“If you have built castles in the air, your work need not be lost; that is where they should be. Now put foundations under them.”
- Henry David Thoreau
Though the brouhaha over the series House of Cards has been building steadily since its announcement almost two years ago, through rumours of budget battles between director and studio, it was upon the release of the series this week that the media meta-echo chamber really went into overdrive. The first season, with a budget far north of $100m, debuted to ebullient praise from critics. But what does it signify for the trail-blazing company’s future?
Aside from the mostly positive reviews, the series piqued the media industry’s interest for other reasons too. It is the first to be created and screened exclusively by Netflix, a company previously known for striking deals with studios to distribute and stream their content. Not satisfied solely with such (sometimes pricey) deals, the company also saw an opportunity for greater brand visibility and a separate revenue stream – assuming it eventually licenses the show regular TV networks – in fully-fledged independent production. What is also interesting is that the entire first season was made available for instant viewing, all 12 hours. By doing this the company recognised and capitalised on a trend that has been accelerating for almost a decade; people like to watch multiple episodes at once. This has never not been the case, but the weekly episodic installments of shows on network television have allowed the audience little say in the matter, and thus no room for such a habit to develop. This changed dramatically with the arrival of the DVD, specifically with affordable boxsets, as those that had missed the zeitgeists of West Wing, The Sopranos and 24 were able to quickly catch up with their obsessed brethren. Critics have often noted how the viewing of multiple episodes at once – which is how such reviews are often conducted as they usually receive a disc with several shows to consider – particularly for shows like Lost, improves the structure and narrative flow. With the arrival of boxsets, such opportunities were available to all. Indeed, marketers leveraged this enthusiasm for consecutive viewing, creating events around it. Netflix saw this with absolute clarity and allowed viewers to watch as much or little as they desired. Many, it seemed, chose to devour the whole first season in one weekend, which entertainment trade Variety covered with humourous repercussions to the viewer’s psyche, across now fewer than six stages of grief. Zeitgeist has written before about the increasing popularity of streaming, and the complementary preference that audiences have for the type of films (action, romcom, broad comedy) they like to watch when choosing such a distribution method. It is interesting to consider then just how much the viewing experience differs between a 12-hour marathon over two days, and a one-hour slice over a period of three months. As the article in Variety half-jokingly posits, “Is tantric TV viewing a thing? If it’s not, should it be?”.
Of course, Netflix aren’t alone in seeing an opportunity to delve into developing complementary products and assets. Microsoft are using the functionality of Kinect to pair with their own content development, letting children “join in” with Sesame Street, for example, and are in the process of setting up a dedicated studio for production, in Los Angeles. Amazon, which owns the streaming service LoveFilm, is also getting into the game, recently setting up Amazon Studios for original content production. At the end of last year, The Hollywood Reporter announced Amazon would be greenlighting twenty pilots, all of which were “either submitted through the studio’s website or optioned for development”. YouTube recently launched twenty professional channels on its UK website, Hulu is following suit… It really is quite startling to see such fundamental disruption and turmoil in environments where incumbent stalwarts (such as 20th Century Fox in film and Walmart in retail,) have long been accustomed to calling the shots. Could the model become completely inverted, such that the Fox network and HBO become the “dumb pipes” of the TV world, showcasing the best in internet-produced television? Maybe so, and this is not necessarily a bad thing. The Economist this week argue that one of the most important factors in Liberty Global’s recent purchase of Virgin Media was the avoidance of paying corporate tax for “years” to come. If content is still king though, a problem remains for those incumbents. The New Yorker astutely points out,
“An Internet firm like Netflix producing first-rate content takes us across a psychological line. If Netflix succeeds as a producer, other companies will follow and start taking market share… When that happens, the baton passes, and empire falls—and we will see the first fundamental change in the home-entertainment paradigm in decades.”
Netflix must tread carefully. Crucially, what seems like competitive differentiation and all-quadrant coverage now can quickly shift. Amazon’s ventures into content production will be backed up with a sizeable and perpetual stream of revenue that it derives from its e-commerce platform, which isn’t going away anytime soon. The BBC are publicly welcoming new entrants, and is devising its own tactics, such as making episodes available on iPlayer before they screen, if at all, on television. Interesting but hardly earth-shattering, and likely to make little difference to viewer preference. Netflix will have to do better than that if it wants long-term dominance of this market. It will have to be increasingly careful with its partners, too. Recent, though long-running, rumblings of discord with partners like Time Warner Cable, though seemingly innocuous, tend to be indicative of a larger battle ensuing between corporate titans. Moreover, though the act of providing a deluge of content seems new and sexy now, what about when everyone starts doing it? Chief content officer for Netflix Ted Sarantos told The Economist last week, “Right now our major differentiation is that consumers can watch what they want, when they want it, but that will be the norm with television over time. We’re getting a head start”. Fine, but about when that is the norm, what is the strategy for differentiation then? Netflix have made some lofty, daring, innovative moves here, exploiting consumer trends and noticing a gap in the competitive environment. But they will need firm foundations to support this move into an adjacent business area, of which they know relatively little, in the years to come. As President Bartlet of West Wing was often heard to say, “What’s next?”.
Last week, Zeitgeist ambled down to Kensington Olympia again for yet another conference, this time the annual MediaPro Expo. Among the many speakers presenting over the course of two days, our main interest was captivated by prognosticators on the media and entertainment industries.
First up was Matt Rhodes, client services director of FreshNetworks. FreshNetwork’s clients, among others, include Telefonica (parent company of UK telco O2) and luxury shoe brand Jimmy Choo. Matt spoke of the challenges of measuring success across multiple markets. Aside from logistical difficulty, one prominent problem remains in that different sectors / regions / countries will need different approaches, therefore will have different ways of quantifying success.
Mr. Rhodes was speaking with regard to social media strategy, but the thinking applies broadly to other strategic planning as well. KPIs and ROI can both be meted out from a centralised hub (whereas in a distributed mode, ROI will vary). The possible problems with this stem from an ignorance of the particularities of a market. Suggesting that every market needs a Twitter and Facebook account for the brand might seem like sound thinking prima facie. Both platforms have huge audiences and many companies have now had notable success with presences thereon. Matt contended that such a presence was simply not necessary in all markets. Some countries may not have Facebook, but, like Russia, have a popular alternative that, with a high amount of pirated content, would be unlikely to be suitable for branded communications. As with the Soviet state, a centralised option is probably less effective. Furthermore, in some markets you might in be in acquisition mode – vis a vis customers – but in others you might be experiencing trouble retaining them, requiring very separate strategies. “Having a global strategy often doesn’t make sense”, Mr. Rhodes stated.
Regarding Jimmy Choo, people who want to purchase products from the brand in Japan differ greatly from those same people in a market like New York. In Japan there is heightened desire for accumulating a lot of accessory purchases as well as perfume, whereas in New York the emphasis will be on fewer, more substantial purchases. The Catch a Choo experience in London had different parameters for success than did the one in New York. The reasoning behind a social media presence is often never thought of, increasingly seen just as a mandatory practice. Mr. Rhodes confined activity to set parameters, suggesting that social media was best put to use for launching new products, customer care, working with advocates, brand messaging and answering critics.
Next up, Darren Gregory, Insight and Innovation Director at Howard Hunt Group and Russell Morris of LoveFilm spoke in detail about the latter company. With cinema box office receipts making a small profit year-on-year (and with negative growth adjusting for ticket price increases), and 3D failing to make much of an impact on audiences anymore (see chart below), the film industry is looking to the likes of Hulu, Netflix, iTunes and LoveFilm for its salvation. Currently, digital streaming has failed to make up for the precipitous decline in DVDs, though we are still in relatively early days. Getting a consumer to switch from DVD to streaming / digital formats is harder than previous medium transitions, which involved moving from physically-owned, tangible product (VHS) to physically-owned tangible product (DVD). You bought your films from a physical, tangible store. Now there is a lack of a sense of ownership, as Zeitgeist has written about before. Now companies like Apple, who make beautiful, tangible products, are increasingly talking about hosting your content in a cloud. There is an inherent difference here then that means take-up of digital formats will be a harder case to make psychologically to consumers than previous media upgrades. It’s importance may increase as recently written about in The New Yorker, with traditional platform release windows – the time between a film’s release from cinema to VOD, to DVD, etc. – increasingly narrowing.
LoveFilm has been around for seven years now. It is the leading European subscription service, with 70,000 DVDs available, including games by post, streaming to laptop, PS3, X-box, internet TV and iPads. It runs Tesco’s DVD rental business as well as partnering with Odeon and other companies. It has Europe’s largest addressable film community, and 50% of users access the site at least once a week. The addition of platforms like the iPad and X-box “fundamentally changed [the] business in the last six months”. The availability of games has increased their demographic reach, and in a year they have gone from 100k to 1m stream views per month.
Recently the company was bought by Amazon, and LoveFilm, like its new parent, is similarly obsessed with customer data in order to improve its service and by extension its bottom line. For example, they know that friends who recommend the service to others tend to have similar tastes, so the metrics they already have with the original customer can initially be applied to the new one. Mr. Morris next spoke about the changing nature of consuming content, with specific regard to watching film. Mr. Morris said that using their customer insight, they have divined that the way in which the customer watches a film dictates the kind of experience they are looking for. DVD rental, he said, is, for the customer, about getting that specific film in the cheapest way possible. Streaming, on the other hand, is a more spontaneous desire; “I want to be entertained”, he said. Said customer has just returned from a long day at work, etc., finds nothing on his television’s EPG, instead goes to LoveFilm. It is LoveFilm’s responsibility then to show the customer something they would be interested in. Mr. Morris elaborated further, using the recent film Tinker, Tailor, Soldier, Spy as an example. The film has performed exceptionally well both at the box office and in the critics’ pages. He predicted that while the film would be a success for DVD rental, it would be a total failure for streaming.
This is of course a fascinating discovery. What, however is the insight? What does this mean, long-term for the film industry? Well, it does suggest a shift in filmmaking, long-term. For, if, as the film industry hopes, digital streaming eventually becomes on of the principal means of consumption for audiences, especially as the platform release windows continue to narrow, then surely studios must increasingly pay attention and cater to the types of films people are watching via streaming platforms. In essence, the question is whether streaming take-up will become entrenched enough that it influences the very types of films that are being made. When Zeitgeist posed this question to Mr. Morris, he seemed ambivalent on the subject. When Zeitgeist asked about the plethora of competition LoveFilm was facing, which is beginning to slowly affect their bottom line, Mr. Morris was dismissive of such talk, confident in the strength of both their breadth of films available and the deep customer analysis (which includes looking at weather patterns). Asked specifically about the arrival of Netflix into the EU market, Mr. Morris predicted he would soon be seeing the “whites of their eyes”.
The last talk Zeitgeist attended was one given by Tess Alps of Thinkbox, the marketing body for commercial TV in the UK. With TV ratings at their highest since ratings began, and ROI up 22% over the past 5 years for advertisers, things are looking quite rosy for television at the moment. It is, however, like much of the media sector, dealing with volatile technological change. Ms. Alps acknowledged this with a “convergence sandwich” slide; the technology that delivers the medium, the device that you consume it on and then content sitting in the middle as the filler. Yummy, not to mention well-illustrated.
Ms. Alps went on to describe some of the main trends in the TV sector currently; enhanced quality (HD, 3D); all devices becoming a TV; connected / smart TVs; integrated communication between devices across home networks. The presentation continued with a sharing of quantitative findings; interviews with people who had been given prototype technology, using various devices for consuming a broad range of content. Thinkbox found a consolidation of viewing; using online viewing as a backup, only if the ‘live’ show on TV had been missed. Catch-up technology, whether through PVRs on the television or via the computer, was seen as essential. The TV, though, remained the go-to destination for consuming content, suggesting a hierarchy of platforms. There were complementary elements to this though; young people increasingly watch television with their laptops sitting by them, Facebook, Skype or some other program open. Zeitgeist wrote about this consumption conundrum last year. Realising this complementary trend, many companies are now creating campaigns that encourage use of television, laptop, iPhone, etc., for a truly immersive experience. Product placement is aiding this trend, with advertiser-funded programming such as that done by New Look for a recent television show, which encouraged contestants to design clothes online during the show, with the opportunity to be on screen by the end of the programme.
What the entertainment industry has been facing for a while is a fragmentation of viewers, easily distracted by multiple platforms, all enticing in their own way. What remains to be seen is whether efforts such as the ones mentioned by Ms. Alps can effectively remedy the situation by collating all devices to be used to enjoy the same piece of holistic content. Social media will surely play an essential role. With Disney up almost 8% today, entertainment analyst for Standard & Poor’s Tuna Amobi spoke to CNBC this afternoon, stating that he expected revenue from consumption of films via digital streaming to “ramp up significantly from here”. It will be interesting to see just how much our differing attitudes towards platforms influence the content that is produced for them.
A quick thought while Zeitgeist takes a well-deserved break in the hinterlands of the Côte d’Azur, and that centres on continued desire for content and immediate access, versus a dilapidated infrastructure for providing that content. A recent front page article from film industry trade paper Variety expressed concerns over who will be able to fill the shoes as the new head of the Motion Picture Association of America, headed by the much-loved Jack Valenti, and latterly the effective Dan Glickman. The post requires juggling many balls and keeping disparate parties happy, from the cultural binaries of Washington and Los Angeles, to the contrasting desires of consumer and corporation, (the issue of Net Neutrality being a particularly important example).
One principal concern for whomever takes hold of the reins will be that of the continuing threat of piracy, and the fear of ending up like the moribund music industry. One significant move that Glickman was able to implement was ensuring the creation of a post for “copyright czar” at the White House. Worries continue though as, according to the article, “technology advances make Internet speeds ever faster”. While this is true in a normative sense, in practice things are not as simple. For while improvements in technology may make computers ever more capable of handling more data at faster speeds, the delivery systems that support the transfer of this data are not being kept up to date, specifically in the US and UK. Telco networks AT&T and O2 have both recently pulled their unlimited data plans for mobile use. What is the impact for services like Facebook, Twitter and Foursquare? Unfortunately it can only have a negative one, as users may begin to worry about updating their status if it will push them over their data limit for that month.
All these moves – including other industry machinations such as the decision by Hulu, a free, legal website, to begin charging – will serve only to further consumer confusion and distance the brand from their audience.
A quick round-up of some interesting news in the media world in the past 24 hours or so…
The scope of the BBC is to be drastically reduced. The TelecomPaper writes that the plans are to “reign in its website, close down two radio stations, cut management costs and focus spending more on quality, local programming.” News organisations have been complaining for some time that the BBC News website is taking traffic away from dedicated news publication sites, and in general this news will be music to the ears of James Murdoch, whose Sky continues to see ebullient profits.
Viacom and the US TV streaming service Hulu are parting ways, meaning hilarity such as The Daily Show with Jon Stewart will no longer be available on the site. The WSJ reported that they reached a “financial impasse”. Meanwhile, Hulu has launched its own show.
Apple is currently making the rounds of movie studios after paying a similar visit to the music labels in discussions to be able to provide users with their media in the cloud. The upshot is that users would be able to access their iTunes products from anywhere at anytime on their mobile devices. Zeitgeist looks forward to seeing this in action.
Lastly, if you’re planning to watch the Academy Awards this Sunday night at home on television, you’ll be in the same position as one of the producers whose film has been nominated for Best Picture and is seen as a front-runner. On the last day to send out one’s vote for the Oscar ballot, Nicolas Chartier wrote an email asking for his friends to vote for “Hurt Locker” rather than a certain “$500 million film”. The Academy have responded by banning Mr. Chartier from attending Sunday’s ceremony. The LA Times reports, “Should the film win best picture, Chartier would be given his Oscar at a later date”. The insight is that backstabbing isn’t kosher, even in Hollywood.
UPDATE: Very interesting post from TechCrunch on the Hulu / Viacom split; “The economic incentive is too great for media properties to centralize their videos on their own sites. But to consumers, this recentralization looks more like fragmentation”.
From the October Zeitgeist…
Jean Baudrillard argues in his postmodern way that we live in a society devoid of absolutes. But what happens to an industry when values become arbitrary? Economic rationale suggests people would choose free as a price model. In a digital landscape, industries now find themselves trying to sell product the consumer expects to be free.
Napster and its revolutionary myrmidons made music freely available to users, with no barriers to entry. For music labels, this has led to a ‘tragedy of the commons’. When everyone has access to a commons – be it a park, or a lake for fishing – the economically rational thing to do is to maximise our own gain. The rest of the community suffers, ruining the parks; depleting the fish. This is ‘overgrazing’. The FT wrote recently on Elinor Ostrom’s winning of the Nobel Prize for Economics for her criticism “of the presumption that common property governance necessarily implies a ‘tragedy’”. Ostrom believes “regulations ought to be thought of as ‘experiments’” as their consequences are “hard to foresee”. Concerns over privacy and security clashing with a desire for increasingly tailored and relevant messaging represent such a challenge.
What does free mean today? Daniel McFadden, the 2000 Nobel Prize winner for Economics wrote, “The solutions that resolve the problem of the digital commons are likely to be ingenious ways to collect money from consumers with little noticeable pain… Just don’t expect it to be free.” Yet users currently live in a world where music, movies, books and access to social networks are all free. Malcolm Gladwell in The New Yorker reviews Chris Anderson’s “Free: The Future of a Radical Price”, which says it is futile “in the digital realm… to keep Free at bay with laws and locks”. He suggests musicians earn money through promotions such as apparel and gigs, giving their [subsidised] music away gratis. “There is a huge difference between cheap and free”, Anderson writes, playing on the notion, and advantages of, sampling. At a festival, a band’s music might be freely available for a ticket payer to sample and keep. Married with Radiohead’s ‘pay‐what‐you‐want’ model, it might encourage loyalty to both festival and band.
If product and distribution is free, why should we pay for it? The technical cost of intellectual property is zero, and Gladwell admits the “cost of the building blocks of all electronic activity… is now approaching zero”. YouTube is a classic example of why. Rampant video uploading is not only a “tragedy of the commons”, it reveals hidden infrastructure costs: “YouTube will lose close to half a billion dollars this year”, Gladwell notes.
Is there is a rising tide of recidivism? To encourage respect for IP, companies are once again creating scarcity, where none technically exists. Hulu, the FT, Wall Street Journal, The Economist and Twitter are all seeking remuneration models. So what does this mean for those who make and sell products to the masses? In truth, “Free” will probably forever remain as one of several possible operating models. Zeitgeist recently challenged the leader of the UK Pirate Party, Andrew Robinson, about whether all IP should be free, and even he conceded that a variety of payment models – including free – was the only viable route.
From the October Zeitgeist…
As The Economist notes, “Some agencies have tired of coming up with clever ideas for clients without winning a share of the resulting revenues.” Consequently, agencies have begun developing their own IP, whereby they create brands for a client and then own part or all of the idea, benefitting from any future profits that brand may reap. What insights though can we gain from those who infringe IPR?
The FT writes, “In removing the cost of distribution, the internet has proved itself a perfect piracy incubator and has made it harder for those involved to be prosecuted successfully.” The New York Times review of “Ripped” castigates indolent music industry execs who presided over their own downfall. Figures on piracy are questionable. The MPA believes piracy costs film studios around $6b p.a. No consideration is given to sampling or network effects. Its attempts to put wayward teens and twenty‐somethings off with a number of campaigns, ranging from anachronistic to awful, spawn creative parodies aplenty.
Some sort of market correction was indeed necessary in the film and music retail market. Charging £16 per CD and £20 per DVD was unsustainable, especially in a recession. Rampant downloading by millions has served to correct this inequality, as noted in an Ogilvy blog. Secondly, p2p networks – versus visiting Blockbuster to rent a movie that turns out to be sold out – brought convenience. Downloading a song in a minute and a film in an hour is a very attractive proposition; years passed before the arrival of legal alternatives – Hulu, iTunes, et al. – that are now taking off, and slowing the rate of illegal downloads.
What marketing insight does the act of piracy offer us? BBC News reported that within hours of the new Harry Potter film’s release, pirated copies were selling for £3 in car boot sales. If the insight for Napster was not just music for free but music obtained easily, might this indicate a growing desire for product availability across multiple platforms simultaneously? Disney CEO Bob Iger mooted such a move back in 2005.
Even before a spell of fining and imprisoning filesharers, it should have been obvious that punishing consumers does not work, nor heel‐dragging. Neither will endear people to a brand.
From the July Zeitgeist…
As Brian Lowry wrote recently in Variety, both TV and newspapers are struggling to respond to the changing ways people are consuming their media. “Both are communications media, and each faces a conundrum regarding what to do about the free online consumption of their product that’s rocking their respective worlds”.
Both industries have become subject to massive arbitrage; absent of a consistent way of protecting themselves, these two media are trying all sorts of varying methods to make money: FT.com allows you to view a select amount of articles a month before asking the user to register to their details; most general news on WSJ.com is free, but the more niche articles on the markets are charged at a weekly subscription rate.
On television, there is a similar discrepancy. In the US, Disney, Fox and NBC have all aggregated their content on a free-to-air, ad-supported platform called Hulu. The site is tremendously popular, although debate rages – recently between The New York Times and eConsultancy ‐ as to its efficacy. Other networks like CBS offer free, ad‐supported
content too, but only through their website. UK networks operate under this latter mantra; you can watch our shows but only on our own proprietary website. And a long‐gestating proposition to aggregate all TV content across the BBC, ITV and Channel 4 under Project Kangaroo (exactly like Hulu) has recently been blocked by the Competition Commission. Regardless, Hulu is carrying on with plans to launch it’s services in the UK in the coming months*. If all this sounds confusing, that’s because it is.
Both media recognise that the way users consume their respective content has changed dramatically in just a couple of years. However, their collective response has been mostly in fits and starts; uncoordinated and uncertain. Consumers will not rush to embrace any model (profitable or otherwise) until there is uniformity and simplicity across a medium, and for this to happen companies must work together.
*For more news on the increasing amount of video users are consuming online, click here.