China – Tech sector and Film industry moves

“China is at an end”. This lament was heard to echo through the auditorium of London’s Royal Opera House earlier this month, part of the libretto of Puccini’s Turandot. In it, a ruthless, hereditary ruler presides over the nation with a culture of fear, and everyone in the country appears to have a role affiliated with or subject to the state. A far cry from today then.

In this article, we will look at movements in China’s tech sector and film industry.

Tech: Much news is pouring out of China currently as it looks to accelerate its digital maturity and capabilities, prompting varying degrees of concern, particularly as state actors look to influence the strategy and restrict the processes of individual corporate entities. Apple’s concession of building data centres in China is disappointing. No less ominous is China’s continued investment in artificial intelligence. The opportunity is a potential wellspring of innovation, but one likely to be geared toward autocratic ends (e.g. the identification, if not ‘prediction’, of those not towing the party line). Having relaxed the market only in recent years to allow videogames consoles, China’s regulators are now terrified of the impact of such things on children. Tencent saw >$15bn in market value lost in one day earlier this month when they restricted playing hours on their number one game to two hours a day for 12-18 year olds. This move was anticipatory, after much government and media speculation over the game’s addictive nature. As the Financial Times reports,

“Two weeks ago a 17-year-old boy in Guangzhou suffered a stroke after playing nonstop for 40 hours. Last week state media reported a 13-year-old boy in Hangzhou had broken his legs jumping from a third-floor window after his parents stopped him from playing.”

Surely if Tencent is under pressure, no one is safe? So it seems; Weibo became the victim of over-eager government chin-wagging recently, with shares dropping 6% on the revelation that it was banned from showing user videos without the appropriate licence. As with many other social platforms, video is a key revenue medium. According to the FT, 20% of Weibo’s $170m advertising revenue in the first quarter was from video; Chinese social users dedicate 25% of their time on mobile devices to watching video.

Film: 2017 seems to be a year of reckoning for the motion picture industry in China. The market has spent over a decade providing increasingly huge amounts of revenue to Hollywood studios, gradually relaxing its annual quota of releases further as allegations over nefarious dealings had been largely ignored. At one time, China’s box office was predicted to become the biggest in the world at some point this year. That talk has now ceased. PwC recently made a more sober prediction of 2021. The last twelve months have seen:

• A dramatic slowdown in overall box office in China
• Domestic product reaching new lows of box office takings
• Increased visibility of what appears to be widespread fraud at the box office, allocating ticket sales from one film to another
• A higher share of revenue for Hollywood fare

These four things are, unsurprisingly, connected! There have long been anecdotal stories about how local exhibitors will give cinema-goers the “wrong” ticket for a movie – especially when it is a foreign film – giving the audience receipts for a local domestic film instead, in order to inflate its box office performance. Also known as fraud. There are non-illegal reasons for relatively poor performance too. Local product still tends to be technically and narratively inferior to Hollywood films, as well as often being extremely derivative. Of the top 10 selling films in the second quarter, only two were made at home; in previous years the balance between revenues from domestic and foreign films has been closer to 50-50. The addition of 9,000 screens has not budged the needle. As a result, Variety points out, “Many Chinese movies have opened strongly, but then faded fast”. The Financial Times writes that “China may still see its first drop in ticket sales in more than 20 years in 2017”. Regulators have added salt to the wound (aka opened up the market), scrapping the annual ‘domestic film industry protection month’, where only Chinese films are allowed to be shown in theatres. Hollywood studios should not celebrate their relative success too much; its tactic of vast amounts of Chinese product placement was commercially successful in the fourth iteration of Transformers; less so with the fifth (and hopefully last) iteration.

M&A in the industry has been affected by a wider clampdown on capital outflow, which has put the kibosh on large deals by companies like Wanda, which recently sought to purchase Dick Clark productions. Political tension means associations with Wanda and AMC Entertainment are under scrutiny, in an effort to de-risk opaque dealings, and explains the absence of any South Korean films at the Shanghai International Film Festival earlier this summer. Signs continue of US/China co-productions (such as Marvel’s planned creation of a Chinese superhero). But further international cooperation could be hit by the factors mentioned above, especially when mixed with economic realities. You may have noticed Alibaba Pictures gracing the opening credits of the last Mission: Impossible film. The company’s $141m loss last year may give pause before further such outings.

All this is happening while Xi Jinping is in the midst of important domestic machinations to reorder his Politburo, on the macro level, while also, at the industry-level, seeking to re-negotiate the existing film important agreement. The MPAA has brought in PwC (the dudes that screwed up the Oscars’ Best Picture result) to audit Chinese box office takings for the first time, in order to presumably provide increased leverage in negotiations. Currently, according to Variety, studios get 25% of gross ticket receipts, “half of what theaters usually cough up in other major territories”. Stanley Rosen, a political science professor at USC who specializes in China, is downbeat regarding the potential scope of the audit, “It would be interesting to see what is allowed and what is off limits. My guess is the most egregious forms of box office manipulation will not be investigated.”

 

TMT Trends 2017 – Oscars Oversight, MWC Mediocrity, Publishing Problems, M&A Mistakes Avoided

Nostalgia as the name of the game

Nostalgia has been the name of the game for many in the world of TMT [technology, media, telecommunications] for a couple of years now, as TV series are rebooted and eras brought back to life (think Fox’s The X-Files and Netflix’s Stranger Things, FX’s The Americans respectively), movie franchises are retooled (think Kong: Skull Island, Beauty and the Beast) and books also drag people back to the 80s (think Entertainment Weekly’s number 1 book of 2016, The Nix).

Nostalgia is almost certainly an appealing emotion for many media executives today too. In entertainment, they may look back to fond days before PwC screwed up who won an Oscar and who hadn’t; in technology, vendors are leveraging “digital detox” trends as an excuse to remake old products and in publishing many are surely screaming for the days before digital, when staff at the likes of Conde Nast were still allowed to throw “hissy fits” (to quote British Vogue’s Lucinda Chambers from the recent BBC documentary on the magazine). The empire is having to fast come to grips with a world of declining print revenue shared by all in the industry, as comprehensively covered in a recent piece by the Financial Times.

The one outlier to this trend, fortunately for them, is Viacom, which recently decided that instead of seeking refuge in the past (and in sheer scale) by re-teaming with CBS after splitting over ten years ago, it would instead streamline its operations down to six “flagship brands”. Undoubtedly the wiser move (if only based on the above cheat sheet from The Hollywood Reporter).

This article will focus on those first two issues, last weekend’s Academy Awards and last week’s Mobile World Congress event in Barcelona.

Oscars oversight

Talk about your burning platform. Last night Zeitgeist sat down to watch Deepwater Horizon, last year’s film an avoidable disaster in an event involving a lot of due diligence, seemingly little of which was executed properly.

So it was – far less catastrophically – with the 89th Academy Awards last weekend. PwC were caught out for the first time, having overseen the awards ceremony’s handing out of winning envelopes, among other things, for 83 years. In their apology, the firm explicitly made reference to the fact that a) such an incident had been foreseen b) protocols had been prepared, in case of such a rare eventuality c) these were not followed through quickly enough on the night. As with many cases of significant error, the fault appears to be with an excess of comfort.

• Firstly, PwC as a firm, it could be argued, had become too comfortable in the role of auditor. In an interview before the ceremony with one of the two partners involved, it was revealed the opportunity to be auditor for the awards had never gone out to tender. This is poor due diligence on the part of the Academy.
• Secondly, Brian Cullinan, one of the PwC partners, seemed himself to have acquired too much comfort with his role. Whether this was tweeting (hastily deleted) pictures of Emma Stone at the moment he should have been concentrating on his work (see picture above), as Variety revealed, or – as the same publication also uncovered the other day – that he wanted to have an on-stage presence, involving a skit with the host, Jimmy Kimmel.
• Thirdly, we would also add that – having worked for Deloitte in a strategy role in days gone by – PwC should never have let these two individuals stand in the limelight. Any project, however glamorous (or not), should always have only one face, that of the company as a whole, not an individual.

The eventual winner, Moonlight, was praised by The Economist (among many others) for being a wonderful film, and one that deserved to win the coveted Best Picture award. Interestingly, it noted how it had been made for “a tenth” of the budget of films that had won in the past several years. This is a worrying trend, as these prior winners were already considered to be of a small budget; minnows that did not attract the attention of the studios, who increasingly find themselves in the comic-book franchise game, rather than the Oscar race. It bodes poorly in the medium-term for the release and backing of films that try to tell human stories about real life; art that may actually have an impact on others. It is these types of films that, with current political turmoil, are needed right now.

MWC mediocrity

Innovation in mobile is becoming harder and harder to come by. If, as Forrester reported recently, smartphones are in the hands of 40% of the global population (even including those people hanging out with penguins in icy tundras and running away from lions on barren plains) then such a product is in need of something new to differentiate the market for consumers. At the annual Mobile World Congress, such things were in short supply. This week’s Economist quoted Ben Wood of CCS Insight summarising the event as a “sea of sameness”.

Indeed, ZTE (as above), had a gloriously twee “fairy garden” on display, which seemed very very similar to the one we saw at MWC in 2016. From a product point of view, Nokia (yes, Nokia) seemed to generate the most buzz for its revamped 3310, a resurrected product from a bygone mobile age. A feeling of sameness hung in the air from those reporting from the ground too; cynicism was prevailing.

Last year, Zeitgeist found that if you didn’t have Oculus at your stand (for any reason, no matter how inconsequential), you were a nobody. You also needed to be talking about 5G (no matter how vaguely). The same seemed to be the case this year, except more so. This, despite the fact that Oculus has squandered an eighteen-month lead in the market, now with a position of third in the VR marketplace by revenue. VR in general has yet to transfer to a mainstream pursuit, to the surprise of analysts. 5G, on the other hand, saw some glacial movement. While operators in Japan and South Korea had already begun investment and deployment of the networks before standardisation, the UN’s ITU body has now set those standards, laying the way for other markets to begin upgrading their networks. Their challenge is a formidable one, and to be honest they should not expect it to be anything other than a thankless task. Their main approach to this eventuality at the moment seems to be bigging the technology up beyond all recognition, which has started a backlash of sorts among the more experienced in the sector.

Making the Oscars more relevant

Are the Oscars as outdated as wearing your hat to work?

Last month, AMPAS celebrated a year of achievements in film, for the 87th time. In a recent article, the Financial Times lambasted the film industry for its overwhelming focus on high-risk, high-reward blockbusters and the death of middle-budget studio films, the likes of which were often lauded by the Academy. Viewing figures for the show in 2015 were the lowest in six years (though, let’s keep things in perspective, it was never watched by a billion people). In a guest post, M.K. Leibman looks at what’s going wrong with a format that has often been criticised as outmoded, if not inappropriate. M.K. is a native New Yorker with experience in film production. She hosts a popular blog where she often critiques film industry practice.

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It’s been a couple of weeks since The Academy Awards. Everyone’s think pieces have already been written, the internet has had its say and Hollywood has already returned to work on this years slate of new releases. It’s back to business as usual. Disappointed with the 18% decline in ratings, the industry assures us that “next year will be better”.

Others like Variety remain less convinced that will be the case.

In it’s incredibly popular piece, Variety stepped up the tone warning that things are unlikely to improve with the Oscars unless several changes are implemented. In its article, Variety noted six changes which should be implemented, notably the inclusion of more popular films as nominees, not televising technical awards, and reducing the run-time of the broadcast.

However, I argue that they don’t go far enough, or actually get to the core of what’s wrong with The Academy Awards. Looking at over 150 comments underneath the article, you could get a feel for what people actually thought was wrong with the ceremony, and it wasn’t giving stage time to the sound editor. The general consensus is: The Oscars just aren’t relevant any more to the average American.

Of course the Academy isn’t just going to throw up their hands and close up shop at this revelation. There needs to be massive changes implemented at all levels of the broadcast in order to sustain its future.

The first decision The Academy should make is to not re-hire show producers Craig Zadan and Neil Merron. They’ve had a run of three years and the show has failed to see a big boost in ratings. It’s not to say these two gentlemen aren’t very talented producers. However, to effectively implement change means to start those changes at the top in order to bring the show in a new direction.

Under the tutelage of Merron and Zadan, the Oscars have struggled to define their tone. In their first year as producers, they made a bold move and picked comedian Seth McFarlane to host the show. His performance drew ire from the older Academy voters and Hollywood for unorthodox jokes, while thoroughly pleasing the younger demographic. The next year they decided to change course drastically to compensate for offending many, hiring the lovable comic Ellen DeGeneres. After McFarlane’s raunchy style, Ellen just felt too clean and safe. While the broadcast was widely watched, the biggest moment felt like a corporate gimmick: a Samsung-sponsored selfie became the most re-tweeted image on Twitter of all time. Neil Patrick Harris was the producing duos most recent choice. He too was a very safe choice, and failed to leave his mark on the show – even feeling awkward at times with the written material he was given to present, such as the joke mocking the broadcasts lack of diversity.

The one common tone these hosts and their shows all share is that the modern Oscars also feel more like a Broadway musical than a celebration of film.

While some may like this Vaudevillian style, most people on social media and in the Variety comments section seemed tired of these long drawn out musical numbers. Several recent hosts have made the musical a centerpiece of their show, including McFarlane with the asinine “show me your boobs.” The Oscars isn’t a Broadway musical, it is a show that ought to celebrate film – not dance around to silly songs, or theme songs from movies made 50 years ago. Or worst of all, in the case of the 85th Academy Awards, to Merron’s own film Chicago in a rather transparent attempt at self promotion.

When asked about their strategy for taking over the Oscars three year ago, Neil Merron and Craig Zadan told Entertainment Weekly that they needed to both shorten the show while increasing the number of performances; an arguably impossible task. They decided to reduce the stage time for technical awards, seating them closer in order to reduce the walk-time to the stage for acceptance of awards (a total of 40 seconds). They reason this frees up more time for musicals and other in-between performances which in turn allegedly attracts more talent to want to attend the broadcast live. Unfortunately, this has failed to decrease the run time and this year’s ceremony nearly approached the four hour mark.

They need to cut out more of the musicals and, like the BAFTAs, eliminate the televised acceptance of technical awards. They need to do this no matter how loudly those technical trades collectively complain about it. By eliminating technical awards, the BAFTAs run on average an hour shorter than the Oscars. This may be a hard pill to swallow for some, but people just don’t have 3.5 hours to devote to an awards broadcast on a Sunday night.

Once we cut out all of the musical numbers and technical awards, what could they be replaced with?

For starters, hosts that can actually captivate an audience without song and dance and poorly-scripted spectacle. None of these hosts were the sort of folks that could get a family to want to sit in front to the TV together to watch. When you think of some of the more successful Oscars hosts throughout history, they were comedians who could naturally work a room, loved by many generations. The current Oscars feel victim to a teleprompter mentality, a hyper-scripted event that fails to feel authentic. In trying to achieve the right tone, the Oscars could benefit from handing the hosting job to a duo like Amy Poeler and Tina Fey, whose Golden Globes hosting gig remains one of the more talked about award shows in recent memory. Some have even suggested their former SNL co-star Jimmy Fallon, but even he feels too safe a choice and slightly over-exposed given his Tonight Show gig. The host needs to be a natural comedian or comedic duo, with more choice over the written material and someone who is not overexposed that plays well with multiple key demographics.

The other part of the tone that needs to change is its pretentiousness. There is no faster way to assure irrelevancy than if you make the Oscars into a club of pretentious film buffs. There needs to be more time devoted to financially successful films that captivated general audiences during the year, and less time making fun of them. You don’t need to give an award to the superhero films, but to mock – or worse, just ignore – their existence isn’t going to improve your ratings either. Perhaps add a segment which praises some of the more financially successful films of the year, or include a performance related to those popular films.

This years ceremony felt almost like the Independent Spirit Awards, the award show that nominates the best of independent cinema. In fact several of this years big winners were also indie films honored at the Spirit Awards. Apart from the film buff niche, the American public isn’t going to see films like Birdman or The Grand Budapest Hotel. That doesn’t mean, as Variety suggests, you need to honor tentpoles with Best Picture nominations, but it’s not like the studios didn’t put out good films people enjoyed which were also award-worthy; Gone Girl was but one notable snub in that arena. People care about the Oscars more when films they care about are nominated or win. The most successful year of all time was when megahit Titanic was nominated in 1998, that year saw 55.5 million viewers versus this years 34 million.

Did the mainstream cachet of David Fincher’s Gone Girl hinder its chances at further Academy recognition?

 

The other 800 pound gorilla in the room is diversity. While not discussed in the Variety article, a highly visible Oscars boycott took social media by storm under the hashtag #OscarsSoWhite and #BoycottOscars. The tweets were in the millions, suggesting the boycott was substantial according to the number of tweets supporting it. Upset by the lack of nominations for Selma and no people of color nominated for acting awards, many decided not to watch. Even Al Sharpton called off a protest of the red carpet, hours before the show was to begin at the request of Selma director Ava DuVernay.

Before one chalks this up to being just another case of social justice sentiment on social media, there are serious long-term financial ramifications. If viewers don’t see themselves represented on screen, or at the Oscars, they’re not going to watch. As America grows more diverse, with people of color expected to become the population majority by 2050, the Oscars need to do more to include illustrate this diversity in their broadcast. Granted, a chef is only as good as his ingredients, the show’s lack of diversity isn’t helped by the product released, which this year had a paucity of strong roles for women. As Variety commented at the time,

“It’s always easier to identify a worrisome trend than to figure out its cause, much less to suggest a workable solution. We can point to the limitations of genre in the case of “American Sniper,” “The Imitation Game” and “Unbroken,” given that most biographical war movies are about the exploits, adventures and sufferings of men. Still, whatever these films’ particular shortcomings or virtues, I suspect that awards voters are too often inclined to accept them on their own grand, self-important terms, which not so subtly conflate significance with masculinity: Watch Chris Kyle and Louis Zamperini march off to war! See Alan Turing change the face of history!”

The Oscars need to find a way to appeal to young people, and people of color alike. The future of this show is not white people over 34, but the critical 18-34 demographic and minorities. This needs to be reflected not only in the broadcast’s format and demeanour, but also in the makeup of the Academy itself; 94% white, 76% men, 63 years old on average.

In order to remain relevant, the Oscars need to find a tone that can compete with people’s attention in a highly-distracting digital age. The Oscars are starting to feel too self-congratulatory, too Hollywood, despite the irony. Americans don’t feel represented by the choices the Academy makes. The musical nature of the show leaves many men out of the equation and the lack of diversity is off-putting to entire races. Yet I doubt most of these considerations will be on the table for next year’s show. I suspect another safe choice for host with a near four hour run time chock full of endless musicals, lack of diversity and self-congratulatory scripted satire which is bound to generate uncomfortable laughs – and in today’s day in age I just don’t know how much longer that format can last. When Americans don’t feel like they’re invested in the show, there are just too many other entertainment options in the present day than to have to tune in for what they know will be in the news tomorrow or on social media in seconds.

Tech’s impact on business and culture in 2014

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).

Former WSJ.com Managing Editor Kevin Delaney leads discussions on Samsung and Twitter’s presence at the Oscars last night (click to watch)

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.

Whatsapp’s number of active users skyrocketed to 450m in no time, outpacing both Facebook and Twitter (Source: The Economist)

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“.

When. Cinema. Works.

“[T]he big screen. That is its natural habitat—the only place, you might say, where its proud and leonine presence has any meaning. Anything more cramped is a cage, as Jon Stewart showed during this year’s Oscar ceremony. At one point, we found him gazing at his iPhone. “I’m watching ‘Lawrence of Arabia.’ It’s just awesome,” he said, adding, “To really appreciate it, you have to see it in the wide screen.” And he turned the phone on its side. Deserts of vast eternity, reduced to three inches by two.”

– Anthony Lane, The New Yorker

Film can sometimes be a mercurial medium. Especially nowadays. It encompasses multiple genres, and, like food, is meant for different occasions, for different needs. Of course, sometimes we go to bad restaurants, or order in, and the experience is terrible. Uber-flop John Carter cost Disney a cool $200m, and wasted many a precious dollar and hour for those that went to see it (admittedly few). But sometimes it’s like a great burger and fries – Die Hard springs to mind – and sometimes it’s a sumptuous 6-course meal cooked by a Michelin-starrred chef – Lawrence of Arabia, or All the King’s Men. Film can stimulate us, it can teach us, and it can be a breezy bit of consumption to pass the time, like a coffee at Starbucks. Moreover, as with food, it can be consumed in different places and circumstances. There are times when the right way to watch a certain film is on your iPad in a cramped airline seat. Pure escapism. But cinema has a crucial place too.

It was interesting today, when Zeitgeist went to see a movie, that it was preceded by an announcement showing an empty cinema, covered in cobwebs and dust, bemoaning the death of the medium at the hands of pirates. Its aim was to take the audience on a guilt trip: ‘Why are you illegally downloading films?’ ‘Why aren’t you coming to see more films at the cinema?’ it pleaded. There are a couple of things strategically wrong with this approach. Firstly, what is the principle problem here? Alright, people are not going to the cinema as often as we would like. Zeitgeist remembers in a brief stint working for Fox several years ago that people went to the cinema 1.8 times a year in the UK. The Economist reports that the share of Americans who attend cinema at least once a month has declined from 30% in 2000 to 10% in 2011. The assumption is that people are instead pirating films at home, thereby depriving studios of money (ignoring research that suggests those that pirate are often avid cinema-goers, and optimistically equating every film downloaded to ticket revenue lost). Well, one quick way to address this is to make films legally available – at a sizeable premium – on multiple platforms day and date. We’ve argued this before, and entertainment trade Variety has used our argument for a lead editorial. It should be recognised, that, although the most prominent face of the film industry, cinema is not what makes the studio money; for years the bulk of profits have been made in home entertainment consumption. Furthermore, there are two fallacies here. One is that cinemas make most of their profit from the snacks people buy at the cinema, not the films themselves. If you want to increase margins, there should be a much more prominent focus on food options, and that means offering a wider, more tempting range of food to be eaten, which is then promoted more effectively. The way such snacks are currently promoted – “Let’s all go the lobby” – has not altered for a half century. Lastly and most egregiously, the communication is completely misdirected, talking to the very audience who is already doing what the ad asks them to do. The ad is shown nowhere but the cinema, therefore only people who go to the cinema will be subject to this guilt trip. To avoid feeling guilty, one can avoid the ad by avoiding the cinema. The logic is completely twisted. Negative communications have been shown to be much less effective in influencing behaviour than positive affirmation. So let’s think about a way to promote cinema that goes beyond a highlight reel of what movies are on in a particular season. More robust revenue streams will have to be found soon. Less people are turning out to the cinema, and in foreign markets, which are doing relatively well, a far smaller chunk of box-office receipts go to the studios.

What also played during the reel before the film started was a short film by Disney Animation that has been nominated for an Academy Award, called Paperman (see trailer above). Zeitgeist had watched the short some days ago on his iPhone after coming across it on Twitter, and enjoyed it thoroughly. It was exciting and convenient to be able to consume something so quickly after hearing about it. Moreover, it was instantly shareable with the 400-odd people who follow our tweets when we retweeted the link. Seeing it in the cinema today though really reinforced the power of the big screen; the detail you couldn’t see on the iPhone, the great sound, and the shared laughter and enjoyment from those around you. “Grandeur is a far from simple blessing”, writes Anthony Lane in the same article quoted at the beginning of this post, in The New Yorker back in 2008. The pleasure of watching something in the cinema is ultimately an irrational benefit, which can be hard to quantify, but even harder to ignore.

UPDATE (06.12.13): The Economist featured a good article on how cinemas are seeking new revenue streams around the world, here.

What Creative Destruction means for Kodak, China and Romney

Some things are built to last. Some businesses are made this way. They are in the end ultimately just as susceptible to market forces as their counterparts. Originally a Marxist idea, creative destruction has found its way into popular economics. Former Fed chairman Alan Greenspan mentions the phrase often in his autobiography. Zeitgeist has previously mentioned the late, great economist Schumpeter, too. His notion of ‘disequilibrium’ was that within the market, though you may have a great product or solution, there are external forces that can render said product or solution redundant. These innovations often come in leaps of ingenuity that might initially seem to be extraneous to the current product or solution’s market. Finally though, the new innovation ends up eradicating any synonymous inefficiencies. Think first about Henry Ford’s famous quotation,

“If I had asked people what they wanted, they would have said faster horses.”

Along with the insight that customer research is not always the best way to go – Apple’s avoidance of it is a case in point – what this quotation also illustrates is our tendency toward myopia when it comes to seeing strategic competition from a seemingly unrelated field. Harvard Business Review have an excellent paper on strategy that covers this. It is unlikely that anyone thought the motorcar would replace horses, or that it would even be popular. This eradication of the other, more inefficient product or solution is a great example of creative destruction. Apple’s iTunes and it’s myrmidons, and the damage it has inflicted on CD sales, is another example.

Speaking of cars, attention on the auto industry was front and centre during half-time of the recent Superbowl in the US. The automaker Chrysler, which produced a similarly provocative commercial that aired during last year’s Superbowl, has caused much chatter over television, radio, print and social media. It’s an affecting advert, not least because it is built on a fallacy. Though Zeitgeist believes that bailing out the auto industry was the right thing to do, this commercial, and politicians of different stripes (including Newt Gingrich and Obama), have all been harping on about the manufacturing renaissance coming to the US: America Redux. The simple, horrible truth is that while manufacturing as an industry has room to grow it will not return to what it was.

Moreover, those jobs that will be required demand increasingly skilled, technical labourers, i.e. college-educated. There will be a great many people who are now out of work in the US who will be unlikely to find work again due to a lack of required skills. This is not President Obama’s fault, just as it is not Bush Jr. or Daddy Bush’s fault. Though some would point the finger at policies endorsing outsourcing, this would be incorrect. Insourcing is an increasing phenomenon as wages improve in regions like China. It is the way of things, as a recent editorial explains in the FT explains,

Mr Obama [has] bought into the fallacy… that manufactures are declining in the US, but his work suffers from conceptual flaws. Take just one problem: services splinter off from manufacturing even as vertical integration yields to specialisation. Over time, manufacturing yields to services. This gigantic change that is taking place has nothing to do with outsourcing.

And speaking of China, the country sits on the brink of mass creative destruction. While money poured into the country during times of less fiscal restraint, China funneled it into myriad infrastructure and planning projects. Now the easy credit is drying up, the country is in a difficult situation, not helped by mass protests across the land as workers demand remuneration that could almost be considered wages. As with the US, there will be an inexorable shift from a manufacturing industry to a services industry. How horrific this shift will be depends upon timing, among things, as a recent article in The Economist points out,

“The long-term plan is for China to wean itself off its reliance on exports and investment projects such as roads, railways and overpriced property developments, and for domestic consumption of goods and services to play a much bigger role in fuelling growth. But this rebalancing will be a long, hard slog. Officials do not want shock therapy because it could threaten the jobs of many of the 160m migrants who come from the countryside to provide the cheap labour behind China’s exports.”

Republican Presidential candidate Mitt Romney, as is the lot of someone frequently perceived as front-runner in the candidate race, has been the focus of unrelenting criticism from his fellow party members. Some of this criticism has focussed on his time working for the private equity wing of uber-consultancy Bain & Co., specifically on how many people’s jobs the man cost during his tenure there. Though Romney claims to have created a net sum of 100,000 jobs, he has since withdrawn that rather nebulous figure as his arithmetic has been questioned. His Republican opponents, as well as grass-roots Democratic lobbying group MoveOn (below), have been airing ads featuring blue-collared workers who were let go thanks to Romney’s strategies and implementations.

Mr. Romney, though his flaws and foibles may be many – he recently praised the height of Michigan’s trees as being “just right” – is not responsible for the trend of efficiency savings in America, as the Schumpeter editorial in The Economist points out,

“[I]t was also a symptom of a wider change. It was not just people like Mr Romney who were pushing American companies to shape up. It was also the new rigours of global competition. Firms of every description sought to squeeze out inefficiencies, sell off non-core businesses and close redundant operations, all in the name of shareholder value. [I]t was the shift from manufacturing to services.”

To attack Romney for such practices is to attack the foundations of modern capitalism. Which one is most welcome to do, but presumably something that most Republicans would want to shy away from, continuing as they do to bizarrely refer to Obama as a socialist. One can’t have it both ways.

Similarly caught unawares was the film industry back in the silent era, which underestimated the massive success it would have on its hands with the arrival of sound. While excellent news for film studios, many of the talent in front and behind cameras suddenly found their way of storytelling outdated and unpopular. The Artist, which won Best Picture and Best Director awards at the Oscars at the weekend, perfectly illustrates this change. The ceremony was a grand affair as usual, hosted in the same venue as it has been for years, The Kodak Theater. Reuters recently reported that Kodak has asked to have its name removed from the building as it tries to reduce its debts.

Kodak’s recent fall into bankruptcy serves as a superb example of the forces of creative destruction. The brand is surely one of the most famous of the 20th century. The Economist called it the Google of its day, and surely there are few companies that manage to enter the public lexicon. Until the 1990s it was “regularly rated as one of the world’s most valuable brands”.  The phrase “Kodak moment” has long since left the zeitgeist. The company built one of the first digital cameras ever back in 1975, the cheapest of which cost $1,000. Its share price has fallen 90% in the past year. Its competitor Fujifilm was cheaper and quicker to adapt. Creative destruction first made physical film cameras obsolete, and increasingly digital cameras as smartphones become equipped with high-definition cameras.

After trying to diversify into chemicals, George Fisher, boss of Kodak from 1993-99, “decided that its expertise lay not in chemicals but in imaging. He cranked out digital cameras and offered customers the ability to post and share pictures online.” This could have led to the creation of something akin to Facebook, but for one reason or another it did not. The Economist blames Fisher, and whatever the cause, the company has also suffered from inconsistent strategies due to a revolving door of senior management. Tony Jackson, writing in the FT, defines the creative destruction as one of “technological disruption… cheaper than the existing version and initially not as good. Faced with a cheap and dirty alternative… it goes against the grain to devote resources to it.” One of Kodak’s problems was also its passion; for physical film itself. This passion essentially made them blind to investing fully in the coming digital revolution. There was an acknowledgement that a change was coming, but it was underestimated.

Creative destruction works in terms of the stock market too, of course. What this clip, from the excellent film Margin Call, is alluding to, is that good times lead to indolence; crashes trim the fat. It is nothing new. The series is a cyclical, unending one, difficult to influence, let alone prevent. (That’s why it was so ludicrous when Gordon Brown, as short-lived UK Prime Minister, grandiloquently announced “no return to boom and bust”). Each new cycle brings new regulations, new ideologies and practices. New products, new solutions. The ways the booms and busts happen changes. The products we make and the strategies we implement change and become more and more innovative. But the cycle never ends. Enjoy the ride.

On demographics, devices and ‘Downton Abbey’

“Keynesian paradigm shift” was a term Zeitgeist was introduced to back in those glorious days of university. We’re often on the lookout for that next shift. 2003 was the first time when Zeitgeist began to take blogs seriously, as your average Iraqi citizen started writing journals online that gave more of an insight into the invasion than any “embedded” Fox News reporter. Incidentally, anyone looking to know more about the way news was covered by those reporters under the care of the US military at the time should check out the fascinating documentary “Control Room”.

There’s has been much discussion of more paradigm shifts over the last couple of years as PVR / DVR devices like TiVo and Sky+ have set various network TV honchos and advertising execs fretting about the lessened impact of advertising caused by delayed viewing. Advertisements on television are scheduled at a particular time to appeal to a very particular audience, and may be very ephemeral in nature (eg for an upcoming event or film). Having viewers watch the commercial at a later time might be bad, as it could be – in the advertiser’s eyes – too late. But having the viewer fast-forward through the commercial break altogether is disastrous. Simply put, companies won’t pay to have an ad on TV if no one is going to watch it. This of course is especially relevant to shows with covetable demographics, i.e. Watched by the financially comfortable, as ironically they are more likely to have purchased a device that makes those advertisements fast-forwardable.

However, recent news should cheer those whose job it is to worry about such matters. In the first place, as the world economy stutters into recovery, advertisers are funnelling money back into mainstream media, particularly television, as we reported on last October. Moreover, as Variety recently reported, the feeling of watching a show as it is broadcast “live” is a special one. This has long held true for sporting events and the Oscars, but increasingly it applies to popular sitcoms and dramas, too. Shows like ITV’s recent Downton Abbey revealed that people made a point of watching the broadcast live so that they could engage more in the online conversations that were taking place on social networks like Facebook. UK TV ratings are now at their highest since records began.

This brings up two points, one of cultural philosophy, the other of political science policy. In the mid-1930s, Walter Benjamin wrote a seminal piece of work known as “The work of art in the age of mechanical reproduction”. The crux of this paper rested on the idea that there is something infinitely intangible and special about seeing the genuine artefact; beholding the original Mona Lisa in the Denon wing of the Louvre is a more special experience than looking at it on a postcard. There is an “aura” to it. If we extrapolate this to the world of film and television, that aura is fed now by social media chatter amongst friends.
From a policy point of view, an argument that Zeitgeist has mentioned before bears noting, that of technological determinism vs social constructivism. It posits the argument over whether what a technology is intended for necessarily dictates how it is used, and influences user behaviour. With a heightened demand for the live experience, evidently this is not the case with PVRs. Recent studies show that people are fast-forwarding through commercials less and less, and, as mentioned, gravitating toward enjoying the live experience more and more. A savvy person might ask how we can mesh these two worlds together. Zeitgeist wouldn’t be surprised to see in the near future programme recommendations appearing on your PVR from friends you are connected to over social networks.

Downton Abbey is worth noting again. In the past, when we have thought of wildly successful shows and films, thoughts of the latest teen sensation might have come to mind. And while Twilight and Justin Bieber do occupy a significant part of the current Zeitgeist, shows like Downton Abbey illustrate that there is another audience – a rapidly growing one – that is only just beginning to appear on the radar of media executives. As The Economist recently pointed out, the baby boomer generation has a relatively high spending power, and buys a relatively high quantity of media like CDs. And while, according to Variety, movie studios plan to release some 27 prequels or sequels this year, there are also signs for hope too. The King’s Speech came very close to not getting made after debacles with funding, and Black Swan had a similarly bumpy road to production; Variety says it “kept losing its funding until the day before principal photography”. These were two of the greatest (and most mature) films of last year according to Zeitgeist, with the former winning both Best Picture and Best Director. Black Swan has grossed more than $100m in the US. The only other film from Fox studios to do the same was the latest Narnia incarnation, which must have cost north of $200m to make, once marketing is included. Films about royalty and ballet are ones that will appeal to the superannuated audience, and not coincidentally perhaps the ones with the highest profit margins. The much-coveted 18-49 demographic is an anachronism, let’s think bigger (and older).

The Golden Boy

As the dust settles on the Oscars, what lessons do those flaxen idols have to impart?

Firstly, “The Hurt Locker” and “Avatar” led the pack in nominations with nine apiece. There could not be a more disparate pair of films; they are indicative of the way films are heading: small budget, prestige pictures mixed with bombastic blockbusters, with no room for those middling films of a reasonable budget, previously thought of as being a reliable, safe bet. In fact, in the world of cinema there is no such thing as a sure bet.

Secondly, “The Hurt Locker” was released around this time last year. It’s subsequent win should instill further in the minds of studio execs that to be in with a chance of winning, it is not necessary to release your film at the last possible moment to keep it fresh in the Academy voter’s mind. Previous Best Picture winners such as “Crash” and “Gladiator” – both released around ten months before voting takes place – also evince this. Let’s have an end to the glut of award-worthy pics bunched at the end of the year and exploit the intervening months that are usually a wasteland for cultural stimulation.

Media shakes and quakes

A quick round-up of some interesting news in the media world in the past 24 hours or so…

The scope of the BBC is to be drastically reduced. The TelecomPaper writes that the plans are to “reign in its website, close down two radio stations, cut management costs and focus spending more on quality, local programming.” News organisations have been complaining for some time that the BBC News website is taking traffic away from dedicated news publication sites, and in general this news will be music to the ears of James Murdoch, whose Sky continues to see ebullient profits.

Viacom and the US TV streaming service Hulu are parting ways, meaning hilarity such as The Daily Show with Jon Stewart will no longer be available on the site. The WSJ reported that they reached a “financial impasse”. Meanwhile,  Hulu has launched its own show.

Apple is currently making the rounds of movie studios after paying a similar visit to the music labels in discussions to be able to provide users with their media in the cloud. The upshot is that users would be able to access their iTunes products from anywhere at anytime on their mobile devices. Zeitgeist looks forward to seeing this in action.

Lastly, if you’re planning to watch the Academy Awards this Sunday night at home on television, you’ll be in the same position as one of the producers whose film has been nominated for Best Picture and is seen as a front-runner. On the last day to send out one’s vote for the Oscar ballot, Nicolas Chartier wrote an email asking for his friends to vote for “Hurt Locker” rather than a certain “$500 million film”. The Academy have responded by banning Mr. Chartier from attending Sunday’s ceremony. The LA Times reports, “Should the film win best picture, Chartier would be given his Oscar at a later date”. The insight is that backstabbing isn’t kosher, even in Hollywood.

UPDATE: Very interesting post from TechCrunch on the Hulu / Viacom split; “The economic incentive is too great for media properties to centralize their videos on their own sites. But to consumers, this recentralization looks more like fragmentation”.