Strong Aussie dollar hammers Australian screen production

Pop star Rihanna in uniform on the shoot of Peter Berg's Battleship. The big-budget movie was scheduled for production in Australia but was moved to Louisiana owing to the strong Australilan dollar and attractive production subsidies from the US state.

When Alex Burns and I set out to examine the past two decades of Australian screen policy, we concluded that the biggest influence on the success or failure of the Australian film industry was macro-economic factors like currency fluctuations – and not the perceived quality of Australian writers or directors.

You can read that paper – “Boom and Bust in Australian Screen Policy: 10BA, the Film Finance Corporation and Hollywood’s ‘Race to the Bottom‘” in the August issue of Media International Australia, reposted by Alex in proof version here.

Recent developments have only reinforced our findings. Yesterday, for instance, the Australian Financial Review published a feature-length article about the serious trouble posed for that the export-intensive parts of Australian screen industry by the strong Australian dollar, which briefly reached parity with the US dollar last week.

You can’t read the AFR article (by Brook Turner, entitled ‘Dollar dampens local film production’) online, so I’ve transcribed important sections below:

 

 

 

For the first  time in decades there are no major American films being made in Australia, and none in the pipeline, a clear sign of the devastation the dollar has wrought on a $2.3 billion business.

NSW hasn’t had had a major US  film since Wolverine wrapped at Fox Studios in mid-2008, Victoria since Don’t Be Afraid of the Dark in September last year, Queensland since Narnia last November. The Sunshine State is hanging in thanks to local production and Steven Spielberg’s 13-part, $150-million TV dinosaur epic Terra Nova. But there are fears that may go the way of films such as Green Lantern and Battleship, which migrated back to the US with their $US150 million budgets ass the dollar rose, as estimated $200 million loss to the Australian industry.

“This is unprecedented”, Ausfilm’s chief operating officer Tracey Vieira, said this week from Los Angeles, where she has the job of enticing US production to Australia. “We have always had a good momentum of production inquiry about filming in Australia; I’ve never been in a position where we haven’t had a US production that is seriously considering Australia. And there’s nothing in sight.”

Ausfilm hass asked the federal government to at least double Australia’s production offset – a 15% tax rebate on local expenditure on foreign films – to bring it into line with North American, UK and European competitors as part of the government’s independent film sector review, due later this year.

The article reinforces the problems faced by Australia’s screen industry, which features anaemic levels of locally-financed production and is heavily reliant on “runaway production” from Hollywood studios. As we pointed out in the paper, Australia’s foreign-financed production is highly vulnerable to currency fluctuations and “race to the bottom” competition from other jurisdictions offering their own generous production subsidies.

Advertisements

The long-tail of publishing

The following post first appeared on the website of The Wheeler Centre for Books, Writing and Ideas, on October 4th 2010.

When was the last time you bought a CD?

If you’re like most young Australians, the answer is: a while ago. The advent of digital file sharing technologies has completely transformed the music publishing business. Since Napster was invented in 1999, CD sales have plungedmajor record labels are struggling – butconcert and festival attendances have boomed.

Now it’s the publishing industry’s turn to feel the destructive gale of technological change. A recent article in the Wall Street Journal is only the latest of many to chronicle the declining fortunes of traditional book publishers, particularly in fields like literary fiction:

From an e-book sale, an author makes a little more than half what he or she makes from a hardcover sale. The lower revenue from e-books comes amidst a decline in book sales that was already under way. The seemingly endless entertainment choices created by the Web have eaten into the time people spend reading books.

 

Publishers and authors face declining revenues and profits in the digital world. Source: LJK Literary Agents, Wall Street Journal

 

The sea-change in the publishing industry illustrates the new economics of digital distribution. It’s a phenomenon dubbed “the long tail” by Wired editor Chris Anderson. (Anderson borrowed the term from technology economist Erik Brynjolfsson).

The long tail is illustrated in the image below. The “tail” is simply the long rightwards sloping end of the curve. Inside the long tail are all the unpopular and obscure titles that never used to get published – but that can none-the-less sell in small numbers online. Aggregated together by a business model such as Amazon’s, this vast global back-catalogue can add up to real profits. In a nutshell: falling costs of publishing and distribution have allowed an avalanche of content to find new audiences. They are small audiences, but they are real.

 

MIT economist Erik Brynjolfsson analysed sales data from Amazon and found that 30-40% of Amazon book sales are titles that wouldn’t normally be found in bricks-and-mortar stores. Source: Erik Brynjolfsson, Jeffrey Hu and Michael Smith (2006) “From Niches to Riches: Anatomy of the Long Tail.”

 

What this means for writers is beginning to emerge. The long tail contains nearly everything that isn’t a commercially-viable proposition: in other words, most writers, bloggers and poets. But these new technologies can also help once-obscure writers and bloggers to connect directly to audiences, and even allow them to make a modest but sustainable living from their craft. As technology writer Kevin Kelly has observed, artists and writers may only need “1000 true fans” to build a career, and cheap and easy access to blogging engines globally makes this easier than ever before.

The ability of technology to put publishing in the hands of writers won’t create many superstars, but we’re already seeing its potential to allow amateurs to reach meaningful readerships and journalists, academics and other literary professionals to add second strings to their bows. Increasingly, writers are making money the way musicians are: bymonetising their speeches, presentations and merchandise. Theinter-connectedness of blogs, which rely on many reciprocal links between a community of interest in a particular niche, help this process.

Bottom-line: the long tail economics of blogging might be unsettling for writers and publishers used to the old models, but it’s a trend that’s here to stay.

Is employment in the Australian cultural industries falling? John Black can’t tell us

In today’s Australian Financial Review, former Labor Senator John Black has an interesting opinion piece about Australian unemployment trends since 2008.

Black’s research company, Australian Development Strategies, has undertaken some economic modelling on the issue, published in a web paper entitled Australian Jobs Profile for 2010.

In the paper, repeated in his column for the AFR, Black makes the startling claim that:

The industry with the biggest loss in jobs – 25,000 – since November 2007 has been the media – which includes publishers, the music industry, television, the internet, web search providers, ISPs, data processors, telecommunications workers and librarians. These skilled jobs of particular interest to younger Australians have fallen by 11 percent since November 2007, despite the National Broadband Network.
I’m often in violent disagreement with Black’s political analysis, but, if true, his article uncovers an interesting point about unemployment in the Australian media and cultural industries that the gold standard Australian Bureau of Statistics data can’t capture (because it is based on Census data, held only every five years).
Unfortunately, because of the opaque nature of the report, it’s almost impossible to determine where Black has derived his figures from. There’s no methodology section to the report, and about the most detail that can be discovered is the following, buried in a paragraph on page page 3:
This paper looks at the comparison of original or raw monthly unemployment rates in 69 Labour Force regions, across Australia, and uses simple modelling to benchmark these percentage figures against our Elaborate database.
But there is no description of the Elaborate database, so we can’t really tell. It’s the opposite of rigorous. This survey tells us nothing meaningful about employment in the Australian cultural industries.
Conclusion? Australian Database Strategies might enjoy a high media profile thanks to former Senator John Black, but that doesn’t mean we should take factoids like this too seriously.

The best article about freelancing – ever

Richard Morgan has written the best article about freelancing I’ve ever read at The Awl.

Excerpt below, but make sure you read the entire bitter-sweet funny-sad melancholy-hilarious magnum opus.

Heroes be damned; a writer should not model themselves after an editor. That is probably the single best realization I have made as a freelancer.

Moss said the thing that all editors inevitably tell all writers—something along the lines of “I really admire your determination, because I tried freelancing and didn’t last six months.” Editors like to talk about how much they need freelancers and how much they envy our freedom and our work ethic and our Rolodex. Whenever a friend loses his staff job at a magazine or newspaper, his ensuing panic reminds me that they put all their eggs in one basket and that I am cushioned because I have my eggs spread across so many baskets (which is a different kind of panic). Freelancing has great rewards, but trajectory is not really one of them. You do not go from being a freelance writer to a freelance editor to a freelance deputy managing editor. Essentially, I’m doing the same thing I was doing in 2003. The market for my vaudevillian sales of wonder tonic can dry up at any moment. An editor leaves. A magazine folds. And poof! Gone.

For the record, I’ve been freelancing for nine years and I’ve liked nearly all the editors I’ve ever written for. Editors are a writer’s best friend!

Jock Given

It’s time for a bit of fan post about Jock Given, Swinburne’s Professor of Media and Communications.

Why a fan post? Maybe it’s his recent in-depth dissection of the Australian Government’s implementation plan for the National Broadband Network. Maybe it’s his long review essay, also in Inside Story, about the future of books and print. Maybe it’s his fine monograph of 2003, Turning Off the Television, about the history and future of Australian broadcasting and communications policy.

In fact, any way you slice it, Given’s work has become central to this field. He’s got that rare combination of incisive analysis and clear, witty prose.

Take, for example, his discussion of the National Broadband Network, one of the best short introductions to this bewilderingly complex topic you’re likely to find:

WHAT McKinsey and KPMG have delivered is the most substantial public analysis of an Australian communications infrastructure project since the domestic satellite system in the 1980s. This is a major benefit, though not necessarily a good omen. AUSSAT racked up $800 million in debt within a few years. Voluminous public documentation doesn’t always lead to great decisions.

Indeed, in Australian communications, the size of the study is generally indirectly proportional to its influence. The bulky Davidson Inquiry recommending competition in telecommunications and the multi-volume Broadcasting Tribunal inquiry recommending the introduction of cable TV, both in the early 1980s, achieved close to zero. The Productivity Commission’s year-long inquiry into broadcasting in 2000 was largely ignored. But Kim Beazley’s few-page statement about telecommunications competition in 1990 blew the industry apart. By this standard, the two-and-a-half-page media release announcing the NBN in April 2009 was bound to change the world.

The McKinsey/KPMG study is testimony to the sea-change in telecommunications policy in the last two and a half years. For twenty years, both sides of politics have been getting the government out of the telecommunications business, first by allowing private competitors to take on the state-owned monopoly that ran the country’s telecoms for ninety years, then selling down the state’s ownership of it. When new mobile and fixed-line networks were built in the 1990s and 2000s, communications ministers didn’t pour over technology choices, costs, revenues, capital allocation and geographic priorities the way Postmasters-General used to do. Parliament had decided that governments made lousy decisions about those kinds of things.

At least, they weren’t supposed to be pouring over these things the way Postmasters-General used to do. The truth was they still did quite a lot of it. The Coalition government crawled all over Telstra’s timetable for shutting down its analogue mobile phone network and applied immense pressure on its plans to build and later close a CDMA network. In his bookWired Brown Land?, Paul Fletcher, chief of staff to long-term Howard government communications minister Richard Alston and now the Liberal member for Bradfield on Sydney’s north shore, says Ziggy Switkowski was not even on the shortlist of candidates for CEO until Alston insisted he be there. This was at a time when Howard and Alston were pushing their reluctant backbench to support privatisation. The government, they said, had no business controlling a telecommunications company.

But out in the new marketplace, the cable TV and eventually broadband network built in the mid 1990s by the new wholly private telco, Optus, didn’t work very well. The still-public Telstra proved more nimble and ruthless than some expected, building a similar network down many of the same streets. Both companies had to write off billions of dollars. It seemed telcos in commercial markets, even privately owned ones, could make lousy decisions too. Optus’s subsequent caution about investment in fixed-line networks and the curiously widespread, renewed enthusiasm for monopoly is the deep legacy of that time.

The government’s response has been to get back to controlling a telecommunications company. It is not the vertically integrated Telstra, it’s the wholesale-only NBN Co. McKinsey/KPMG’s Implementation Studycontains a set of recommendations that are not yet government policy, but it tells us a great deal about this new, old world.

We have a good idea – the best yet – about how much it might cost. We have lots of data and discussion about what it might earn in revenue. We have an argument about “viability,” but this is really an argument about whether the now fairly well-articulated financial returns that can be expected from the project are justified by the economic and social benefits that might not be captured by the financial modelling.

This is where faith and politics take over.

Special series on innovation theory: 2: Paul Stoneman’s Soft Innovation

Paul Stoneman's Soft Innovation is a major new monograph on innovation as it applies to the creative and cultural industries. Image: Amazon/OUP

I haven’t read the book, but you can read his previous discussion paper on soft innovation for NESTA. Relevant quote:

We define ‘soft innovation’ as a concept that reflects changes of an aesthetic nature. Such changes are considered significant if they are economically important. We show how important are new books, films, plays and video games in markets which exhibit regular novelty. Such innovations can also encompass a new line of clothing or the redesign of a car or a new advertising campaign. No-frills budget airlines or cosmetic surgery are further examples of markets in which firms rely on changes in aesthetics more than changes in technology to thrive or survive.
In short, we are concerned with changes in goods and services that primarily impact on sensory or intellectual perception and aesthetic appeal rather than functional performance. Soft innovation mainly concerns product innovation and, with that, product differentiation. Emphasising product differentiation allows that innovation may involve differences from the status quo and not just improvements, which is quite different from the standard approach where innovations in functionality require any new product to be an improvement; soft innovations may involve reductions in quality rather than just improvements (if price falls more than quality), as with budget airlines.
We identify two main types of soft innovation. The first involves changes in products in the creative industries, which are worth 6.4 per cent of UK gross value added, and include new books or movies. The second relates to aesthetic innovation in goods and services that are primarily functional in nature, such as new furniture or a new car model.

Simon and Schuster CEO: We still don’t get e-publishing

US e-book sales, 2002-2010. Source: Neilsen BookScan, International Digital Publishing Forum, AFR.

The Australian Financial Review, paradoxically one the best newspapers for coverage of the Australian cultural industries even as its own circulation dwindles away towards marginality, has an excellent article on e-publishing today.

In an ironic twist, you can’t actually see it online, because the geniuses at Fairfax are still firewalling their content the internet. (Great business strategy, guys). This means that the AFR‘s typically excellent Katrina Strickland is denied to web readers, just as today’s article by Emma Connors is.

No matter: you’re humble correspondent still likes to read newspapers and has gone out and bought a physical copy of one.

The article contains a long and interesting interview with Simon and Schuster CEO Carolyn Reidy.

In 2007 the New York based publisher began digitising 12,000 of its backlist titles, and creating a digital distribution network. It was a leap of faith that cost ‘close to eight figures’, says Reidy, who laughs when asked about the return on investment.

“I would say there has not been enough of one yet,” says Reidy.

“Some of those titles are not even available for sale as e-books because we are still clearing the necessary agreements with authors from the deep back catalogue, making sure the contractual work is done.”

The quotes from Reidy are not particularly groundbreaking, but what the article does reveal is how publishers continue to struggle with the cultural implications of the transformation of their industry – from a creator of bespoke physical objects, to the digital distributor of bulk creative commodities.  As Reidy tells Connors,

“We are trying to build on our experience physical sales to make sense of digital, but there’s no doubt we are experimenting. No one feels they have the answer yet.

We don’t know if we will sell more books overall because it is easier for people to buy online where they just have to push a button.

We are not sure if the cultural role books have played – one that is so central – will be maintained as the digital model progresses.

These are all questions that are coming up.”

In other words, publishers are a l0t like newspaper editors and journalists: in deep, deep denial.

I think I can answer those questions really quickly: Will more books be sold online? Yes. Will the central cultural role of books continue? No.

YouTube turns 5

Above: The Evolution of Dance, YouTube’s third-top all-time video and certainly one of my favourites.

It’s hard to believe, but the paradigmatic web video  site has now turned 5. The New York Times has an interview with Chad Hurley, while there  some other good links here, here and here.

YouTube serves 2 billion page views, but does it make a profit? Google doesn’t break down the figures in its accounts, but analysts still think the site may not yet be making money. Perhaps soon.

Two views of the future of news media

US newspaper circulation figures over the last 50 years show long-term, generational declines. Source: Hal Varain, 2010, "Newspaper economics: Online and offline", Mountain View, CA: Google

Two long investigative essays published in the last week – in two of the most famous mastheads in US journalism – offer two very different perspectives on the emerging online reality for news journalism.

In The Atlantic, veteran feature writer and editor James Fallows enters the Googleplex to find that, unexpectedly, Google cares deeply about the future of news media:

EVERYONE KNOWS THAT Google is killing the news business. Few people know how hard Google is trying to bring it back to life, or why the company now considers journalism’s survival crucial to its own prospects.

Meanwhile, in the New York Times Magazine, Andrew Rice takes an in-depth look at some of the start-up online news entrepreneurs looking to create new products for the emerging online news marketplace. He discovers a world where online evangelism from displaced old-media journalists and editors is combining with the new realiy of news aggregation, Google search engine optmisation and vastly diminished advertising incomes to create a very different news landscape:

Online, advertisers have immense power. Because it’s easy to track who is clicking what, they can aim with efficiency and typically pay according to the number of times their ads are actually viewed. Instead of sending word of its shoe sale to a million print newspaper subscribers, who may or may not be looking for shoes, a store can buy the page views of 50,000 people who are reading articles about fashion. Or the advertiser can place ads on heavily trafficked portal sites like Yahoo and AOL, both of which are currently expanding their production of original journalism. Or it can pay Google to insert its ads into search results. Or it can go to one of the large digital advertising networks that have arisen in recent years and buy unsold “remnant” page views at deep discounts. There is a lot less waste and a lot more choice, and the upshot is that advertising, which once produced robust margins for publishers, now sells for spare change online. Generally speaking, while some ad placements — like those on a site’s home page — go for a significant premium, pages of individual articles, if sold at the going rates, bring in between a penny and nickel each time a reader looks at one.

Bottom line? The halting efforts of Australian newspaper proprietors like Fairfax and News Limited to ready their business models for the online revolution are far too little and very, very late.

Links – 11th May

1) Google Editions analysis: Robert McGarvey thinks that Google Editions “is rewriting all the rules of book buying“. Also worth a look is Megellan Media’s blog by Bryan O’Leary.

2) Independent games developer Jarrad “Farbs” Woods was recently named by Game Developer magazine as one of the 50 most important contributors to the current state of the games industry. Here, an interview.

3) The second-largest video rental chain in the US plans to liquidate. Could Blockbuster be next?

4) Despite downloading, recorded music sales are in fact rising in 13 territories. One US indie label is still making a profit selling CDs.