William Patry has a new book, Moral Panics and the Copyright Wars, which is driving me crazy. I disagree with so much of it (only one chapter in so far), I barely know where to start.
Patry is a recognized copyright expert, having published an apparently well-regarded multi-volume reference work on the subject. He drafted copyright laws while working in the US House of Representatives, and he's now Google's chief copyright expert.
He begins the book having already decided that the "copyright industries" (movie studios, record labels, book publishers, etc) are stupid, badly-managed, and don't deserve to survive.
He spends several pages discussing the "framing" of arguments, and how word choices affect the way people respond to arguments. He despises the use of terms like "pirate" or "theft" when talking about online file-sharing, as he believes that the use of such terms causes people to jump to the wrong conclusions.
Perhaps. But...
In the course of his first chapter, he likens the "copyright industries" to the old Soviet Politburo. And he compares the wisdom and actions of the "copyright industries" to Mao's ill-fated Cultural Revolution.
So it seems we should have no compunction about using the terms "pirate" and "theft".
Patry also spends several pages quoting Theodore Levitt's classic "Marketing Myopia" article, and arguing the stupidity of "push" marketing these days, when he says the internet has changed everything, and anyone with any brains gives consumers exactly what they want via "pull" marketing.
He says consumers want to download single tracks, while the record labels offered only albums on CDs, so it was only right and fair that consumers took matters into their own hands.
Let's see just what this means...
Say I want to buy just a single egg for a recipe, and the grocery wants me to buy a dozen. Should I feel justified in stealing the egg?
I know, some readers will object that the egg is a physical object, with inventory value, and that my theft would deprive the store of that value.
Well then, what about this one? I want a nice crisp hundred-dollar bill, but the bank won't give me one. Instead of stealing one, I could borrow a hundred from a friend, and make a copy at my own expense. Would that be OK? Like a consumer copying music files? It's not as though a single hundred would affect the economy, right?
Isn't theft still theft?
If I want to buy a single short story, but the bookstore has only a single-volume collection on the shelf, can I demand that they tear out and sell me just the one story that I want?
Of course not.
Just because the internet makes it possible to do something does not mean that it is right to do so.
Just because Patry (and many many others, of course) think that the record labels are badly managed by stupid people, to the point that Patry seems to think said companies should not even exist, does not make it right for a consumer to take matters into her own hands.
I'm curious to see if later chapters of Patry's book show clearer thinking.
Wednesday, September 30, 2009
Wednesday, September 23, 2009
Copyright Office and Dept of Justice critique Google book settlement
Two weeks ago, Marybeth Peters, the US Register of Copyrights, harshly criticized the proposed Google Book Settlement in testimony before the House Judiciary Committee. That same day, David Drummond, Google's Chief Legal Officer, testified with a combination of verbal sleight-of-hand, obfuscation, and apples-to-kumquats comparisons. Last week, the US Department of Justice filed its critique with the judge overseeing the Settlement.
The critiques highlight a key point I raised earlier -- that unclaimed royalties for "orphan" books will ultimately be distributed to those authors and publishers who sign up with a newly formed Book Registry. In fact, the DOJ argues that this creates a schism between the owners of claimed and unclaimed books, thus rendering the "class" which claims to have filed the class-action suit invalid.
The critiques also make clear (as I have argued) that the settlement is a boon for Google in that it grants an effective monopoly on orphan books. No other company could obtain the same access without following in Google's footsteps: wholesale unauthorized scanning, followed by a lawsuit, followed by a settlement. Google actually seems to agree with this, stating "nothing in the settlement prevents anyone from doing what we have done." Google then attempts to evade the "monopolist" term by noting that the proposed Book Registry could "license to third parties to the extent allowed by law" [my emphasis]. Note, however, that what Google would gain from the Settlement is not "allowed by law," so that Google's monopoly is written into the settlement.
Google claims to be a new entrant to the book market with "zero market share". While Google may not yet be selling books, it is certainly selling ads placed next to book excerpts, which is how Google makes money in the first place. Google also claims that it would be too expensive and time-consuming to track down the owners of unclaimed books and negotiate with them; but it's hard to accept that Google's genius engineers and billions of dollars couldn't resolve this problem.
Google also claims that the proposed book registry's job "is to go out and find rightsholders." But that is certainly not the case. The registry has no incentive to find rightsholders. In fact, it has a dis-incentive: the fewer rightsholders who register at the registry, the more unclaimed money there will be; and that unclaimed money will first be used to pay expenses of the registry, and then the remainder will be distributed to those who did register. As the DOJ puts it, "The greater the economic exploitation of the works of unknown rightsholders by Google and the Registry, the stronger the incentive for known rightsholders to retain the unclaimed revenues for themselves."
Some choice quotes from Ms. Peters:
The critiques highlight a key point I raised earlier -- that unclaimed royalties for "orphan" books will ultimately be distributed to those authors and publishers who sign up with a newly formed Book Registry. In fact, the DOJ argues that this creates a schism between the owners of claimed and unclaimed books, thus rendering the "class" which claims to have filed the class-action suit invalid.
The critiques also make clear (as I have argued) that the settlement is a boon for Google in that it grants an effective monopoly on orphan books. No other company could obtain the same access without following in Google's footsteps: wholesale unauthorized scanning, followed by a lawsuit, followed by a settlement. Google actually seems to agree with this, stating "nothing in the settlement prevents anyone from doing what we have done." Google then attempts to evade the "monopolist" term by noting that the proposed Book Registry could "license to third parties to the extent allowed by law" [my emphasis]. Note, however, that what Google would gain from the Settlement is not "allowed by law," so that Google's monopoly is written into the settlement.
Google claims to be a new entrant to the book market with "zero market share". While Google may not yet be selling books, it is certainly selling ads placed next to book excerpts, which is how Google makes money in the first place. Google also claims that it would be too expensive and time-consuming to track down the owners of unclaimed books and negotiate with them; but it's hard to accept that Google's genius engineers and billions of dollars couldn't resolve this problem.
Google also claims that the proposed book registry's job "is to go out and find rightsholders." But that is certainly not the case. The registry has no incentive to find rightsholders. In fact, it has a dis-incentive: the fewer rightsholders who register at the registry, the more unclaimed money there will be; and that unclaimed money will first be used to pay expenses of the registry, and then the remainder will be distributed to those who did register. As the DOJ puts it, "The greater the economic exploitation of the works of unknown rightsholders by Google and the Registry, the stronger the incentive for known rightsholders to retain the unclaimed revenues for themselves."
Some choice quotes from Ms. Peters:
- "We realized that the settlement was not really a settlement at all... Instead, the so-called settlement would create mechanisms by which Google could continue to scan with impunity,well into the future, and to our great surprise, create yet additional commercial products."
- "the proposed settlement would give Google a license to infringe first and ask questions later"
- "To allow a commercial entity to sell such works without consent is an end-run around copyright law as we know it."
- "The question of whether a book is in-print (generally, in circulation commercially) or out-of-print (generally, no longer commercially available) is completely inconsequential as to whether the work is entitled to copyright protection under the law."
- "certain provisions of the proposed settlement dramatically compromise the legal rights of authors, publishers and other persons who own out-of-print works."
- "The Proposed Settlement seeks to implement a forward-looking business arrangement rather than a settlement of past conduct"
- "[the Proposed Settlement allows] the control of prices for orphan books by known publishers and authors with whose books the orphan books likely compete."
- "Under the Proposed Settlement, competing authors and publishers grant Google de facto exclusive rights for the digital distribution of orphan works."
- "only Google would have the ability to market to libraries and other institutions a comprehensive digital-book subscription."
Saturday, September 5, 2009
I'm shocked, shocked to find that the studios and Youtube are talking
It would have been a dereliction of duty by the executives at the studios and YouTube were they not talking. How can this possibly be a surprise? Why was it played as signficant "news" in the Wall Street Journal and the New York Times this week?
Of course YouTube is desperate to have legitimate big-name programming -- they need it in order to charge for advertising and/or charge for viewing. They have certainly been talking to (or trying to talk to) the studios for some time now.
And the studio execs are not stupid (having been one, and worked with them, I can vouch that many of them are actually very smart). They know YouTube has a huge audience, and they would of course love to monetize that audience. So it's reasonable to assume they've been talking as well.
So, given that we assumed they're already talking, is there actually anything to report? Are the talks leading to anything? Well, as the Times put it, "One studio executive... said the issues still to be resolved were pricing and the timing of YouTube releases." Right. This is like saying that the only unresolved issue remaining between Flat-Earthers and NASA is the shape of our planet. Come on, people.
And it took three reporters at the Journal and two reporters at the Times to bring us this "news".
(By the way, if any readers don't get the reference, the "I'm shocked, shocked..." quote comes from Casablanca, when Claude Rains' character, Capt. Louis Renault, feigns surprise at something he knew full well was going on.)
Of course YouTube is desperate to have legitimate big-name programming -- they need it in order to charge for advertising and/or charge for viewing. They have certainly been talking to (or trying to talk to) the studios for some time now.
And the studio execs are not stupid (having been one, and worked with them, I can vouch that many of them are actually very smart). They know YouTube has a huge audience, and they would of course love to monetize that audience. So it's reasonable to assume they've been talking as well.
So, given that we assumed they're already talking, is there actually anything to report? Are the talks leading to anything? Well, as the Times put it, "One studio executive... said the issues still to be resolved were pricing and the timing of YouTube releases." Right. This is like saying that the only unresolved issue remaining between Flat-Earthers and NASA is the shape of our planet. Come on, people.
And it took three reporters at the Journal and two reporters at the Times to bring us this "news".
(By the way, if any readers don't get the reference, the "I'm shocked, shocked..." quote comes from Casablanca, when Claude Rains' character, Capt. Louis Renault, feigns surprise at something he knew full well was going on.)
Monday, August 31, 2009
Disney, Marvel, and Howard the Duck's pants
It was announced today that Disney is acquiring Marvel Comics (subject to a Marvel shareholder vote and various regulatory reviews). Key result? At long last, Howard the Duck may be able to take off his pants.
You don't know Howard the Duck? I refer not to the best-ignored, misbegotten George Lucas movie of that name, but to the brilliant comic book series, originally written by Steve Gerber.
In the 1970s, some execs at Disney raised concerns that consumers might confuse Howard the Duck (a cigar-chomping, jacket-and-tie wearing, wise-cracking duck) with Donald Duck (a sailor-shirt wearing duck). The Disney lawyers threatened Marvel, who agreed to make some changes, key among them being that Howard would henceforth wear pants.
Now that Disney will control both Howard and Donald, maybe Howard can finally remove those confining pants and re-expose his tail feathers in all their glory.
You don't know Howard the Duck? I refer not to the best-ignored, misbegotten George Lucas movie of that name, but to the brilliant comic book series, originally written by Steve Gerber.
In the 1970s, some execs at Disney raised concerns that consumers might confuse Howard the Duck (a cigar-chomping, jacket-and-tie wearing, wise-cracking duck) with Donald Duck (a sailor-shirt wearing duck). The Disney lawyers threatened Marvel, who agreed to make some changes, key among them being that Howard would henceforth wear pants.
Now that Disney will control both Howard and Donald, maybe Howard can finally remove those confining pants and re-expose his tail feathers in all their glory.
Monday, August 17, 2009
Hollywood battles discounted DVD rentals
In my recent post about the pricing of e-books, I mentioned that 20th Century Fox (among other studios) has concerns about the $1 per night DVD rentals offered by Redbox kiosks devaluing their movies in consumers' eyes. Fox proposed withholding their DVDs from Redbox until 30 days after the initial release of a DVD. Two additional chapters in this story (as reported by PaidContent):
1) In response, Redbox sued Fox.
2) And, going a step further than Fox did, Warners now proposes a similar delay in providing DVDs to Netflix.
Expect more battling lawsuits as each party tries to assert its power and control over pricing and availability.
The first-sale doctrine allows the purchasers of copyrighted works to dispose of them as they see fit: sale, rental, gift, garbage. That is what originally allowed stores to rent video tapes.
Thus, some Redbox employees are now buying DVDs at retail outlets in order to stock their vending machines. Warner and Fox have no recourse over this tactic; but, given the price-points, this is not a long-term solution for Redbox.
I'm all for the efforts to keep the prices of movies and books from dropping. After all, I've made my living in the entertainment and media business for decades. And I'm writing a book.
But I do see the arguments (especially in this economy) for making some prices somewhat lower.
Anti-trust and other regulations prevent the studios, publishers, and retailers from getting together in a room to discuss this. So we'll continue to see individual companies pursing various tactics, until an unofficial consensus is reached.
1) In response, Redbox sued Fox.
2) And, going a step further than Fox did, Warners now proposes a similar delay in providing DVDs to Netflix.
Expect more battling lawsuits as each party tries to assert its power and control over pricing and availability.
The first-sale doctrine allows the purchasers of copyrighted works to dispose of them as they see fit: sale, rental, gift, garbage. That is what originally allowed stores to rent video tapes.
Thus, some Redbox employees are now buying DVDs at retail outlets in order to stock their vending machines. Warner and Fox have no recourse over this tactic; but, given the price-points, this is not a long-term solution for Redbox.
I'm all for the efforts to keep the prices of movies and books from dropping. After all, I've made my living in the entertainment and media business for decades. And I'm writing a book.
But I do see the arguments (especially in this economy) for making some prices somewhat lower.
Anti-trust and other regulations prevent the studios, publishers, and retailers from getting together in a room to discuss this. So we'll continue to see individual companies pursing various tactics, until an unofficial consensus is reached.
Wednesday, August 12, 2009
Pricing atoms vs bytes: paper vs e-books
Book publishers list the official retail prices of their e-books the same as their newly-published hardcovers (for example, $25.95 for The Girl Who Played with Fire by Stieg Larsson). Retailers pay roughly 50% of the retail price for their books (the actual discount varies based on volume and other factors). While Amazon and Barnes & Noble compete to offer lower prices on the hardcovers (now $14.27 to $16.86 for Larsson's book), they don't lose money on them. With e-books, they take a different tack: the price is $9.99 at both Amazon and B&N, meaning that they lose money on every sale. (That's only $2 more than the list price on the mass-market paperback, which won't be published until March 2010.)
In effect, Amazon and B&N are turning an old marketing ploy on its head -- they are giving away the blades to try to sell more razors.
While publishers collect the same wholesale price regardless of the ultimate retail selling price of the e-books, they are not happy about the e-book pricing. For decades, books have appeared first in hardcover, followed many months later by a cheaper paperback. If you want the book immediately, buy the expensive hardcover; if you can wait, buy the cheaper paperback. With Amazon and B&N e-book pricing, it is now possible to buy a brand-new book at nearly the paperback price.
The publishers' concerns are two-fold: (a) the $9.99 price will devalue books in the eyes of consumers, and (b) at some point Amazon and B&N will tire of losing money on e-books, and will then pressure the publishers to reduce the "official" retail prices on them to the price consumers have come to expect.
There is a reasonable argument to be made that the price of an e-book should be somewhat lower than the paper book, because there are no manufacturing or distribution costs. On the other hand, the consumer is still buying the ability to read the book, regardless of the format. Some have argued that the paper versions remain much easier to read, with crisper type and higher contrast; others point to the convenience and lightness of the e-book reader device. On the whole, there may be balance here.
I suspect that publishers would not be averse to a small reduction in the price of e-books, perhaps in the range of $2-$5 off the retail price of the hardcover. However, this would also cut into the royalties payable to the author of the book -- author royalties are typically a percentage of the retail price-point.
From the book-buyers' point-of-view, the publisher and the retailer are middlemen, standing between the reader and the author. Perhaps if the savings in "manufacturing" e-books could lead to an increase in author royalties, then book-buyers would be more amenable to the limitations inherent in the e-book format?
Note of Interest: The movie studios are facing a somewhat similar problem now, as several of them are refusing to provide DVDs to Redbox, which offers $1 DVD rentals from its vending machines. The studios are concerned that the $1 price would devalue the movie in consumers' eyes. 20th Century Fox, for example, is proposing a delay of 30 days after a movie's release on DVD before it would be available for Redbox $1 rentals.
In effect, Amazon and B&N are turning an old marketing ploy on its head -- they are giving away the blades to try to sell more razors.
While publishers collect the same wholesale price regardless of the ultimate retail selling price of the e-books, they are not happy about the e-book pricing. For decades, books have appeared first in hardcover, followed many months later by a cheaper paperback. If you want the book immediately, buy the expensive hardcover; if you can wait, buy the cheaper paperback. With Amazon and B&N e-book pricing, it is now possible to buy a brand-new book at nearly the paperback price.
The publishers' concerns are two-fold: (a) the $9.99 price will devalue books in the eyes of consumers, and (b) at some point Amazon and B&N will tire of losing money on e-books, and will then pressure the publishers to reduce the "official" retail prices on them to the price consumers have come to expect.
There is a reasonable argument to be made that the price of an e-book should be somewhat lower than the paper book, because there are no manufacturing or distribution costs. On the other hand, the consumer is still buying the ability to read the book, regardless of the format. Some have argued that the paper versions remain much easier to read, with crisper type and higher contrast; others point to the convenience and lightness of the e-book reader device. On the whole, there may be balance here.
I suspect that publishers would not be averse to a small reduction in the price of e-books, perhaps in the range of $2-$5 off the retail price of the hardcover. However, this would also cut into the royalties payable to the author of the book -- author royalties are typically a percentage of the retail price-point.
From the book-buyers' point-of-view, the publisher and the retailer are middlemen, standing between the reader and the author. Perhaps if the savings in "manufacturing" e-books could lead to an increase in author royalties, then book-buyers would be more amenable to the limitations inherent in the e-book format?
Note of Interest: The movie studios are facing a somewhat similar problem now, as several of them are refusing to provide DVDs to Redbox, which offers $1 DVD rentals from its vending machines. The studios are concerned that the $1 price would devalue the movie in consumers' eyes. 20th Century Fox, for example, is proposing a delay of 30 days after a movie's release on DVD before it would be available for Redbox $1 rentals.
Friday, July 10, 2009
Pixar 10, Wall Street 0
A few months back, I chastised Wall Street analysts (who were unable to mind their own store) for trying to become movie critics by predicting that Pixar's Up would be a flop.
They were wrong. Again. But at least one has apologized for the error.
As Brooks Barnes reported in yesterday's New York Times, analyst Richard Greenfield of Pali Research admitted to being "dead wrong" in predicting that Up would flop.
If only Wall Street were as forthcoming about all its mistakes.
They were wrong. Again. But at least one has apologized for the error.
As Brooks Barnes reported in yesterday's New York Times, analyst Richard Greenfield of Pali Research admitted to being "dead wrong" in predicting that Up would flop.
If only Wall Street were as forthcoming about all its mistakes.
Saturday, July 4, 2009
The NCAA is like Google? Unfairly profiting on the backs of others
Over the weekend, Katie Thomas reported in the NY Times that several college athletes have filed lawsuits against Electronic Arts (EA) over the use of their likenesses in video games. (While the video games don't actually use the players' names, the games utilize the players' numbers, hometowns, height, weight, and other stats. Eventually, a judge or jury will likely decide whether these data points constitute a recognizable "likeness".)
The NCAA has endorsed the games and shares in their profits. At the same time, the NCAA also imposes rules preventing college players from profiting from their own celebrity.
This strikes me as remarkably similar to one of my complaints about the proposed Google Books settlement -- that the libraries, whose work made Google Books possible, get nothing from the proposed settlement. In fact, the libraries weren't even allowed at the negotiating table.
In the same way, the NCAA negotiated deals with EA, allowing use of the athletes' likenesses. And the athletes were prohibited from the negotiating table.
This doesn't seem fair either, does it? Note that I am not critiquing specific details of the deals (I do not know any details of the NCAA / EA deal). I am critiquing the fact key parties in each case were not allowed a seat at the table.
On the issue of fairness, I was recently asked whether some Hollywood movie deals were "fair". If the actor/writer/talent/creator had a seat at the negotiating table, odds are that I would deem the deal to be "fair" -- they had a chance to either negotiate a "better" deal, or walk away from the deal if they didn't like the terms.
Two successful mystery writers dealt with the situation differently. At the time that Sara Paretsky sold Disney the movie rights to her heroine V.I. Warshawsky, Paretsky was quoted as saying she knew she might never see money beyond her advance, and that she would have minimal input on the movie...but that the advance meant she could realize her dream of becoming a full-time writer. On the other hand, Sue Grafton has refused from the beginning to sell the movie rights to her Kinsey Millhone series, because she was afraid of what Hollywood might do to her characters. [Note: I cannot find online citations for these, but my recollections are quite clear.]
Both Paretsky and Grafton had a seat at the table, and they made their own informed decisions. If only the libraries and the college athletes had that same opportunity.
The NCAA has endorsed the games and shares in their profits. At the same time, the NCAA also imposes rules preventing college players from profiting from their own celebrity.
This strikes me as remarkably similar to one of my complaints about the proposed Google Books settlement -- that the libraries, whose work made Google Books possible, get nothing from the proposed settlement. In fact, the libraries weren't even allowed at the negotiating table.
In the same way, the NCAA negotiated deals with EA, allowing use of the athletes' likenesses. And the athletes were prohibited from the negotiating table.
This doesn't seem fair either, does it? Note that I am not critiquing specific details of the deals (I do not know any details of the NCAA / EA deal). I am critiquing the fact key parties in each case were not allowed a seat at the table.
On the issue of fairness, I was recently asked whether some Hollywood movie deals were "fair". If the actor/writer/talent/creator had a seat at the negotiating table, odds are that I would deem the deal to be "fair" -- they had a chance to either negotiate a "better" deal, or walk away from the deal if they didn't like the terms.
Two successful mystery writers dealt with the situation differently. At the time that Sara Paretsky sold Disney the movie rights to her heroine V.I. Warshawsky, Paretsky was quoted as saying she knew she might never see money beyond her advance, and that she would have minimal input on the movie...but that the advance meant she could realize her dream of becoming a full-time writer. On the other hand, Sue Grafton has refused from the beginning to sell the movie rights to her Kinsey Millhone series, because she was afraid of what Hollywood might do to her characters. [Note: I cannot find online citations for these, but my recollections are quite clear.]
Both Paretsky and Grafton had a seat at the table, and they made their own informed decisions. If only the libraries and the college athletes had that same opportunity.
Sunday, June 28, 2009
My cable company does something (almost) right
You may recall my rant last month about the cable company forcing me to pay even more for sports channels I don't want, just so I could keep Turner Classic Movies (TCM). Well, now I need to thank the cable company for doing something (almost) right.
Flipping channels one recent evening, we discovered that we now receive TCM in high-definition (HD). This was completely unannounced, essentially a stealth "upgrade". I'm very happy to have TCM HD, but why not trumpet this fact? Or at least announce it in a mailing?
Even the TCM website has no info (at least on the homepage) about being available in HD. Granted, the films sampled so far don't appear to be new HD transfers; but the picture quality is improved over the regular TCM channel.
Wouldn't you think that when a company gives its customers something for "free", they would at least alert their customers to it? (I put "free" in quotes in that sentence, because I expect the cable company to force me to pay somehow; if so, a new rant will be warranted.)
Flipping channels one recent evening, we discovered that we now receive TCM in high-definition (HD). This was completely unannounced, essentially a stealth "upgrade". I'm very happy to have TCM HD, but why not trumpet this fact? Or at least announce it in a mailing?
Even the TCM website has no info (at least on the homepage) about being available in HD. Granted, the films sampled so far don't appear to be new HD transfers; but the picture quality is improved over the regular TCM channel.
Wouldn't you think that when a company gives its customers something for "free", they would at least alert their customers to it? (I put "free" in quotes in that sentence, because I expect the cable company to force me to pay somehow; if so, a new rant will be warranted.)
Wednesday, June 3, 2009
2% of Gross better than 50% of Net
You may have wondered how a movie that generates hundreds of millions of dollars at the US box office (let alone box office from overseas, DVDs, TV sales, etc) can show zero dollars for those who receive a piece of the "net". You probably think, "why would a major movie studio keep pouring huge sums into producing movies if they don't turn a profit?"
And there's the rub: "profit" and "net" are two very different things.
In a "gross" deal, an actor or director (the "participant") would receive a percentage of the "Gross Receipts" collected by the studio. That term Gross Receipts is always defined by the contract between the studio and the participant. It ordinarily represents most of the cash received by the studio from distribution of the movie, with a few exceptions. The biggest of these exceptions is that money collected by the studio from sale of DVDs is ordinarily reported at 20% (this figure dates from when VHS and Beta video-cassettes were "new media" back in the 1980s).
Note also that while movie theaters may collect $100 at the box office, they typically pay about half of that to the studios; the half kept by the movie theaters goes to cover their rent, electricity, salaries, etc. (Movie theaters keep all of the money they collect from popcorn and candy; none of that goes to the studios.)
In a "net" deal, a participant would receive a percentage of the "Net Proceeds" of the movie. Note that the term Net Proceeds is often used (and defined in the contract) to differentiate it from something else which may be called "profits".
The amounts paid to the participants are referred to as "participations".
Contracts differ tremendously, but Net Proceeds are typically defined as Gross Receipts less the following items:
Distribution Fees and Interest can be very large numbers on hit films, and they (along with the 20/80 split of DVD receipts) are much of the difference between "Net Proceeds" and "profits".
Regardless of the perceived success of a movie, it is very rare for "Net Proceeds" actually to be reached.
The moral of the story is that 99.999% of the time, you are better off with a single-digit percentage of Gross Receipts than you are with a double-digit percentage of Net Proceeds.
And there's the rub: "profit" and "net" are two very different things.
In a "gross" deal, an actor or director (the "participant") would receive a percentage of the "Gross Receipts" collected by the studio. That term Gross Receipts is always defined by the contract between the studio and the participant. It ordinarily represents most of the cash received by the studio from distribution of the movie, with a few exceptions. The biggest of these exceptions is that money collected by the studio from sale of DVDs is ordinarily reported at 20% (this figure dates from when VHS and Beta video-cassettes were "new media" back in the 1980s).
Note also that while movie theaters may collect $100 at the box office, they typically pay about half of that to the studios; the half kept by the movie theaters goes to cover their rent, electricity, salaries, etc. (Movie theaters keep all of the money they collect from popcorn and candy; none of that goes to the studios.)
In a "net" deal, a participant would receive a percentage of the "Net Proceeds" of the movie. Note that the term Net Proceeds is often used (and defined in the contract) to differentiate it from something else which may be called "profits".
The amounts paid to the participants are referred to as "participations".
Contracts differ tremendously, but Net Proceeds are typically defined as Gross Receipts less the following items:
- Distribution Fees -- these fees vary from around 10% to 50% of the Gross Receipts from each of theatrical, DVD, and TV.
- Distribution Expenses -- the costs incurred by the studio to market and advertise the movie, plus the costs of the film prints shipped to theaters.
- Negative Cost -- the costs to produce the movie, the final result of which is the completed negative of the movie (from which positive prints will be made). This includes salaries for cast & crew, the costs of sets, special effects, travel to locations, costumes, music, etc.
- Interest -- this is charged by the studio at a contractually-defined rate, and is applied to Negative Costs, and often to Distribution Expenses as well.
- Participations -- this would certainly include Gross participations, and may also include Net participations paid to others
Distribution Fees and Interest can be very large numbers on hit films, and they (along with the 20/80 split of DVD receipts) are much of the difference between "Net Proceeds" and "profits".
Regardless of the perceived success of a movie, it is very rare for "Net Proceeds" actually to be reached.
The moral of the story is that 99.999% of the time, you are better off with a single-digit percentage of Gross Receipts than you are with a double-digit percentage of Net Proceeds.
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