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 though 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.

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.

Netflix: House of Cards and Castles in the Air

“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?”.

Beyond the Linear – New ways of entertaining

The days of P.T. Barnum and the sense of spectacle an audience received from seeing a live performance have long passed; codified, commodotised, sanitised and made instantly available. Or have they? The way we entertain ourselves nowadays has changed greatly, and keeps changing. But are our tastes evolving or revolving? Is there hope for such seeming anachronisms as the TV, the live performance and even the book?

Two years ago, Zeitgeist wrote a brief article on the nature of contemporary consumption of media. It began with the headline that 8-18 year olds in the US spend a quarter of their media time with multiple devices. Furthermore, almost a quarter of that age group use one other device most of the time while watching television. In 2013, this preference for multiple stimuli has only accelerated. 80% of UK smartphone owners (making up over half the phone-owning population) use their phones while watching the TV. Similar figures were reported in the US, and similar figures were also reported for tablet owners.  Such figures give marketers pause for thought as they begin to approach these complementary devices as ways to extend their brand from the television onto the second screen. JWT Intelligence has a great report on this.

However, it is easy to overstate the arrival of shiny, new devices, and the apparent death of television. The blame for this misconception lies partly with the media itself; journalism is less engaging when it merely reports on the maintenance of the status quo (i.e. ‘people are still watching TV’). Far more interesting to hear about what new objects are showing a bit of ankle at CES, and that us mere mortals might one day dare to dream of owning ourselves, at which point all other material objects become unnecessary. All the more so when the journalistic integrity is compromised by corporate meddling, as was the case with CNET’s reporting this year. It was refreshing then to read TechCrunch’s recent article with the headline, ‘TV still King in Media Consumption’. The article, quoting a recent report by Nielsen, was particularly interesting in noting the prevalence of TV when it referenced that almost half the homes with TVs in the US owned four or more sets. Startling. More startling, the average household spends six days a month watching television, far ahead of other media consumption (using the Internet on a computer, at a little over 28 hours a month, came a distant second). The FT writes,

Over the past decade, despite the proliferation of video content on the web, TV consumption in the UK has remained steady with the average person watching about four hours a day. Almost 80 per cent of this viewing is on the top five channels, virtually unchanged from 10 years ago.

Creative destruction is something Zeitgeist takes an active interest in and has written about several times before on this blog. It takes hold in some industries (and households in this case) more quickly than in others. The same Nielsen study found that over 55% of US homes still had working VCRs. Moreover, despite much editorial to the contrary over recent years, the PC has not yet been wiped out by creative destruction and remains a staple for several reasons in both Western and emerging economies. According to Deloitte’s recent publication, “Technology, Media and Telecoms Predictions 2013″, although the attraction of tablets – and now ‘phablets’ – mean powerful computing and a cheaper cost, allowing the potential for leapfrogging of PCs in emerging markets, qualitative research shows a small but significant demand remains for PC ownership. Moreover, many businesses in the West, currently struggling with the implications of BYO devices, are not about to jettison the PC either. Switching costs, Zeitgeist suspects, are at play here, as with those stubborn VCR owners. Click here for more of our thoughts on switching costs.

VCR owners though will one day cease to be in the majority. New avenues of distribution and consumption are opening up, though not as quickly as first thought in some cases, particularly in that of live, streaming TV, which has faced many regulatory hurdles. Variety elaborates, “Loudly trumpeted efforts have fallen short, victims of poor design decisions, overpriced services and/or confusion about the target audience”. Yet alternatives are there. One of the more interesting streaming TV options in the US currently is that of Dyle, with 90 stations in 35 markets. It is run by a partnership that includes Fox, NBC, Hearst Television and others. The really interesting thing about the service is that it neutralises the problem many smartphone users will have of returning data caps by streaming off a separate network spectrum, which doesn’t impact on data allowances. Nice thinking.

Is the increasing popularity of streaming, and the content viewers prefer to watch over such a channel, already beginning to effect the types of films being produced?

Though new technology has not created new tastes in content or viewing habits, it has undeniably acted as a catalyst to desires already present. Zeitgeist remembers hearing a LoveFilm representative speak last year at AdTech in London about the increasing share streaming films took in the marketplace. Nothing too extraordinary in that statement, especially from a purveyor of streaming content. The rub came when he went on to elaborate that people tend to stream films when they are in the mood for instant gratification, in the form usually of an action film or romantic comedy. The increasing popularity of streaming, and therefore the increasing popularity of these particular genres, means the way the medium is distributed may very likely have a very significant influence on the type of content in the future that is commissioned. It was no surprise then to see, on a recent cinema trip, trailers for three films that neatly fit into that category for instant gratification (see above). Zeitgeist wrote at length on the need for film studios to address arbitrary platform release windows at the end of last year. Our article was mentioned in the lead editorial of entertainment trade paper Variety. Part of our argument is beginning to be addressed already. The FT recently published news that studios had managed to stem the six year decline in home viewing figures for films last year. The article elaborates that this is in part due to the strength of digital downloads, with films sometimes being available for digital distribution before they were available on DVD. Taken 2, a superb candidate for streaming given the previous statement by LoveFilm, was released Christmas Day in the US on digital platforms, “weeks before its release on DVD”. Such thinking goes hand-in-hand with the new UltraViolet format, to which several studios are subscribing. This allows those purchasing a movie on DVD – such as the recent Dark Knight Rises – to watch it with ease on multiple platforms. Mashable carried an article last week stating that several electronics firms have now also signed up to the UltraViolet partnership. Consumers will receive ten free movies when they sign up to the service, as incentive.

The example of Netflix is an interesting one in trying to understand the balance between consumers’ desire for multiple media and instantly-accessible content, and content owners desires to drive maximum revenue from their product. The company has been making a bigger push into providing TV shows of late, and is being rewarded for it, particularly with regard to older shows. A cultural trend many a pundit has put their finger on since the credit crunch began to bite back in 2008, nostalgia has manifested itself in consumers’ desire for old shows, including Midsomer Murders and Rising Damp, reports the FT. This long tail effect is turning a tidy profit for Netflix, as well as the original broadcaster, ITV. As a complement to this, the company is also fostering new partnerships, first with Disney in December, giving it “exclusive rights from 2016 to movies from Disney, Walt Disney Animation Studios, Pixar Animation Studios, Marvel Studios, and Disneynature”. Then, at the beginning of this year, it inked a deal with Warner Brothers, to show new and old TV shows from the studio. It should be noted however, as with all these new deals and technological developments and marches into previously uncharted territory, regulatory wranglings have ensued, in this case with sister company Time Warner Cable. The problem in this situation is not perhaps so much that Netflix is trying hard to push its availability into lateral markets, but that it is not trying hard enough to create a cohesive platform that is available across all complementary platforms and devices. One thing which Netflix will want desperately to escape being accused of – and it has done so with much success thus far – is being a niche provider of content. Sadly, the days of the point-and-shoot camera, the dedicated games console, etc., are numbered, according to a recent report by Accenture.

It is evidently with such a strategic outlook in mind that Disney have recently announced their Infinity gaming platform. Variety describes it as an “online treasure chest”, featuring a plethora of Disney characters from over the years that can be interacted with over multiple platforms, whether on mobile or on videogame consoles. Importantly, the concept is designed to be an iterative, one that will grow and add characters over time, presumably as new IP is created. It certainly pays heed to the second screen phenomenon by recognising the need for multiple device access. It also plays off the trend started by the game ‘Skylanders’, which involves both physical toys and digital interaction. The same principle will apply with new toys developed for Infinity, which can then be used to create unique stories and drive narratives. The idea of having disparate characters from different Disney franchises is potentially a frightening one for those in charge of the individual brand essences of said titles, but the potential for success can be found by looking no further than the Toy Story films, which feature an assortment of different genre toys that mix well in situ.

We’ve discussed the changing models of consumption for most of the article, but it is worth noting briefly how our cultural tastes are also changing, brought on by technology (again), but also globalisation. Pundits are often quick to point out nowadays that there is a substantial demand for the live experience. Yet if we look at music, one of the most profound things to experience live, recent figures showed attendance to concerts had dipped. At the end of last year, in an insightful roundtable, The New York Times interviewed several talking heads, asking them to round up their thoughts on 2012 in the music industry. One of the more interesting points repeatedly made was that of the abundant opportunity that the Internet now provides for musical talent. Moreover, the Internet at large has become just as viable – if not a more viable – starting place for an emerging artist than signing with a record label:

“Now this year something’s been proven: Pop performers can become truly famous by building their careers themselves online, maybe more efficiently and faster than a major company can help them to do.

… you look at the first-week sales numbers of someone like Kendrick Lamar, who had an independent album that was digital only and is now on [the major-label] Interscope, but basically has no major radio hits, even if he is well-liked by mainstream hip-hop. He comes out and sells about 240,000 in his first week. A couple weeks later Rihanna comes out — not her first album and at the height of her pop fame — and sells a few thousand less than Kendrick did.”

The other trend, globalisation, has meant that voices increasingly other than those that are Western, are more easily heard. The irrepressible Psy had the honour of being the performer in the first YouTube video to cross one billion views. Conversely, in his home country of South Korea, ‘Gangnam Style’ has accrued a pitiful “$50,000 from CD sales and $61,000 from 3.6m downloads”. The point remains, however, that the fallacy of the West as the cradle of pop culture is being exposed. Christopher Caldwell illustrates this masterfully, writing for the FT in December.

Zeitgeist has written before about the upheaval new trends and preferences for media consumption – impacted significantly by the arrival of the Internet – have wrought on financial growth in the media and entertainment sector. Digital, in the form of Napster and its myrmidons in particular, has a lot to answer for. There was some relief then that at the beginning of the year when UK digital sales topped GBP1 billion for the first time (though still failing to off-set the physical media decline). Moreover, Boston Consulting Group predicted last month – in an excellent report entitled Changing Engines in Midflight: The 2012 TMT Value Creators Report – that by 2015 the digital services ecosystem will reach $1 trillion by 2015 (see above).

It is interesting to see where the ownership of content starts and ends across layers, and how content owners are trying to monetise these platforms and grab as much market share as possible from their competitors. Amazon recently began offering digital downloads of any CD you have purchased from them since 1998. It would be a great surprise to see if they do the same for books anytime soon. Fortunately, reading still constitutes an avenue of entertainment, for those of all ages. A recent piece by The New York Times reported that digital reading was on the rise for children. The article notes the numbers give some room for discrepancy, but states “about one-fourth of the boys who had read an e-book said they were reading more books for fun”, which is a desperately important emotional connection to maintain. While e-reading is a commendable past-time, is there any merit in pushing further, and advocating for interacting with a medium that does not involve a digital display? Such a turn of events, perhaps aided by the trend for nostalgia mentioned earlier, is presenting itself in the luxury hotel market, with physical libraries returning to shelves. It has been termed ‘rematerialism’.

So what does this all mean for consumer entertainment? There are evidently lots of new technologies being released, from smart TVs to new gaming devices, that will attempt to capture eyeballs. These devices, far from having to think of their natural competitors, still have the common television – and, as we have seen, even VCRs – to compete with and overthrow first. TV commands such a huge slice of viewing time, but it is under threat from distracted viewers who are now very comfortable – and more importantly socially accepting – of using a tablet, laptop or phone during a show. There are also regulatory implications t consider, which will most likely be shaped, ex-post, along the way. Taking consumers on a journey across multiple platforms and media in a seamless way will be key. Disney’s Infinity platform, when it is released, will hopefully serve as an excellent example to others of how to combine physical and digital entertainment.

Hollywood and China

We have reported before on the quota China imposes on Hollywood films coming into the country.

Zeitgeist remembers being in a meeting while doing at stint at 20th Century Fox back in 2004, when presentations were optimistically suffixed with the potential for China to drop said limit. It was always an inevitability, and when last month DreamWorks Animation announced a pact with Shanghai Media Group and China Media Capital, it was clear something bigger was on the cards. This has been the case for a while though, as US production companies have sought to get into China’s goodbooks with relevant films (witness Kung Fu Panda and the most recent iteration of The Mummy franchise).

Good news finally came to studio heads and cinema exhibitors. While the quota hasn’t been dropped, it has been dramatically extended to allow another 14 films into the market each year (from the current 20). This can only be good news for Hollywood, coming at a time when DVD and Blu-Ray revenue is slowing; Bloomberg recently reported that more films will be streamed than watched on disc this year. In China, however, views are mixed. Variety summarises,

“Theater owners are very upbeat, filmmakers are split — will this mean unnecessary competition, or a boost to moviegoing habits? — and Hong Kong industryites are watching things closely.”

The country already means big business for Hollywood, with the piece of rubbish that was Transformers 3taking in  $170mn, and Avatar making $210mn. Year on year, the number of screens in the country increased 33%. 803 cinemas opened in the past 12 months there. So the supply-demand ratio is currently extremely favourable (with Hong Kong hopefully not being a harbinger). One would have to be very naiive however not to consider the political landscape of China, which is inscrutable to say the least. Whether dealing with the electoral process in Hong Kong, or the media landscape – from TV to social media – it can be difficult to know where you sit at any time. Variety again,

“Filmmakers face… rigid – and opaque – standards of control and censorship [in China]… [I]f a filmmaker doesn’t meet those sometimes abstruse rules, it won’t be admitted.”

What the Chinese government will have some difficulty in regulating though is the black market, which should hopefully see film piracy diminish as a source of revenue. With an assumed lowering of cost per purchase of pirated film, it should mean even more Chinese get to see Hollywood product (though admittedly without compensating the studios for it, at least initially).

As well as receiving net net more money from China from its films, the deal made also allows Hollywood to receive 25% of the Chinese box office back on imported films, previously at 13%. What should be a lucrative influx of revenue for the film studios comes at a welcome time. Not only is the business shifting from discs to digital delivery – which currently is proving harder to monetise – it is also under increasing pressure to collapse its sacred windows – the time period between when a film is released in cinema, DVD, POV, TV, etc. A few weeks ago, Netflix, an increasingly powerful player in the mix as it broadens its availability to the UK, and becomes a content creator, called the windows structure “pretty archaic”.

While releasing films on multiple platforms simulataneously might produce a spike in opening weekend returns, it comes at the cost of angering a lot of cinema owners, who would not take kindly to the idea of their film being available to watch at home at the same time they are trying to charge you £12 to watch it in a big dark room with a bunch of strangers. Zeitgeist’s radical solution is to allow the windows to collapse, and then for the government to allow the film studios to vertically integrate with the exhibitors again, like in the old days. But that’s another article…

On (Social) Media and Entertainment

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 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.

Movie Moves

From industry paradigm shifts to Paramount trailers and viral websites…

Zeitgeist has had it’s eye on the UK production company Shine for some time, watching it grow into the powerhouse it is today, all under the stewardship of Elisabeth Murdoch. Elisabeth, married to Matthew Freud of Freud Communications, has seemed to want to keep her distance from the Murdoch dynasty since leaving the fold ten years ago, unlike her brother James, who worked for News Corporation in Asia before taking the helm at Sky in the UK. Indeed, Elisabeth’s husband has – strangely for a man whose career is public relations – made little to no attempt to keep his barbed views of News Corp.’s Fox News to himself, saying he was “shocked and sickened” by the content and bias of the cable network. So it thus came as some surprise to Zeitgeist to learn that a deal was recently completed for Shine to become part of the Murdoch empire for £415m. What this will mean to the independence and creativity of the group remains to be seen. But I suppose if the sustainability-themed Avatar can make it out of the notoriously arch-conservative News Corp leviathan, anything’s possible.

In other news, Netflix has been in the papers again. After announcing it would be partnering with several consumer electronic devices, (Mashable made the analogy of having a Netflix button on your remote control), this week the company announced it was trying to develop a remake of the classic UK TV show House of Cards, with Kevin Spacey starring and David Fincher directing, committing to 26 episodes, “taking it into uncharted territory that would put it in direct competition with HBO and other premium cable channels”, writes Mashable. This will be the first time that the company has commissioned and created its own content, further disrupting models of distribution, which itself is a bit of a house of cards. While Netflix pushes into other companies’ territory, Amazon encroached on Netflix‘s by announcing at the end of last month that they would be offering premium customers access to 5,000 TV shows and movies. Though Reuters points out that moves like these are attempts to “woo” companies like Time Warner and the afore-mentioned News Corp., the reality is more tricky, as the same article points out in the very next paragraph,

Media companies so far are cautious about allowing their content to be used on these types of services because they compete with cable operators that pay a premium to carry TV programs and movies. The fear is that people will drop pricey cable subscriptions — known in the industry as “cord cutting” — in exchange for streaming video offered by Netflix or Amazon for instance.

Yesterday it was reported that Paramount will release a film on DVD and on the peer-to-peer service BitTorrent at the same time, with the latter platform supposedly functioning to incentivise people to then buy the DVD. Might a ten-minute teaser have been better than releasing the entire film? Such a teaser is being provided at the moment by Warner Bros., which recently developed iPad apps for both Dark Knight and Inception, providing the first five minutes of the film for free.

Ten days ago, Facebook announced that it would be getting into the film-rental game, as reported by the FT. This is a broader stroke for Facebook in an effort to create a benevolent ‘walled garden’; an area for users to navigate the web, communicate with who they want and angage in the services they want, without ever having to leave the Facebook environment. Zeitgeist never thought they’d be mentioning the recently-released Chalet Girl on this blog, but Variety reports the film has made an interesting marketing move of releasing an interactive trailer on Facebook, where users have the option of “like”ing the trailer at various points. Peter Buckingham, head of distribution and exhibition at the UK Film Council, sagely points out the novelty of such an exercise for film marketers; “The film industry really has not woken up to how important metadata is”.

There are exceptions, however. This past week saw the release of a trailer for an eagerly-anticipated (by nerds) summer film, directed by JJ Abrams of Star Trek and Lost fame and exec-produced by Steven Spielberg – Super 8. And what is the best way to reach said nerds? Why, firstly by providing a super-nerdy website that doles out microscopic kernels of plot information on the film under the guise of hacking into a computer from the late 1970s, and secondly by releasing said trailer on Twitter (see top image). As Zeitgeist has said before, know your audience.

A sense of ownership

In an increasingly homogenous and globalised world, how important is craft?

In some industries, the concept of owning something tangibly has become redundant; an antiquated thought that occupies old minds and outdated marketing and sales strategies. Netflix, the online video rental service, is a prime example of this. Recently the service reported record quarterly profits, with revenue up 31%, adding just under 2m subscribers in the last three months. The service, which started as a way to rent DVDs online, eventually introduced a streaming service, which, as of this month, is now more popular than the DVD part of its offering. This has not been a sudden shift, but rather one that has been happening gradually, helped independently by DVD’s gradual decline since its heyday. Blu-ray is a temporary panacea and will not combat the inexorable shift toward a medium that someday may not exist in hardcopy form. The challenge will be in how to maintain a sense of ownership for the consumer when all their films (as well, of course, as all their books and music), are only visible through an electronic device, rather than being stacked on shelves. Having physical media on your shelves is a statement of sorts, and not merely a tool to show off your intellect. Though by turns irritating and immature, Taleb’s book Black Swan does make a great point about the purpose of a library of books, a metaphor which can be extended to music and film as well. Anecdotally, Zeitgeist doesn’t know a single person who favours the practicality of an electronic book over the unique feeling of owning something tangible. Creating desire for such software [i.e. books, film, music] will be another challenge, one that at the moment is being countered by creating desire for the hardware [i.e. the platform: iPad, Kindle, etc.].

At the same time, other industries, where individuality and provenance are of greater advantage than practicality or cutting-edge convenience, are experiencing a different problem. The Economist this week reports on the problems facing the industrious knitters on Fair Isle, part of the Shetland islands. The distinctive prints they create for their knitwear, which the magazine describes as “in vogue”, has also tapped in to an increasing post-recession desire for “garments that look chunkily lasting and homemade”. In this case, provenance is a hugely significant part of why people would choose to buy this particular product. Ownership of the product is not for the mere intellectual consumption of the product, it is also about wearing something that means something, in the sense of Roland Barthes’ Mythologies. This importance, The Economist maintains, is being diluted as neighbouring knitwear manufacturers unfairly play off the Fair Isle’s name. Following in the footsteps of Harris Tweed and champagne, the cottage industry, like Cornish pasties and Yorkshire pudding, is seeking special protection for exclusive use of it’s name.

So there’s clearly a push and pull going on as to the importance – the essence – of ownership. Perhaps what is needed is a total reappraisal of what ownership means when the content you are talking about is not something tangible that you carry around with you and are free to do with as you wish, but rather something floating in the Cloud, that you merely have access to.

Nintendo’s Nemesis & Evolution

“All is unceasing and rigorous competition in nature”, said the Marquis de Sade. Rivalries come and go, it is the victor who must with each success continue to innovate and ultimately change, enduring the onslaught of new competitors. Yahoo vs Google, Microsoft vs Google, WPP vs Google and more recently Apple vs Google and Apple vs Amazon vs Google; in similar circumstances, we have gone from Sega vs Nintendo, to Sony vs Nintendo, to Apple vs Nintendo.

Apple themselves have pushed beyond their preliminary battle with Microsoft to a place where they now court multiple rivals in all the different markets that they affect with products like iTunes, the App Store and Apple TV. Steve Jobs, in September last year, said that the iPod touch was being released with gamers in mind after having had much feedback from the public as to what they used the device for. This was part of the reason why the iPod touch was cameraless, unlike its smaller, cheaper cousin. Nintendo must have known it was only a matter of time until their paths would cross…

Zeitgeist has very fond memories of inadvertently reshaping the bones in his thumbs while playing the Mario Brothers trilogy for hours and hours back in the day. The Nintendo Entertainment System, their first console, was fantastically successful. Somewhere along the way, however, the company got a bit lost. The turnabout it managed thanks to the Wii (and to a lesser extent the DS) is extraordinary; Sony and Microsoft saw share of their respective PlayStation and X-box platforms gradually erode to give Nintendo a position of dominance, becoming the market leader less than a year after its launch; PSFK named it one of their top ten brands of 2010. In the last week though, Nintendo have reported an earnings drop – its first in four years – hurt by slow sales of the Wii and possibly effected by piracy as well, according to Le Monde. Just as Apple are encroaching on Nintendo’s sovereign territory, the reverse is also true, as Nintendo have been offering Netflix movie rentals for a while now. Will the DS soon be facing off against the iPhone, iPod and iPad? According to Le Monde, in 2008 Apple’s iPhone represented 5% of the gaming market, Nintendo 75%. Today the iPhone’s share is 19%, Nintendo’s 70%. It is the casual nature of its games that made the DS and Wii appeal to a market that other consoles never even considered. Now though, those casual gamers are equally at home playing on an app on their iPhone, as well as on Farmville on Facebook. Variety says, (emphasis added),

“More than 32 million people tend their virtual crops each day, and the game has a total user base of 80 million. That’s roughly seven times the number of people who play the online smash ‘World of Warcraft’.”

Of course, rivalries like this will become increasingly common in this sector, as technology platforms – what the great Lawrence Lessig calls “layers” – continue to converge, allowing for excellent, mutiple functionality on one product (look at the iPad as an example). Somewhat counterintuitively, customers may not readily embrace this convergence, as behavioural economics tells us that people put more trust in a product that performs one dedicated task well; they assume anything else will be somehow diluted. Neither Nintendo or Apple should fret, exciting times are ahead. There is speculation in the Le Monde article, among others, that Nintendo should take the fight to Apple by releasing its own phone. Zeitgeist would find that a real treat. Almost much as much of a treat as the original Japanese advert for Super Mario Bros. 3. Enjoy.

Wow! What a difference!

When was the last time you visited Blockbuster video? Thought so. Zeitgeist remembers being very excited when he first saw ads akin to that of above; a magical destination for access to many, many films. Of course, the problem was that one had to drive to the store in hope that the film that had just come out that weekend had not already sold out. Then along came Netflix et al. (not to mention Torrents), and Blockbuster, like some listless Neanderthal, was far too slow in catching up. Today it is sagged with a $1b debt. Reuters have an interesting (though mostly anecdotal) article about the demise of the retail giant. Unfortunately, Blockbuster – once a destination space – failed to anticipate the digital revolution of both choice (the availability and range of films online exceeds that of a bricks and mortar store) and convenience (why leave home to rent a movie you can just as easily have mailed / streamed to you online?).

Another industry currently in the throes of potentially significant change is the book industry. The Economist recently featured a couple of excellent articles on what the iPad – and its inevitable successors and imitators – will mean for books and bookstores, for better or worse. When almost 1 in 5 books sold in North America come from Amazon.com, what does that mean for the independent book store? Zeitgeist believes that such shops, like the wonderful Heywood Hill in Mayfair, will have to rely increasingly on their provenance and their eccentrically niche position in the market, organising arcane events and readings to enhance this view.