How one Utah small company has got the Hollywood elite very worried

I thought I had a good grasp on the business of film distribution. Many years ago I started my career in America working at a small independent film distributor in NYC, this was during the primitive years of online content. I learned a lot, and a whole lot more was to come working in the online music distribution business. After a number of years away I kept a keen interest in the various associated business models as we transitioned from a world of pirated content (Napster, Torrents) to questionable content (Grooveshark, Megaupload) and ultimately to the legitimate services available today (Netlix, Spotify). There has been plenty of interesting advancements and more than a few convoluted legal cases over the years but few if any compare to the absolute quagmire surrounding a new player on the court, VidAngel.

Founded in Provo, Utah a mere 3 years ago. VidAngel flew under the radar for quite some time. For most consumers the selling point of filtered content was not exactly enticing. The company based it’s initial business model on the concept that most content was far to obscene for a wholesome family audience. Where sex, violence and nudity might corrupt our morale fiber. Now, for many of us, removing such obscenities would effectively render our programming pointless. Your typical HBO program would be about 2 minutes long, minus the sinful indulgences VidAngel planned to filter. This brings back dreadful memories of watching adult feature films in the UK prior to the nightly watershed. There’s nothing quite like watching a version of Die Hard where John McClane dispatches a baddie only to exclaim “Yippie-Kay-Ay Kimosabe” as only a 7pm showing on ITV could do. (In the US I believe they used the equally bizarre phrase “Mr. Falcon”) Despite such absurdity VidAngel found an audience, not least of all amongst the founders prudish local community, the Mormons.

The founder brother of VidAngel: Neal, Jeffrey and Daniel Harmon are members of The Church of Jesus Christ and Latter Day Saints. Now that really wouldn’t be of much interest when it comes to business in an entertainment industry comprised of every conceivable religious belief but in this case it plays a very interesting role, more on that later. The Harmons have labeled themselves as digital marketing geniuses and it’s hard to argue with their success starting with a product they created themselves, Orabrush, a brush for cleaning your tongue. I shit you not, a fucking tongue brush and it was successful. After partnering with Dr. Robert Wagstaff the original inventor of Orabrush and fellow LDS believer, the Harmons launched an inventive and successful promotional campaign on Youtube that eventually led to the product gaining wide exposure and distribution through numerous national retailers. A bloody tongue brush.

Taking their promotional model beyond the pinnacle of the tongue brush, the Harmons executed their promotional master recipe for Poo Pourri (the less said about that the better) and more recently the barrage of videos promoting the Purple mattress thingamagig that undoubtedly has been plastered all over your Facebook with the unbreakable eggs and the chick in the least revealing Lederhosen ever to grace a woman’s body.

Now while you might think I am bashing their success based on my snarky praising, please understand it’s quite the opposite.These guys have mastered the art of selling and promoting otherwise dodgy products through clever use of social media. I applaud their ingenuity. With a track record  like this under their belts then perhaps they could find a way to sell heavily censored video content in a world which just elected Donald Trump’s potty mouth to the Oval Office? Well it seems the Harmon brothers had greater ambitions.

For the first couple of years VidAngel kept a very low profile, pretty strange considering the Harmon track record of stuffing their materials right in the consumers face through their digital marketing mastery. This is starting to change as they recently launched a campaign pitting their service against the physical distribution model of RedBox. Why Redbox as opposed to traditional streaming services? It’s a good question and one that leads into the peculiarities of the VidAngel licensing arrangement that has Hollywood rather perplexed.

Instead of acquiring the rights to distribute content online like every other legitimate streaming site VidAngel purchases physical copies of each film and sells them back to the customer for $20. Sounds straightforward? Well it’s not. For each individual film VidAngel rips the content off the physical disk, breaks it into small segments and allows the customer to stream the film while filtering out segments containing naughty material. I’m guessing with all filters enabled Bad Santa would consist of little more than opening titles and closing credits. Once the consumer has watched their movie on VidAngel they can then sell the film that they purchased back to the company subtracting 1$ for each day of rental.

Essentially if they watch and return the film on the same day the rental will only cost a mere $1. Considering standard streaming rentals can cost anywhere from $5-$10 that is quite the bargain. What’s more the filtering options allow the consumer to choose their own restrictions so with minimal filtering enabled they are essentially getting the studio edit of the picture. It goes even further, studios in many cases limit the one day streaming availability of certain films. While a big box office hit might be available on Blu-Ray, it can take months before it becomes available for single day streaming on other mediums. Since VidAngel is ripping from the physical source they have the ability to offer the product for streaming long before rivals like Apple and Amazon.

As you can imagine the Studios don’t like this very much and sent their lawyers. Leading the charge is Disney, 20th Century Fox and Warner Brothers, they filed a suit in July accusing VidAngel of being an “unlicensed video-on-demand streaming service” and demanding the service be shut down. VidAngel, on the other hand, had done their homework and filed a counter suit accusing the studios of violating antitrust laws and attempting to limit the availability of filtered content as protected by the little known 2005 Family Movie Act. The heat was on and attorneys from both sides began licking their greedy lips but how? you might wonder, could this little startup hold their own against the legal might of Hollywood?That’s where religion comes in.

On his profile VidAngel founder Neil Harmon proudly proclaims his faith. A farm boy and father of 6, Harmon is a prototypical member of the church. He speaks about “living the gospel” and working as a missionary in Mexico. His brother Jeffrey speaks strongly about protecting the first amendment and has appeared on the cover of Utah Business. No question the Harmon’s are well known and well respected members of the community and it is that community that offers them unprecedented support. Facing a protracted legal battle against Hollywood the Harmons turned to their supporters for much needed funding. A “mini IPO” launched in October raised $10 million dollars. While that may not sound like a lot, the nature of the funding is surprising. By making use of the U.S. JOBS Act of 2012 they were able to raise the funds from a total of 7,550 investors, which works out at an average of $1,324 per investor. Prior to the establishment of the Act startups were only able to raise funds in this manner from accredited investors with a net worth of over $1 million. Once again it’s abundantly clear that the Harmon’s had a cunning plan all along. Now, it would be purely speculative to assume all that money came from within the Mormon community but you wouldn’t have to jump far to reach that conclusion. This illustrates to the studio’s that not only does VidAngel have the funds to fight them, where most other small companies would roll over and die they also have a tremendous fanbase that is more than willing to wage war alongside them.

While the initial court hearing resulted in the judge refusing to make an immediate decision, the proceedings will reconvene on December 16th following a further period of discovery. It looks rather likely that this will continue for quite some time during which VidAngel will continue to operate in a manner that is disturbing to both the Studios and the other content providers who have paid enormous amounts of money only to be undercut by a crafty startup. Who will eventually win out is hard to say but backed by a loyal following and a community with extensive influence and deep pockets there is still a possibility that VidAngel could completely alter the fabric of digital distribution.