In developing new growth strategies for content creators, I find myself drawing repeatedly on one central idea: It is critical for producers to think beyond the “templates” that have traditionally defined content products, and to embrace the notion that their future depends on rendering experiences in a multitude of ways. In an earlier post, I introduced the Eight Layer model as a framework for more directed thinking beyond templates. But it boils down to this:
- The New York Times must be a purveyor of global, national and local news, and not simply a newspaper.
- Dwell must be a source of information and inspiration in modern architectural design, and not merely a magazine.
- Universal Pictures must be a teller of stories, rather than specifically a film studio, though it’s probably more consistent with my logic to say that The Fast And The Furious, as a composite of characters, plots and locations, must manifest as more than a handful of two-hour, feature films (given that brand equity in entertainment tends to sit with the individual property, rather than the corporate entity).
Why is this important? Because the rapid advent of so much technology has put new tools in the hands of consumers and smaller, upstart creators, causing many of the traditional forms— newspapers, magazines, movies — to become somewhat quaint, if not obsolete. It’s not the raw content that’s becoming outmoded, but rather the means by which it’s delivered to consumers. The proverbial baby should not be thrown out with the bathwater.
The conclusion here should be unambiguous: the same technologies that have thrown up these challenges, can also be leveraged to enable long-term solutions.
For the moment, let’s apply this thinking to Hollywood. A few months ago, Dish announced that it would close its 300 remaining Blockbuster stores. The news triggered a few heartfelt laments from 1980s enthusiasts, but most just read it as a death knell for the home entertainment business, at least as we know it today. Janko Roettgers articulated this pretty well in a piece for GigaOM, where he delivered a 1-2 punch: Not only are consumers no longer interested in physical media (discs), but this is also the “end of movies as a product.” In making his case, Roettgers correctly broke down the situation into two distinct issues that are often conflated: demand for a physical format, vs. demand for the intellectual property that it delivers.
- U.S. Consumer purchases of prerecorded physical media have declined substantially since peaking in 2004, indicating a lack of interest in collecting packaged discs.
- Consumers are also much less interested in owning movies in 2014, particularly when so much entertainment is available to them via ad-supported or low-cost, subscription-based streaming services.
I agree with the way he carefully parsed the issues, but not so much with his prognosis.
- First, there are a few reasons that we are likely to be living with some measure of physical media for a while longer. But regardless, we’re well past the point where the industry is dependent on the health of a physical format to succeed, as there are myriad ways to transact films and television electronically.
- More importantly, if studios can begin to separate the development and production of character, story and spectacle from traditional “templates” such as DVD and Blu-ray, demand for their content may actually be enhanced, rather than diminished. The central challenge is to motivate consumers to resume active investment in content experiences, rather than defaulting to what’s available in bulk. This may be very difficult to do in the current landscape, and while there’s no guarantee that Hollywood will rise to the occasion, I think it’s selling a bit short both the industry and the art form to suggest that movies, as a product, are over.
Physical may be out of fashion, but it’s useful in ways that the Internet is not.
The fact is, it’s much more cost-efficient to sell a movie electronically (i.e., as a file, via iTunes or other online store) than on disc: minimal marginal cost for bandwidth, no manufacturing burden, inventory risk, etc. And finally, we see consumers beginning to embrace electronic delivery, whether on a rental or sell-through basis. Clearly, the volume of disc sales will never return to its former scale, but there are a handful of factors that should keep the DVD and Blu-ray formats relevant for some time.
- Most important is the industry’s pursuit of ultra-high-definition (UHD, or 4K) resolution and high dynamic range (HDR) as the new state of the art. The amount of data required to render these superior images makes for much larger movie files; so much so that available Internet bandwidth (accessible by most individuals) is just too narrow to provide a good consumer experience. The only way to deliver it reliably (and relatively conveniently) is via some form of physical medium, whether Blu-ray disc or something else.
- Another is the amount of big-box retail space currently devoted to the home entertainment category. Of course, this can change over time, and many consumers now blow right past the displays with streaming-capable devices in tow. But long-standing consumer research has shown that not only are disc product promotions effective at driving foot traffic, effective in-store merchandising and strategic pricing can generate a meaningful number of impulse purchases; phenomena that cannot be replicated in an electronic store environment.
- It’s also helpful to look at the progress of what is generally assumed to be an inevitable transition from physical to electronic delivery. Recently, the Digital Entertainment Group (DEG), a trade organization for home entertainment, announced that consumer spending on electronic sales grew almost 50% in 2013, reaching more than $1 billion in total. These numbers are impressive, but are dwarfed by the nearly $8 billion in physical disc sales (DVD/Blu-ray) during the same period. So the new means of delivery is growing impressively, and though the old one is declining, it’s still at pretty substantial scale.
- A good roundup of some other conditions that will keep entertainment riding in on polycarbonate circles for the foreseeable future was published last summer by Dade Hayes for Forbes. I don’t necessarily buy in completely to all of his logic, but the list is long and significant enough to demand credence for the overall point.
More importantly, ownership of content must be re-inspired.
There are two primary factors that put downward pressure on the demand for purchased movies in recent years.
- First is that films (and for that matter, television shows) are increasingly available via relatively inexpensive, efficient distribution models. For decades, movies reached U.S. living rooms through a variety of mechanisms: rentals and sales of discs/tapes, PPV/VOD, pay television subscriptions (e.g., HBO), and through a few free television networks. Some consumers tended to rent, some bought, others subscribed, and the natural limitations (or “inefficiencies") in these models spurred many households to combine them to cover all the potential use cases. But today, singular distribution models are so highly efficient for consumers ($8/month now buys a LOT of portable, high resolution, on-demand entertainment) that they’ve diluted demand for multiple “investments” in a title, especially outright ownership. Even when one craves a particular first-run film, there is almost always a $4, on-demand, rental option that provides virtually the same utility to most consumers as a $15-20 purchase.
- The second is the simple onslaught of other video entertainment of all kinds and from all angles. Without bringing “quality” into the discussion (because, after all, that’s in the eye of the beholder), most of this “competitive” content isn’t made with the same scale of budget and can’t necessarily boast production value that is on par with major studio content. But whether or not one considers big-budget movies “high art” relative to YouTube fare, we know now that consumers are often just as happy to gorge on ground chuck as they are to savor filet mignon, particularly if it’s delivered on an innovative plate with cutting-edge utensils. Given this, Hollywood’s “master chefs” must find compelling ways to remind audiences about the benefits of “fine dining” and perhaps upgrade their own “tableware” in the process.
There’s actually one other factor that comes about as a dangerous side effect of licensing film and television to subscription services such as Netflix, Amazon and Hulu; that is, the relative “anonymity” of individual content franchises inside the subscription experience. To be sure, these subscription-video-on-demand (SVOD) agreements have provided meaningful, incremental cash flows to content owners at the wholesale level. But at the retail level, consumers need only to fork over eight bucks each month to access an excessive smorgasbord of entertainment. This may be a slight boon to smaller or middling content that would otherwise have had trouble finding an audience, but does it help large franchises to eliminate the title-specific marketing and transaction relationship with consumers? If we want to motivate greater investment, the characters and stories that comprise the content brands must have equity on a standalone basis. And Hollywood is much better positioned to achieve this by marketing its titles (certainly its newer, going-concern franchises) as “individual stocks” rather than relying solely on the entertainment equivalent of an S&P 500 index fund.
So how can Hollywood motivate consumers to return to active investing in entertainment?
- First and foremost, by more explicitly embracing the notion that the business of storytelling is now about more than cranking out one two-hour feature every 18-24 months;
- by actively nurturing content franchises with frequent updates (even small ones), rather than releasing “fixed bits products” every so often;
- by deploying a wider range of pricing models than the simple A/B choice of rental vs. sell-through; and
- by incorporating service elements directly into the offering (e.g., contests, red carpet events, viewing parties) rather than just throwing in more “extras” content.
I know, it all sounds a bit idealistic. But the good news is that many major studios are already laying the groundwork to deliver more evolved offerings. And in my opinion, the prospects for filmed entertainment content remain strong as a result. Stay tuned for a future post, where I’ll further develop these design principles for the next wave of Hollywood experiences.
In the meantime, what do you think? Will film (and television) studios successfully extend their art into the digital age?