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What will Apple’s verse be?
Apple seems to be at a bit of a cross-roads at the moment. Attending a Mobile World Congress wrap-up event in Cambridge last week, Zeitgeist listened carefully to one of the key speakers, William Webb, casually toss off the following epithet; “Since Steve Jobs died, so has all innovation… Everyone was catching up with Apple, then they did and Apple ceased to innovate.”
As a brand, the company is still strong. The above TV spot is one of the more effective pieces of advertising on the box right now. As a service, the story is less clear. So much ink has been spilled over the years writing about the imminent arrival of a fully-fledged Apple TV service, that the most recent rumours with Comcast did little to raise expectations. Variety called a deal between the two companies “improbable”. Elsewhere, Business Insider said yesterday it was time for Apple to launch a music subscription service – the chart below will make tough reading for the iTunes side of the business, with negative growth in 2013.
Strategic clarity seems to have escaped the company of late. Are Apple’s greatest days behind it then? We say, don’t bet on it.
Threats and Opportunities for the Entertainment Industry in 2014
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*Our 2015 trends for the sector can be found here*
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At the start of a new year, what to make of the entertainment sector? It depends where you look. One thing is for certain though; at the close of 2013 that old laggard the music industry upstaged its media cousins. For sheer daring and innovative nous, few initiatives could claim to beat Sony in its launch of Beyoncé’s new album. In the face of increasingly ailing streaming services, the album was released as a fixed bundle on iTunes, with no marketing behind it. The news of the release thus came as a last-minute surprise to the industry and consumers alike, creating a short but extreme burst of anticipation. The artist posted a message on Facebook saying she wanted to recreate the “immersive experience” she used to have listening to music. The album sold 80,000 copies in three hours. It is difficult to envision Sony’s film division at Columbia Pictures doing anything similar.
Near the end of last year, Zeitgeist was fortunate enough to be able to attend the 5th Annual GlobeScreen Conference at London’s May Fair Hotel. Eve Gabereau, the co-founder and MD of Soda Pictures lamented “nurturing a film is not possible any more… there is less opportunity for a film to find its audience”. Word of mouth, she said, had to be very good, and happen very quickly, in order for it to have an effect. Simon Crowe, founder and MD of SC Films International, disagreed with another speaker, who asserted that filmmakers were being hampered by a lack of data, in that they did not know who they were making films for. He dismissed the need for data, and, most worryingly, stated the primary focus should not be on the bottom line. This is dangerous thinking. Films may be art, but if the medium is to continue then it needs to be profitable. So the primary focus has to be ‘How will this product turn a profit?’. Zeitgeist asked him afterward about the viability of VOD (video-on-demand) as a channel; Crowe was not optimisitic about its future as a significant revenue producer, calling films that have found success on such platforms – such as Arbitrage and Margin Call – outliers. Zeitgeist offered that Netflix had not been considered a significant distribution channel for a while, until suddenly it was. Did he foresee a similar situation with VOD? “Don’t know”, was his retort. It was well worth staying late to receive such gems as answers. The whole conference spoke of an ignorance of the insight data can provide, a shunning of profit-focused management, and a general yearning for bygone times when the industry – not to mention the champagne and other substances – was flowing more freely.
Such anecdotal frustrations found company in the form of hard data. To cap off 2013, Business Insider published an article entitled ‘The US 20: Twenty huge trends that will dominate America’s future’. Number 16 was ‘Old Hollywood is dead…’. It noted that inflation-adjusted box office receipts were down around 8% from their 2004 high (see chart). Industry trade mag Variety reported recently that UK box office fell 1% in 2013, which was the first drop in ten years and the biggest in more than twenty. Of course, part of the reason for this was because 2012 had a rather suave helping hand from James Bond, in the form of Skyfall. When Zeitgeist prodded Cameron Saunders, Managing Director of 20th Century Fox UK, about the news over Twitter, he was quick to leap to into the fray, noting that it was “still the second biggest box office year on record”. He also went on to concede though that “UK admissions however have flatlined, despite lots more films = fewer people seeing each movie”. The same scenario is happening in the US. China is one of the few bright spots in the world of film, and has seen an explosion in the number of physical screens installed in the country over recent years. But even the Chinese film industry has medium to long term challenges it will need to overcome, if, as some predict, it is to become the world’s largest film market – overtaking the US – by 2019. It is still at the mercy of a government with strict controls and vague whimsical notions about what makes for permissible content; the state is involved at almost every level of production and distribution. Moreover, though the quota on foreign releases in the market has been relaxed slightly, it is by no means open season for Hollywood. In much the same way as the banning in China of Google’s app service and videogames consoles led to poor knock-offs, so with film. The restrictions have spawned poor remakes of American films that didn’t see a release on China’s shores, which inspires little creativity or excitement.
It was not all doom and gloom in the cinema of late of course. Gravity continues to light up screens across the world, and seems poised to do well come Oscar night. Its only obstacles come in the form of other films that critics and audiences have been similarly impressed with this season, including 12 Years a Slave and Captain Phillips. But such artistic achievements can hardly make us forget what was a poor summer for the film industry. We have written before about how films in development are increasingly either mega-blockbusters or niche arthouse films. Producer Kevin Misher, talking to The Economist last month, echoed our thoughts; “Hollywood is like America: the middle class has been squeezed”. The article went on to lament the unique situation the film industry finds itself in, relying on outsiders for both ideas (“imagine if Apple or Toyota did this”) and funding.
Will more content producers partner up with those infringing intellectual property?
The challenges extend further. Though Kodak suffered from other problems too, one of the things that prevented it from ever laying down a long-term strategy to embrace digital photography was the revolving door of executives at the top. Hollywood is similarly afflicted. In the past 18 months, according to The Economist, four of the six main studios have seen change at the top. Perhaps some longevity in senior roles would have encouraged these companies to embrace new ways of delivering films to eager customers. Instead, most films, particularly the ones glutting the summer schedule, still cling to an outdated distribution strategy of staggering releases across platforms. Studios resist doing this – save for the odd arthouse release – because it risks the ire of exhibitors. We’ve written before about the antiquated nature of such thinking. Every delay in getting to a consumer increases the chances that customer will resort to piracy. Companies like Netflix are reporting that intellectual property rights infringement dips once legal alternatives are made available to people; there are signs of hope.
Piracy is of course playing a role in television, too. In Poland, consumers have to wait months after the US broadcast for their dose of Homeland. It is thus one of the more popular shows to be pirated. Making the most of this trend, a publishing company responsible for a new book detailing Carrie’s life before the start of the series has been inserting adverts into the subtitles for the show. The MD of the publishing company told TorrentFreak, “We decided to advertise via subtitles because we wanted to show the book to all the fans of the Homeland series in Poland, no matter where they watch the show”. You can’t argue with placing a promotion for where you know your likely customers are. It will be interesting to see if any other unlikely coupling between pirates and content producers emerge. For, as amusing as this news is, it does point to a fragmentation in audiences, and thus in places for advertisers to reach them. It should have come as little surprise then when, last month, the Financial Times reported that TV’s share of advertising spend will slip this year, after three decades of uninterrupted growth. Jonathan Barnard, ZenithOptimedia’s head of forecasting, warned, “After television ad spending has grown pretty consistently for at least the last 35 years… there will be quite a lot of disruption to come over the next 10 years.”
Of course, disruption will come to other sectors of the entertainment industry, too. This was apparent at the recent Consumer Electronics Show in Las Vegas, where Samsung and Sony, among others, held court. It wasn’t the best of showings for Samsung, where famed producer / director Michael Bay walked out seconds into a presentation on curved televisions after the autocue failed. Sony had its disruptor product to tout, a cloud TV service. Beyond the glitz and glam of such new product releases, a big question remains: Can Sony use what assets they have and combine them effectively? A great article in the FT probed deeper, asking whether all these new products and services – we would be remiss were we not to mention the PS4, currently outstripping the Xbox One in sales – can be successfully integrated into an ecosystem that Sony is desperately trying to create. The corporation dabbles in film distribution, film production, smartphones, music as well as videogames and is slowly trying to tie them all together. All this while seemingly trying to disrupt itself, with cloud gaming doing away with the need for a console and image projectors doing away with the need for physical screens (Sony loses about $80 on every set it sells currently). As the article concludes,
“[CEO] Mr Hirai is trying to pick up the pace as Sony searches for its digital destiny. But the familiar questions remain: can it execute on the plan, how fast can it move – and how much pain is it prepared to take along the way?”
Where next for Sony?
Certainly if companies like Samsung and Sony wish to succeed in the coming years, they will have to do away with the obsession of focusing on hardware. It is plain now that, in consumer’s eyes, technology has reached a tipping point where the specifications of an object are no longer a unique selling point; they are a redundancy. This became clear at the Mobile World Congress in 2012, when PC Magazine published its event wrap-up under the headline “The End of Specs?”.
There are some companies that are embracing disruption, or at least, trying to hire those who started it in the first place. Disney, which often seems to have a strong strategic head on its shoulders, recently made the eminently sensible move of hiring the chairman of Twitter Jack Dorsey to join the Walt Disney board. This was no isolated occurrence for Disney, who had previously had Steve Jobs on the board and who have also hired Facebook COO Sheryl Sandberg. Elsewhere, the canny Weinstein brothers, who rarely miss an opportunity to make impressive artistic works that turn a decent profit, reteamed with their old company Miramax to develop further iterations of their film library. Seeing the opportunity for increased creativity in television, as well as new channels like Netflix and Amazon, they will also be developing new television series. And while online takes away advertising spend from other channels under the promise of reaching the right people at the right time, new local television development in the UK promises to do similar as it targets localised areas. Still, the film industry as a whole seems to be outright resisting any changes to the calendar; schlock in the summer sun, followed by arty pretense come Oscar time. Repeat. A writer in the New York Times elaborates,
“And then, after the Oscars, the machine picks up speed and starts excreting ghastly product like Oz the Great and Powerful, one of the worst movies of 2013 and the eighth highest domestic grosser of the year. Then the fall hits, and we cling to movies like Gravity and insist that, really, it isn’t all bad. And it isn’t, of course, even if creating a Top 10 list is finally an exercise in exceptionalism.”
The worry is that any shift in the schizophrenic nature of film scheduling and creation will probably involve at least a short-term hit to the bottom line. And a recent dismissal hints that no such shift is underway at the moment. In October, the great James Schamus of Focus Features was let go by Universal. Schamus was instrumental in bringing director Ang Lee to the US, distributing his Crouching Tiger, Hidden Dragon before going on to make The Pianist, Far From Heaven and Brokeback Mountain, among many other extraordinary films. Doug Creutz, senior media and entertainment analyst for Cowen & Company, told the New York Times in December,
“The major media companies are so big that nothing but a blockbuster really makes sense. Say you make a low-budget comedy and it brings in $150 million. So what? That doesn’t move the needle. You make a blockbuster… You can do the sequel and the consumer products and a theme park attraction. The movie itself is almost beside the point. All Disney is going to be doing is Marvel, Star Wars and animation.”
That would be a great shame for those who like artistic diversity, as well as sensible financial returns, in their film studio output. Current business models seem to be producing diminishing returns. This is true for videogames, movies and music. Experimentation, such as that by Sony’s music division mentioned at the beginning of the article, must be more widespread to engage with new consumer habits and to rekindle jaded minds. Consumer engagement and feedback as a whole is largely missing from much of the strategy with which the entertainment industry steers itself. Shareholder returns and operational logistics occupy most of their time. A far more rigourous approach to data – collecting and analysing it – and a more open ear to one’s customer base, might prove beneficial.
HMV: If you don’t fix it, you’ll end up broke…
The name Margaret Anne Lake might not ring too many bells. But if you were in the UK towards the end of the twentieth century, you’ll be familiar with her alter-ego Mystic Meg.
Having made her name as an astrologer in The Sun, Meg was catapulted into the national consciousness when she was given a slot on the fledgling prime time National Lottery draw programme.
In an attempt to build excitement and pad out an event that took two minutes to complete, Meg was brought in to ‘predict’ the winners.
Her predictions were suitably vague.
The norm was something generally along the lines of “the winner would live in a house with a 3 in the number, in a town beginning with L or M and have bought their tickets from a woman.” with a sprinkling of astrological terminology for extra authenticity.
However it would seem that back in the mid-to-late 1990s Meg wasn’t the only one struggling to see what the future held. Far away from the glamour of TV, a number of well-paid businessmen were busy making decisions that would see their organisations squander their dominant positions.
And a couple of weeks ago, after struggling along for years, both HMV and Blockbuster UK, once leaders in their categories, hit the buffers and called in the administrators.
Bad Advice
The wisdom ‘If it ain’t broke, don’t fix it‘ is relatively modern – it dates from 1977 – and was attributed to businessman Bert Lance in the May issue of the magazine Nation’s Business.
The phrase caught on, partly because it made a point in a catchy way. But like many wisdoms, it doesn’t tell the whole story.
Just because something works now, doesn’t mean it always will. And those in position of responsibility have an obligation to future proof their organisation.
Back when Mystic Meg was in her pomp, the digital revolution that helped bring about the demise of both retailers was in its infancy. But signs of its potential were there, particularly for HMV.
The first was how people acquired their music.
Software that ripped files from physical storage, coupled with faster web connections, gave birth to peer-to-peer sharing. Programmes like Napster, Kazaa and Limewire removed the need for physical reproduction and distribution.
The whole entertainment industry never really came to terms with illegal downloads, opting to use legal threats and emotional blackmail, rather than adapting their businesses to meet the demand.
In reality, not all pirated content would ever have been bought legally. Peer-to-peer applications offered users the freedom to sample new artists they would never have paid for and get digital versions of music they already owned physically, easily and without it costing them money.
One of the reasons people wanted their music digitally is the second reason the digital revolution helped bring about the demise of the likes of HMV – the way people consumed and stored music.
The emergence of the digital music player, culminating in the release of the iPod in 2001 meant that people also wanted their music in a new format. They could now store their entire collection on one machine.
When people had upgraded their vinyl to cassette, and then their cassettes to CDs, HMV had been in pole position and reaped the profits. However a digital format didn’t require physical stores and HMV didn’t react. Their model was suddenly ‘broke’, but they didn’t realise in time to fix it.
Avoiding failure
Can such demises be avoided? The future is notoriously hard to predict, but there are some guidelines that can help companies avoid suffering a similar fate to HMV.
1. Be alert to new and niche competitors
Back in the 1980s and 1990s, HMV may have considered their competition to be the likes of Tower Records, Virgin and Woolworths. When they all disappeared, it might have seemed that HMV had won the battle. In reality they were all killed by the same bullet. The game changed as companies diversified.
Back in 1981, following a dispute with Apple Corps, Apple Computing agreed not to enter the music business. Now, iTunes offers over 28,000,000 songs.
Just because someone isn’t a direct competitor now, doesn’t mean they never will be.
2. Keep an eye on the Path to Purchase
HMV didn’t suffer because people suddenly stopped wanting to buy new music or watch films. What changed was how people acquired their material.
Online downloads provided a new way to access digital music. For those who wanted physical media, Amazon et al provided an alternative way to buy CDs and DVDs. Now that nearly 80% of UK households have broadband connections, consumers can stream films at the press of a button or watch a dedicated Movies channel.
Sometimes people will still want physical media immediately, but just not often enough to sustain a business as big as HMV.
3. Understand the next generation
Many years ago, I worked in Woolworths. A large proportion of the music we sold was to youngsters spending their pocket money on their latest idol. While online might have been niche in the mid-to-late-90s, the youngsters of today have grown up with it. As a result, consumers under 35 won’t have had the opportunity to develop an engrained habit of buying their music in physical stores like HMV. Buying entertainment online is no longer an alternative, but the norm.
4. Play to your strengths
While online retailers can offer lower prices and a wider catalogue, physical retailers offer immediacy and have the opportunity to provide enhanced in-store engagement.
Shoppers want convenience, value and experience.
Browsing for and buying music, film and computer games ought to be a fun, pleasurable act. Online shopping will continue to grow across pretty much every category. Physical retailers need to understand their role in fulfilling shoppers’ needs. Sometimes it will be about delivering the product quickly and easily, but sometimes it will be making the act of shopping an enjoyable experience that merits a slight price premium.
5. Be prepared to change
Taking all of the above into account, it might be easier to spot how a business structure that is dominant now might not be so successful in the future. It is often said that defending a title is harder than winning it in the first place.
However, it can be done.
McDonalds have long dominated the fast food industry. Just over a decade ago, their restaurants were tacky red and yellow places with plastic seats.
Yet they saw that their competition was no longer just the likes of Burger King, but also other food outlets and increasingly the likes of Starbucks et al who offered a more pleasant in-store experience.
Now their outlets have all been refurbished with designer furniture and offer free wifi.
They also observed other trends that would impact them. From obesity to ethical sourcing of produce and packaging, they adapted their business to stay one step ahead.
Their menu still offers the old favourites, but also includes lighter options. Their burgers come from British and Irish farms and much of their packaging is made predominantly from recycled materials.
As a result, they are still thriving on the high street.
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 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.
TechDisrupt :: The future of content, digitally
If Content is King, then last week saw the gentry discussing how best to serve their master. The other day Zeitgeist watched a fascinating roundtable from the TechDisrupt conference, where talking heads with varied interests discussed how content would be created, distributed and consumed in the future. The below are some of the more pertinent and interesting things we managed to peel from the chat.
Sarah Chubb, president of Condé Nast Digital, noted that Apple was lending a helping hand to the sales of the publishing empire’s magazines. Since the launch of the iPad (recently revealed to have sold 2m units in 59 days), Chubb states that the device has played a significant role in boosting sales. Regarding the iPhone / iPad split, she says 60% of GQ readers are accessing the publication through their iPad, 40% through the iPhone. For Vanity Fair, fully 90% is from the iPad, which is incredible after such a recent release and given that the iPad was only released outside the US in the last week or so. In related news, it was announced today that The Financial Times “iPad app has registered three times more downloads in its first two weeks since launch, than its iPhone app managed”.
Fred Davis, founding partner of Code Advisors, ruminating on how people perceive content now, makes the declaration, “It’s not about owning, it’s about accessing”. This is crucial. This is ‘I want my MTV’ for the next generation. As we have moved away from purchasing tangible goods like CDs – and to an increasing extent DVDs and books – the pleasure of owning content dissapates. People, however, still want to be able to use that content, and use it immediately. This is where, helpfully, cloud computing comes in. Perhaps this new type of demand makes the iTunes model – when compared to Spotify et al. – antiquated. Buying a track on iTunes is about owning content. It can be bought quickly and easily over your phone via a Wifi or 3G signal, but once purchased, the song is on your phone, it is not kept in the cloud somewhere for you to access at any time from any device. It is not easily shareable.
John Hagel of Deloitte talks of companies of the future having to make a choice between what they want to excel at: product development or customer relationships. In other words, product profitability or audience profitability. Is the company’s USP going to be “Come to us because we know your product” or “Come to us because we know you“? Zeitgeist ponders whether a company, GE for example, might not be able to manage both.
The IPTV service Boxee recently signed a deal with Google to make use of its Android OS, linking with Google TV. In related news, units that the OS operates on outsold iPhone for the first time this quarter. The CEO of Boxee, Avner Ronen, was also one of the speakers present at the conference. Taking an optimistic stance, Ronen stated that one of the benefits of increased fragmentation and availability of content was that, in a free market mindset, the more content published, the more competitive the environment and thus the better the content.
Of course, piracy is an enormous factor, and Davis pointed out that there is still a problem with people not equating downloading a song illegally off of Limewire with shoplifting from WalMart. Perhaps it is now too late for any efforts at education in this matter, as the MPAA seem to have singularly failed to educate the public. Chubb countered that people were now willing to pay for things in mobile that they wouldn’t normally pay for otherwise. This dovetails with the idea of paying not for the content itself, but for the instant access to it. The film industry, in particular, has combatted the threat of piracy in other ways. Now that international box office accounts for some 65% of a film’s total gross earnings, release windows are being narrowed for simultaneous releases. “Iron Man 2” was released at the end of April here in London, a full week before the US launch. The world premiere was supposed to have taken place in Leicester Square, but sometimes even savvy film execs come up short, especially against volcanic ash.
Ultimately, the way we interpret ownership is undergoing significant change. What we used to be possessive of, with the arrival of the mp3 we suddenly felt inclined to share. Increasingly we do not have need of the physical product, merely the ability to use it when we wish. This might easily be linked to the continuing vogue for ephemeral clothing that is besetting the fashion industry, where cheap clothing is made to be worn once then tossed aside like New York Times stock. Zeitgeist thought it fascinating to watch these people prognosticate on the future of content; they may all be completely wrong, of course, but then that’s the interesting thing about the future, isn’t it?
There was much more discussed, and you can see the whole video here.
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.
Of Pirates and Market Correction
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.
davidllewelynjones
jordiconnor
zeitgeist and stuff 