Sources in Beijing, Shanghai and Chongqing confirmed this week that pirated American movies can no longer be found anywhere on the Chinese internet. Chinese piracy sites pulled all Hollywood content approximately a month ago and no new content has been posted in that time. This move has drastically altered the entertainment consumption behavior of Chinese netizens, with many turning to street piracy to replace their lost online access to U.S. content.

American movies can still be purchased on most major street corners and in technology malls in a DVD format called DVD-9 (for approximately 75 cents a disc). The DVD-9 format holds 9 low bitrate films. The compilation pictured above contains "Wolfman", "Tangled", "Tron Legacy", "Iron Man 2", "Alice in Wonderland", "Animal Kingdom" and "Harry Potter and the Deathly Hallows". The quality of the DVD-9 encodes ranges from "low quality VOD" to truly amazing. As someone that has spent years protecting online content the availability of current U.S. theatrical releases on Chinese street corners is disturbing. The move to eliminate online piracy, however, is encouraging.

If you happen to work in the Netflix executive suite the question that's weighing on your mind this week is,"How much TV is Hulu giving away to subscribers for $9.95?" The Hulu subscription service is the latest threat to the Netflix business model (along with iTunes' $3.99 movie rentals, Amazon's Instant Watch service and the Windows Media Center Internet TV service). To get an idea of how much trouble Netflix is really in, I forked over $9.95 to Hulu, hoping to get a look at the team they're putting on the field. After watching a full season of Blade of the Immortal I'm convinced that Hulu's going to score points on Netflix and possibly hobble their quarterback.

If you've worked in this business for more than a minute you know that there is no such thing as job security. The gigs are short, firings are common and you always have to be on the lookout for your next project. It's really not much of a life. But as Reed Hastings recently told me,"Entertainment is like a drug. When you finally find a good movie it makes you want to go find another one." I think this pretty much sums up the economics of the film business: the products can be so good that people will tolerate an enormous sum of inferior experiences. Reed himself is no stranger to inferior experiences, as dozens of ex-employee postings at GlassDoor.com can attest. Here's a sample post:

Netflix: Culture of Fear

Pros

The pay is above market. Not a lot above market, but a bit above market. The drawback is there are absolutely no benefits to speak of (no health benefits, no training, no daycare) so that above market pay gets eaten up pretty fast by real world needs.

Cons

A total fear of failure permeates the ranks. Netflix basically gives you a warning on your first mistake, and then fires you after your second mistake. This is why the annual turnover rate is well over 20%. Since there is an entirely new set of employees every few years, nobody knows what process to follow, and everything is chaotic. HR solves this by saying "there is no process for anything! Make it up as you go along!" Sure, if I fired all the employees every few years I'd stay away from process too.

The key problem is that with all the firings most employees spend the day simply trying to find cover. The ass covering at Netflix is legendary. Nobody wants to innovate. Nobody wants to reach outside their comfort zone. Netflix has created a culture of fear, and the way in which they manage terminations reinforces the culture of fear (they immediately demonize the terminated employee, and try to make the termination serve as a lesson to others).

The culture of fear is so ingrained in Netflix that many managers only have one tool for managing their directs, and that is to threaten to fire them. There simply is no other process for managing poor performance (remember, there is no process - they will admit this to you if you ask).

And finally, the last thing you should be warned about is their "high performance" culture. Their justification for all the firings is that the fired employees weren't high performers. But since there is no process, no record-keeping, there is no objective measurement of performance. So "high performers" end up being the employees that get along with the boss and keep a low profile. "High performers" at Netflix are not employees that take risks, interact with outside groups, or produce a high volume of work.

Netflix loves to talk about high performance but they have the lowest standard for high performance that I've ever seen. They are completely happy to manage with fear, however. If you put those two insane concepts together you end up with a rather hysterical environment.

Advice to Senior Management

So you guys did one thing well, a long time ago, and you've been marginally improving that business (DVD rental) ever since. Your astoundingly high turnover rate worked in that world, because all the processes were in place. But now you are trying to get into the streaming business, and that business only runs with knowledge workers at the helm. And guess what? Knowledge workers are pretty well-connected. The word is out that Netflix does not value its employees and as a result it's going to be harder and harder to staff your new ventures. You really need to find the groups at Netflix with the highest turnover and keep those managers away from the streaming business. You have some managers that simply do not know how to manage, they only know how to fire and hire. As much as you love to say that firing and hiring is what management is all about, you could not be more wrong. Find the teams with low turnover, they are the teams that work in spite of your chaotic work environment.

And another:

Comcast's long awaited over-the-top video service has finally launched and the results are in.

This review is going to date me a bit, but when I was growing up the country was under the control of hardcore conservatives that wanted nothing more than to go to war with Nicaragua. During that time, also known as the Reagan years, the idea of a toy that was associated with the military was repugnant. Since that time the nation's morals have changed, so much so that a movie about a child's military toy just raked in $56.2 million at the box office. Let's try to figure out what ingredients Paramount put into the genius stew they served up this weekend.

It appears that YouTube is headed for a new copyright fight with Disney as a result of the actions of a small, Canada-based YouTube Partner. The question at the heart of this fight is whether a website in Canada can charge consumers for access to Disney videos (for which the site has no licensing rights). The site, Totlol.com, seems to think the answer is yes. The site gained access to the Disney content by joining the YouTube Partner program and now charges members a monthly fee for access to the content. Though the fees do not flow back to YouTube, the videos are streamed by YouTube, embroiling YouTube in the dispute.

This is supposed to be a blog about filmmaking, but the films being made this year are so bad that I just can't keep quiet. Take for example Terminator Salvation and it's theory of time travel. In the movie John Connor lives in a world in which Judgement Day took place (contrary to the plot of Terminator 2, which averted Judgement Day). John's father (Kyle Reese) lives in this world as well, so John's father has not yet jumped back in time to 1984 (an event which kicks off the first Terminator movie). John is aware that Kyle is his father and is about to jump back in time, but hasn't bothered to look him up. But John is worried that if Kyle doesn't jump back in time he might not be born. Are you with me so far? Because I'm already lost, and I've seen every film in the franchise.

Watchmen, the ironic, counter-culture comic book series from the 80's has been turned into a non-ironic, spandex-and-tights superhero movie that in every way betrays the heart of the original work. There, that being said, I wanted to also provide you with some objective film commentary regarding the movie. Which I hated.

If you compare the above panel from the comic, in which the Comedian faces off with a disgruntled group of peace activists (notice the hippie symbol on the girl to the left) and little old ladies, with the following montage from the film (which can be found at the movie's promo site) you'll see that the normal, peace loving citizens have been replaced with a bunch of really big thugs.



The filmmakers completely changed the thrust of the scene, which in the comic book highlights the tension between vigilantism and peace. In the comic book the scene plays out like this: a crowd gathers due to the police going on strike, the crowd throws a tomato and a small tin can at the Comedian, the Comedian threatens them with a grenade from atop the Owl's ship, and the crowd disperses. The fact that the crowd is composed of normal looking people with a valid issue makes the Comedian seem completely out of touch. The comic book depicts the Comedian as borderline psychotic and attempts to place the reader's sympathy with the crowd.

In the movie version the crowd hurls a firebomb at the Comedian, which sets fire to the Owl's ship and in response the Comedian heroically jumps down into the middle of the unruly mob. You might notice in the final movie still that once the Comedian jumps down into the middle of the crowd, they still hold their ground! They've firebombed him and they are looking for a fight. The whole thing is set up like a traditional fight scene; throughout the scene the audience is rooting for the Comedian to beat back the thugs. What was meant to be a commentary on vigilantism has been turned into a sad version of Kung Fu Panda.

Yesterday the Screen Actors Guild gave the boot to executive director (and chief negotiator) Doug Allen. Prior to being fired, Doug spent the last seven months telling the producers union that he wanted more money than all the other unions combined. And also that he wanted a golden chariot, like the one in Spartacus. When the producers failed to cave in to his demands Doug pushed for a strike (primarily to show how serious he was about the chariot thing). Doug's dreams of being anointed emperor, however, came crashing down when SAG members came to their senses and realized that only a crazy person would attempt to authorize a strike vote in the middle of a deep recession.

Though strike-hungry SAG President Alan Rosenberg is still employed he was recently quoted as saying “I’m angry... Sad. Disappointed. The last two days I feel sort of isolated. I’m shut out from planning meetings. I feel isolated from the operations of the union.”.

So what does this board action mean for the stalled contract talks with the Alliance of Motion Picture and Television Producers?

Why is Dora crying?

A. The Viacom empire is based on leverage and can no longer cover its debt obligations (and needs to soak Time Warner Cable for every last penny)

B. Shari Redstone bet the farm on Disney Digital 3D and "Bolt 3D" was a bust

C. It is written (in a number of national publications)

D. All of the above

If you've been following my blog you know the answer is D. All of the above. Sumner Redstone, a man who loves to borrow, whose daughter bet the farm on Disney Digital 3D, is searching for coin in the Time Warner purse. Today he placed full-page ads in a variety of newspapers, trying to get a better hold on it. It reminds me of the time I was pickpocketed on a subway platform in Seoul.

If you're worried about your career in digital distribution you'll be happy to know there was a ray of sunshine this week. Warner Bros. just opened up a spot in their Digital Distribution division, and the job is as juicy a plum as you'll ever find. It's posted on the Warner Bros. Career Site, but since any hiring in a downturn is newsworthy, I've posted the details here:

I think the animation business is in trouble. I just took my son to see "The Tale of Despereaux" and, while charming at times, the final 20 minutes were lifted right out of Orwell's 1984:

"The rat", said O'Brien, still addressing his invisible audience,"although a rodent, is carnivorous. You are aware of that. You will have heard of the things that happen in the poor quarters of this town. In some streets a woman dare not leave her baby alone in the house, even for five minutes. The rats are certain to attack it. Within quite a small time they will strip it to the bones. They also attack sick or dying people. They show astonishing intelligence in knowing when a human being is helpless."

My son actually had to watch rats tie up a princess and eat her, all the while hearing her painful shrieks. Eventually Despereaux saves the princess by releasing a cat, but at that point the logic of the story had gone so far over the deep end that I felt like the abyss was gazing into me. I don't know that I would call "The Tale of Despereaux" Orwellian torture porn, but it's not a kids' film. If anything it's a perfect example of what the animation glut is doing to the animation business.

If you're looking for a job in the industry or, like 120,00 SAG actors facing a strike vote this week, if you're considering walking out on a job in the industry let me give you some sound advice. Stay put for a few more months. The film industry has not yet hit bottom. Entertainment companies need time to re-adjust their business models to deal with the dent in demand this recession has created. Eventually the studios will devise new products that appeal to the connected masses, but for now their first and best approach to dealing with the downturn is to cut heads. Don't let yours be one of them.

How will you know when it's safe to float a resume once again?

I ran the numbers and I'm pretty sure that Sumner Redstone, owner of Paramount Pictures, is hoping that Pixar's 'Up' will dominate the box office when it opens on May 29th. Why is Paramount's head cheerleader rooting for the other team? It's a long and twisted tale, and at the heart of it is a father's love for his daughter. Sumner wants Pixar to succeed at Paramount's expense because his daughter bet the farm on Disney Digital 3D.

Pirates were in the news this week, seizing their 83rd vessel off the coast of Somalia and the entire Korean DVD market. It might be more accurate to say that pirates have always controlled the DVD market in Korea and this was just the week that Warner Bros. admitted to this and pulled out of the market altogether. Prior to the announcement Warner Bros. was the only major studio still trying to sell $19.98 DVDs in a country where the latest Batman film can be purchased in any subway station for $3 (5,000 Won). Warner now joins the other major studios in wondering if they'll ever see revenue beyond theatrical distribution in that country.

But what Warner should really be worried about is whether or not the situation in Korea is a harbinger of doom for the U.S. DVD market. I think it is.