Having studied policy and regulation at university, Zeitgeist is often compelled to look at many issues facing companies today through a regulatory lens. But even the most dispassionate fan of rules and laws would have to concede that as digital innovation disrupts multiple sectors around the world, the way these new innovations and businesses are governed is an important consideration. In this piece we’ll be looking at regulatory concerns for disruptors like Uber and Netflix, as well as how regulation effects legacy companies like Microsoft and Comcast. As with many of our articles on this blog, we’ll be taking a particular look at the TMT sector. (Bitcoin will have to wait for another article).
Regulators often find themselves caught between a rock and a hard place. Should the emphasis be placed ex-ante, to ensure compliance, or ex-post to apply punitive measures and fix problems once they have become apparent? The former seems wise as it sets initial goals for companies. But it also risks opening loopholes, as well as being overly prescriptive and thus failing to adapt. It can also lead to the development of overly-familiar relations between regulator and industry, leading to what is known as ‘capture’. Currently, the US favours an ex-ante approach, but as Edward Luce detailed recently in the Financial Times, this has led to a “creeping impulse to micro-regulate“. The FDA’s recent announcement that they would regulate e-cigarettes, despite no proof it encourages the take-up of smoking tobacco, is such an example. Ex-post – regulating after an event – seems just as bad, mostly because the damage has already been done at that point. While it means that all problems addressed are real-world and practical, they can also be applied with too much emphasis. Above all, regulation ultimately risks stifling innovation; Edison moved to the West coast because he was fed up of the stringent regulations in the East. A recent lead article in The Economist asserted that, far from too little regulation, the global recession was caused by too much state involvement in the wrong places. Too little oversight though, and companies can be allowed to run wild.
Earlier this month, The New York Times featured an op-ed on regulating the online world. It is written by New York State attorney general Eric Schneiderman. As might be expected, he quickly attacks online start-ups saying it is “amazing” that they think just because their business is online, that “somehow makes them immune from regulation”. This is all well and good, but it masks the fact that clear regulations have not been established. Schneiderman is right to point out that just because a business now has an app instead of a high street store doesn’t mean its responsibilities to the law have changed. It is an apt analogy. But in practice the story is different. As with most innovations, from film to Napster and Airbnb, regulators must constantly be playing catch-up. The complaints of new businesses are not that they should be subject to regulation, rather that those rules are onerous or outdated, applying to a different time. The sharing economy works because it has found cheaper, more efficient ways of offering services that hitherto were more restricted; regulations need to be appropriately dispensed. Sadly, many cities in the US have simply blocked allowing such services to operate. Uber – a car pickup service – is probably not wholly repulsed by the thought of regulation, but they are resistant to rules put in place by entrenched interests and unions. Airbnb might violate the letter of the law, but not the spirit surely. People have always let out their living space to others. The only thing that has changed is scale. Why does scale suddenly make something legally problematic? Schneiderman points out that some lettings are so large, with multiple rooms let at once, that they are essentially hotels. True enough, perhaps, but Zeitgeist has certainly never come across such a property, and they are certainly small in number, and no more represent Airbnb’s ethos than any hotel violating its own (regulated) terms. A recent article in The Economist argued for “adaptation, not prohibition“. Schneiderman’s sentiment is that these start-ups need to work more closely and proactively with regulators, but this fails to recognise that regulators need to also fundamentally change their approach.
Regulation in China has been a hot topic for a while now. This is principally because the region has a low tolerance of free speech. But it extends to cultural concerns as well; the Google Play store, Twitter, and most of Hollywood’s annual product do not make it onto Chinese shores (legally, anyway). What this creates is a secondary tier of companies who take Western business models and run with it. That’s why there are multiple Chinese Android app stores, why Sina Weibo is a fantastically successful service, and why many poor remakes of US films flood the Chinese market. It has been pleasing then to see two recent developments in the way China regulates the TMT sector that should be good news for consumers and Western companies. Today saw the announcement that Microsoft’s Xbox One is to be sold in China. It will be the first foreign games console to go on sale in the country, lifting a fourteen year ban. This would open up the company to the half billion active gamers in China. Additionally, as Michael Pachter, analyst at Wedbush Securities pointed out,
“The middle class in China is pretty large, and positioning the box as an over-the-top TV receiver gives it a lot of appeal to wealthier Chinese.”
Earlier this week, Warner Bros was the latest film studio to partner with Chinese site Tencent. The film 300: Rise of an Empire, is available to rent through the site, while it is still in cinemas in territories like the US. The points of the deal were very interesting. Zeitgeist has for a number of years now advocated an increased flexibility to film platform release windows. Such a rigid structure as the industry has in the US is not as apparent in China. This could help alleviate piracy in the country and separately could pave the way for a relaxing of the quota of US films that are let into the Chinese market every year. Hopefully this will be a precursor to more such moves in Western markets. As someone commented on the news when it was published on the Financial Times website,
“Maybe they can do the same in the rest of the world as well?
Or I could wait 2 months for something to come out on Bluray in the UK compared to the US. Or just pirate it when the US version is available since they won’t let me buy it in my country, but will let other people buy it in other countries.”
While China is taking steps forward, the US seems to be faltering in its regulatory approach. We mentioned the impending restrictions on e-cigarettes earlier, and let’s not even go into then-mayor Michael Bloomberg’s crusade against sugar. We’ve written about net neutrality before. The issue has been of interest to Zeitgeist since university days. It was thrust into the spotlight this year when a US court ruled that the FCC had “overstepped its authority” after a legal challenge from Verizon. Last week, new rules were proposed that will undermine the original purpose of the policy of treating all traffic the same, allowing ISPs to charge companies like Netflix more in order to reach consumer with greater quantity or quality, but only on “commercially reasonable” terms. These terms have yet to be defined. These moves touch on a related matter that has also been greeted with consternation by those who favour fairness. This is Comcast‘s proposed merger with Time Warner Cable. Netflix recently publicly came out against the move. It is easy to see why. As The Economist recently elaborated, such a deal would limit competition and reduce any incentive to innovate. It is also one more example of the assumption companies have that their problems can be solved with size. Comcast have admitted they will raise prices for the end user, while as much as conceding there will no be no discernible benefit to them. One might argue there is little more for such companies to do, but average internet speeds in Tokyo and Singapore are ten times as fast on average as in the US. Even the Financial Times, which can often be counted on to be a bastion of support for capitalists, compared Comcast to the Railway Barons of the past.
The sharing economy is creating difficulty for many sectors, and regulatory agencies have not escaped this. Such forces have been to slow to adapt to fundamental changes in the TMT sector, particularly in print, music and film industries. There certainly seems to be a tendency for over-regulation today, particularly in the US. Returning to an article we mentioned at the beginning of our piece, Edward Luce laments that America “no longer feels unusually free”. Perhaps this is part of a cyclical trend. Like the causes of the recession, perhaps the problem is a stifling caused by over-regulation in the wrong places, coupled with a lack of innovation in areas where sensible rules that do not cater to the established are in dire need. It is good to see rules and regulations around consoles and release windows are being relaxed in China, but the furore around regulating the sharing economy needs a similar dose of innovative thinking.
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.
At the height of summer, Hollywood can always be counted on to release its annual glut of rambunctious, noisy films for the gluttonous, rambunctious, noisy masses (read teenagers). Zeitgeist commented previously on the exceptional marketing efforts gone to by Disney and Pixar for “Toy Story 3″. The film was finally released the other week in the UK, having been pushed back to make way for the onslaught of the World Cup. This article will be focussing on four very different films and the differing marketing efforts employed in them; “Eclipse”, “Inception”, “Knight and Day” and “Tron: Legacy”.
The third film in the Twilight saga, “Eclipse”, has recently exploded into cinemas, making $280m in it’s first week at the global box office. In the film, Robert Pattinson’s ‘Edward’ drives around in a pining manner in a Volvo XC60 SUV. The car, owned by China’s Geely created their “most expensive campaign to date to promote its tie-in”, according to Variety. In the series’ sophomore outing Volvo had played on its product placement almost entirely online with their “Come and See What Drives Edward” campaign. In the new film there is another website, “Lost in Forks”, which is being more heavily promoted on TV in a cheesy, Americanised way (this is the ad Zeitgeist saw the other night). The site asks the user to play a game in order to be in with a chance of winning the XC60. The game, however, is interminably boring for all but the most dedicated of Twilight fans (who fortunately for Volvo number in the tens of millions); Zeitgeist lost all interest in entering the competition and having their information captured for Volvo to use in the future. Variety points out “the SUV is also being given away by Burger King as part of the chain’s own ‘Twilight’ tie-in and gives the vehicle a shout-out in its ads.” Even for the first film in the series, in which the Volvo C30 appeared but the brand had “no advertising budget”, the car “received millions of impressions [and] increased consumer traffic through [US] and international dealerships”. It helps that the author of the novels, Stephanie Meyer, had, bizarrely, sprinkled her books with mentions of Volvo.
Volvo took a back seat to Mercedes for product placement in Christopher Nolan’s “Inception”, the only product placement example in the film, writes BrandChannel. However, the film’s marketing has far more impressive accolades, namely its integration with Facebook. Although every brand and its uncle sees Facebook advertising as a sine qua non nowadays, the team at Warner Bros. created an imaginative and engaging campaign that helped raise awareness and excitement for a movie shrouded in secrecy. On the UK Facebook fan page for the film, competitions were announced that took place in Brighton, London and other locations. A man, suited and wearing sunglasses, and carrying the silver briefcase showcased in the film, appeared at various locations along with a vague clue or riddle as to where he was. The first person to solve the riddle and find the man was given tickets to the UK premiere. It’s an idea sui generis, and it evidently paid off. Apart from the film opening at No.1 and beating out “Toy Story 3″ in its second week to retain its top spot, sometimes almost a hundred people would comment per competition when all was said and done. The great engagement continued in more simple ways when the film opened, with reviews posted from various publications, and asking fans whether they would be seeing the film again…
eConsultancy praised the efforts, saying they produced “a marketer’s dream campaign” (no pun intended I’m sure). The article details how Warner Bros. “went to great pains over its blog outreach campaign, utilising major and minor movie fan sites to help spread titbits of pre-release information.” They conclude with the pithy insight, “It’s worth contrasting this against that similar old media behemoth, the music industry, who have consistently struggled to find a new marketing model that competes with free sharing and piracy.”
All seemed not quite as rosy initially for the Tom Cruise / Cameron Diaz starrer “Knight and Day”, with the New York Times predicting before its release that it would fall short of expectations. The two stars, however, have gamely been showing their faces around the world, and not only at premieres, in this case touring Brazil before spending hours with fans in London. They also showed up at the Tour de France, watching from the side of the road before helping the eventual winner lift the trophy. Very soon the film will have it’s ‘People’s Premiere’ at London’s Somerset House, giving the film the added publicity of having two premieres. Finally, last week the duo showed up on the BBC’s “Top Gear”, driving the show’s ‘reasonably priced car’. The show is still available on iPlayer, and in Zeitgeist’s opinion well worth the watch. This kind of globe-trotting coverage is perfect fodder for the target audience, the kind who like big explosions, fast cars, and lean storylines.
The last film Zeitgeist will be discussing is the release this winter – December 17th in the US – of the second Tron film, “Tron: Legacy”, which, by the time it opens, Disney will have committed “three and a half years priming the audience” for, according to the New York Times. The team at Disney has – much like “Inception” did in a much shorter timeframe – been feeding rabid fans tidbits piece by piece, with the release of a new trailer (see below) at Comic-Con recently, where one arrived at the screening via a themed entryway, a great piece of experiential.
“Marketing campaigns for what the industry calls ‘tent-pole’ movies… have traditionally started about a year before their release in theaters [sic]. Increasingly, there is scarcely enough time… The goal is to make movies feel like must-attend events”.
Multi-channel integration, be it on Facebook as with “Inception” (and as with Disney’s newly purchased Playdom for $760m), through supporting Disney channels as with “Tron: Legacy”, or through mobile games that extend the movie’s universe, will help bolster revenues. However, as digital video recorders like Sky+ in the UK and TiVo in the US continue to erode film’s main piece of publicity – the trailer – and as DVD sales continue to plummet, without much offset from Blu-ray or online avenues, the film industry is increasingly less wary about taking risks when it comes to how films are promoted. One thing is for sure though, sometimes you just can’t beat a great trailer…