About Me 0011: Making Money With Youtube

The following is an article from Uncle John’s Heavy Duty Bathroom Reader.

If you’re a fan of cheesy films like Manos: The Hand of Fate, Plan 9 From Outer Space, and Troll 2, you’ll love this one. Uncle John saw it last when our local Bad Film Society screened it, and as he was watching, it occurred to him that it actually gave new meaning to the word “bad.” (But somehow he couldn’t stop talking about how great it was.)

THE SIX MILLION DOLLAR MAN

On June 2003, a film called The Room premiered in a handful of Los Angeles theaters. It’s the story of a love triangle between Johnny, a banker; Lisa, his girlfriend; and Johnny’s best friend Mark. The film was the brainchild of Tommy Wiseau, the actor who plays Johnny. Wiseau wrote, directed, produced, and distributed the film. He financed The Room, too, shelling out $6 million of his own money to make it, plus thousands more on print and TV ads and a single giant billboard overlooking busy Highland Avenue in Los Angeles.

The Room was Wiseau’s first feature film. He hoped to use it to launch a Hollywood career… but all he succeeded in doing was blowing $6 million in record time. The Room played to nearly empty theaters for just two weeks before it was yanked from the screen; in that time it had grossed only $1,900, not enough to cover even one month’s rent on the Highland Avenue billboard. Put another way, for every million Wiseau spent, The Room earned less than $320, making it one of the worst box-office flops in history.

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CITIZEN PAIN

Is there anything about The Room that isn’t bad? The acting is stunningly incompetent- none of the actors had ever had a major film role before, and Wiseau was incapable of providing decent direction. And the love scene between Johnny and Lisa is creepy (picture a Troll doll having its way with a seat cushion, except that Lisa is the cushion). Wiseau recycles the footage in a second love scene 20 minutes after the first, so you get to watch it twice.

As a screenwriter, Wiseau was even worse. New characters appear out of nowhere and aren’t properly identified, so it’s never clear who they are. A number of subplots -such as drug abuse, unrequited love, and bad real estate deals- are introduced, then quickly abandoned. (“I got the results of the test back. I definitely have breast cancer,” Lisa’s mother tells her, and the subject never comes up again.) And though the thickly-accented Wiseau refuses to this day to say where he comes from, English is clearly not his first language. The Room is full of clunky, confusing, and unintentionally funny dialog: When a (never-identified) character catches Lisa and Mark kissing at Johnny’s birthday party, and confronts them, Mark yells, “Leave your stupid comments in your pocket!”

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PATRON ZERO

The movie likely would have died a quick and unmourned death had an aspiring young screenwriter named Michael Rousselet not happened to see the film near the end of its two-week theatrical run. As Rousselet sat alone in the empty theater, he was stunned by what he saw- bad lighting, out-of-focus scenes, dubbed dialog out of sync with the lip movements onscreen, poorly designed sets (it’s never clear which room is the room, or why the room is so important), one wooden, sophomoric acting performance after another, and much, much more. Whenever Rousselet thought that The Room had given all that it had to give, it would cough up some wonderful new chunk of mediocrity and incompetence for him to savor. It was unlike any film he’d ever seen. Sure that such a flop would never make it onto DVD, Rousselet sat in an empty theater (while the movie was still running) and called everyone he could think of on his cell phone, telling them they had to see The Room for themselves before it vanished forever.

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MISERY LOVES COMPANY

That theater didn’t stay empty for long. Though The Room died at every other venue where it was shown, Rousselet’s promotional work paid off at this one. A small crowd of friends joined him at the next showing, and as these people phoned their friends, the numbers grew steadily at each remaining screening. “We saw it four times in three days, and on the last day had over 100 people there,” he told Entertainment Weekly in 2008.

By the time The Room ended its theatrical run, a small but dedicated fan base had already begun emailing Wiseau to thank him for his efforts and ask him to screen the film again. Wiseau received dozens more emails in the months that followed, and in June 2004 he booked a small theater in West Hollywood for a single midnight screening. That event was a hit -so many people turned out to see the film that Wiseau booked another midnight showing a month later, then another, then another.

As the crowds continued to grow like lookie-loos at a traffic accident, he expanded to two screens at the multiplex, then three, then four, and then five. Strong word of mouth among a steadily growing fan base of “Roomies,” as they call themselves, led Wiseau to schedule screenings in cities up and down the West Coast, then in other parts of the United States and Canada, and eventually in Great Britain. And with foreign-language editions reportedly in the works, The Room may soon have fans all over the world.

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SPOONING

Have you ever been to a showing of the 1975 film The Rocky Horror Picture Show? As was the case with that cult film, The Room’s fans have created audience participation rituals all their own. Roomies attend screenings dressed as their favorite characters, shout out their favorite bad lines at the appropriate moments, yell “FOCUS!” during blurry scenes, march out “in protest” during the troll doll/seat cushion love scenes, and throw plastic spoons whenever the spoon photograph in Johnny’s apartment appears. There’s no question that the Roomies are there to laugh at Wiseau and his masterpiece, but he says he doesn’t mind. “As long as they laugh or enjoy themselves, I enjoy with them,” he says.

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NO ROOM AT THE ROOM

If you’re ever in L.A. on the last Saturday of the month, go see The Room. Buy your tickets early- even when the film is being shown on five screens, The Room sells out quickly, especially when Wiseau or other stars appear in person. Wiseau’s fabulous flop has been reborn as the hottest cult phenomenon in decades, and at an estimated gross of more than $1,000 per screening, The Room is on track to break even sometime in the year 2504, maybe sooner if you consider profits from The Room t-shirts, CDs, DVDs, movie posters, and talking Johnny bobblehead dolls.

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The article above was reprinted with permission from the Bathroom Institute’s newest book, Uncle John’s Heavy Duty Bathroom Reader.

Since 1988, the Bathroom Reader Institute had published a series of popular books containing irresistible bits of trivia and obscure yet fascinating facts.

If you like Neatorama, you’ll love the Bathroom Reader Institute’s books – go ahead and check ‘em out!

Netflix is one of the best performing stocks this year, up 225 percent year-to-date, with a $9.3 billion market cap. But it is also priced to perfection, with a lot of short sellers hoping to profit from its fall and antsy Wall Street analysts downgrading the stock. Today, CEO Reed Hastings defended Netflix’s prospects in a very public, very detailed, and very unusual blog post on Seeking Alpha. The post was in response to a specific short seller, Whitney Tilson, who last week laid out his case against Netflix in another Seeking Alpha blog post. By addressing this one short seller, of course, Hastings is trying to address the market’s jitters as a whole, and he does a pretty convincing job of it.

Tilson raised a number of concerns, ranging from the recent resignation of Netflix’s CFO to pressures on Netflix’s margins to market saturation and increasing competition in streaming video. Hastings acknowledges that Tilson “only has to be right on one or two of these issues in 2011 for him to make money on his short of Netflix. . . . Odds are he is wrong on all of them, in my view.”

Hastings then goes on to rebut the short seller’s argument (short sellers are investors who bet against a stock). I’ll summarize each of Hasting’s counter-arguments below:

The CFO left because he wasn’t going to become CEO anytime soon.

The First Sale Doctrine (which allows Netflix to rent DVDs after purchasing them) may be under attack, but it won’t change in 2011. And Netflix’s video streaming business is growing so fast that by the time it does have any impact on DVD costs, it won’t matter anymore.

Internet bandwidth costs should continue to decline, and while ISPs might like to charge content providers for data, that won’t happen in 2011.

Free cash flow has taken a hit because of the increased payments Netflix is making to media companies and content owners, but Netflix will begin smoothing that out on a quarterly basis instead of taking big hits once a year.

Market saturation in streaming video over the Internet is not yet an issue. Market demand is still accelerating.

Criticisms about “weak content” are not supported by subscriber’s voracious appetite for what Netflix has to offer, but Netflix is trying to get better movies and TV shows all the time.

Content costs are going up, but postage costs are going down as viewers shift to streaming.

If necessary, Netflix will take a hit to growth before taking a hot to margins. ”Management at Netflix largely controls margins, but not growth.”

Netflix is facing a growing number of competitors in streaming video, but it maintains advantages in scale and brand.

TV Everywhere could become a long-term threat, but it is more of a defensive move fro the cable companies rather than a new profit engine.

International expansion could have an impact on margins in the short term

Let’s drill down further into some of these issues. Netflix is obviously betting big on the transition to streaming video. The more it can get subscribers to watch streams instead of DVDs, the more it saves on postage. On the flip side, video content owners are demanding more money for those streaming rights. Hastings thinks that concerns about too many streaming services coming online is overblown at this point:

Streaming is growing rapidly; it is propelling Hulu, YouTube, Netflix and others to huge growth rates. Streaming adoption will likely follow the classic S curve, and we’re still on the first part (acceleration) of the S curve. Since we expanded into streaming, Netflix net subscriber additions have been 1.9m in 2008, 2.9m in 2009, and over 7m this year (estimated). While saturation will happen eventually, given the recent huge acceleration of our business specifically, and streaming generally, saturation seems unlikely to hit in the short term.

And while a major new streaming competitor could come in and blow away Netflix’s lead, Hastings makes the case that Netflix has a huge competitive advantage when it comes to the number of existing paying subscribers and its cost to acquire new ones:

For a competitive firm to materially hurt our growth, they have to have some positive differentiator (price, additional content, integration, etc.), and then they have to market their service effectively. This wild-card of major new competitor offering great content and marketing aggressively is the single best near-term short thesis, but no one knows if it will happen in 2011.

The core competitive barrier for direct competitors is brand/subscriber-evangelism. Our large subscriber base is very happy with Netflix, and tells their friends about Netflix. That means that the cost of acquiring the incremental 1m subscribers is lower for us than for a competitor, and thus our net additions are higher

Finally, in terms of the quality of the movies and TV shows Netflix makes available for streaming versus what people get on cable TV, Hastings points out:

. . . at $7.99 per month, consumers don’t expect to have everything under the sun. A variant of this misunderstanding is when DirecTV (DTV) advertises against Netflix, calling out some Netflix content weaknesses. When an $80 per month service is picking on an $8 per month service, the $8 per month service just gets more attention from consumers and grows even faster.

The key question is whether some combination of Netflix, Hulu Plus, YouTube, Google TV and other Internet video services will some day effectively replace the cable TV experience. And if it can, whether that combination will cost more or less than the $80 or more people pay for cable today. But remember, people are already paying for Netflix, which helps Hasting’s case.

Whether or not the stock will keep going up is another question entirely. At $178 a share, would you buy or short the stock?

surface encounters rock tops surface encounters noblesville

Thursday, January 6, 2011

Making Money With Youtube

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