ALERT! New community-based email virus on the loose! 

  This virus, called the "DON'T GO" virus, primarily targets major
  Hollywood studios, and is known to proliferate within 24 hours of
  the release of a mediocre movie. If you receive a piece of email
  from a friend with a subject line like "Notting Hill: Don't Go", do
  not open it! Its contents can cause part of your memory to be
  erased, replacing expensive marketing hype with actual information
  from movie-goers. If this virus is allowed to spread, it can
  cause millions of dollars of damage to a Hollywood studio in a
  single weekend.

Hit-driven industries (movies, books, music, et al.) are being
radically transformed by Internet communities, because the way these
industries make money is directly threatened by what Internet
communities do best - move word of mouth at the speed of
light. Internet communities are putting so much information in the
hands of the audience so quickly that the ability of studios,
publishing houses, and record labels to boost sales with pre-release
hype are diminishing even as the costs of that hype are rising.

Consider Hollywood, the classic hit-driven industry. The financial
realities can be summed up thusly:

  Every year, there are several major flops. There are a horde of
  movies that range from mildly unprofitable to mildly profitable.
  There are a tiny core of wildly profitable hits. The hits are what
  pays for everything else.

This is true of all hit-driven businesses - Stephen King's books more
than earn back what Marcia Clark lost, the computer game Half-Life
sells enough to pay for flops like Dominion, Boyzone recoups The Spice
Girls latest album, and so on. Many individual works lose money, but
the studios, publishers, or labels overall turn a profit. Obviously,
the best thing Hollywood could do in this case would be to make all
the movies worth watching, but as the perennial black joke goes,
"There are three simple rules for making a successful movie, but
unfortunately nobody knows what they are." Thus the industry is stuck
managing a product whose popularity they can't predict in advance, and
they've responded by creating a market where the hits more than pay
for the flops.

For Hollywood, this all hinges on the moment when a movie's quality is
revealed: opening weekend. Once a movie is in the theaters, the
audience weighs in and its fate is largely sealed. Opening weekend is
the one time when the producers know more about the product than the
audience -- it isn't until Monday morning water cooler talk begins
that a general sense of "thumbs up" or "thumbs down" becomes
widespread.  Almost everything movie marketers do is to try to use the
media they do control -- magazine ads, press releases, commercials,
talk show spots -- to manipulate the medium they don't control -- word
of mouth. The last thing a studio executive wants is to allow a movie
to be judged on its merits -- they've spent too much money to leave
things like that to the fickle reaction of the actual audience. The
best weapon they have in this fight is that advertising spreads
quickly while word of mouth spreads slowly.

Enter the Internet. A movie audience is kind of loose community, but
the way information is passed -- phone calls, chance encounters at the
mall, conversations in the office -- makes it a community where news
travels slow. No so with email, news groups, fan web pages -- news
that a movie isn't worth the price of admission can spread through an
Internet community in hours.  Waiting til Monday morning to know about
a movie's fate now seems positively sluggish -- a single piece of
email can be forwarded 10 times, a newsgroup can reach hundreds or
even thousands, a popular web site can reach tens of thousands, and
before you know it, it's Saturday afternoon and the people are staying
away in droves.

This threat -- that after many months and many millions of dollars the
fate of a movie can be controlled by actual fan's actual reactions --
is Hollywood's worst nightmare. There are two scenarios that can
unfold in the wake of this increased community power: The first
scenario (call it "Status Quo Plus") is that the studios can do more
of everything they're already doing: more secrecy about the product,
more pre-release hype, more marketing tie-ins, more theaters showing
the movie on opening weekend.  This has the effect of maximising
revenues before people talk to their friends and neighbors about the
film. This is Hollywood's current strategy, having hit its current
high-water mark with the marketing juggernaut of The Phantom
Menace. The advantage of this strategy is that it plays to the
strengths of the existing Hollywood marketing machine. The
disadvantage of this strategy is that it won't work.

Power has moved from the marketer to the audience, and there is no way
to reverse that trend, because nothing is faster than the Internet.
The Internet creates communities of affinity without regard to
geography, and if you want the judgement of your peers you can now get
it instantly. (Star Wars fan sites were posting reactions to "The
Phantom Menace" within minutes of the end of the first showing.)
Furthermore, this is only going to get worse, both because the
Internet population is still rising rapidly and because Internet
users are increasingly willing to use community recommendations in
place of the views of the experts, and while experts can be bought,
communities can't be.

This leaves the other scenario, the one that actually leverages the
power of Internet communities: let the artists and the fans have more
direct contact.  If the audience knows instantly whats good and what
isn't, let the creators take their products directly to the audience.
Since the creators are the ones making the work, and the community is
where the work stands or falls, much of what the studio does only adds
needless expense while inhibiting the more direct feedback that might
help shape future work.  Businesses that halve the marketing budget
and double the community outreach will find that costs go down while
profits from successful work goes up. The terrible price of this
scenario, though, is that flops will fail faster, and the studio will
have to share more revenue with the artist in return for asking them
to take on more risk.

The technical issues of entertainment on the Internet are a sideshow
compared to community involvement -- the rise of downloadable video,
MP3 or electronic books will have a smaller long-term effect on
restructuring hit-driven industries than the fact that there's no
bullshitting the audience anymore, not even for as long as a weekend.
We will doubtless witness an orgy of new marketing strategies in the
face of this awful truth -- coupons for everything a given movie
studio or record label produces in a season, discounts for repeat
viewings, Frequent Buyer Miles, on and on -- but in the end, hit
driven businesses will have to restructure themselves around the idea
that Internet communities will sort the good from the bad at lightning
speed, and only businesses that embrace that fact and work with word
of mouth rather than against it will thrive in the long run.