvantage.

"Terrestrial will be a slow-growth business, if there's any growth at all, though it will still be a cash cow," he said.

Karmazin predicted that the terrestrial radio biz, like most slow-growth/high cash-flow businesses, will be subject to leveraged buyouts. "You'll see a lot of those companies being bought by private equity people."

Karmazin also briefly addressed the proposed Viacom split, taking a diplomatic stand against it. "I think whether those assets are split up or not is less important because they're great assets. If the idea is to tell Wall Street that you have these great assets, well, I think the markets are pretty smart. But I think Viacom is a winning company no matter which way it goes."

A morning panel moderated by Daily Variety publisher Charlie Koones focused on advertising and branding but echoed many of the same ideas. "Control has shifted from the programmer to the consumer," said Koones, asking, "How do brands stay relevant?"

Targeting essential

In the wide-ranging discussion that followed, BBDO New York president John Osborn said that "network TV is still an important vehicle to reach the consumer, as is radio." But Roll Intl. co-chair Lynda Resnick observed that the advent of cable and other outlets has opened the door to smaller companies.

"In network TV, it took perhaps $300 million a year to make an impression," said Resnick.

But the proliferation of outlets also means that messages must be targeted and crafted much more carefully, said Osborn. "It's never been easier to blow $100 million and see no change in behavior," he said.

As the discussion of branding turned to product placement and other ways of engaging the entertainment industry, Arnell Group chairman Peter Arnell said that product placement is still viable "if it's organic and natural and feels like it works.

"I think authenticity is the new cool. You have to built it into your enterprise from the front end."

AOL chief marketing officer Joe Redling predicted that, "in the next three to five years, you're going to see an explosion in the way consumers access media. Think TiVo times 1,000. On demand, all the time. It's not going to be dictated to them on what night or at what time."