Babbitt Column | Gu Yanxi: The Impact of Blockchain Technology on Film Distribution Channels

In all current industries, some industries are experiencing very large ups and downs, such as the mobile phone industry and the semiconductor industry. However, some industries have maintained a strong growth trend because they are in line with the development of people's consumption trends, especially those that meet the consumption habits of young people. The film industry is such an industry. Although the film market will fluctuate with the popularity of the film being released, the industry is still a booming industry. In addition, with the increasing internationalization, the distribution market of a movie is no longer limited to a small area. The international distribution of a film generates more and more income. The trend of internationalization of the film industry is also growing stronger.

Despite the strong development of the film industry, there are still plenty of room for improvement in the industry. For example, Hollywood's accounting for film profits is an open secret in this industry. Film producers use loopholes caused by accounting rules to make a high-income movie on the books a loss. For example, a movie in the Harry Potter series generated revenue of $938 million, but the book after using accounting rules showed a loss of $167 million. Another problem with the film industry is that channel intermediaries still account for a large portion of revenue.

The income of a movie is mainly generated in the early stage of film distribution. The biggest income was generated in the first week or two of the movie's first release. During this time, the cinema is the only channel for film distribution. A foreign study shows that Hollywood produces more than $100 million in movies, and film producers earn 53% from domestic cinemas and 41% from foreign cinemas. The mediation cost of the film distribution channel is shared by the producers and consumers of the film products. If we can reduce the cost of channel intermediaries, then the product suppliers and consumers of the movie can get more benefits. The continuous development of technology has provided us with such an opportunity. In fact, the development of technology is constantly weakening the role of existing channel intermediaries, and on the other hand, it has reached more users on a global scale. The Internet technology that emerged in the 1990s has had a significant change and impetus to the film industry. The emerging blockchain technology and 5G technology will push the film industry to a new level of development.

The impact of the Internet on film distribution channels

The level of development of Internet technology determines the type and size of information that can be exchanged freely over the Internet. In the early days of the Internet, because of the very small bandwidth and the high cost of storage, it was the text information that was very freely exchanged on the Internet. In the early days of the Internet, text-based websites suddenly sprang up like mushrooms. With the further development of the Internet infrastructure, including the speed of the Internet and the reduction of hardware costs, information with a larger amount of data can be transmitted freely on the Internet. The first is audio information, then video information. The most famous Netflix in the United States now offers movie services by mailing DVDs. However, in its development process, it seized the opportunity brought by the improvement of Internet speed and turned to the provision of movie subscription service based on the Internet. Since then, it has been very successful to achieve a huge business. Netflix’s revenue for the third quarter of 2019 was $5 billion, equivalent to an annualized $20 billion in revenue. This is equivalent to half of the $40 billion in global cinema revenue. The same is true of YouTube’s development. Before YouTube, there were also attempts to provide free video services over the Internet. But because the Internet's infrastructure is not enough, these efforts have not been successful. When YouTube emerged, the speed of catching up with the Internet and the cost of hardware were greatly reduced, and the business model of its free video service could be successful.

Online video services, represented by Netflix and YouTube, have dramatically changed the delivery channels for video products. Prior to that, the market for video products was mainly for cinemas, limited TV and DVD. The number of video products that such channels can support and the reachable users are very limited. Companies like Netflix and YouTube have significantly reduced the cost of distributing video products and have reached more users around the world. Therefore, such a website not only seizes a part of the market share of film product distribution channels, but also greatly increases the circulation of movie products. This is a great improvement for the film industry.

The impact of 5G technology on film delivery channels

The development of a very important technology is the upcoming 5G technology. On a 5G network, a movie can be downloaded to a movie terminal in just a few seconds. This terminal can be a cell phone, a computer, a TV and a 3D helmet. Therefore, before a movie is first released, the film producer can pre-sell the movie in advance and deliver the movie product directly to the buyer's terminal in an encrypted manner. At the moment of the world premiere of the film, the producer only needs to send the decryption code directly to the consumer terminal to decrypt the movie product. This kind of interaction can span the existing channel intermediary, making the producers and consumers of the movie products more profitable.

Subversion of film distribution channels to film distribution channels

The blockchain technology that was born with Bitcoin is having a disruptive effect on many industries in our society. The blockchain technology is distributed accounting technology. One of its main features is to support direct transactions between accounts and accounts above the blockchain. The owner of such an account can be a person, a company, or an application terminal such as a mobile phone and a 3D helmet. The emergence of blockchain technology has given us an opportunity to further improve the current film delivery approach.

From the point of view of blockchain technology, the current delivery of web-centric film media still has a lot of room for improvement. Because movie products are delivered through a centralized website intermediary, filmmakers still have to pay a considerable amount of channel costs. The current film market distribution channel, whether it is a cinema channel or a streaming media channel, is still a very large cost for film product distribution. Blockchain technology supports direct transactions between peers on the Internet. Therefore, it is now possible to apply blockchain technology to film product distribution channels to support direct transactions between consumer users and movie product providers.

The way the film is produced also facilitates trading and delivery based on blockchain technology. More than 90% of film productions are now produced digitally. In the blockchain, you can actually trade the movie works in the form of one-handed delivery.

Blockchain technology changes the business organization model

The impact of blockchain technology on our current society is not only in terms of technology but also in business organization. A basic feature of blockchain technology is the consensus mechanism. A transaction can only be recorded on the blockchain after passing through the consensus of all nodes on the blockchain. The consensus mechanism has been further improved in technology during the Ethereum period and is beginning to be applied to social organizations. The DAO organization is trying to use the community consensus mechanism to determine the direction of Ethereum's technology development. Although the organization has not succeeded, its impact on the organizational model continues. The latest attempt in this area is the Libra Association.

Libra's technology base is a global blockchain network. This network is a chain of alliances. In other words, this alliance chain will have many nodes to form together. Chain trading can only be recorded after passing the consensus of the alliance node. The social organization of the nodes of this alliance chain is the Libra Association. The Libra Association is comprised of 100 institutional members worldwide. Each institutional member has the same decision-making power over the operation of the alliance. Although the organizational mechanism of the Libra Association will still be implemented by the consensus reached by the members of the association, I believe that Libra's various governance mechanisms and business rules will gradually begin to adopt smart contracts. Governance rules and business rules guaranteed by technology can be fully trusted by society. The alliance's business can therefore achieve rapid growth on a global scale.

When a new technology with commercial value emerges, its application promotion must be something that must happen. This is true whether it is a train, an incandescent lamp, a personal computer or the Internet. The same is true for blockchain technology. With the increasingly fierce market competition and increasing internationalization, the demand for cooperation in the market is getting stronger and stronger. Any technology that supports cooperation and achieve win-win will be adopted by the market. Blockchain technology can be said to be driven by this market demand, which will in turn further promote the development of cooperation. The cooperation model supported by blockchain technology will gradually begin to be promoted in various industries. Companies that are the first to adopt blockchain technology and actually land on it will receive the resulting dividend.

Changes in the global film industry

Due to the development of 5G technology and blockchain technology, the global film industry will undergo tremendous changes. It is very likely that there will be a coalition of related parties in the film industry. Alliance members include film producers and distributors. Alliance members determine the rules of the alliance on an equal basis. The alliance is working on the fundraising and distribution of digital cinema on the blockchain. Since the fundraising and distribution of the film is done on this chain, the efficiency will be much higher than the existing business model, and it will reach more users on a global scale. This blockchain must use a coalition chain. The Alliance has established rules to ensure the continued development of the film industry on a global scale. Similarly, alliance governance rules and business rules are gradually developed and implemented through smart contracts. Such a network ecology in the film industry will therefore not be very competitive. It is difficult for the institutions in the film industry to participate in this ecology to survive.