Now we learn why Christopher Dodd, the retired Senator from Connecticut, is receiving over $1.5 million a year to head the Motion Picture Association of America.
The MPAA, the trade organization for the Hollywood studios, is financed by Warner Bros., Fox, Universal, Disney, Sony and Paramount. Each provides about $10 million per year. Aside from efforts to suppress digital piracy, it lobbies Congress and regulatory agencies.
Its crucial job here is to protect the Big Six’s crown jewels: their intellectual properties. Without their libraries of movies, animated shorts and TV series, they couldn’t survive.
Also read: Sunk! How Hollywood Lost the PR Battle Over SOPA
Consider Warner Bros. Its library has more than 60,000 licensable properties, including 6,500 movies and 40,000 TV episodes. Whereas its DVD sales have been on the wane, its TV licensing has skyrocketed. In 2010, according to sources at Time Warner, Warner Bros. harvested over $4 billion from worldwide licensing to TV.
Nearly 80 percent came from just four cable customers — HBO, Turner, ABC Family, and NBC Universal’s cable channels. Not only did this far exceed its share of theatrical box-office receipts, which were $2.4 billion in 2010, but this licensing is highly profitable:
The studio pays none of the cost of advertising, prints or logistics. Almost all proceeds, minus some residuals paid to third parties, go to a studio’s bottom line. Whatever the vagaries of the box office, licensing is the largest and most reliable source of profits for the studios.
Also read: Hollywood's Anti-Piracy Campaign Runs Aground
But these golden geese are in danger of being strangled to death by video streaming. New age companies, notably Netflix, Amazon, Apple and Google, now compete with cable TV by streaming movies and other video directly over the Internet. Netflix, for instance, offers unlimited streaming for $1 extra a month with its mail-in service, Amazon offers free streaming to its 10 million Amazon Prime customers, and Google offers YouTube free.
How can they afford it? Whereas the old-line cable and satellite companies have enormous building, servicing and amortizing costs, the internet is essentially free to transmit over. Even if the new age streamers paid the same to license, buy or produce content, they have a comparative advantage.
“I don’t see how cable can compete with free transmissions,” a savvy top executive of Time Warner told me, pointing out that Netflix, after sublicensing Starz’s content, offers it for a fraction of what Starz charges its subscribers.
No doubt Starz will end this bargain rate when its Netflix contract ends in October 2011, but so long as transmission remains free, streaming will chip away at the cable audience. “Cord cutting” will leave the cable systems with diminished revenue but the same overhead.
“If 5 percent cut their cord, it would be a financial disaster for cable networks,” said a pay-TV executive.
