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Hollywood's Digital Love/Hate Story

Director Robert Rodriguez' rise to fame and fortune is a story worthy of Hollywood itself. In 1992, the young Texan filmmaker made his first feature, El Mariachi, for just $7,225. The tale of an innocent guitar player mistaken for a vicious killer went on to win the Audience Award at the Sundance Film Festival, transforming Rodriguez into a legend for a generation of aspiring directors.

Over the past decade, Rodriguez has made 10 more movies. But unlike other breakthrough directors, he never abandoned his low-budget roots. His most expensive project, Spy Kids, cost $35 million -- and grossed $147 million worldwide. Most of Rodriguez' films, which include Desperado and From Dusk Till Dawn, are budgeted at less than $20 million.

Rodriguez, 34, keeps costs down by harnessing the power of digital technology. He shoots on high-definition video, not film, because the latter is pricey to buy, develop, and edit. Video cameras, however, can be held in the palm of a hand, which allows far more intimate filming than is possible with traditional 1,000-lb. cameras mounted on dollies.

ONE-MAN SHOW. Most important, though, by keeping costs low, Rodriguez can demand full creative control -- a dream for all but the most high-powered directors in Hollywood, most of whom have to answer to profit-driven media conglomerates. In his most recent film, Spy Kids 2, Rodriguez gave himself nine production credits, including director, writer, co-producer, cinematographer, editor, and co-composer of the movie's score. He also edited sound effects and supervised heart-stopping visual effects from his home computer.

Although everything Rodriguez has done makes sense in the bottom-line world of moviemaking, no herd is following in his footsteps. According to the Motion Picture Association of America, the average film budget in 2000 was $54.8 million, up from $9.4 million in 1980. Directors and cinematographers, who have built their reputations on their skilled use of film, dread the idea of being marginalized by punks with digital camcorders.

Of all the big names in Tinseltown, only George Lucas has become an evangelist of digital filmmaking. (The latest Star Wars prequel, Episode II: Attack of the Clones was shot entirely on high-definition digital video.) Directors such as Steven Spielberg and Oliver Stone have publicly sworn that though digital technology has its place in post-production, they'll never abandon the richness of film.

TECHNOPHOBIA. Any effort to put a tagline on the trajectory of technology in Hollywood is like a scene from a bad script meeting. Will the story of technology's advance in Hollywood turn into David & Goliath Meets Star Trek? Or could it be King Kong morphs into Honey I Shrunk The Kids? Or both? The reality is that even though big movie studios and music labels could benefit enormously from digital technology, they're also terrified of technological change that could alter the status quo.

That's why Lucas' and Rodriguez' move to digital filmmaking has created a schism among the Hollywood elite. And it also explains why, since 1998, the Big Five music labels, led by the Recording Industry Association of America, have unleashed an army of lawyers to crush upstarts that dare to digitally distribute music without the Establishment's stamp of approval.

That doesn't mean, however, that old-line entertainment execs will be able to fend off tech innovation any more than they could keep at bay the player piano in the 1930s, cable TV in the 1970s, or the VCR in the 1980s. "When technology revolutions occur, people inevitably fight them," says Mark Stolaroff, an independent producer who spent the last five years helping low-budget filmmakers including Joe Carnahan (NARC and Blood, Guts, Bullets and Octane) and Christopher Nolan (Memento and Insomnia) break through at recently shuttered studio NextWave Films. "And then suddenly, you turn around and realize, wow, everything has changed."

GREAT DEMOCRATIZER. If it weren't for digital technology, Scott Saunders would never have been able to fulfill his dream of making films. Since the mid-1980s, Saunders has directed three feature films and more than 20 shorts, which have won prizes at several international film festivals. In January, his latest film, The Technical Writer, starring Tatum O'Neal and William Forsyth, will be shown at Robert Redford's Sundance Film Festival. Despite his success, Saunders is holding on to his day job as an on-air promo editor at Lifetime Channel to pay the bills. "Cheaper tools give you a chance to make your vision a reality," he says. "Getting an audience to see it is still as difficult as ever."

He's right, on both counts. Digital video is the great democratizer for the notoriously elitist film industry. A high-quality digital-video camera costs $3,000 to $4,000, vs. $500,000 or so for a traditional 35mm film camera. Digital tapes are cheap and hold as much as 40 minutes, while film reels are expensive and last 11 minutes, requiring frequent stops and starts on the set. Best of all, since everything captured is digital, directors can edit images, sound, and special effects on a personal computer. That helps explain the 62% rise in short-film entrants for this year's Sundance festival.

The problem is that digital production is way ahead of its cousin, digital projection. Though entertainment execs intellectually understand that digital projection will ultimately save money -- eliminating, among other things, the $2,000 it costs to make and ship a print of a film to each movie theater -- Hollywood studios and theater owners are locked in a battle over who should pay for digital projectors, which can cost more than $100,000. The result is the technology has been slow to take hold.

INDIE PROMOTIONS. When George Lucas released Attack of the Clones last May, only 60 of the 5,000 screens it opened on were equipped to show the movie as it was intended to be viewed. In short, though it's now possible to make a film on the cheap, few people will see it unless it's transferred from video to film, a process that can cost up to $60,000.

As this realization sinks in throughout the independent film community, some innovative entrepreneurs are looking for ways to reach audiences outside of theaters. This month indie filmmaker Larry Meistrich launched a service called Film Movement. Subscribers pay $19.95 a month to receive one award-winning film or documentary on DVD or VHS. They're also invited to attend private screenings of films distributed through the service's own film series or at participating film festivals.

Popular DVD subscription-rental service Netflix (NFLX) is also promoting indie films to its more than 850,000 members by featuring films with limited theater release on the front page of its Web site. For example, Netflix members rented low-budget film Memento more than 200,000 times, making it the seventh most popular title in Netflix history.

"NEW GOLDEN AGE"? On Jan. 3, Hollywood will get a bigger taste of this trend, when digital screening lounge CineSpace opens. The supper club/screening room will let patrons dine while taking in indie films and documentaries. Its first feature will be American Pimp, a hard-hitting documentary about prostitution in America. In February, Cinespace will host a weekly New Film Makers' Series that showcases the best local directors to industry reps and the general public.

It may be a decade or more before digital video upends the Hollywood status quo. In the meantime, new technology is helping creative but underfunded filmmakers carve out new markets and build an audience for films that don't fit the Hollywood

formula. "Every one of these ideas is a great step forward because it allows filmmakers to begin and end in digital," says Michelle Byrd, executive director for New York's Independent Feature Project, an organization that supports independent filmmakers. Ultimately, she predicts, "true digital production and distribution will give rise to a new golden age for film."

Remember the scene in Broadcast News where Joan Cusak, the dedicated news assistant, tears madly down the hall to deliver the crucial news tape in time for the nightly broadcast? If Gordon Castle, CNN's senior vice-president for technology, has his way, that scene will soon seem quaint, just as today's reporters find it hard to imagine that news was ever produced without a computer and e-mail. At CNN, in fact, physical tapes are becoming a relic of a bygone era.

CLICK AND RETRIEVE. In their place, CNN has created a digital asset-management system that can record and store the 30,000 hours of video it collects each year. It's also in the process of digitizing its 150,000-hour news archive -- from the first battle scenes of the Gulf War to the tragic images of New York's crumbling Twin Towers. Digital files don't deteriorate like analog video, which has a shelf life of about 20 years. Storing images digitally also eliminates the all-too-common problem of someone borrowing a tape and forgetting to return it, or worse, losing it.

CNN's new asset-management system, called Media Source, is used for all daily news production. Editing a story on Iraq? Simply type in "Saddam Hussein," and the system will search for the latest raw images and finished news pieces that talk about the Iraqi dictator. Once producers find the clip they want, they simply type its ID number into a digital running order, an electronic schedule that queues up the right clips that run on-air. "Everyone in the news and entertainment industry is talking about media management. It's the required precursor to changing the way we work," says Castle.

CNN has spent millions with IBM (IBM) to develop its asset-management technology. Castle wouldn't specify what savings he expects as a result, but CNN's rule of thumb is that any technology investment should improve returns by at least 15%.

EMBRACING P2P. CNN isn't alone in its commitment to digital technology. As media conglomerates grow ever bigger, digital infrastructure is the tool that allows them to realize economies of scale. Take Viacom (VIA), another IBM client, which owns, among other properties, MTV, CBS, TNN, and ShowTime. In the analog world, camera operators and producers go out, shoot tape, edit and produce individual programs, and sell ads against them.

With a centralized digital asset-management system, MTV producers who are looking at the history of music in the 1960s could, with a few clicks, draw from the vast CBS News archive. If Showtime produced a series of four documentaries on children's sports in China, Brazil, the U.S., and Britain, the additional cost to produce a two-hour series on children's sports around the world would be that of a digital editor's salary. "The more you use the content, the lower the average cost to produce," says Steve Canepa, IBM's vice-president for global media and entertainment. "That's the real economic force driving infrastructure to digital."

Yet another example of technology inexorably altering the entertainment world's ways is "peer-to-peer" software. Just mention the term "P2P," as it's called, and you'll send most entertainment executives running for the Hollywood Hills. P2P is the technological architecture that gave rise to the now-defunct free music site Napster and that continues to power illicit music- and video-swapping services such as KaZaA and Morpheus. Quietly, however, some entertainment ventures are beginning to embrace P2P -- though for political purposes they prefer to call it "distributed delivery."

LISTENERS AS BROADCASTERS. The technology has caught fire with radio Webcasters, which face what's known as the "paradox of popularity." The paradox is that, unlike in traditional broadcasting, the more Web listeners you attract, the more it costs to serve them since the station must dedicate an individual stream to each member of the audience.

P2P software solves this problem by turning listeners into mini-broadcasters themselves. As well as receiving a stream of music or video, listeners also reflect the stream to other computers online via P2P software. Radio Free Virgin streams 1 million hours of programming each week -- that's 15 million to 20 million songs each week. According General Manager Zack Zalon, P2P technology has cut his bandwidth costs by 40% (see "Web Radio's Personal Edge").

Radio Free Virgin buys its software from tech upstart Blue Falcon, but several other companies are already in the field, including Kontiki and Uprizer. Their pitch: Distributed delivery not only saves money but improves scalability, because the more people who tune in the more efficiently the overall system works. P2P should help avoid the server meltdowns that occurred when 1.5 million people tried to tune in to see streaming video of Tyra Banks and other sexy supermodels walking the catwalk for a Victoria Secret lingerie fashion show in 1999. The overwhelming response made that video anything but graceful -- if you could get it at all: At least 5% of potential viewers couldn't get through.

"LESS EVANGELIZING." Online radio stations aren't the only ones interested in P2P. Movie studios that want to wow fans with online movie trailers are also looking for better ways to scale up -- without buying new servers for a one-day frenzy. Demand can be intense. In April, 2000, when New Line Cinema offered a preview of the trailer for The Lord of the Rings: The Fellowship of the Ring, a record 1.7 million people downloaded it in the first 24 hours. By the end of the week, 6.6 million people had watched the trailer.

"One division is suing P2P players, another division is calling us," says Josh Goldman, Blue Falcon's CEO. But he adds: "We're doing less evangelizing. They're finally thinking of P2P as a way to bring costs down and increase scalability."

The entertainment biz has a long history of technophobia. And yet new technologies inevitably bring opportunities and create new markets. Music publishers tried to sue player-piano makers out of existence, fearing that no one would ever buy sheet music again. Fifty years later, in 1984, Motion Picture Association of America President Jack Valenti uttered what's undoubtedly the most infamous comment in the history of technophobia: "The VCR is to the American film industry what the Boston strangler is to a woman alone." Today, video rentals account for more than 40% of studio revenues.

The same will be true of digital filmmaking and distribution, digital asset-management systems and yes, even P2P software. It will take time. But in the future, as in the past, technology will ultimately deliver a happy Hollywood ending. By Jane Black in New York

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