Debunking The Argument That No Blockbusters Would Be Made Without The Copyright Monopoly

A scene from "Return of the King", the third part of "Lord of the Rings"

Whenever I argue that the copyright monopoly isn’t necessary to incentivize culture production, I hear the counterargument that multi-million-euro movie productions would never happen in case there wasn’t a guaranteed return on investment.

The image for this article is a still image from Return of the King published in 2003, the third installment of The Lord of the Rings, which I’ll use as a concrete example. But first, let’s examine the counterargument above in more detail.

I frequently hear that this-and-that would not happen if there wasn’t a guaranteed return on investment. While most people seem in agreement that music would be played, books would be written, and art would be made without the copyright monopoly, because that creativity happens for other reasons than pure money, the objections usually gravitate towards the subject of blockbuster movies, and how a guaranteed return on investment is necessary for those to be produced in the first place.

Let’s look at that statement.

First, it’s a contradiction in terms. By definition, an investment is the acceptance of a risk for a possible return which is larger than the initial investment; there is no such thing as a right to profit off of any endeavor.

Second, so what? Culture has always been fluent in its forms of expression. A hundred years ago, folk songs and concerts with classical music were the two predominant expressions of culture. A hundred years before still, it was ballets and operettes in French and Italian. Nobody even gives a shrug that ballets isn’t the predominant expression of culture today, and so, we should expect feature films to peak and fade, too: to give way for something else and better. Gaming and immersive culture, perhaps.

But let’s look at the underlying assumption again, that nothing would be produced if the copyright monopoly was reduced to allow file sharing. Let’s assume that everything could spread freely as soon as it was digitized, and that this would result in no more revenue for a certain blockbuster movie once it was shared in the wild (which is a completely false assumption, but one that the copyright monopoly maximalists argue, and so, let’s stick with it for the sake of argument).

This means, that after the opening weekend of a blockbuster, it would yield no more revenue under this (false) assumption. So then, let’s look at hard numbers to examine that argument. We have the numbers for Return of the King, which is frequently used as an example in the debate, right here.

The movie Return of the King cost 94 million US dollars to make. On opening weekend, it grossed 199 million. That’s over a 100% return on investment before a digital copy could be fileshared in the wild.

Now, there are a number of assumptions with this number, like how the gross is distributed and much more. But overall, it shows how ridiculous the argument is that there would never be a return on investment if the copyright monopoly was sensiblized to allow noncommercial copying.

The next wave of that argument is that all movies don’t reach the 100-percent level of return on investment during opening weekend. That is true, of course. Some reach more, some less, some go at a loss. So how much return would be needed, and how much risk is acceptable, to still make investments happen?

In order to answer this question, we don’t look at the Hollywood studios, but at other investors: the… well, investors. Wall Street. A ten-percent return over a year is a considered a good investment that easily attracts hundreds of millions of euros (or dollars). And frequently enough, those investments… just tank. Just like movies do. But you practically never, ever, see the hundred-percent return on investment on Wall Street financial derivatives that you can make on just opening weekend for a movie production.

In summary, the argument that nobody would invest in the production of multimillion blockbuster feature movies if filesharing was allowed is incoherent hogwash on multiple levels, proved so by the industry’s own numbers.

TRANSLATIONS AVAILABLE
This article has been deemed reference material by the swarm, which has translated it into other languages. Translations available: Spanish.

Rick Falkvinge

Rick is the founder of the first Pirate Party and a low-altitude motorcycle pilot. He works as Head of Privacy at the no-log VPN provider Private Internet Access; with his other 40 hours, he's developing an enterprise grade bitcoin wallet and HR system for activism.

Discussion

  1. Henrik

    Ummm…I dont have any sources or anything, but I have read that to go plus on a movie, you have to pull in about the double of the films budget, because of marketing and other “hidden” costs that are not included in the actual budget (which is complete when the final cut has been made in the editing room).

    They would still have made money on this movie though, but not the 100% you suggest, but according to what I’ve heard it would only be about 6%.

    And again, this is only hearsay though, and I cant back ut up so it may be untrue, but the >100% margin is probably much smaller after all other costs have been payed.

    1. Rick Falkvinge

      No movies ever go positive, actually. The accounting is deliberately made to never make a profit. That’s why actors have learned to never get a share of profits, but always of gross revenue. Google “hollywood accounting” for details on this practice.

      But in principle, you’re right. The studios get somewhere between one-half and one-third of the gross depending on who you ask, and the cinemas get the rest. Then again, many of the cinemas are owned by the same parent company as the studios, so in reality, the same corporate group gets the whole bulk of revenue.

      1. Henrik

        Yes, I’m fully aware of the accounting and its way of turning profit into losses, but thats not what I meant.
        The budget of the movie is what the filmmakers get to get the movie completed (in this case Peter Jackson, which actually told a pretty fn story that would help your argument even further).
        Apart from this the studios has to spend several million on marketing (which for blockbusters are usually quite extensive), then distribution of the physical items, the filmreels across the world. Even though made through well established channels already it certainly isnt free for them, or cheap as it has to be a very secure line, and synchronized (the reels has to arrive in specific times to be available, and not before certain times to avoid leaks).
        I have in no way good enough knowledge about all the costs thats has to be covered by a movies intake in the end, but this is the costs I’m talking about. The costs that does not stay within the industry (and I’m including the cinemas here aswell). Those are the cost that has to be made back, in the same volume as the films budget as a thumbrule.
        But as I said before, I’m not sure about this, so I might be wrong.

        Anyway… Peter Jackson said in an interview while concentrating on the first film that just before he signed the contract he had a meeting at his home. Looking around the people from the studio saw the posters like Braindead, Bad Taste and those movies. And I’m paraphrasing here when he said what the impression must have been:
        “I can only imagine the thoughts going through their heads at that moment. We’re giving THIS guy several hundred of millions of dollars?”
        They did anyway, so the criteria of the *guaranteed* profit cant really be that strong.
        Now, dont ask me for sources or anything…its about 10 years ago I read it.

        1. pop

          I don’t think you understand what Hollywood Accounting really is.

          The trick is that the costs you describe, such as marketing and distribution, are paid to their own subsidiary companies, and those in turn pay their own subsidiary companies.

          By overcharging a bit at every level, they rake in profits multiple times for the same thing.

          Clever, huh? 😛

        2. (Another) Henrik

          Hi Henrik,

          Just a couple of thoughts about the expenses You mention.
          The marketing expense would probably be lower since distribution by fans (currently known as piracy) is a very cheap and effective way to market a work.
          The distribution expense would probably be lower since we have this fine infrastructure for transferring digital works. I have a feeling there are very few non-digital (what’s that other word :) steps in making a movie today.
          The very secure and synchronized distribution is solvable but probably not even a problem if the distributor counts on releasing the work soon anyway.

          Regards
          /Henrik

        3. JohnNewton

          @(Another) Henrik:
          How would any of that increase profits in the crucial “opening weekend” mentioned several times in the article?

      2. Morten

        If cinemas get so much of the profit, then they would very quickly go into the business of incentivising people to make movies for them should the copyright monopoly disappear. Perhaps the whole copyright monopoly is actually hurting the average movie creator, actor and other contributors. Cinemas could have agreements not to show each others movies unauthorized, because they would want the other cinemas to share their movies, and so on. Expulsion from such a group could be detrimental to a cinema. This way of production could perhaps even create a new, more exciting spirit of competition between different cooperating groups of cinemas. This is just one scenario, and no one can predict exactly what would happen. I just want to say that taking it for a given that the violent way of having the government protect creative business might not be necessary at all.

        With government enforcement of “the correct way to do things”, things are set in stone. Once this coercion is not considered as a possibility, people become very imaginative in creating alternative ways to protect their business.

        I am skeptical of keeping the monopoly for “commercial” purposes though. First of all, everything in life is commercial, in the sense that one does it to make ones life better in some way, thereby profiting from that action. To me this is like saying that killing is only wrong when done to take someones wallet, not if you do it for the enjoyment of killing, or in anger. Second, I do no think much would change with such a law, except a few grannies not getting sued for nothing(a reasonable goal in itself).

  2. ivan

    For sure without the copyright monopoly the roi rates of the entertainment industry will drop – not so many people will pay to see a movie on the first weekend if they would be able legally to see it the next week for free. So the roi return rate in the entertainment will come closer to the normal levels for the other industries.
    And I think this will be maybe the most important positive result for the society. The current distortion of the roi levels attracts artificially a lot of not only financial capital, but creativity, talent etc., to in most cases fully useless productions.

    1. PiratGurra

      How come you are you so sure of that? Cinemas apparently still offer something that you can’t get at home with your internet connection, computer and file sharing – otherwise it would have dropped as much as the music industry has – or maybe even worse.

      1. Shawn Vulliez

        The thing they offer that the internet cannot is called “The Theatregoing Experience”- which provides plenty incentive to go and spend ten credits on an explosion-of-the-week.

        Additionally, as long as the companies are safe with their data, they can gain many weeks of content exclusivity when it matters most.

    2. SBJ

      @ Ivan; That’s bollocks. If, f.ex, The Hobbit was published to TBH tonight, I’d still go to the cinema to watch it, I’d still buy the DVD and/or the Collectors Edition of it. Just as I did with the LotR-movies.

      And alot of pirates reason the same way. Granted not al, but enough that’d still be profitable for them. Another example is the game minecraft, I heard about it, dowloaded it, liked it and bought it. And the fact the Notch has a liberal view on piracy, I think has only helped the game to sell. He has explicitly said he wants people to pirate it, and if they like it he’l be happy if they buy it as well. So the whole “No one will buy it if they can get it for free” is pure crap.

      Nei Gaiman is an other example that free does not equal lost sales, rather the opposite. Just check the YouTube with “Neil Gaiman on piracy”. There are more examples on tha fact that if you make something that enough people want to buy, they will buy, regardless if they can also download it for free.

  3. Crosbie Fitch

    This is what someone commented today: “So if copyright is eliminated, as many think it should be, we will not have this kind of movie any more. ”

    And this is what I replied

    That’s a non-sequitur. Why, simply because a monopoly has ended, will movie lovers such as you refuse to pay good movie production companies good money to make good movies?

    You have been hypnotised by the cartel to believe that without those monopolists getting extremely wealthy on monopoly profits (Hollywood accounting that gives them the lion’s share of revenue from movie goer to movie maker) movies will no longer be made. If you remove the monopoly you simply remove the monopolistic middlemen, you do not remove the demand or the supply. While there remains a demand for movies and a supply of people able to make them (at far better value for both vendors and customers given free market pricing) then there will be an exchange of movies for money.

    Try checking out http://vodo.net as one of many ventures exploring film production/distribution/financing without monopoly.

    Source: http://www.techdirt.com/articles/20120102/16374417254/it-is-time-to-stop-pretending-to-endorse-copyright-monopoly.shtml#c2171

    1. steelneck

      Or you could have said: We have already had global file sharing for ten years now, have you stopped going to the movie, buying films or watching TV, have _you_ become a pirate who are stealing the food off the table from people working in the movie industry? Or will you become such a person? If no, then why do you think everybody else will, do you really have such low thought about your fellow citizens?

  4. Zacqary Adam Green

    There’s also the fact that within five or ten years, the tools to make Avatar-quality production may very well be available and run on the average tablet. So even if it’s not feasible to make bazillion dollar movies anymore, nobody will notice, because movies simply won’t cost as much.

    1. Scary Devil Monastery

      And even then, one select producer out of a thousand will sit in a basement and produce, on a shoestring budget, using unknown cheap actors with bad reps, in record time, something like “Star Wars: IV”.

      While a very similar producer in all aspects but his hunger for success will sit on half a billion dollar’s worth of reachable budget and churn out garbage riding on a brand name – like, say, the same producer thirty years later giving rise to Star Wars: The Phantom Menace”.

      Skill and talent will always pay. The roi on culture has always been a guess and not much else.

  5. Jerker Montelius

    Its also worth noting that branches with less copyright is much bigger and profitable than branches “protected” by copyright as noted in this wonderful clip
    http://www.youtube.com/watch?v=zL2FOrx41N0

    1. Clubfeast

      There actually is quirte a lot of copyright in the fashion industry and the big bucks in the clothing industry is in the manufacturing of the clothes usually made by a few superlarge companies.
      Also you have to admit that comparing culture with clothes is somewhat silly, everybody needs and buys clothes regulary compared to people who buy films and music.

  6. Anonymous Coward

    Off Topic: I have been following this blog for quite some time, and I’d like to join the swarm. I’d like to translate this and few other articles to my language, as I see it’s currently possible. So how to do that? Cheers!

    1. Rick Falkvinge

      Normally, people just translate without asking and post the translation on their own blogs, plain and simple, and when they link back, I discover it and add a formal “translation available” link. “The swarm” is a way for me to say “somebody in the cloud of the highly energetic activists”.

      If you want to translate it formally to another language, I am currently looking for volunteer translators to Brazilian (Portuguese), Russian, Chinese, and Hindi. And Swedish, actually.

      If you’re interested, please contact me as listed under “Contact”.

      Cheers,
      Rick

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  10. Michael Bernstein

    Rick, your math has a basic problem that you haven’t addressed yet: You must take into account not just the profits the successful blockbusters but also the losses of the failures, if you want to figure a Wall St. style rate of return.

    In effect, the profit on the successes subsidizes the failures, making the Hollywood system much less profitable than your “100% profit on the first day” makes it look.

  11. Lilliam Slasher

    I just wanna say that I download cam versions of the movies before going to see them on a theater (I know, I’m a freak :P). I did it with X-Men:First Class and The Avengers, for example. If I like the movie, I go to the theater (cause is’t great to see a movie in a huge screen, and because I like to support the movies I like). If I think the movie is not worth my money, I don’t go. Probably this is what the big studios are so afraid of: would you pay for a movie you’ve already seen and know is shit? And that’s like 90% of what Hollywood produces: shit!

  12. […] place (and many actually make their investment back opening weekend, making the copyright monopoly completely unnecessary in the first place), this argument keeps coming back: “if there’s no monopoly, no […]

  13. […] place (and many actually make their investment back opening weekend, making the copyright monopoly completely unnecessary), this argument keeps coming back: “if there’s no monopoly, no culture will be […]

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