We all seem to have less time to ourselves these days. But there seems to be more to watch – on more platforms – than ever before. What trends have led to this, and what’s the result? Much editorial ink has been spilled over the years about how our lives seem to be getting busier, with less free time to ourselves. This is somewhat of a painful irony given that many of our more intellectual ancestors thought our evolution as a species would quickly lead to a civilisation mostly consumed by thoughts of how to fill the days of leisure. In last week’s New Yorker, Harvard professor Thales Teixeira noted there are three major “fungible” resources we have as people – money, time and attention. The third, according to Teixeira, is the “least explored”. Interestingly, Teixeira calculated the inherent price of attention and how it fluctuates, by correlating it with rising ad rates for the Super Bowl. Last year, the price of attention jumped more than 20%. The article elaborates,
“The jump had obvious implications: attention—at least, the kind worth selling—is becoming increasingly scarce, as people spend their free time distracted by a growing array of devices. And, just as the increasing scarcity of oil has led to more exotic methods of recovery, the scarcity of attention, combined with a growing economy built around its exchange, has prompted R. & D. in the [retaining of attention].”
It’s such thinking that has persuaded executives to invest in increasingly multi-platform, creative advertising during the Super Bowl, and to media production companies taking their wares to the likes of YouTube and Netflix. But it’s all circular , as demonstrated last week when Amazon announced it would be producing films for cinema release. The plurality of such content over different channels carries important connotations for pricing strategies. At its most fundamental, what is a product worth when it is intangible and potentially only available in digital form? It chimes with an article written earlier this month in The Economist on the customer benefits of e-commerce. Though most knee-jerk reactions would assume price is the biggest benefit to customers, recent research illustrates this is not always the case. Researchers at MIT showed on average people paid an extra 50% for books online versus in-store. This isn’t because that latest David Baldacci is sold for more on Amazon, but rather because of the long tail. Which means more products are able to find the right owner, for a price, whereas in store comparatively they go unsold. More channels have meant more availability for content, which should benefit consumers in that more content destined to be a hit now finds a home, where once it might have been lost if turned down by the major TV or radio network stations. The Economist elaborates,
“Seasoned publishers have only a vague idea what book, film or song will be a hit. A major record label can sign only a fraction of the artists available, knowing full well it will unwittingly reject a future superstar. Thanks to cheap digital recording technology, file sharing, YouTube, streaming music and social media, however, barriers to entry have been dismantled. Artists can now record and distribute a song without signing to a major label. Independent labels have proliferated, and they are taking on the artists passed over by major labels. Hit songs are still a lottery, but the public gets three times as many lottery tickets.”
So while we may have less time to consume it, more content over more channels will allow for greater chances for breakout hits, particularly with avid niche audiences. Amazon Prime video content was until recently confined to a niche audience, and the show Transparent dealt with niche subject matter. But the show has broken out into the zeitgeist and won two awards at the recent Golden Globes ceremony. (Full disclosure, we know a producer on the show and were lucky enough to visit the set on the Paramount lot in Los Angeles last summer). It is likely such a great show – recently made available free for 24 hours as a way to upsell customers to Prime – would not have found a home on traditional TV networks, and thus in people’s homes, were it not for this plurality.
Plus ça change, plus c’est la même chose… TV executives’ concern over changing viewing habits is nothing new. Sports coverage continues to deliver; it’s such thinking that pushed BT to pay almost GBP900m to show some football matches. But it’s not just knowing the score as it happens that has kept audiences from time-shifting. We wrote a piece back in 2011 detailing how the industry was trying to put a renewed focus on live events. Social media have contributed to this; having a constant stream of wry comments on Twitter to snark at while watching Downton Abbey can vastly improve the viewing experience. This is somewhat lost if viewing the show later.
There was a time when live events were much more common on network TV. Back then it was other formats – radio and cinema – that were running scared from the box in the corner. Now it is television that is trying to retain eyeballs; DVRs and OTT rivals are diminishing its sway; the cable industry lost 2.2m subscribes last quarter and Fox COO Chase Carey recently conceded the cable cord was “fraying”. TV viewing in general dropped 4% last quarter, Nielsen reported on Friday. Mobile use in general seems to be the largest culprit (see chart, below). As part of a strategy to keep viewers glued to scheduled, linear TV, NBC has previously screened the live performance of Sound of Music, and recently announced plans for a live rendition of A Few Good Men. Like the latter piece on content, Peter Pan similarly began as a play, and this past week saw its own broadcast, live, on NBC. It was a fine tactic in a broader strategy. Sadly, execution, and timing, are everything. Salon saw much room for improvement. The New Yorker compared it with earlier TV adaptations (NBC did a live version back in 1955) and found it lacking. More damningly, it also saw a broader disconnection from reality, as protests swept the nation in reaction to events unfolding in Ferguson. Viewing figures were half what the network got for Sound of Music. As The Wall Street Journal points out, live events may be losing their pull; both the Emmys and MTV Music Awards saw dips in ratings this year. Meanwhile though, marketers are still willing to pay a premium for advertising during such shows. Brands are said to have paid as much as $400,000 per-30 second commercial for the telecast.
“The nature of the internet as a platform for art is double-edged. The thing that makes it attractive — the fast turnover of content produced by unusual, gifted people — may be what stops it from bringing about a Golden Age 2.0.”
- India Ross, Financial Times
Another tactic in the strategy to retain eyeballs has been to license old seasons of shows still running to OTT providers like Hulu, Amazon and Netflix. On the one hand this may cannibalise viewers who are just as happy watching old episodes as new ones. On the other, it could provide a new platform to find audiences and increase advocacy and engagement. What Nielsen has found is that both are happening. As the WSJ reports, “Dounia Turrill, Nielsen’s senior vice president of client insights, said she analyzed the results of 16 such shows and found an even split of shows that benefited and those that didn’t”. Netflix, meanwhile, closed down its public API and is seeking world domination with culturally diverse content in the form of Marco Polo. Such OTT providers have their own problems to worry about, too; their niche is becoming increasingly cluttered. Vimeo is not mentioned often as a competitor to the likes of Amazon’s services, but it too is now producing original content for streaming, in much the same way as its peers, where shows are greenlit by popular demand and creatives given full rein. An article in this weekend’s Financial Times points out the limits of such a business model, “the internet audience — vehement but fleeting in its interests — may not always know what makes the best content for a more substantial series… returns are unreliable in a marketplace where even established services suffer at the hands of a capricious audience”.
In film, new possibilities arise in the form of ticket-booking innovation. While TV is recycling old ideas of content and engagement, these new tactics look to push the industry onward. This month through January 17, New York’s MOMA hosts a Robert Altman retrospective. One of his seminal films, The Player, shows in some ways how far the film industry has come, and in others how we haven’t moved on at all. The New Yorker wrote a brief feature on the retrospective. It’s insightful enough to quote at length, below:
“In the opening shot of “The Player,” from 1992, Robert Altman makes an explicit attempt to outdo Orson Welles’s famous opening to “Touch of Evil.” He has the camera zoom in and out, track left and right, pan one way and the other, and, before a cut finally comes, pick up with most of the major characters of the film. The scene also situates “The Player”—a movie about a studio created on a Hollywood studio lot—in film history, with passing references to silent film, forties genre work, the sixties, and, finally, the Japanese, who were then moving in on Hollywood, and are seen looking the studio over.
When it came out, “The Player” was regarded as a scorching attack on greedy and unimaginative Hollywood: in the film, the industry’s shining past surrounds the executives at the studio and shames many of them. Twenty years later, the huge profits from big-Hollywood movies—digital fantasies based on comic books and video games—have washed away that shame. The executives in “The Player” have stories pitched to them constantly by writers, and then they say yes or no. They don’t consult the marketing division on what will sell in Bangkok and in Bangalore. The thing that Altman may not have anticipated was that one would be able to look back at the world of “The Player” with something almost like nostalgia.”
We’ve written about Sony multiple times over the years, rarely in a good light. A parody Twitter account of the company’s CEO, Kazuo Hirai, often makes for entertaining reading. The company can’t seem to catch a break. Its latest financial results, released today, warned of a $2.2bn loss for the financial year, the sixth loss in seven years. For the first time since 1958, the company will not pay a dividend. Much of the blame fell to the ailing smartphone division, which generates a fifth of the company’s revenue, but other businesses hurt the conglom too. The company loses $80 on every TV sold; rumours abound they will sell the Spider-Man franchise back to Marvel for a quick payday; the one bright light, Playstation, which took the company into the black in Q2, is beginning to seem risky, as customers look beyond single-use devices like games consoles, a trend we spotted back in January last year. (Earlier this week, Microsoft continued to hint that it might spin off the Xbox business). Sony recently spun off its TV division into a subsidiary and sold its PC business. These actions in turn were supposed to bear fruit, but clearly haven’t.
Much of the difficulty Sony faces was elaborated on in detail in a brilliant profile of then-CEO Sir Howard Stringer for The New Yorker, back in 2006. Little has changed since then. In today’s FT, the newspaper outlines the longevity of Sony’s heartache.
June 1999 Nobuyuki Idei becomes chief executive. Four years later he presides over the infamous Sony “Shokku”, or shock, in which the group surprised investors with a profits warning.
June 2005 British-born Howard Stringer becomes chief executive, the first foreigner to lead Sony with a mandate to restore profitability and turn the core electronics business round.
September 2005 Sir Howard’s first major restructuring initiative outlines a plan to cut staff numbers by 10,000, or 7 per cent, and reduce costs by Y200bn. It will also close 11 manufacturing plants, streamline its number of products and generate capital from asset sales. “We must be like the Russians defending Moscow against Napoleon, ready to scorch the earth to stay ahead of the invaders. We must be Sony United and fight like the Sony warriors we are,” he says.
December 2008 A second wave of restructuring begins with plans to cut 16,000 full-time and part-time jobs in its electronics businesses around the world.
2011 Sony downgrades its net income forecasts four times.
March 2012 The group highlights its digital imaging, game and mobile units as the three core pillars of its electronics business.
April 2012 Kazuo ‘Kaz’ Hirai takes over as chief executive. Sir Howard says he will be a “tough-mind[ed]” leader. The first restructuring under Mr Hirai is outlined under the banner of “Sony will change”. Sony will shed 10,000 jobs, or about 6 per cent of its global headcount, over the next three years.
March 2013 The group reports its first full-year net income in five years.
October 2013 Sony warns on profits.
January 2014 Moody’s cuts Sony rating to junk.
February 2014 Plans to spin out the television business and sell the Vaio PC business are announced.
May 2014 Sony warns on profits for the third time in six months.
July 2014 The group surprises the market by swinging into profit for the second quarter.
September 2014 Sony warns that its expected annual net loss will be nearly five times as big as initially predicted at Y230bn.
How to define innovation, how has it been studied in the recent past, and what does future innovation hold for the human race?
Sometimes the word innovation gets misused. Like when people use the word “technology” to mean recent gadgets and gizmos, instead of acknolwedging that the term encompasses the first wheel. “Innovation” is another tricky one. Our understanding of recent thoughts on innovation – as well as its contemporary partner, “disruption” – were thrown into question in June when Jill Lepore penned an article in The New Yorker that put our ideas about innovation and specifically on Clayton Christensen’s ideas about innovation in a new light. Christensen, heir apparent to fellow Harvard Business School bod Michael Porter (author of the simple, elegant and classic The Five Competitive Forces that Shape Strategy) wrote The Innovator’s Dilemma in 1997. His work on disruptive innovation, claiming that successful businesses focused too much on what they were doing well, missing what, in Lepore’s words, “an entirely untapped customer wanted”, created a cottage industry of conferences, companies and counsels committed to dealing with disruption, (not least this blog, which lists disruption as one its topics of interest). Lepore’s article describes how, as Western society’s retelling of the past became less dominated by religion and more by science and historicism, the future became less about the fall of Man and more about the idea of progress. This thought took hold particularly during The Enlightenment. In the wake of two World Wars though, our endless advance toward greater things seemed less obvious;
“Replacing ‘progress’ with ‘innovation’ skirts the question of whether a novelty is an improvement: the world may not be getting better and better but our devices our getting newer and newer”
The article goes on to look at Christensen’s handpicked case studies that he used in his book. When Christensen describes one of his areas of focus, the disk-drive industry, as being unlike any other in the history of business, Lepore rightly points out the sui generis nature of it “makes it a very odd choice for an investigation designed to create a model for understanding other industries”. She goes on for much of the article to utterly debunk several of the author’s case studies, showcasing inaccuracies and even criminal behaviour on the part of those businesses he heralded as disruptive innovators. She also deftly points out, much in the line of thinking in Taleb’s Black Swan, that failures are often forgotten about, and those that succeed are grouped and promoted as formulae for success. Such is the case with Christensen’s apparently cherry-picked case studies. Writing about one company, Pathfinder, that tried to branch out into online journalism, seemingly too soon, Lepore comments,
“Had [it] been successful, it would have been greeted, retrospectively, as evidence of disruptive innovation. Instead, as one of its producers put it, ‘it’s like it never existed’… Faith in disruption is the best illustration, and the worst case, of a larger historical transformation having to do with secularization, and what happens when the invisible hand replaces the hand of God as explanation and justification.”
Such were the ramifications of the piece, that when questioned on it recently in Harvard Business Review, Christensen confessed “the choice of the word ‘disruption’ was a mistake I made twenty years ago“. The warning to businesses is that just because something is seen as ‘disruptive’ does not guarantee success, or fundamentally that it belongs to any long-term strategy. Developing expertise in a disparate area takes time, and investment, in terms of people, infrastructure and cash. And for some, the very act of resisting disruption is what has made them thrive. Another recent piece in HBR makes the point that most successful strategies involve not just a single act of deus ex machina thinking-outside-the-boxness, but rather sustained disruption. Though Kodak, Sony and others may have rued the days, months and years they neglected to innovate beyond their core area, the graveyard of dead businesses is also surely littered with companies who innovated too soon, the wrong way or in too costly a process that left them open to things other than what Schumpeter termed creative destruction.
Outside of cultural and philosophical analysis of the nature and definition of innovation, some may consider of more pressing concern the news that we are soon to be looked after by, and subsequently outmaneuvered in every way by, machines. The largest and most forward-thinking (and therefore not necessarily likely) of these concerns was recently put forward by Nick Bostrom in his new book Superintelligence: Paths, Dangers, Strategies. According to a review in The Economist, the book posits that once you assume that there is nothing inherently magic about the human brain, it is evidence that an intelligent machine can be built. Bostrom worries though that “Once intelligence is sufficiently well understood for a clever machine to be built, that machine may prove able to design a better version of itself” and so on, ad infinitum. “The thought processes of such a machine, he argues, would be as alien to humans as human thought processes are to cockroaches. It is far from obvious that such a machine would have humanity’s best interests at heart—or, indeed, that it would care about humans at all”.
Beyond the admittedly far-off prognostications of the removal of the human race at the hands of the very things it created, machines and digital technology in general pose great risks in the near-term, too. For a succinct and alarming introduction to this, watch the enlightening video at the beginning of this post. Since the McKinsey Global Instititute published a paper in May soberly titled Disruptive technologies: Advances that will transform life, business, and the global economy, much editorial ink and celluloid (were either medium to still be in much use) has been spilled and spooled detailing how machines will slowly replace humans in the workplace. This transformation – itself a prime example of creative destruction – is already underway in the blue-collar world, where machines have replaced workers in automotive factories. The Wall Street Journal reports Chinese electronics makers are facing pressure to automate as labor costs rise, but are challenged by the low margins, precise work and short product life of the phones and other gadgets that the country produces. Travel agents and bank clerks have also been rendered null, thanks to that omnipresent machine, the Internet. Writes The Economist, “[T]eachers, researchers and writers are next. The question is whether the creation will be worth the destruction”. The McKinsey report, according to The Economist, “worries that modern technologies will widen inequality, increase social exclusion and provoke a backlash. It also speculates that public-sector institutions will be too clumsy to prepare people for this brave new world”.
Such thinking gels with an essay in the July/August edition of Foreign Affairs, by Erik Brynjolfsson, Andrew McAfee and Michael Spence, titled New World Order. The authors rightly posit that in a free market the biggest premiums are reserved for the products with the most scarcity. When even niche, specialist employment though, such as in the arts (see video at start of article), can be replicated and performed to economies of scale by machines, then labourers and the owners of capital are at great risk. The essay makes good points on how while a simple economic model suggests that technology’s impact increases overall productivity for everyone, the truth is that the impact is more uneven. The authors astutely point out,
“Today, it is possible to take many important goods, services, and processes and codify them. Once codified, they can be digitized [sic], and once digitized, they can be replicated. Digital copies can be made at virtually zero cost and transmitted anywhere in the world almost instantaneously.”
Though this sounds utopian and democratic, what is actually does, the essay argues, is propel certain products to super-stardom. Network effects create this winner-take-all market. Similarly it creates disproportionately successful individuals. Although there are many factors at play here, the authors readily concede, they also maintain the importance of another, important and distressing theory;
“[A] portion of the growth is linked to the greater use of information technology… When income is distributed according to a power law, most people will be below the average… Globalization and technological change may increase the wealth and economic efficiency of nations and the world at large, but they will not work to everybody’s advantage, at least in the short to medium term. Ordinary workers, in particular, will continue to bear the brunt of the changes, benefiting as consumers but not necessarily as producers. This means that without further intervention, economic inequality is likely to continue to increase, posing a variety of problems. Unequal incomes can lead to unequal opportunities, depriving nations of access to talent and undermining the social contract. Political power, meanwhile, often follows economic power, in this case undermining democracy.”
There are those who say such fears of a rise in inequality and the whole destruction through automation of whole swathes of the job sector are unfounded, that many occupations require a certain intuition that cannot be replicated. Time will tell whether this intuition, like an audio recording, health assessment or the ability to drive a car, will be similarly codified and disrupted (yes, we’ll continue using the word disrupt, for now).
“The film market in China is like an experimental supermarket – with more and more racks but only one product… The viewers don’t care what they see as long as it’s a film. They’ll watch whatever is put in front of them.”
- Zhang Xiaobei, CCTV
LA is “a favourite place for Chinese businessmen to do business”, according to the objective opinion of China’s general counsel to Los Angeles. And that was back in 2011, before China extended its annual quota of foreign films allowed to be exhibited on the mainland. We’ve written before about the relationship between Hollywood and China, which in the two years since we wrote that piece has only deepened. It’s little wonder; EY has predicted China will be the largest film market in the world by 2020. Revenue is being squeezed in the film industry as millennials hang out on their smartphones and games consoles. When they do pay for movies, it’s more likely to be streamed rather than owned. Worse, that stream may be hosted by someone like Netflix, whose burgeoning clout makes negotiations for license fees increasingly difficult. So China provides a timely cash cow; an antidote to Western media fragmentation and fatigue. But at what cost?
China’s economic rise to superpower status has logically meant a rise in its viability as a place to invest in. From infrastructure, where cinemas screens have been springing up at the unbelievable rate of seven a day (as of May this year), to co-productions between Hollywood and homegrown Chinese outfits. These collaborations have resulted in overt references to China in storylines, such as that seen in The Mummy: Tomb of the Dragon Emperor, The Karate Kid and the Kung Fu Panda franchise, or the additional scenes filmed for Iron Man 3. This also includes the more recent Transformers: Age of Extinction, which saw not only a large part of the film take place in Hong Kong, but also included local talent and featured a mind-boggling amount of inappropriate product placement from Sino brands. The few production companies in China are also expanding, looking beyond more traditional propaganda fare, as well as to foreign markets, as is the case with China Film Group.
But the film industry in China is not quite as rosy as it appears. Interestingly, there have been few efforts at US talent getting involved in Chinese productions. This may be partly due to the mess that was The Flowers of War, starring Christian Bale, which was reportedly little more than a propaganda piece. And from a content point of view, caution has been the watchword for studios; The producers of World War Z removed a discussion over whether the zombie apocalypse started in China; Chinese villains were edited out of Pirates of the Caribbean: At World’s End and Men in Black 3. Is that really necessary? And while scripts are edited to appear more appealing to China, so are balance sheets. For while Transformers 4 is now China’s highest-grossing movie of all time, according to The Hollywood Reporter, what THR don’t mention was the way the gross is measured. For, says Julie Makinen, a China correspondent for the Los Angeles Times, box office revenue is arbitrarily inflated. She elaborates,
“I think everyone agrees there’s some fudging that goes on… It’s fairly common to go into a theater, say, ‘Hi, I’d like to buy a ticket for Transformers,’ and they say, ‘Great,’ and they print out your ticket for a local romantic comedy. So I’m pretty sure the 20 bucks I just handed over is being counted in someone else’s basket. Things like that happen; a lot of statistics in China are suspect.”
Moviegoers aren’t being particularly discriminating yet because the act of going to the cinema as an event or experience is still a relatively new phenomenon for many. Product placement, which we referred to earlier, while an opportunity for some synergy between film and brands, risks being too commercial and overt if done without context. A recent article in the Financial Times said such promotions in Transformers 4 quickly “start flying faster than bullets from an Autobot’s wrist-mounted Gatling gun”. Apart from bringing viewers out of the fictional narrative into reality, creating a disappointing experience, inappropriate product placement can also cause ire between businesses. (We’ve written several times over the years about product placement, here.) Such an occurrence took place at the end of July when a tourism group in China sued Paramount Pictures for failing to show a logo of the park that the company had paid to be prominently displayed in the movie. The implementation of co-productions between the two countries evidently needs work too. Scenes added exclusively for a Chinese version of Iron Man 3 added little except some questionable product placement as well as the dubious plotline of Tony Stark heading to China, of all places, for medical convalescence. Lastly, the current quota of films to be exhibited in China means that many good-quality US films fail to be seen in the country. Much like bans on US games consoles and the Android app store, Google Play, the result of this has been an explosion of home-grown imitators. In this case, films in China are made that precisely mimic the formula and set-up of popular American franchises like The Hangover, which was never seen by Chinese audiences, thus the extent of emulation isn’t evident. Assuming that eventually the quota will be entirely relaxed, this type of tactic can only ever be a short-term measure.
One of the greatest opportunities the film industry in China has is in part due to one of its greatest weaknesses. Because of historically protracted release windows, and a narrow selection of films making it to cinemas, piracy has been rampant. Indeed, infringement has been widespread enough that the industry has had seemingly no choice but to innovate. We reported back in April how China has relaxed its embargo on foreign games consoles, and, more to the point, how Tencent, in partnership with Warner Bros., were making the latest 300 film available to rent, while the film was still in cinemas in the US. Such forward-thinking is welcome. As well as offsetting any losses from piracy, it also hopefully points the way to a more open business environment in China, at least for TMT companies. Such innovative thinking will need to be extended, however, to the structure of China’s film industry itself, which is reportedly a vertically integrated engine driven almost entirely at the whim of the state.
Just as China’s tastes have held increasing sway over the production of art and wine in recent years, so with film. The middling global box office performance of Pacific Rim found salvation in Asia, and that was all the justification needed for a franchise to be developed. There is certainly much to be gained from investment and co-productions in China’s films industry, especially while it is still relatively nascent, not least of which are the financial returns. How such relationships impact the content itself is another matter. Hopefully some of the approaches China is taking with regard to multi-platform releases might even trickle over to Western markets. Studios should also be wary about putting all their eggs in one basket; CNBC reports that growth in ticket sales for Hollywood films in mainland China hit a five-year low in 2013. Only three US movies made the top ten highest-grossing films in China last year, down from seven in 2012. One reason for the slowdown is a lack of variety. And yet don’t expect the blockbuster formula to change anytime soon; as much as it was born in the USA, it is also what audiences in the worldwide market love to gobble up. (Michael Bay’s films – expertly dissected in the above video – prove that point no end, and it has been particularly driven home recently as Bay himself as well as sometime employee Megan Fox have expressed nonchalance about any negative press from critics, knowing their products make millions despite nasty reviews. Specifically, actress Fox told naysayers to “F*ck off”.) There is a certain amount of momentum behind the two industries’ relationship with one another, but recent productions have shown that future projects should perhaps be treated with a little more caution, particularly as Chinese audiences tastes mature. Last month the film historian Neal Gabler was quoted in the Financial Times, in a point that usefully sums up this piece,
“The overseas market has changed the DNA of American movies… The bigger-faster-louder aesthetic is very deeply embedded in the American psyche. No one else can do it. It’s one of the reason they export so well. It’s so much a part of who we are. But we have been victims of our own success. It’s a Catch-22. The things that make our movies so popular overseas are now larger than the American market can support by itself.”
UPDATE (30/8/14): The production side of the industry continues to evolve, as China’s largest video website Youku Tudou demonstrated on Friday when it promised to produce 8 films for cinema release and 9 to premiere on the internet. Chairman and Chief Exec Victor Koo pointed out to the Financial Times that there was a gap in the market left by Hollywood, “The US film industry is highly developed. It tends to be either blockbusters or franchise films. But in China you’re talking about small to mid to large budgets…”. The logistics of creating a film for online release – more than likely to be consumed on a smartphone – must consider important limiting factors such as, according to Heyi Film chief exec Allen Zhu, smartphones in China running films get “very hot after 20 mins”. Youku Tudou’s plans may seem ambitious – particularly given it reported a $26m loss for the second quarter – but when 18 screens are erected in China every day (last year more cinema screens were added in China than the total in France), it seems a risk some are willing to take.
It’s no secret that the publishing industry is struggling mightily as customers shift from paying for physical newspapers and magazines to reading information online, often for free. The shift has caused ruptures among other places at that bastion of French journalism, Le Monde, with the recent exit of the editor as staff rued the switch to online. So-called ‘lad’s mags’, the FHMs and Loaded magazines of the world, have been hit particularly hard, as the family PC and dial-up internet gave way to personal, portable devices and broadband connections, which provided easier access to more salacious content than the likes of Nuts could ever hope to provide. FHM’s monthly circulation is down almost 90% from a 1998 peak, according to the Financial Times. Condé Nast have pushed bravely into the new digital era, launching a comprehensive list of digital editions of its wares when the iPad launched in 2010. More recently, the company launched a new venture, La Maison. In association with Publicis and Google, the idea is to provide luxury goods companies with customer insights as well as content and technology solutions. We’ve often written about the need for more rigorous customer insights in the world of luxury, so it’s refreshing to see Condé Nast innovating and continuing to look beyond newsstand sales. We’ve written about other ways publishers are monetising their content here and here.
Time Warner is not alone then in its struggles for new ways of making money from previously flourishing revenue streams. According to The New York Times, Time Warner will be spinning off its publishing arm, Time Inc., with 90 magazines, 45 websites and $1.3bn in debt. In 2006, the article reports, Time Inc. produced $1bn in earnings, which has now receded to $370m. Revenue has declined in 22 of the last 24 quarters. This kind of move is not new. Rupert Murdoch acted in similar fashion recently when he split up News Corporation, creating 21st Century Fox. But with the publishing side of the business there were some diamonds in the rough for investors to take interest in; a couple of TV companies, as well as of course Dow Jones’ Wall Street Journal, which has been invested in heavily. Conversely, the feeling of the Time Inc spin-off was more one of being put out to pasture, particularly as the company will not have enough money to make any significant acquisitions. Like the turmoil at Le Monde, there have been managerial controversies, as those seeking to shake things up have tried to overcome historical divisions between the sales and editorial teams – something other large business journalism companies are reportedly struggling with – only to be met with frustration.
Setting that aside, Time Warner moved swiftly. A day later, the FT reported that the company was “finalising an investment” in Vice Media. We have written extensively about Vice previously, here. The company certainly seems to know how to reach fickle millennials, through a combination of interesting, off-beat journalism, content designed to create its own news, as well as compelling video documentaries that take an unusual look at topical subjects. Such an outlook however does not preclude it from partnering with corporations. As a millennial myself, it seems what people look for from those like Vice is authenticity, rather than the vanilla mediocrity arguably offered by others. We don’t mind commercialism as long as it’s transparent. It does not jar then when Intel is a major investor in its ‘content verticals’, or when last year 21st Century Fox invested $70m in the company. This bore fruit for the movie studio most recently in a tie-up promoting the upcoming Dawn of the Planet of the Apes. The sequel takes place 10 years after the 2011 film, and Fox briefed Vice to create three short films that would fill in the gaps. A great ploy, and the result is some compelling content to keep fans engaged in the run-up to the film’s release, particularly in territories where the film opens after the US market. Such activity is far beyond the purview of the traditional newspaper. But this is not necessarily a bad thing. Publishers must face up to the reality that newspapers alone will not deliver enough revenue to be sustainable. Seeking other content revenue streams while engaging in strategic partnerships with other companies looks, for now, to be a winning formula.
UPDATE 08/07/14: When it comes to engaging with millennials, mobile is most definitely the medium of choice. The FT reported today on Cosmopolitan magazine’s 200% surge in web visitors, year on year in May. Fully 69% of page views were from mobile devices (compared to a 25% average for the rest of the web). The publication has also wised up to the type of content this group likes to consume, as well as create. Troy Young, Hearst’s president of digital media, said the new site is “designed for fast creation of content of all types… Posts aren’t just text and pictures. They’re gifs, Tweets, Instagrams.” Mobile will only get the company so far though. PwC thinks US mobile advertising spending will account for only 4.6% of total media and entertainment advertising outlays this year. Cosmo is looking beyond mobile though to “exclusive events or experiences”, perhaps along the same lines as those other businesses are practicing who are looking for additional revenue streams. The article suggests users might “pay to see the first pictures of an occasion like Kanye West’s and Kim Kardashian’s recent wedding”. Beggars can’t be choosers.
UPDATE 10/07/14: Have all these corporate manoeuvres on the part of Time Warner been in the service of making itself appear an attractive acquisition? As the famous and clandestine Sun Valley conference takes place this week, rumours abounded that Google or 21st Century Fox were both interested in buying TW. This according to entertainment industry trade mag Variety, which commented, “Time Warner could be an attractive target. Moreover, unlike Fox or Liberty Media, it is not controlled by a founder or a founder’s family and with a market cap of $63.9 billion it is a relative bargain compared to the Walt Disney Co. and its $151 billion market cap”.
It would be impossible to capture the disruptive influence the latest digital technologies are currently having on the world in a single blog post. But what Zeitgeist has collated here are some thoughts and happenings showing the different ways technology is changing our lives – from the way we do business to the way we interact with others.
Last night saw a highly enjoyable occurrence. No, not the Academy Awards in general, which as ever moved at a glacial pace as it ticked off a list of predicted favourites. Rather, it was a specific moment in the ceremony itself, when host Ellen DeGeneres took a (seemingly) impromptu picture of herself with a cornucopia of stars, tweeting it instantly. The host declared she wanted the picture (above) to be the most retweeted post ever. The previous holder was none other than the President of the United States, Barack Obama, whose re-election message saw over 500k retweets. It took Zeitgeist but a few minutes to realise that Ellen’s post would skyrocket past this. Right now it has been retweeted 2.7m times. Corporate tactic on the part of Samsung though it may have been, Zeitgeist felt himself feeling much closer to the action – being able to see on his phone a photo the host had taken moments ago several thousand miles away – and the incident helped inject a brief air of spontaneity into the show’s proceedings. Super fun, and easy to get definitive results in this case on how many people were really engaging with the content. But can we quantify how much Samsung and Twitter really benefited from the move, beyond fuzzy marketing metrics? Talking heads on CNBC saw room for improvement (see below).
The big news of late in tech circles of course has been Facebook’s $19bn acquisition of messaging application Whatsapp. Many, many lines of editorial have been spilled on this deal already. In the mainstream media, many commentators have found the price of the deal staggering. So it’s worth reading more considered views such as Benedict Evans’, whose post on the deal Zeitgeist highly encourages you to read. Despite the seemingly large amount of money the company has been acquired for – especially considering Facebook’s purchase of Instagram for a ‘mere’ $1bn – Evans sagely points out that per user the deal is about the same as Google made in its valuation when it purchased YouTube. So perhaps not that crazy after all. The other key point that Evans makes is on Facebook’s dedicated pursuit to be the ‘next’ Facebook, or conversely to stop anyone else from becoming the next Facebook. With a meteoric rise in members (see image below, as it outstrips growth by both Facebook and Twitter), Whatsapp was certainly looking a little threatening.
The worry for investors is how Facebook will monetise this platform, when the founders have professed an aversion to advertising. Is merely ensuring that Facebook is the ‘next’ Facebook a good enough reason for such acquisitions? Barriers to entry and sustainable advantages will be few and far between going down this route. The Financial Times, in its analysis of the acquisition, points out that innovation is quickly nipping at the heels of Whatsapp. CalPal, for example, is one example of a mobile application that lets users message each other from within an app. In the markets, there has been a relatively sanguine response to the purchase, but only because of broader trends. As the FT points out,
“External forces have also helped to push the headline prices of deals such as WhatsApp into the stratosphere. A global excess of cheap money, along with a scarcity of alternatives for growth-hungry investors, has boosted the stock prices of companies such as Facebook and Google.”
One of the most visibly exciting developments in technology in recent years is the explosion of the wearable tech sector. But it is Google’s flagship product, Glass, that has met with much ire and distress. An excellent piece of analysis appearing in MIT Technology Review last month hit the nail on the head when it identified why Glass was having trouble winning people over. The article rightly identifies the significant shift in external appearance inherent in making the switch from a device that needs to be taken out of a pocket as makes it clear when it is being interacted with (you need to cover half your face with the product to talk to someone, for example). The article also details the savvy approach Google have taken to the distribution of their product. It’s always sensible to try and mobilise the part of your base likely to be evangelists anyway, so as to build advance buzz before a full-blown release. But to get them to pay for the privilege, as Google are doing with their excitable fans, dubbed Explorers, is a stroke of genius for them. However, the key issue, and what the article states is an “insurmountable problem”, is that “Google’s challenge in making the device a successful consumer product will be convincing the people around you to ignore it”. It is this fundamental aspect of social interaction that is worrying many, and now Google is worried too. As detailed in the FT, the company has acknowledged that the product can look “pretty weird”. Recognising it has a “long journey” to mainstream adoption, it published a list of Dos and Don’ts. Highlights include,
“Ask for permission. Standing alone in the corner of a room staring at people while recording them through Glass is not going to win you any friends… If you find yourself staring off into the prism for long periods of time you’re probably looking pretty weird to the people around you.”
It indicates that Google may have a significant ‘Glasshole‘ problem it needs to attend to. The case may be overstated though. One of the problems may just be that potential customers have yet to see any practical uses for it. This is beginning to change. Last week, Virgin Atlantic announced a six-week trial of both Glass and Sony smartwatches. The idea will be for check-in attendants to use the devices to scan limousine number plates so that passengers can be greeted by name and be instantly updated on their flight status.
In the arts, digital technology has inspired much innovative work, as well as helped broaden its audience. David Hockney, one of England’s greatest living artists, recently exhibited a series of works produced entirely on his iPad at London’s Royal Academy of Arts. He is far from alone. Last week’s anniversary issue of The New Yorker featured work from Jorge Colombo on its front cover, again produced entirely on an iPad. Such digital innovation allows for increased productivity as well as new aesthetics. When done well, art can also involve the viewer, encouraging interaction. Digital technology helps with this too. Earlier in the year The New York Times covered how the New York City Ballet redesigned part of their floor in a new scheme to attract new visitors to the ballet. The result, roughly life-size pictures of dancers arranged on the floor, has seen great success, and an explosion of content on social media platforms like Instagram, where users have taken to posing on the floor as if interacting with the images (see above). It’s a simple tactic that now reaches a far greater audience thanks to new digital technologies.
A recently published book, ‘Now I know who my comrades are: Voices from the Internet Undergound’, by Emily Parker, seeks to demonstrate the ways in which digital technology has made helped to coalesce and support important activism in regions such as China and Latin America. But, as The Economist points out in its review, the disappointing situation in Egypt puts pay to some of the author’s claims; there are limits to how productive and transformative technology can be. In business, these hurdles are plain to see. A poll taken by McKinsey published last month shows that “45% of companies admit they have limited to no understanding on how their customers interact with them digitally“. This is staggering. For all executives’ talk of the power of Big Data, such technology is useless without the proper structures in place to successfully analyse it. We also perhaps need to think more about repercussions of increased technological advances and how they influence our social interactions. In the recently opened film Her (starring Joaquin Phoenix, pictured below), set in the very near future, a new operating system is so pervasive and seamless that it leads to fraught, thought-provoking questions on the nature and productivity of relationships. When does conversation – and more – with a simulacrum detract from interactions with the physical world? These considerations may seem lofty, but as we illustrated earlier, the germination of such thoughts are being echoed in discussions over Google Glass.
So technology in 2014 heralds some promise for the future. Wearable tech as a trend is merely the initial stage of a journey where our interaction with computing systems becomes seamless. It is on this journey though that we need to make sure that businesses are making the most of every opportunity to streamline costs and enhance customer service, and that individual early adopters do not leave the rest of us behind to deal with a bewildering and alarming new way of living. One of our favourite quotations, from the author William Gibson, is apt to end on: “The future’s already here, it’s just not very evenly distributed“.
Last night, Zeitgeist eagerly devoured the first episode of the new season of Netflix‘s House of Cards, a series that has received lavish praise – not least from us – both for its content and its position as vanguard of a new wave of television distribution, production and consumption. The series lead, Frank Underwood, takes on his competition with a ruthless lack of morality that is unlikely to jar with those in the cutthroat television industry. The New York Times recently featured an excellent piece on the series, focusing on the showrunner Beau Willimon, the unique nature of doing such a show with Netflix, which among other things guaranteed 26 shows upfront, and the new mood of “post-hope” politics. Is traditional linear TV entering its own post-hope state?
Such talk of impending doom makes for nice editorial (which Zeitgeist is not averse to), but how true is it? To some extent, such new forms of consumption are being hampered by externalities as the platforms make the switch from early adopters to the everyday consumer. Indeed, Netflix’s sheer popularity is proving to be a thorn in its side. In November last year, Sandvine reported that the content Netflix provides now accounts for almost a third of internet traffic in the US. This staggering figure no doubt accounts for at least part of why internet speeds take such a distinct hit during primetime viewing hours (see chart below). As Quartz has the insight to point out, such issues are less to do with intentional throttling and more to do with peering agreements between ISPs and content providers.
Such issues are likely to be ever more prevalent as the notion of net neutrality continues to come under attack. At the end of last month, a federal appeals court overturned the Federal Communication Commission’s Open Internet Order, which had stipulated that ISPs could not prejudice one type of internet traffic over another. The fear of any such policy being overturned has always been one of the creation of a two-tier internet, where people who can afford faster internet get preferential access, and companies are free to charge distributors differing amounts based on the type or amount of content they are delivering. Such consternation was also felt in government, where five US senators called on the FCC chairman to “act with expediency” to preserve the open internet. The news immediately caused concern for Netflix, as shareholders fretted that ISPs might start to charge the company for the traffic it takes up. CEO Reed Hastings responded categorically,
“Were this draconian scenario to unfold with some ISP, we would vigorously protest and encourage our members to demand the open Internet they are paying their ISP to deliver.”
Consolidation and the narrowing of choice took a further hit on Wednesday this week when Comcast announced it would buy all of Time Warner Cable for $44.2bn. The choice on cable landscape is already limited for the US, so it will be interesting to see what regulators make the deal. Chad Gutstein, former COO of Ovation, an independent arts-focused cable channel, penned an article in Variety saying that any concerns over the deal should be restricted to the possibility of abuse of a dominant position, rather than simply market share.Columbia Law School professor Tim Wu, writing in The New Yorker, rightly points out that the FCC should be approving such mergers only if they serve the public interest. He sees no such possibility in this instance, where the most pressing need for cable customers is lower prices. Last year, he writes, Comcast collected about $156 a month on average, per customer. For cable. Professor Wu contends that the merger would put Comcast in a position that would make it easier to raise prices further. This, despite the fact that conditions created via the merger would technically put the company in a position where it could create savings, both through economies of scale and more advantageous negotiating positions with programmers like ESPN and Viacom. Of course, Comcast is probably keen on preserving if not extending margins as it faces increasing competition from players like Netflix and Amazon. Cord cutting may be in vogue now, but Comcast will try to combat this by creating what is called ‘lock-in’. Craig Aaron, president of Free Press, a consumer advocacy group, is quoted in the New York Times; “Comcast and the new, giant Comcast are going to do as much as they can to stop you from unbundling. In order for you to get content you like, you’re going to be pushed to pay the cable bill, too”. Such tactics will test the limits of customer inertia, but only if they have somewhere else to go as a viable alternative.
The switch to online viewing is also raising issues of policy change in the UK. Public service broadcaster the BBC has long left it unclear as to at what point requiring a TV licence is mandatory, leaving citizens to infer that simply owning a television set is reason enough. Recently though, the broadcaster finally clarified that owners can use their TV, with no fee, to play games, watch DVDs, basically do anything that doesn’t involve watching live television. For the moment, this also includes their IPTV offering, iPlayer. In an article earlier this month, The Economist said the fee was “becoming ever harder to justify”. Antonella Mei-Pochtler of the Boston Consulting Group, quoted in the article, believes the increasing trend of young people to timeshift their viewing is likely to become ingrained. Coupled with the growth of internet-connected TVs, this is bound to accelerate a shift away from traditional linear consumption. The BBC is soon to begin developing premium content for its iPlayer service in order to seek additional revenue streams that may offset a decline in fees paid. But as The Economist points out,
“[T]hat would suggest, dangerously, that the BBC is like any other optional subscription service. Folding on-demand services into the licence fee could also amplify calls for the BBC to share its cash with other broadcasters, not least because such consumption may be precisely measured.”
When we look at the market for television sets and set top boxes, the news isn’t that superb either. The curved TVs debuted at CES in January are surely little more than a distraction. Last week, Business Insider reported that Sony is to finally spin off its TV operations into a separate unit, amongst news of $1.1bn in losses and 5,000 job cuts. But while we’ve talked of consolidation and narrowing choice, we also need to recognise this is also a period of unprecedented choice for consumers. As a recent article on GigaOm points out, there are millions of channels on YouTube alone. There are growing pains. As consumption of such content moves “to the living room”, the article details various sub rosa negotiationsby retailers like Walmart with their own video market, or players like Netflix willing to pay top dollar to put branded buttons on remote controls. What is clear, with all the issues described in this post, is that consumer choice needs to be preserved in an open market with plenty of competition. Such an environment will always foster innovation. This may breed disruption, but that doesn’t have to mean devastation. The age of linear TV viewing may be at the beginning of its end, but that doesn’t mean there’s still a lot to fight for, even if it’s a scrap. Frank Underwood wouldn’t have it any other way.
UPDATE (22/02/14): The New York Times published an interesting article comparing Netflix and HBO recently, showing how the two companies are faring financially (see image above), as well as their approaches to developing content, which started off as opposing ideologies but are slowly starting to meet in the middle as they borrow from each other’s playbook. The article quotes Ted Sarandos, Netflix’s chief content officer: “The goal is to become HBO faster than HBO can become us.”
UPDATE (22/02/14): Of course, commercial network television in general is also going through a period of consternation, slowly building since the day TiVo started shipping. At the end of last year, the Financial Times reported that share of advertising spend on television is set to end after three decades. This is partly due to a proliferation of new devices and platforms – not least of which is Netflix – but also partly due to the amount of people time-shifting their viewing and skipping through the ads along the way. Thinkbox, a lobbying arm for the television industry, recently published a blog article with accompanying chart. It illustrated how many people time-shifted a particular programme depending on the genre. For example, fewer people time-shifted the news than drama shows. But one of the key points made in the article is “that there is no significant difference in the amount of commercial TV which is recorded and played back compared with BBC equivalents. To put it another way: TV is not time-shifted in an attempt to avoid ads”. This is specious reasoning at best. While it may be true that, yes, people do not discriminate between whether they time-shift a BBC show or an ITV show, it would be totally wrong to infer that those viewers are not avoiding ads when they do appear. The article’s author is guilty of confirmation bias, not to mention grasping at straws.