Todd Wagner, an unassuming billionaire trustee of the American Film Institute, delivered the keynote at the AFI Digital Content Festival with a wake-up call to the movie industry. He may well be one of the smartest guys in the room and is almost certainly the richest.

Todd Wagner, an unassuming billionaire trustee of the American Film Institute, delivered the keynote at the AFI Digital Content Festival with a wake-up call to the movie industry. He may well be one of the smartest guys in the room and is almost certainly the richest.

Ten years ago, together with Mark Cuban, he started broadcasting over the internet. In 1998 they took their company public and saw their stock value rise 250% on the first day of trading, the largest one day gain in the history of Wall Street. It was then sold in 1999 to Yahoo! for $5.7 billion, making 300 employees millionaires and Dan Wagner and Mark Cuban instant billionaires.

The ambition then was to create a 21st century media company, a next-generation cable network. Even then they spoke of not fifty or five hundred channels, but an unlimited number. They described the analogue approach to distribution as focussing on the tip of the iceberg of which they had just scratched the surface.

However, Yahoo! Failed to capitalise on their investment, acting with what Wagner calls “an arrogance that I can hardly describe”. He turned down their invitation to become chief operating officer and went on to use his money to find out more about making movies.

As chief executive of 2929 Entertainment, he went on to act as executive producer of influential films, including Enron: The Smartest Guys in the Room, and Goodnight and Good Luck.

With his old business partner Mark Cuban, he now has interests in high-definition HDNet channels and an art house digital cinema chain Landmark Theatres, effectively gaining a stake in production, distribution and exhibition.

It is from this perspective that he offers his views on the future of digital distribution.

It is no longer 1999, he says, with guys like him talking about the future. “It is upon us.”

When the dot com boom bubble burst in 2000, he says most people in the media industry probably thought “thank God that’s all over”.

However, he observes that technology never goes as far as you would like in two years but it goes further in ten and technology does not go backwards.

Now, Google and Yahoo are forces to reckon with. They combine media, commerce and communications in one stock. They have one-on-one relationships with real consumers with real credit cards, but the movie industry does not. The average consumer could not care less whether a movie was made by Universal, Disney or Paramount.

Today the latest phenomenon is social networking. “So is there another changing of the guard,” he asks, “with YouTube and MySpace and all the others?”

He points out that social networking sites existed before, but they have recently enjoyed explosive growth. “Is this really dramatic change after all, or just the integration into our daily lives?”

So what has changed? The trend, he observes, is being driven by the internet generation. “The 15 to 18 year olds who have been driving the bus have known nothing but the internet. It is this generation’s shopping mall.”

“When I was a kid, we all played baseball. It didn’t mean that we’d all make it to the major league, but if we were really good, someone would find us.”

He describes Hollywood as “one of the oldest closed clubs in the world,” but suggests that is changing through digital technology, adding: “When the new rule book is completed you will definitely see some new players on the field.”

“The movie industry fights changes at every turn,” he says. “Technology is like a freight train. You can slow it down with obstacles, like litigation, but eventually it will hit you.”

He points out that Microsoft loses more money than the movie industry to piracy, but it is a cost of doing business.

“I prefer to try and think of things proactively, about what we can add, about products and features that have never existed before.”

Now, it seems, the movie industry is beginning to take notice. “The fear of piracy has been supplanted by fear of inactivity.”

As an effectively vertically integrated business, with access to its own distribution and exhibition network, albeit on a smaller scale than the majors, he says: “We do not need the studios to bless what we are doing”.

They have signed Oscar winning director Steven Soderbergh to make a series of movies that will be released simultaneously — day-and-date — theatrically, on television and video.

He believes the effect will be additive, and will actually save money in marketing. He demonstrates the absurdity of separate release windows with a comparison to the music industry.

“If I hear a song on the radio I don’t hear them say ‘in about five months you can buy that CD’. I believe that it is a dangerous assumption to believe that a customer is still interested in your product in five months.”

The television networks have begun to experiment with online distribution, and there is no evidence that it has eroded the broadcast audience.

Todd Wagner suggests that people will still want the social experience of going to a movie, he simply wants to offer them a choice, saying: “I have food at home, but I also go to a restaurant”.

He ends with a quote from former Intel CEO Andy Grove who five years ago said: “You have to wonder how the movie industry weighs the value of maintaining the status quo for a few more years against the value of being the first to exploit a technology that gives them frictionless transmission of their product with the appropriate fidelity.”

“Guess what?” says Todd. “Five years have now passed. Telling a story will never go out of style, but how you tell it, and how you distribute it, might very well change.”

Todd Wagner, chief executive of 2929 Entertainment provided the keynote presentation at the AFI Digital Content Festival in Hollywood, 26 July 2006.