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Tech’s impact on business and culture in 2014

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It would be impossible to capture the disruptive influence the latest digital technologies are currently having on the world in a single blog post. But what Zeitgeist has collated here are some thoughts and happenings showing the different ways technology is changing our lives – from the way we do business to the way we interact with others.

Last night saw a highly enjoyable occurrence. No, not the Academy Awards in general, which as ever moved at a glacial pace as it ticked off a list of predicted favourites. Rather, it was a specific moment in the ceremony itself, when host Ellen DeGeneres took a (seemingly) impromptu picture of herself with a cornucopia of stars, tweeting it instantly. The host declared she wanted the picture (above) to be the most retweeted post ever. The previous holder was none other than the President of the United States, Barack Obama, whose re-election message saw over 500k retweets. It took Zeitgeist but a few minutes to realise that Ellen’s post would skyrocket past this. Right now it has been retweeted 2.7m times. Corporate tactic on the part of Samsung though it may have been, Zeitgeist felt himself feeling much closer to the action – being able to see on his phone a photo the host had taken moments ago several thousand miles away – and the incident helped inject a brief air of spontaneity into the show’s proceedings. Super fun, and easy to get definitive results in this case on how many people were really engaging with the content. But can we quantify how much Samsung and Twitter really benefited from the move, beyond fuzzy marketing metrics? Talking heads on CNBC saw room for improvement (see below).

Former WSJ.com Managing Editor Kevin Delaney leads discussions on Samsung and Twitter's presence at the Oscars last night

Former WSJ.com Managing Editor Kevin Delaney leads discussions on Samsung and Twitter’s presence at the Oscars last night (click to watch)

The big news of late in tech circles of course has been Facebook’s $19bn acquisition of messaging application Whatsapp. Many, many lines of editorial have been spilled on this deal already. In the mainstream media, many commentators have found the price of the deal staggering. So it’s worth reading more considered views such as Benedict Evans’, whose post on the deal Zeitgeist highly encourages you to read. Despite the seemingly large amount of money the company has been acquired for – especially considering Facebook’s purchase of Instagram for a ‘mere’ $1bn – Evans sagely points out that per user the deal is about the same as Google made in its valuation when it purchased YouTube. So perhaps not that crazy after all. The other key point that Evans makes is on Facebook’s dedicated pursuit to be the ‘next’ Facebook, or conversely to stop anyone else from becoming the next Facebook. With a meteoric rise in members (see image below, as it outstrips growth by both Facebook and Twitter), Whatsapp was certainly looking a little threatening.

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Whatsapp’s number of active users skyrocketed to 450m in no time, outpacing both Facebook and Twitter (Source: The Economist)

The worry for investors is how Facebook will monetise this platform, when the founders have professed an aversion to advertising. Is merely ensuring that Facebook is the ‘next’ Facebook a good enough reason for such acquisitions? Barriers to entry and sustainable advantages will be few and far between going down this route. The Financial Times, in its analysis of the acquisition, points out that innovation is quickly nipping at the heels of Whatsapp. CalPal, for example, is one example of a mobile application that lets users message each other from within an app. In the markets, there has been a relatively sanguine response to the purchase, but only because of broader trends. As the FT points out,

“External forces have also helped to push the headline prices of deals such as WhatsApp into the stratosphere. A global excess of cheap money, along with a scarcity of alternatives for growth-hungry investors, has boosted the stock prices of companies such as Facebook and Google.”

One of the most visibly exciting developments in technology in recent years is the explosion of the wearable tech sector. But it is Google’s flagship product, Glass, that has met with much ire and distress. An excellent piece of analysis appearing in MIT Technology Review last month hit the nail on the head when it identified why Glass was having trouble winning people over. The article rightly identifies the significant shift in external appearance inherent in making the switch from a device that needs to be taken out of a pocket as makes it clear when it is being interacted with (you need to cover half your face with the product to talk to someone, for example). The article also details the savvy approach Google have taken to the distribution of their product. It’s always sensible to try and mobilise the part of your base likely to be evangelists anyway so as to build advance buzz before a full-blown release. But to get them to pay for the privilege, as Google are doing with their excitable fans, dubbed Explorers, is a stroke of genius for them. However, the key issue, and what the article states is an “insurmountable problem”, is that “Google’s challenge in making the device a successful consumer product will be convincing the people around you to ignore it as well”. It this fundamental aspect of social interaction that is worrying many, and now Google is worried too. As detailed in the FT, the company has acknowledged that the product can look “pretty weird”. Recognising it has a “long journey” to mainstream adoption, it published a list of Dos and Don’ts. Highlights include,

“Ask for permission. Standing alone in the corner of a room staring at people while recording them through Glass is not going to win you any friends… If you find yourself staring off into the prism for long periods of time you’re probably looking pretty weird to the people around you.”

It indicates that Google may have a significant ‘Glasshole‘ problem it needs to attend to. The case may be overstated though. One of the problems may just be that potential customers have yet to see any practical uses for it. This is beginning to change. Last week, Virgin Atlantic announced a six-week trial of both Glass and Sony smartwatches. The idea will be for check-in attendants to use the devices to scan limousine number plates so that passengers can be greeted by name and be instantly updated on their flight status.

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In the arts, digital technology has inspired much innovative work, as well as helped broaden its audience. David Hockney, on the England’s greatest living artists, recently exhibited a series of works produced entirely on his iPad at London’s Royal Academy of Arts. He is far from alone. Last week’s anniversary issue of The New Yorker featured work from Jorge Colombo on its front cover, again produced entirely on an iPad. Such digital innovation allows for increased productivity as well as new aesthetics. When done well, art can also involve the viewer, encouraging interaction. Digital technology helps with this too. Earlier in the year The New York Times covered how the New York City Ballet redesigned part of their floor in a new scheme to attract new visitors to the ballet. The result, roughly life-size pictures of dancers arranged on the floor, has seen great success, and an explosion of content on social media platforms like Instagram, where users have taken to posing on the floor as if interacting with the images (see above). It’s a simple tactic that now reaches a far greater audience thanks to new digital technologies.

A recently published book, ‘Now I know who my comrades are: Voices from the Internet Undergound’, by Emily Parker, seeks to demonstrate the ways in which digital technology has made helped to coalesce and support important activism in regions such as China and Latin America. But, as The Economist points out in its review, the disappointing situation in Egypt puts pay to some of the author’s claims; there are limits to how productive and transformative technology can be. In business, these hurdles are plain to see.  A poll taken by McKinsey published last month shows that “45% of companies admit they have limited to no understanding on how their customers interact with them digitally”. This is staggering. For all executives’ talk of the power of Big Data, such technology is useless without the proper structures in place to successfully analyse it. We also perhaps need to think more about repercussions of increased technological advances and how they influence our social interactions. In the recently opened film Her (starring Joaquin Phoenix, pictured below), set in the very near future, a new operating system is so pervasive and seamless that it leads to fraught, thought-provoking questions on the nature and productivity of relationships. When does conversation – and more – with a simulacrum detract from interactions with the physical world? These considerations may seem lofty, but as we illustrated earlier, the germination of such thoughts are being echoed in discussions over Google Glass.

So technology in 2014 heralds some promise for the future. Wearable tech as a trend is merely the initial stage of a journey where our interaction with computing systems becomes seamless. It is on this journey though that we need to make sure that businesses are making the most of every opportunity to streamline costs and enhance customer service, and that individual early adopters do not leave the rest of us behind to deal with a bewildering and alarming new way of living. One of our favourite quotations, from the author William Gibson, is apt to end on: “The future’s already here, it’s just not very evenly distributed“.

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Threats and Opportunities for the Entertainment Industry in 2014

January 11, 2014 1 comment

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At the start of a new year, what to make of the entertainment sector? It depends where you look. One thing is for certain though; at the close of 2013 that old laggard the music industry upstaged its media cousins. For sheer daring and innovative nous, few initiatives could claim to beat Sony in its launch of Beyoncé’s new album. In the face of increasingly ailing streaming services, the album was released as a fixed bundle on iTunes, with no marketing behind it. The news of the release thus came as a last-minute surprise to the industry and consumers alike, creating a short but extreme burst of anticipation. The artist posted a message on Facebook saying she wanted to recreate the “immersive experience” she used to have listening to music. The album sold 80,000 copies in three hours. It is difficult to envision Columbia Pictures doing anything similar.

Near the end of last year, Zeitgeist was fortunate enough to be able to attend the 5th Annual GlobeScreen Conference at London’s May Fair Hotel. Eve Gabereau, the co-founder and MD of Soda Pictures lamented “nuturing a film is not possible any more… there is less opportunity for a film to find its audience”. Word of mouth, she said, had to be very good, and happen very quickly, in order for it to have an effect. Simon Crowe, founder and MD of SC Films International, disagreed with another speaker, who asserted that filmmakers were being hampered by a lack of data, in that they did not know who they were making films for. He dismissed the need for data, and, most worryingly, stated the primary focus should not be on the bottom line. This is dangerous thinking. Films may be art, but if the medium is to continue then it needs to be profitable. So the primary focus has to be ‘how will this product turn a profit?’. Zeitgeist asked him afterward about the viability of VOD (video-on-demand) as a channel; Crowe was not optimisitic about its future as a significant revenue producer, calling films that have found success on such platforms – such as Arbitrage and Margin Call – outliers. Zeitgeist offered that Netflix had not been a significant distribution channel for a while, until suddenly it was. Did he foresee a similar situation with VOD? “Don’t know”, was his retort. It was well worth staying late to receive such gems as answers. The whole conference spoke of an ignorance of the insight data can provide, a shunning of profit-focused management, and a general yearning for bygone times when the industry – not mention the champagne and other substances – was flowing more freely.16-old-hollywood-is-dead-and-old-tv-is-dyingTo cap off 2013, Business Insider published an article entitled ‘The US 20: Twenty huge trends that will dominate America’s future’. Number 16 was ‘Old Hollywood is dead…’. It noted that inflation-adjusted box office receipts were down around 8% from their 2004 high (see chart). Industry trade mag Variety reported recently that UK box office fell 1% in 2013, which was the first drop in ten years and the biggest in more than twenty. Of course, part of the reason for this was because 2012 had a rather suave helping hand from James Bond, in the form of Skyfall. When Zeitgeist prodded Cameron Saunders, Managing Director of 20th Century Fox UK, about the news over Twitter, he was quick to leap to into the fray, noting that it was “still the second biggest box office year on record”. He also went on to concede though that “UK admissions however have flatlined, despite lots more films = fewer people seeing each movie”. The same scenario is happening in the US. China is one of the few bright spots in the world, and has seen an explosion in the number of physical screens installed in the country over recent years. But even the Chinese film industry has medium to long term challenges it will need to overcome, if, as some predict, it is to become the world’s largest film market – overtaking the US – by 2019. It is still at the mercy of a government with strict controls and vague whimsical notions about what makes for permissible content; the state is involved at almost every level of production and distribution. Moreover, though the quota on foreign releases in the market has been relaxed slightly, it is by no means open season for Hollywood. Much like the banning in China of Google’s app service and videogames consoles have led to poor knock-offs, so with film. The restrictions have spawned poor remakes of American films that didn’t see a release on China’s shores, which inspires little creativity or excitement.

It is not all doom and gloom in the cinema of late of course. Gravity continues to light up screens across the world, and seems poised to do well come Oscar night. Its only obstacles come in the form of other films that critics and audiences have been similarly impressed with this season, including 12 Years a Slave and Captain Phillips. But such artistic achievements can hardly make us forget what was a poor summer for the film industry. We have written before about how films in development are increasingly either mega-blockbusters or niche arthouse films. Producer Kevin Misher, talking to The Economist last month, echoed our thoughts; “Hollywood is like America: the middle class has been squeezed”. The article went on to lament the unique situation the film industry finds itself in, relying on outsiders for both ideas (“imagine if Apple or Toyota did this”) and funding.

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Will more content producers partner up with those infringing intellectual property?

The challenges extend further. Though Kodak suffered from other problems too, one of the things that prevented it from ever laying down a long-term strategy to embrace digital photography was the revolving door of executives at the top. Hollywood is similarly afflicted. In the past 18 months, according to The Economist, four of the six main studios have seen change at the top. Perhaps some longevity in senior roles would have encouraged these companies to embrace new ways of delivering films to eager customers. Instead, most films, particularly the ones glutting the summer schedule, still clung to an outdated distribution strategy of staggering releases across platforms. Studios resist doing this – save for the odd arthouse release – because it risks the ire of exhibitors. We’ve written before about the antiquated nature of such thinking. Every delay in getting to a consumer increases the chances that customer will resort to piracy. Companies like Netflix are reporting that intellectual property rights infringement dips once legal alternatives are made available to people; there are signs of hope.

Piracy is of course playing a role in television, too. In Poland, consumers have to wait months after the US broadcast for their dose of Homeland. It is thus one of the more popular shows to be pirated. Making the most of this trend, a publishing company responsible for a new book detailing Carrie’s life before the start of the series has been inserting adverts into the subtitles for the show. The MD of the publishing company told TorrentFreak, “We decided to advertise via subtitles because we wanted to show the book to all the fans of the Homeland series in Poland, no matter where they watch the show”. You can’t argue with placing a promotion for where you know your likely customers are. It will be interesting to see if any other unlikely coupling between pirates and content producers emerge. For, as amusing as this news is, it does point to a fragmentation in audiences, and thus in places for advertisers to reach them. It should have come as little surprise then when, last month, the Financial Times reported that TV’s share of advertising spend will slip this year, after three decades of uninterrupted growth. Jonathan Barnard, ZenithOptimedia’s head of forecasting, warned, “After television ad spending has grown pretty consistently for at least the last 35 years… there will be quite a lot of disruption to come over the next 10 years.”

Of course, disruption will come to other sectors of the entertainment industry, too. This was apparent at the recent Consumer Electronics Show in Las Vegas, where Samsung and Sony, among others, held court. It wasn’t the best of showings for Samsung, where famed producer / director Michael Bay walked out seconds into a presentation on curved televisions after the autocue failed. Sony had its disruptor product to tout, a cloud TV service. Beyond the glitz and glam of such new product releases, a big question remains: Can Sony use what assets they have and combine them effectively? A great article in the FT probed deeper, asking whether all these new products and services – we would be remiss were we not to mention the PS4, currently outstripping the Xbox One in sales – can be successfully integrated into an ecosystem that Sony is desperately trying to create. The corporation dabbles in film distribution, film production, smartphones, music as well as videogames and is slowly trying to tie them all together. All this while seemingly trying to disrupt itself, with cloud gaming doing away with the need for a console and image projectors doing away with the need for physical screens (Sony loses about $80 on every set it sells currently). As the article concludes,

“[CEO] Mr Hirai is trying to pick up the pace as Sony searches for its digital destiny. But the familiar questions remain: can it execute on the plan, how fast can it move – and how much pain is it prepared to take along the way?”

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Where next for Sony?

Certainly if companies like Samsung and Sony wish to succeed in the coming years, they will have to do away with the obsession of focusing on hardware. It is plain now that, in consumer’s eyes, technology has reached a tipping point where the specifications of an object are no longer a unique selling point; they are a redundancy. This became clear at the Mobile World Congress in 2012, when PC Magazine published its event wrap-up under the headline “The End of Specs?”.

There are some companies that are embracing disruption, or at least, trying to hire those who started it in the first place. Disney, which often seems to have a strong strategic head on its shoulders, recently made the eminently sensible move of hiring the chairman of Twitter Jack Dorsey to join the Walt Disney board. This was no isolated occurrence for Disney, who had previously had Steve Jobs on the board and who have also hired Facebook COO Sheryl Sandberg. Elsewhere, the canny Weinstein brothers, who rarely miss an opportunity to make impressive artistic works that turn a decent profit, reteamed with their old company Miramax to develop further iterations of their film library. Seeing the opportunity for increased creativity in television, as well as new channels like Netflix and Amazon, they will also be developing new television series. And while online takes away advertising spend from other channels under the promise of reaching the right people at the right time, new local television development in the UK promises to do similar as it targets localised areas. Still, the film industry as a whole seems to be outright resisting any changes to the calendar; schlock in the summer sun, followed by arty pretense come Oscar time. Repeat. A writer in the New York Times elaborates,

“And then, after the Oscars, the machine picks up speed and starts excreting ghastly product like Oz the Great and Powerful, one of the worst movies of 2013 and the eighth highest domestic grosser of the year. Then the fall hits, and we cling to movies like Gravity and insist that, really, it isn’t all bad. And it isn’t, of course, even if creating a Top 10 list is finally an exercise in exceptionalism.”

The worry is that any shift in the schizophrenic nature of film scheduling and creation will probably involve at least a short-term hit to the bottom line. And a recent dismissal hints that no such shift is underway at the moment. In October, the great James Schamus of Focus Features was let go by Universal. Schamus was instrumental in bringing director Ang Lee to the US, distributing his Crouching Tiger, Hidden Dragon before going on to make The Pianist, Far From Heaven and Brokeback Mountain, among many other extraordinary films. Doug Creutz, senior media and entertainment analyst for Cowen & Company, told the New York Times in December,

“The major media companies are so big that nothing but a blockbuster really makes sense. Say you make a low-budget comedy and it brings in $150 million. So what? That doesn’t move the needle. You make a blockbuster… You can do the sequel and the consumer products and a theme park attraction. The movie itself is almost beside the point. All Disney is going to be doing is Marvel, Star Wars and animation.”

That would be a great shame for those who like artistic diversity, as well as sensible financial returns, in their film studio output. Current business models seem to be producing diminishing returns. This is true for videogames, movies and music. Experimentation, such as that by Sony’s music division mentioned at the beginning of the article, must be more widespread to engage with new consumer habits and to rekindle jaded minds. Consumer engagement and feedback as a whole is largely missing from much of the strategy with which the entertainment industry steers itself. Shareholder returns and operational logistics occupy most of their time. A far more rigourous approach to data – collecting and analysing it – and a more open ear to one’s customer base, might prove beneficial.

Before and after Prism – On liberty in a digital age

First aired on PBS in 1985, filmmaker Ken Burns’ documentary on the Statue of Liberty was on Zeitgeist’s TiVo watch list this weekend. It’s really quite staggering to note how issues being discussed then are even more relevant three decades on.

It goes back to an article we wrote recently on the US government’s more legitimate efforts to collect data. These myriad agencies are working so fast to see whether it’s possible to collect this or that piece of data on someone, they are not stopping to think whether they should, and what the long-term implications are. By long-term, we mean what such a “Faustian bargain” means for the civil rights of citizens – particularly of course in the relation of the right to privacy – and what such machinations do to the long-term standing of the country as a whole – particularly from the outside looking in.

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How certain is our moral footing on criticising Chinese cyber-attacks when we are hacking ourselves?

“Spying in a democracy depends for its legitimacy on informed consent, not blind trust”, wrote The Economist in this week’s lead article. Not so anymore, seemingly. The recent revelations that the NSA have been collecting masses of data from Facebook, Twitter, Google et al., with little thought for due process and with a focus on communications outside the US, and that at least one telco, Verizon, was ordered to provide significant amounts of user data to the government, is disconcerting to say the least. Zeitgeist wrote a letter, recently published in the Financial Times, before this story broke, that attempted to convey that the true worry for those opposed to such overreach is the high possibility of neglect or abuse, rather than intentional Machiavellian manipulation. Government ineptitude is more likely, and far more dangerous. Clarity and transparency are the enemies of such ineptitude.

As former New York governor Mario Cuomo admits in the clip at the beginning of this post, it can be very tempting to squash a little liberty here and there in return for added security. The situation, which arises at a time when the US is supposed to be taking China to task over its own extensive cyber-espionage (see above graphic), where we are, as one CNBC commentator described recently “hacking ourselves”, must give us pause, and begs us to re-examine what our notions of liberty are in an age of digital disruption.

On Mobile Trends – 2013 so far…

April 15, 2013 1 comment

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While it’s difficult nowadays to write about telecoms or the mobile sector without drifting off into other areas of the TMT industry, Zeitgeist spent an evening last month as a guest of Accenture in Cambridge, discussing the successes and failures of the recent Mobile World Congress in Barcelona. It came in the middle of a year so far that has already some significant shifts from mobile companies, in terms of branding, operations and revenue streams.

2013 has seen some interesting news in mobile. The week before last marked, incredibly, the 40th anniversary of the first phone call made from a mobile phone. This year also saw Research in Motion renaming itself to BlackBerry, with shares sliding 8% by the end of the product launch announcement for its eponymous 10 device. It saw Sky acquire Telefonica’s broadband operations, while responding to major complaints about the speed of its own broadband service. It has seen Huawei, which in Q4 of 2012 sold more smartphones than either Nokia, HTC or BlackBerry, come under scrutiny particularly in the US for its lack of transparency. Moreover, after much editorial ink spilled on Facebook’s lack of initiative and innovation in mobile, the release of the ‘super-app’ Chat Heads has piqued interest as it looks to compete with Whatsapp, Viber, iMessage et al., which Ovum reckons cost MNOs $23bn in lost revenue every year. This news mostly pertained to developed markets; JWT Intelligence’s interview with Jana CEO Nathan Eagle features some interesting insights on mobile trends in emerging markets.

Interestingly, 2013 thus far has also been witness to the beginning of more flexible contracts and payments. At the end of March, T-Mobile USA announced it would offer the iPhone to customers for cheaper than its rivals, and customers would not have to sign a contract. It effectively ends handset subsidies – something which Vodafone pledged to do last year and was punished by the stock market when it failed to do so – spreading the full cost of the phone over two years “as a separate line item on the monthly bill”, which may strike many as still quite a commitment. Customers must pay the bill for the phone in full in order to be able to end their tenure with the network. The New York Times elaborates, “Despite T-Mobile’s promise to be more straightforward than other carriers, some consumers might still find it confusing that they have to pay an extra device fee after paying $100 up front for an iPhone.” In the UK, O2 is going a similar route. At the end of last week the company announced similar plans to T-Mobile. While still keeping contracts as an option, the FT explained the company was looking to a plan, dubbed O2 Refresh, “that decoupled the cost of the phone from the cost of calls, texts and data. Customers will be able to buy a phone outright, or pay in instalments over time, and then sign up to a separate service contract that can be cancelled or changed at any time.” Although O2 said in the article that they expected customers to pay the same as they would on a standard contract, the new plans by both network providers will surely add to customer churn. Brands will have to work harder to develop true loyalty rather than relying on the lock-in feeling that adds to switching costs for many customers. Conversely, this added flexibility may make the providers feel less like utilities, creating more choice and differentiation.

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At the aforementioned conference Zeitgeist attended last month, Accenture hosted an evening they dubbed “MWC: Fiesta or Siesta?”. It soon became apparent that many of the speakers invited were less than enthused with the conference this year. This was partly because there were no extraordinary leaps in technology or hardware on offer. It was also because of, as one speaker lamented, “the proliferation of suits”. Another speaker complained it was like listening to The Archers: long storylines “that ended up having no conclusion”. The very essence of the conference though is not about trendsetting, or cool new consumer devices. Mobile operators are utilities, the excitement around such an event is not going to be as visceral as that of SXSW or Embedded World. It led some to wonder whether the “real innovation was being developed in such ‘niche’ events, away from the “glitz”. Moreover, perhaps Samsung’s decision not to launch their new S4 handset at the Congress alluded to this lack of excitement, or at least a wish not to be drowned out by other announcements.

Among exciting trends on display at MWC, M2M – something Zeitgeist has written about before – was front and centre at the conference, particularly with regard to cars. Phablets continued to make their foray into the consumer’s view, with bigger screens meaning more data transfer. Zeitgeist wondered whether such a transition would put even more pressure on networks already struggling with large data handling. And although Firefox’s new OS gave some – including those at GigaOm – hope that it could provide more innovation through diversified competition in the marketplace, others, including Tony Milbourn, Executive Chairman of Intelligent Wireless, speaking at the event, thought it “underwhelming” after “lots of hype”. Bendable screens were also to be found at MWC, but those speaking at the Accenture conference like Richard Windsor of Radio Free Mobile said it was early days and much was still to be seen from this new type of phone. Its potential though, he readily conceded, was formidable. Wearable technology was a huge issue at the conference and one that Zeitgeist is particularly interested to see develop, especially as companies like Apple, Sony and Google enter the fray.

It seemed then that the Mobile World Congress failed to reflect what is turning out to be a tumultuous year in telecoms. Not only is there an increasing desire to address consumer needs – in the case of more flexible contracts and more consumer-facing company names – but as economies sputter their way toward ostensible recovery we are also starting to see M&A activity return to the sector. Time will tell whether new technologies, such as M2M or bendable screens can breathe new life into the sector.

Up in smoke: Trends in buying movies and content ownership

Like the main protagonist in The Artist, film audiences are increasingly falling out of love with physical film. A recent IHS Screen Digest webinar presented some interesting notes on home entertainment trends around the world. Most of it was far from good news for media companies.

Emerging markets are where a lot of industries are currently looking to for growth, from WPP to the Catholic church. The film industry is seeing growth here, too. China, which last year relaxed its quota on the number of foreign films it allows into the market every year, has seen record box office takings of late, with the release of Titanic being a major highlight. Russia, too, is seeing a new audience for film. On a macro level, countries like India and Brazil are seeing a significant growth in the middle classes. In other words, a group of consumers that has a larger amount of discretionary spending. Some of this spending will be allocated to home entertainment, in the form of video players, be they DVD or Blu-ray. However, this jars with the global decline in physical media spend, as viewers switch in droves to streaming platforms like Netflix and Amazon’s Lovefilm. Data from the IHS webinar revealed that the global growth in video players will not serve to offset the decline of spend on physical media.

As well as shifting from hard copy to soft copy products, consumers are also beginning to show a marked preference for renting over owning. This trend extends far beyond the film industry of course. Companies like Spotify spearheaded the idea in the music industry, the phrase “access trumps ownership” has long been a mantra there. The philosophy is affecting many lifestyle aspects, as demonstrated by The Economist’s recent front cover article. In Western Europe, rental is now the transactional consumption choice for digital movies. IHS data reported that the average US citizen rented 5.3 films last year. The company predicted that revenue from rentals will go up, returning to where they were in 2009, but in large part only because rental prices will go up. Dovetailing with the increasing consumer reluctance to buy physical discs is that the medium also appears “less and less attractive” for retailers. Blu-ray, which was supposed to revive the disc format, has not taken off in the way that was hoped; IHS data showed most Blu-ray owners still purchase a lot of movies on DVD rather than paying a premium for the HD version.

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The move from physical to digital formats is troubling to media companies because, IHS report, “transactional online movie spending will not reach levels of physical spend” anytime soon. Indeed, theatrical is predicted to take up an ever larger slice of the pie (see above). This is without considering relative externalities, such as piracy, which remains a huge problem in Asia. And while consumer spending on online movies will almost double in AsPac, the share in wider consumer spending on movies in the region will not move beyond the current share before 2016.

One solace could be found in cinemas, a special haven for a medium without distractions, providing ample opportunity to leverage some of the more irrational desires and behaviours of consumers. We wrote briefly about various opportunities recently, and it’s reassuring to see the news earlier this month that Digital Cinema Media in the UK, an advertising sales house jointly owned by Odeon and Cineworld, will “in the coming months” launch a mobile app that will attempt to track cinema visits in order to feed data back to advertisers. In return, audiences will get exclusive content, vouchers or free ice cream. Given that the cinema is surely one of the few areas where you can pretty much guarantee a captive audience, this sounds like a great idea. How much it will offset lost revenues from home entertainment though remains an open question.

UPDATE (30/4/13): Data gathered can sometimes be misleading of course because it fails to report things that are not being measured. Such is the case with the current trend, recently reported by The New York Times, of sharing multi-platform viewing accounts for products like HBO Go among friends and even strangers. This trend represents a threat to revenue, but also an opportunity to create further loyalty, if used wisely. Forbes questioned the legality of such activity in a follow-up article.

Fit to Print – Recommendations and lessons for print media

March 12, 2013 1 comment

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“Breaking an old business model is always going to require leaders to follow their instinct. There will always be persuasive reasons not to take a risk. But if you only do what worked in the past, you will wake up one day and find that you’ve been passed by.”

- Clayton Christensen

What do Dell, The New Yorker and the music industry have in common? All three are currently grappling fundamentally with their business models in the face of creative destruction at the hands of digital disruption. The CEO of Dell is struggling to take it private at the moment – in a proposed $24.4bn buyout – in an effort to ensure its strategy looks away from the short-term needs of investors while it restructures with a new, long-term strategy that will shift focus away from its core PC business. An issue of The New Yorker hardly makes for a quick read, but has been one of the more innovative companies among its peers to embrace and experiment with digital. We wrote about their initiatives last summer. Recently, for their anniversary issue, the publisher offered digital issues for 99c, an offer that Zeitgeist took them up on, and it was pleasing to see how well the digital edition mirrored with print one, while at the same time adding some features that took advantage of being on a digital product. Last week, The Economist published an article on the music industry, which is beginning to see glimmers of hope in its revenues from digital sales. “Sales of recorded music grew in 2012 for the first time since 1999“, although only by an anemic 0.3%. This is still better than Hollywood, which had to settle for celebrating a flattening of home entertainment revenues, after years of decline. After almost being destroyed by it, a third of the music industry’s revenues now come from digital, but they are barely keeping up with the decline in physical sales, which makes up the bulk of other revenues. Lucian Grainge, chairman and chief executive of Universal Music Group, spoke to the Financial Times at the weekend,

“The industry needs transforming. It’s for others to decide whether they want to get stuck in the past or whether they want to come on the journey… We’ve learnt an awful lot, but it’s like being in a commercial earthquake and the reality is it takes time to get out from beneath the desk where you’re protecting yourself and move forward.”

Indeed, one of the biggest issues industries must address is when is the right moment to risk their current business model in order to address change and adapt. Grainge talks about the industry need for a “constructive collision” between musicians, content owners, distributors, entrepreneurs and investors. To what extent this is happening is unclear, but it is certainly thinking outside the box, and could well be applied to other areas similarly suffering at the hands of such change. As goes the music and film industries, so goes the print industry too? How do print titles develop profitable models for generating profits in the face of such volatility in changing consumption habits and digital disruption?

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New methods of media consumption have driven consumers to distraction

In December 2012, consultancy Boston Consulting Group (BCG) published a report entitled ‘Transforming Print Media’. The report begins on a sour note, admitting that the conventional wisdom is that newspaper and magazine publishing is “a dying business”. This is a hard assertion to counter though, and the consultancy’s own graphics show a rather alarming lack of growth in developed countries. Emerging markets, conversely, are seeing growth in both print advertising and circulation, for both newspapers and magazines. For instance, while between 2006 and 2011, the US has seen a compound annual growth rate (CAGR) decline of 12% in print advertising, China has seen an 8.5% uptick, and India a 13.9% growth. One of the immediate problems the report addresses, and one which Michael Dell is looking to neutralise is that of concentrating on short-term gain at the expense of long-term restructuring with a rigorous focus on which adjacencies work well and which do not. This can be immensely hard to justify in an environment of quarterly earnings reports and instant CNBC updates. BCG suggests implementing a strategy that will instill long-term change while also providing medium-term gains to keep investors happy. The report proposes a 3-5 year plan, and, interestingly, notes that success will rely “more on execution than insight”. Zeitgeist would counter that without both being optimal, the strategy is bound to fail. Moreover, knowing exactly who you want to target and how their methods of media consumption and interaction have altered / are altering is a critical tool for success. It also points out that new business models should not be about “trading print dollars for digital pennies”, something that the music and to some extent the film industry are both grappling with currently.

David Carey, head of Hearst Magazines, commented last year that, in publishing, “you need five or six revenue streams to make the business really successful”. One of the key points that recurs throughout the BCG report, which Zeitgeist, while working on developing strategic recommendations for the Financial Times last year, was also in favour of, was in extending the reach of the business in new directions. These directions leverage the brand equity of the company and extend into areas adjacent to the company’s expertise. For the FT, opportunities exist to extend the brand name into complementary areas of luxury with which the paper is already associated. Monocle has made in-roads into diversification by starting a radio station, which it says is very attractive to advertisers because they have a clear idea of their audience; the type of high-earning consumers who never normally listen to radio. As well as new revenue streams, Zeitgeist also focused on customer retention. One important consideration was that of both vertical and horizontal cohesion. The business as a brand must speak in a relevant, cohesive way across channels, and, in the case of the FT, speak in the appropriate way to its many different readers around the world. BCG advocates “reassessing vendor relationships; stream- lining editorial, content sharing, ad pricing, and production processes; and pooling advertising sales across titles or clusters… the right changes to financial policies— particularly to debt levels and ratios, dividends, and buybacks —can create a clear and compelling case for long-term health, can lift stock prices, and can attract more patient investors.”

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Research has shown that price elasticity does not play a part for newspaper buying. Higher pricing, conversely, improves revenue

Price is a fundamental consideration too. For the FT, Zeitgeist extemporised on the importance of price. Referencing behavioural economics, price for the FT acted as an anchor. It framed the paper more by juxtaposing it with its cheaper peers than by giving it any inherent value. In reports from the last few years taken both in Europe and the US, several major broadsheet newspapers were studied. They had all raised their prices. Some of them had seen their circulation decrease. But all of them had seen increases in revenue, even the ones that had lost circulation. Zeitgeist presented the FT with an analogy; the champagne label Krug, some years ago, hiked up its price, with little notice and for no perceived reason. Production, pricing and taste had not changed. The company lost some suppliers because of this change. But overall, their revenues increased. Krug was now in the upper echelons of the luxurious world of champagne, done to coincide with a global rebrand that appeared in all the right places. BCG alludes to the price increases in its report, saying consumers will “perceive greater value in the product than the amount it is costing them… there is the ability to increase these prices by as much as 70 to 100 percent…”. The report addresses paywalls, which Zeitgeist have written about several times in the past. The key it seems is in making these paywalls permeable, not inflexible. This is one issue the FT will need to address, one its peers, like the Wall Street Journal (WSJ), The New York Times and The New Yorker, have taken steps in the direction of already. The WSJ has frequently taken down its paywall during times of emergency (such as Hurricane Sandy), or for sponsored promotions. Advertisers still play a significant role in US print advertising – a $34bn role – but it is diminishing. The New York Times reported last year that advertising revenue had dropped below subscription revenue. As worrying as this is, it should provide an opportunity for companies to focus more on producing content that the actual readers want, rather than what the advertisers want to see. Broadly, the difficulty lies in getting consumers to see the worth of a digital product versus a hard copy. Obviously this issue is not restricted to the publishing industry.

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Krug champagne used behavioural economics to alter its place in the market

The importance of the transition to digital is hard to overstate. As well as issues of pricing and paywall strategy, there is also social media to consider. Here, the FT is a good example of a brand that is playing it safe, operating for the most part with a very top-down messaging strategy that leaves little room for collaborative communication. But digital production and the expectation of instant news also means that companies are having to change the way they produce content. Speaking at the Future of Media summit at the Broadcast and Video Expo recently, Editor in Chief of Time Out London Tim Arthur said their changes were “led partly by necessity and partly by desire”. BCG outlines three models that are emerging: “dedicated print and digital editorial teams, integrated teams that operate throughout the print and digital platforms, and full editorial integration”. There are several advantages to be leveraged through digital as well. Research is a big one. Time Out’s Tim Arthur admitted they never used to carry out research until their recent transformation, which included an overhaul of their digital strategy, as well as making their hard copy paper free. It was great then to hear how the company was now using multiple channels to collate data and engage audiences at the same time. Unlike the FT, Time Out was no longer engaging in a one-way conversation, and they were operating with “less arrogance”. The company changed from a content-stacked, “trickle down” approach to one that recognised different audience needs over different platforms, which is a key insight. Furthermore, the opportunities to make advertising more engaging are also quite evident. iAds for example, allow more interaction. A recent ad in The New Yorker promoted a new book with a ‘tap to read a chapter’ function.

“These considerations inevitably lead to a series of hard choices about the degree of diversification that publishers can realistically undertake”, so summarises the BCG report, which suggests controlled experimentation to work out the best model. On an internal level, the company must convince employees that this change will be for the better and for the long-term. It must also convince shareholders of the benefits, while showing real value as early as possible. Such a transformation provides opportunities for streamlining technologies and future-proofing ways of working. It should make the brand think about what its equity is, and where else it can push out to in order to drive new revenue streams. Digital is not something to be feared, it should be embraced. The opportunities for more targeted, engaging advertising, not least through the use of consumer data, which also can help provide more tailored and attractive content – content that is “useful to others” as Arthur says – will be fundamental steps to take. The music industry, which was ravaged by Napster and its myrmidons at the end of the 20th century, took an age to wake up to realisation that money could be made from the millions of people who were already downloading songs online. The film and television industries have reacted slightly faster, and initiatives like Hulu, Ultraviolet and Tesco’s Clubcard TV will help stem the tide. Print on the whole is more on top of the game. Companies like the Financial Times and Time Out are driving innovation in the sector, but must still more readily embrace change if they are to really connect with future readers. Time will tell.

Taking flight – Opportunities and obstacles in democratising luxury

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I don’t think democratic luxury exists. I don’t believe in something for everyone… How can we possibly put these products on the Web site without the tactile experience of luxury?”

- Brunello Cucinelli

The democratisation of fashion took a beating this past week as news reached Zeitgeist that Fashion’s Night Out was to be no more. Spearheaded by Anna Wintour at the height of the global recession, the idea was for a curated evening; a chance for stores to open their doors late, inviting a party atmosphere and focussing spend on a calendar event. The Wall Street Journal wrote that last year, “Michael Kors judged a karaoke competition at his store on Madison Avenue, rapper Azealia Banks performed at the MAC store in Soho and a game night was held at a Kate Spade store.” The evening festivities were replicated across New York, London and other cities.
Zeitgeist happened to be on Manahattan’s Spring Street last September when the most recent FNO was held, waiting patiently for a perenially-late friend who works next door to Mulberry. While waiting, it was absolutely fascinating to see the sheer of variety of people out on the street. While the crowds were mostly composed of women, the groups ranged from college-aged JAPs and the avant-garde to hipsters and stay-at-home mothers. Most gawped excitedly as they beheld the Mulberry boutique, enticed by the glimpses of free food and drink, as well the sultry bass tones of some cool track. One elegantly dressed fashionista strode hurriedly past Zeitgeist, lamenting to her cellphone “Oh God, it’s Fashion’s Night Out tonight”.
Ultimately perhaps it was such feelings among the fashion set that caused FNO to come to an abrupt end. But Zeitgeist got the sense that, while undeniably a celebration of fashion and an opportunity for brands to showcase their attractively experiential side – particularly to those who might usually be deterred by luxury brands and their perceived sense of formality – there weren’t a great deal of people actually buying things. It’s quite possible that the whole strategy of attracting a crowd who would not otherwise frequent such stores backfired; they turned up, sampled the free booze, felt what it must be like to shop at such-and-such a label, then moved on to the next faux-glitzy event with thumping music. This then was a failed attempt to bring luxury to the masses.

On a macro scale, the cause for democratisation is hardly helped by the global financial crisis. Although over four years old, the ramifications and scarring done to the economy are still sorely felt. This is illustrated in the unemployment figures around the world, tumultuous elections and anecdotal tales of hardship. More starkly, they are being backed up by solid quantitative research that proves we as a world are less connected now than we were in 2007. In December last year, The Economist reported on the DHL Global Connectedness Index, which concluded that connections between countries in 2012 were shallower (meaning less of the nation’s economy is internationalised) and narrower (meaning it connects with fewer countries) than before the recession. Meanwhile, just this past week, the McKinsey Global Institute published a report showing financial capital flows between countries were still 60% below their pre-recession high. This kind of business environment hardly fosters egalitarian conduct, and indeed such isolationist thinking was on show at Paris Fashion Week recently, where designers clung to their French heritage as a badge of honour. Exactly at the time when art needs to be leading the way in cultural integration, as emerging markets not only continue to make up a larger part of the customer base, but also develop their own powerful brands, it seemed that designers, like the financial markets, retreated to what they knew and found safe.

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The world is less connected today than in 2007

Where the ideology of democratising fashion has seen more success is of course online. We’ve written before about how luxury is struggling with the extent to which they invest in e-commerce. One of the principle hurdles is that the nature of luxury – elite, arcane, exclusive – is more or less diametrically opposed to the nature of the Internet – open, borderless, democratic.
Yet the story of Yoox – the popular and, in online terms, long-lasting fashion ecommerce platform – and its founder is one of just such democratisation. (It is particularly stunning to read of the difficulties the founder, a Columbia MBA graduate, Lehman Brothers and Bain & Co. alum, had in attracting VC funding). It also, crucially, points to the importance of recognizing multiple audiences, and how they like to shop differently depending on context. John Seabrook, writing in The New Yorker, reports that when Federico Marchetti set up Yoox in 2000, the world of ecommerce for fashion was regarded as a not particularly salubrious environment. Rather, the magazine compares it to outlet stores like Woodbury Common, fifty miles north of New York. Luxury brands like Prada and Marni could be found there, offering deep discounts on their wares, and it was for that reason – and the lack of control over their own brand – that they didn’t like much to talk about such places. This, despite the fact that they attracted 12 million people in 2011, “almost twice the number of visitors to the Metropolitan Museum”. Yoox was likewise greeted with much trepidation by fashion retailers. The article quotes an analyst from Forrester Research:

“It was a matter of principle with luxury brands that only people who shop on eBay use the internet – and their only interest was in getting a low price.”

Marchetti’s only available source of designer clothing was from last season and beyond, as no brand would sell their current collection. He curried favour with some of them though by advertising the prices without noting the discount customers were getting. Other than that, luxury brands took little or no notice.

Online shopping though would prove to be “one of the largest disruptions of the luxury-goods industry since the birth of the department store”. There are three kinds of online store today; those that sell deep-discounted goods on end-of-season wear, those that sell in-season clothing, and those that have flash sales of small numbers of clothing or accessories. It turned out there was an audience for all of these types of website. Bridget Foley, executive editor of WWD is quoted in the article saying “[T]here has been a sea change in attitude… I think [it] surprised the fashion industry… Just because you love clothes doesn’t mean you love shopping“. This struck Zeitgeist as one of the more important insights in the lengthy article. Though retailers often harp on about the importance of the retail environment, the need to touch the product, to be in an atmosphere where everything has been curated down to the finest detail, online neutralises all of that. This idea threatens those in the luxury sector, as the thinking goes that any such premium on products may seem less justifiable away from a Peter Marino-designed armchair and a nice glass of champagne. Such ideas are being challenged though. Not only is the nature of the store changing – from robotic sales staff to customers as models on the catwalk – but so is the view of the luxury customer as a homogenous, static group, devoid of context. Zeitgeist was at a Future of Media summit at the Broadcast Video Expo last week, where, as behavioural economics suggest, MD of Commercial, Online and Interactive for ITV Fru Hazlitt insisted that consumers had to be targeted in ways that were pertinent to them, not only as demographic groups, but in ways that recognised the context of how approachable they were likely to be at the time, given the programming they were watching. Fru admitted that in years past, broadcasters like ITV had seen advertising as “space to rent out”. Now they were thinking deeply about how and when is the right moment to reach their target consumer. It is the same in fashion. There is not one single way to reach the consumer; buyers of luxury goods do not want to be solely restricted to being able to buy your wares in a physical store.

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Chanel are one of the few remaining luxury brands to resist fully integrating online

Behavioural economics played a role in Marchetti’s initial framing of the audience for the website as well. He hired pedigreed fashion writers, as well as artists, architects and designers to make special projects that lent the website an air of curation, of something more special and rarefied that what one might find – or more importantly the way one might feel – at an outlet mall. Marchetti wanted the customers “to see themselves as connoisseurs, even if they were really just hunting for bargains”. The New Yorker article goes into some anecdotal detail about the way people shop on Yoox, which crucially differs not only from the way they would shop in-store, but also from other e-tailers. For online shopping in general, the experience is one where you can purchase ten items, and return nine of them with very little hassle, with credit for multiple rather than a single brand, and certainly no raised eyebrow from a pretentious shop assistant. Regarding specific sites, Yoox, unlike Net a Porter, for example, does not try to force a set of looks onto the user. Behavioural economics tell us that people irrationally value something more when they’ve been made to work a bit to get it. Such is the case now shopping for luxury items, which makes clothing not in-season (i.e. not currently in every shop window), both cooler and cheaper. It’s an act not to be discouraged. A Saks representative says customers who shop online as well as in store buy four times as much merchandise as customers who shop only in the store. What will worry retailers though is that the convenience of the online store outweighs the experience of the physical boutique. The New Yorker quotes a shopper: “I’ll never buy a dress at the Prada boutique again after getting these really amazing ones on Yoox.”

As well as setting up the Yoox website, Marchetti’s company now also powers the online stores of more than thirty fashion houses, including Armani and Jil Sander. Last summer, PPR joined in too, after conceding that their in-house expertise was not up to snuff. The latest development is making designs available to any customer as soon as it hits the runway. Burberry, as well as separate sites like Moda Operandi, have spearheaded this innovative change, which is effecting editorial as well as buying methods previously seen as unshakeable. The demand for this type of instant purchasing seems to be fueled by a niche – albeit a sizable one – that is not representative of the majority of luxury shoppers. The accessibility of a brand and its products is a tricky one to tread, one which Zeitgeist has written about several times before. Tom Ford performed a volte-face this year, after debuting his womenswear collection with no press and VIPs only, relented this year at London Fashion Week by letting bloggers write about the show. Chanel still steadfastly refuses to fully engage with online shopping. The tension is keenly felt in the New Yorker article, where Amazon’s new entry into the world of fashion is referenced. The CEO of Valentino is unconvinced: “Valentino is high luxury… People going to Amazon are not going to Valentino“. This smacks a little of pride and ignorance, for they most assuredly are, though perhaps not with luxury purchases in mind… yet.

It comes back to the idea that there are myriad types of luxury consumer. The industry has not fully acknowledged as of yet that the buying behaviour of a descendant of the ancien regime in Paris is unlikely to buy in the same way as a newly-minted businessman in Shenzhen. They may know that these types of buyers exist, and they may even create different products for each. Importantly though, they are not recognising that these people may go about purchasing in a different way. It’s not just a purchase journey that has changed massively in recent years, as McKinsey’s consumer decision journey illustrates above. It’s also, as ITV’s Fru Hazlitt insists, about recognising that different people shop in different ways, wholly dependent on context. Though Fashion’s Night Out may be on permanent hiatus, and though the global economy may be sputtering along in second gear, the opportunities to leverage deep insights into consumer purchase preferences are there for the taking. Yoox, along with a deeply complicated algorithm, are trying to tap into just this. But the process must start with realising that yes, actually, someone might want to pick up that Valentino dress while surfing on Amazon.

The state of retail

January 6, 2013 5 comments
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The love of the bargain is what drives them… Click for CNBC’s coverage

It’s a common fallacy to think of a time before a change in status quo as somehow being magically problem-free. A Panglossian world where all was well and nothing needed to change, and wasn’t it a shame that it had to. Similarly, we cannot blithely consign the retail industry of the past to some glorious era when everything was perfect; far from it. The industry has been under continual evolution, with no absence of controversy on the way. It was therefore a timely reminder, as well as being a fascinating article in its own right, when the New York Times provided readers recently with a potted history and a gaze into the future of Manhattan department store stalwart, Barneys. Not only is their past one in which the original proprietor sought to undercut his own suit suppliers, creating a bootlegging economy by literally ripping out their labels and replacing them with his own, but it was also one where department stores served a very different purpose to what they do today. They had less direct competition, not least unforeseen competition in the form of shops without a physical presence. Moreover, today they are run in an extremely different way, with an arguably much healthier emphasis on revenue (though some might say this comes at the expense of a feeling of luxury, in a lobby now brimming with handbags and little breathing room). The problems and opportunities for Barneys could serve as an analogy for the industry of which it is a part.

Despite brief reprieves such as Black Friday (click on headline image for CNBC’s coverage), as well as the expected post-Christmas shopping frenzy, can one of the main problems affecting retail at the moment simply be that it is undergoing an industry-wide bout of creative destruction? Zeitgeist has written about the nature of creative destruction before, and whether or not that is to blame for retail’s woes, the sector is certainly in the doldrums. In the UK, retailers are expecting a “challenging” year ahead. Recent research from Deloitte shows 194 retailers fell into administration in 2012, compared with 183 in 2011 and 165 in 2010. So, unlike the general economy, which broadly can be said to be enjoying a sclerotic recovery of sorts, the state of retail is one of continuing decline. How did this happen, and what steps can be taken to address this?

Zeitgeist would argue that bricks and mortar stores are suffering in essence due to a greater amount of competition. By which, we do not just mean more retailers, on different platforms. Whether it be from other activities (e.g. gaming, whether MMOs like World of Warcraft or simpler social gaming like Angry Birds), or other avenues of shopping (i.e. e-commerce, which Morgan Stanley recently predicted would be a $1 trillion dollar market by 2016), there is less time to shop and more ways to do it. The idea of going to shop in a mall now – once a staple of American past-time – is a much rarer thing today. It would be naive to ignore global pressures from other suppliers and brands around the world as putting a competitive strain on domestic retailers too. Critically, and mostly due to social media, there are now so many more ways and places to reach a consumer that it is difficult for the actual sell to reach the consumer’s ears. This is in part because companies have had to extend their brand activity to such peripheries that the lifestyle angle (e.g. Nike Plus) supercedes the call-to-action, i.e. the ‘BUY ME’. The above video from McKinsey nicely illustrates all the ways that CMOs have to think about winning consumers over, which now extend far beyond the store.

If we look at the in-store experience for a moment without considering externalities, there is certainly opportunity that exists for the innovative retailer. Near the end of last year, the Financial Times published a very interesting case study on polo supplier La Martina. The company’s origins are in making quality polo equipment, from mallets to helmets and everything in between, for professional players. As they expanded – a couple of years ago becoming the principle sponsor of that melange of chic and chav, the Cartier tournament at Guards Polo Club – there came a point where the company had to decide whether it was going to be a mass-fashion brand, or remain something more select and exclusive. As the article in the FT quite rightly points out, “Moving further towards the fashion mainstream risked diluting the brand and exposing it to volatile consumer tastes.” The decision was made to seek what was known as ‘quality volume’. The company has ensured the number of distributors remains low. Zeitgeist would venture to say this doesn’t stop the clothing design itself straying from its somewhat more refined roots, with large logos and status-seeking colours and insignia. Financially though, sales are “growing more than 20% a year in Europe and Latin America”, which is perhaps what counts most currently.

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Louis Vuitton’s ‘L’ecriture est un voyage‘ is a good example of experimental thinking and missed opportunities

In the higher world of luxury retail, Louis Vuitton is often at the forefront (not least because of its sustained and engaging digital work). While we’re focusing purely on retail environments though, it was interesting to note that the company recently set up shop (literally) on the left bank of Paris; a pop-up literary salon, to be precise. Such strokes of inspiration and innovation are not uncommon at Vuitton. They help show the brand in a new light, and, crucially, help leverage its provenance and differentiate it from its competition. Sadly, when Zeitgeist went to visit, there was a distinct feeling of disappointment that much more could have been done with the space, which, while nicely curated (see above), did little to sell the brand, particularly as literally nothing was for sale. The stand-out piece, an illustrated edition of Kerouac’s On the Road, by Ed Ruscha, Zeitgeist had seen around two years ago when it was on show at the Gagosian in London. Not every new idea works, but it is important that Louis Vuitton is always there at the forefront, trying and mostly succeeding.

So what ways are there that retailers should be innovating, perhaps beyond the store? One of the more infuriating things Zeitgeist hears constructed as a polemic is that of retail versus the smartphone. This is a very literal allusion, which NBC news were guilty of toward the end of last year. “Retail execs say they’re winning the battle versus smartphones”, the headline blared. What a more nuanced analysis of the situation would realise is that it is less a case of one versus the other, than one helping the other. The store and the phone are both trying to achieve the same things, namely, help the consumer and drive revenue for the company. Any retail strategy should avoid at all costs seeing these two as warring platforms, if only because it is mobile inevitably that will win. With much more sound thinking, eConsultancy recently published an article on the merits of providing in-store WiFi. At first this seems a risky proposition, especially if we are to follow NBC’s knee-jerk way of thinking, i.e. that mobile poses a distinct threat to a retailer’s revenue. The act of browsing in-store, then purchasing a product on a phone is known as showrooming, and, no doubt aided by the catchy name, its supposed threat has quickly made many a store manager nervous. However, as the eConsultancy article readily concedes, this trend is unavoidable, and it can either be ignored or embraced. Deloitte estimated in November that smartphones and tablets will yield almost $1bn in M-commerce revenues over the Christmas period in the UK, and influence in-store sales with a considerably larger value. That same month in the US, Bain & Co. estimated that “digital will influence more than 50% of all holiday retail sales, or about $400 billion”. Those retailers who are going to succeed are the ones who will embrace mobile, digital and their opportunities. eConsultancy offer,

“For example, they could prompt customers to visit web pages with reviews of the products they are considering in store. This could be a powerful driver of sales… WiFi in store also provides a way to capture customer details and target them with offers. In fact, many customers would be willing to receive some offers in return for the convenience of accessing a decent wi-fi network. Tesco recently introduced this in its larger stores… 74% of respondents would be happy for a retailer to send a text or email with promotions while they’re using in-store WiFi.”

These kind of features all speak more broadly to improving and simplifying the in-store experience. They also illustrate a trend in the blending between the virtual and physical retail spaces. Major retailers, not just in luxury, are leading the way in this. Walmart hopes to generate $9bn in digital sales by the end of its next fiscal year. CEO Mike Duke told Fast Company, “The way our customers shop in an increasingly interconnected world is changing”. This interconnectedness is not new, but it is accelerating, and the mainstream arrival of 4G will only help spur it on further. The company is soon to launch a food subscription service, pairing registrants with gourmet, organic, ethnic foods, spear-headed by @WalmartLabs, which is also launching a Facebook gifting service. At the same time, it must be said the company is hedging its bets, continuing with the questionable strategy of building more ‘Supercenters’, the first of which, at the time a revolutionary concept, they opened in 1988.

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One interesting development has been the arrival of stores previously restricted to being online into the high street, something which Zeitgeist noted last year. This trend has continued, with eBay recently opening a pop-up store in London’s Covent Garden. These examples are little more than gimmicks though, serving only to remind consumers of the brands’ online presence. Amazon are considering a much bolder move, that of creating permanent physical retail locations, if, as CEO Jeff Bezos says, they can come up with a “truly differentiated idea”. That idea and plan would be anathema to those at Walmart, Target et al., who see Amazon as enough of a competitor as it is, especially with their recent purchase of diapers.com and zappos.com. It serves to illustrate why Walmart’s digital strategies are being taken so seriously internally and invested in so heavily. Amazon though has its own reasons for concern. Earlier in the article we referenced the influence of global pressures on retailers. Amazon is by no means immune to this. Chinese online retailer Tmall will overtake Amazon in sales to become the world’s largest internet retailer by 2016, when Tmall’s sales are projected to hit $100 billion that year, compared to $94 billion for Amazon. The linked article illustrates a divide in the purpose of retail platforms. While Amazon is easy-to-use, engaging and aesthetically pleasing, a Chinese alternative like Taobao is much more bare-bones. As the person interviewed for the article says, “It’s more about pricing – it’s much cheaper. It’s not about how great the experience is. Amazon has a much better experience I guess – but the prices are better on Taobao.”

So how can we make for a more flexible shopping experience? One which perhaps recognises the need in some users to be demanding a sumptuous retail experience, and in others the need for a quick, frugal bargain? Some permutations are beginning to be analysed, and offered. Some of these permutations are being met with caution by media and shoppers. This month, the Wall Street Journal reported that retailer Staples has developed a complex pricing strategy online. Specifically, the WSJ found, it raises prices more than 86% of the time when it finds the online shopper has a physical Staples store nearby. Similar such permutations in other areas are now eminently possible, thanks in no small part to the rise of so-called Big Data. Though the Staples price fluctuations were treated with controversy at the WSJ, they do point to a more realistic supply-and-demand infrastructure, which could really fall under the umbrella of consumer ‘fairness’, that mythical goal for which retailers strive. Furthemore, being able to access CRM data and attune communications programmes to people in specific geographical areas might enable better and more efficient targeting. Digital also allows for a far more immersive experience on the consumer side. ASOS illustrate this particularly well with their click-to-buy videos.

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As the Boston Consulting Group point out in a recent report, with the understated title ‘Digital’s Disruption of Consumer Goods and Retail’,  “the first few waves of the digital revolution have upended the retail industry. The coming changes promise even more turmoil”. This turmoil also presents problems and opportunities for the marketing of retail services, which must be subject to just as much change. If we look at the print industry,  also comparatively shaken by digital disruption, it is interesting to note the way in which the very nature of it has had to change, as well as the way its benefits are communicated. It is essential that retailers not see the havoc being waged on their businesses as an opportunity to ‘stick to what they do best’ and bury their head in the sand. This is the time for them to drive innovation, yes at the risk of an unambitious quarterly statement, and embrace digital and specifically M-commerce. What makes this easy for those companies that have so far resisted the call is that there is ample evidence of retailers big and small, value-oriented to luxury-minded, who have already embraced these new ideas and platforms. Their successes and failures serve as great templates for future executions. And who knows, the state of retail might not be such a bad one to live in after all. Until the next revolution…

On the contemporary art market – Expertise, Marketing and Money

December 18, 2012 1 comment
“If all signs are autonomous and refer only to one another, it must seem to follow that no image is truer or deeper than the next, and that the artist is absolved from his or her struggle for authenticity.”
- Robert Hughes, 1989

Tom Wolfe, one of America’s greatest living writers, recently had his latest work, Back to Blood, excerpted in Vanity Fair. In it, the author excoriates the miasma of power, money, influence and ignorance that surrounds the contemporary art market. Wolfe describes the billionaires descending on Art Basel Miami as a “raveling, wrestling swarm of maggots”. What has become of art, its pursuit and its collection?

The pursuit of excellence can sometimes can be a quixotic quest, all the more so when dealing with something as ephemeral as art, and particularly with the contemporary art market today. But how does excellence, or authenticity, in art cope with a nexus of questionable experts and highly liquid but bifurcating market, in a world where promotion is all?

Part of this problem resides in the question of expertise, its influence and its value. If one thinks of artists in the period of the Italian Renaissance, the quality of the fresco or sculpture is mostly self-evident in the verisimilitude of the work. Moreover, the media worked with often necessarily involved painstaking, long-term commitment and toil. What artists like Marcel Duchamp began and Andy Warhol perfected was the thought that works of art should be valued by their conceptualism. In other words, not necessarily how much time or effort was put into making an object, or whether it was any “good”, aesthetically speaking, but with more emphasis on the power of the underlying idea – representation – behind the work. “Art can be expressed purely as a thought or action”, wrote the FT recently. This postmodern concept has not evolved since the time of Warhol. Without being able to critique the amount of expertise in the manufacturing of an object, it becomes harder to address the worth of an object, unless you are in the presence of a designated ‘expert’. The situation risks creating an echo chamber of unedifying art that speaks to no-one and is so self-reflexive it loses all meaning. It also allows for an artificial inflation of prices, creating a false market that shuts out all but the ultra-rich, whose tiny but influential numbers can significantly skew the market. One need only look at how much the Chinese taste for wine is influencing global production to see such an instance in action.

Such points were neatly summed up recently by the prestigious art critic and lecturer Dave Hickey, when he announced he was leaving the art world:

Writers, dealers, curators, advisers have become “a courtier class – intellectual headwaiters to very rich people”. For this 0.01%, “art is cheaper than it’s ever been” but “nobody cares if it’s any good, and everybody hates it when something’s really great”

The ‘experts’ who assign value to contemporary art objects have come full circle. Rightly recognising that there is art worth shouting about beyond an arbitrary, Westernised canon, it has now gone too far in the other direction. As a brilliant FT article on the subject recently pointed out, “The market loves theory because it spares the need for discrimination.” Making matters worse, the article quotes gallerist David Zwirner lamenting, “connoisseurship is really not valued, sometimes it is even looked down upon”. All of which leads to a highly fragile concentration of expertise and financial capital sitting with a select few. If we look again at the wine industry, American wine critic Robert Parker was at one time so influential that growers in France began changing their product purely to suit his taste so as to earn a higher rating on his guide. Zeitgeist asked art critic Brian Sewell at a debate earlier this year whether influential patrons such as Charles Saatchi and Francois-Henri Pinault were playing a similar role in the contemporary art world; shifting value perceptions of art and artists according to their personal whim. It helps little when major collectors like Frank Cohen admit publicly that they have “bought a load of bullshit”. The quotation may sound flippant, but it underscores the massive influence the bullshit they have bought has on the broader prices in the art market.

artmarketgraphs

Auction turnover returns to pre-recession highs… just in time for slowing growth in BRIC regions?

Art adviser Lisa Schiff spoke openly about this recently to Forbes magazine, saying she was “worried that there are a lot of young artists that could really take a nosedive”.This influence is being felt keenly right now with small but highly influential – and influenced – groups of buyers in Russia, Brazil and China. But as the BRIC regions continue to stall, what will happen to arbitrarily in-demand art and artists if these markets suffer further losses or even a sudden shock? Such problems are further compounded by the massive rise and fear of litigation, as previous, bona fide experts able to certify works as being genuine are being scared away by the threat of legal action.

So there’s an expertise fallacy here, one which is not restricted to the world of art. Elsewhere, marketing, something that admittedly has always been part of the selling of art to an extent, is becoming increasingly essential for a successful artist or studio. The Montoya exhibition currently on at The Halcyon Gallery in London represents the epitome of this new trend. Full-page ads in The Economist and 30-second spots on CNBC (see beginning of article) are being taken out for the exhibition, placed seemingly without irony at the feet of the very audience the art seems to be mocking, or at least parodying. It is the increasing lack of ironic awareness that creates an emptiness in the purchase and reputation of some of today’s bigger artists, including Jeff Koons, Richard Prince and Takashi Murakami. Interestingly, the latter two have both seen stratospheric success that goes beyond the confines of the art world, helped in part by collaborations with luxury goods company Louis Vuitton.

Richard Prince's oft-repeated Nurse motif was used for the Spring/Summer '08 Vuitton show

Richard Prince’s famous Nurse motif was used for the Spring/Summer ’08 Vuitton show

The marketing of art is at its most visible at contemporary art fairs – of which there are now more than 200 annually around the world – mentioned earlier as a subject of Tom Wolfe’s new work. Frieze, which takes place annually in London, is one of the most well-known. It was intriguing to see that this year saw the debut of Frieze Masters, which some saw as an attempt to breathe new life into an event that had begun to lose its ability to surprise. It was also seen as a deliberate attempt to focus attention on more established names in order to avoid some of the volatility the market has seen with newer, less-known artists. So the market isn’t so insular that it doesn’t recognise the need for significant change.

Collecting art is something that few of us can turn into a committed past-time. Moreover, the vagaries of art over the past ten years-plus have been such that only a select few would be able to decipher the worth of a current artist’s produce. The value of their art has been dulled by demographic shifts and concentrations, by overly-excessive marketing tactics and by a reduction and muddling of the nature of what it means to be an expert. Regulation of the sector seems overdue, as conflicts of interest and an oligopolistic marketplace seem to cry out for legal oversight. Some of these problems are not restricted to the art world and it will be interesting to see if a paradigm shift sits on the horizon. The Internet is providing some antidote to this. Recent online-only auctions by Christies – one of ArtInfo’s top ten stories that moved the art market in 2012 – have made the process of bidding for items extremely popular, and small art-sellers like Exhibition A are illustrating there is room for innovation in the industry. Is the art market in an aesthetic and financial bubble, and will it burst? Time will tell.

Ai Weiwei Exhibition A

Olympic Winners and Losers – Empty Seats and Byzantine Ticketing

What a fantastic ad from Channel 4 advertising their showcasing of the Paralympic Games, beginning soon. Meanwhile, what of the Olympics? Though there have been tales of Tube and travel chaos, Zeitgeist has not personally experienced problems with public transport, either for commuting or for travelling to the Games themselves. And while our mayor may have been left dangling like a pinata the other day, he certainly seems not to have left London in the lurch in its preparedness for the Games.

LOCOG, however, have had to face two severe lines of questioning since the Games opened last Friday. The first, which became immediately apparent to anyone watching the first few days of events, was that thousands of seats were unoccupied, including for events LOCOG had deemed sold out. The fault, it seemed, lay mainly with the Olympic Family, who weren’t turning up to events. Seb Coe tried to shrug off the incident, saying it was normal for the few first events of an Olympic Games. It must be particularly galling for him though after the same thing happened in the 2008 Games in Beijing and he pledged to avoid such an occurrence in London. It is unfortunate then for all concerned then that, despite releasing more tickets, the problem is still not resolved as of today.

Moreover, this brings us to the second big problem. The selling of tickets. The whole balloting system originally set up was pretty arcane and inefficient to begin with. But now with tickets being released on a rolling basis throughout the day, the chaos is all the more apparent. Yesterday, eConsultancy published an excellent article with a blow-by-blow account of just why “the Olympic ticketing website is so bad”. Worst, for Zeitgeist, was firstly not having a mobile version / mobile-optimised site. Secondly it was not having anything informing users of when certain tickets became available. Thankfully, as in any well-functioning democratic society, where there is a market failure, substitute products or competitors will come in to correct the situation. Such was the case at the weekend, when the completely unofficial @2012TicketAlert account was launched on Twitter, which used automated tweets to alert followers when any Olympic tickets became available. It was a fantastic idea, and seemed much in keeping with the ‘hack’ trend we see nowadays, when companies like Microsoft and Transport for London open up their APIs for users to develop their own programs. Such examples clearly had not occurred to LOCOG though, and earlier this evening, after amassing over 8,000 followers, LOCOG denied the @2012TicketAlert account further access. As the administrator of the account, Adam, wrote,

“[I]t seems someone at LOCOG has taken exception to our idea (or the publicity it is getting) and instead of reaching out to us or addressing the lack of a notification system, they have simply blocked our access to their server. This means we are unable to check or post any new ticket alerts… we would point out that the alert was not against the Terms of Use of the http://www.london2012.com website, nor have these terms been updated to make it so.”

It seems a poor PR move on LOCOG’s part, and more importantly a poor operational move because it makes it that much harder again to check for newly available tickets. Taking into account the immense budget that must have been allocated to the ticketing website, the result is severely lacking, and many thousands of people have been put off the Olympic experience because of it. Ticketmaster, which has branding on the website, has also come under fire. These acts, as we predicted in an earlier article, may well be the undoing of those involved, for, once lost, a good reputation is hard to recover.

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