Profits Over Product

A couple of business stories have come to my attention that point up the conflict between those who value profits over product and those who value product over profits.  Neither is an absolute.  Those who value profit need something that customers are willing to buy and those who value product need to make enough money to keep going.  But there is usually a clear emphasis in most companies.

Cartoon Brew reports a story that YouTube is changing the rules on how they pay contributors money from advertising.  If I read things correctly, it was previously based on views.  Now, it's being based on the amount of time viewers spend watching a contributor's video and frequency of uploads.  This puts animators at a disadvantage as animation takes more time than live action to produce, so animated films are shorter and contributors upload less frequently than live action producers.

This is the same situation that faced J.R. Bray and Max Fleischer in the 1910s and '20s.  At the time, distributors paid film producers by the foot.  Film was treated like bolts of cloth or lumber.  It didn't matter what was on the film, simply how long it was.  While it might take as much time and money (or more) to do a 1000 foot animated film than a 2000 foot live action comedy, the animated film was only going to get paid half as much.  The distributors were looking to fill up screen time.  With fixed admission prices, the cost of a show had to be less than the box office take for that show, or there was no profit.  A clear case of profit over product.

Like the distributors of the past, YouTube is not creating the content, only distributing it.  Unlike the distributors, their customers are not the public.  YouTube's customers are the advertisers.  Therefore, they have to keep the advertisers happy and buying ads in order to pay for all the bandwidth and servers that keep YouTube running.

YouTube is blind to content.  It doesn't care what is uploaded in terms of subject or quality.  There's so much content there, that there is no question that there is material that advertisers will be interested in.  YouTube's only interest is matching advertisers to videos in the most efficient way possible, because that's where the money is.  Advertisers want viewers who spend a lot of time looking at something and who return on a regular basis, so that's what YouTube favours.

While this looks like bad news for animators, there are options.  I don't know if it's against YouTube's terms of service, but animators could go out and find their own sponsors and put 10 second ads at the head of their films.  Or they could super "sponsored by..." over their films.  Or they could seek out product placement.  There are also competing video hosting sites.  Animators are free to note their audience sizes and incomes and approach rival sites to see if they can get a better deal.  If enough animators try this, maybe one of the rival sites will realize that there's a way to boost their audience size while hurting YouTube at the same time.  Would YouTube react if suddenly their animation content dropped significantly?

Comics are not animation and the story of Kitchen Sink Press is different than YouTube, but it exposes the same tension between profits and product.  Denis Kitchen, publisher of Kitchen Sink, gave a long interview to John Cooke, editor of Comic Book Creator.  A large portion of that interview is available in a free .pdf download.

Kitchen started out as an underground comics publisher who eventually branched out into other comics related work, such as The Crow, Cadillacs and Dinosaurs and reprinting Will Eisner, Harvey Kurtzman and Al Capp.  At one point, he was approached by Kevin Eastman, co-creator of the Ninja Turtles, to have Kitchen Sink take over Eastman's publishing company Tundra.  In exchange for his financial investment, Eastman got 51% of Kitchen Sink.

Eastman, like Kitchen, valued product over profit.  The problem was that Eastman was a poor businessman who was losing money on several fronts, which threatened the existence of Kitchen Sink.  Eastman brought in Ocean Capital, an investment group, which took 90% ownership in exchange for supplying the money to keep the company going.  Ocean Capital's plan was to grow the company and take it public.  While Kitchen's focus had always been on product, Ocean Capital's focus was on getting profits high enough to launch the public offering.  Unfortunately, the comics business underwent one of it's periodic declines and after two years of falling profits, Ocean Capital wanted to sell Kitchen Sink or liquidate it to get out from under.

Enter Fred Seibert, known to the animation community from his association with Hanna Barbera and now shows like Adventure Time and Bee and Puppycat.  Seibert bought the company in a fire sale from Ocean Capital, but a turf war broke out between Kitchen and a consultant named Don Todrin.  Both tried to convince Seibert of the right way forward and Seibert, worried about his investment, sided with Todrin.  Kitchen was fired from the company he created in much the same way that animators Will Vinton and Phil Roman were.  A year later, Kitchen's former company was bankrupt.

Denis Kitchen valued product over profit, but some business decisions that backfired put the company he created into the hands of people who valued profit over product.  It's a familiar story.  Walt Disney valued product but Robert Iger values profit.  Iger ignored the enormous concentration of talent within the Disney company and instead spent money to acquire Pixar, Marvel and Lucasfilm.  The emphasis on profit has contaminated Pixar, which now produces more sequels than originals and watches Disney rip it off with the Planes franchise.

Surviving in business is difficult, but when the emphasis shifts from product to profit, it rarely shifts back.  Investors, as a rule, are more interested in a return than how the return is achieved.  People who value product have to remain vigilant.  YouTube will change its policies to suit itself and investors will demand control in exchange for their money.  If somebody else controls your work, either through ownership or distribution, you're at their mercy.