Threats and Opportunities for the Entertainment Industry in 2014

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*Our 2015 trends for the sector can be found here*

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At the start of a new year, what to make of the entertainment sector? It depends where you look. One thing is for certain though; at the close of 2013 that old laggard the music industry upstaged its media cousins. For sheer daring and innovative nous, few initiatives could claim to beat Sony in its launch of Beyoncé’s new album. In the face of increasingly ailing streaming services, the album was released as a fixed bundle on iTunes, with no marketing behind it. The news of the release thus came as a last-minute surprise to the industry and consumers alike, creating a short but extreme burst of anticipation. The artist posted a message on Facebook saying she wanted to recreate the “immersive experience” she used to have listening to music. The album sold 80,000 copies in three hours. It is difficult to envision Sony’s film division at Columbia Pictures doing anything similar.

Near the end of last year, Zeitgeist was fortunate enough to be able to attend the 5th Annual GlobeScreen Conference at London’s May Fair Hotel. Eve Gabereau, the co-founder and MD of Soda Pictures lamented “nurturing a film is not possible any more… there is less opportunity for a film to find its audience”. Word of mouth, she said, had to be very good, and happen very quickly, in order for it to have an effect. Simon Crowe, founder and MD of SC Films International, disagreed with another speaker, who asserted that filmmakers were being hampered by a lack of data, in that they did not know who they were making films for. He dismissed the need for data, and, most worryingly, stated the primary focus should not be on the bottom line. This is dangerous thinking. Films may be art, but if the medium is to continue then it needs to be profitable. So the primary focus has to be ‘How will this product turn a profit?’. Zeitgeist asked him afterward about the viability of VOD (video-on-demand) as a channel; Crowe was not optimisitic about its future as a significant revenue producer, calling films that have found success on such platforms – such as Arbitrage and Margin Call – outliers. Zeitgeist offered that Netflix had not been considered a significant distribution channel for a while, until suddenly it was. Did he foresee a similar situation with VOD? “Don’t know”, was his retort. It was well worth staying late to receive such gems as answers. The whole conference spoke of an ignorance of the insight data can provide, a shunning of profit-focused management, and a general yearning for bygone times when the industry – not to mention the champagne and other substances – was flowing more freely.Such anecdotal frustrations found company in the form of hard data. To cap off 2013, Business Insider published an article entitled ‘The US 20: Twenty huge trends that will dominate America’s future’. Number 16 was ‘Old Hollywood is dead…’. It noted that inflation-adjusted box office receipts were down around 8% from their 2004 high (see chart). Industry trade mag Variety reported recently that UK box office fell 1% in 2013, which was the first drop in ten years and the biggest in more than twenty. Of course, part of the reason for this was because 2012 had a rather suave helping hand from James Bond, in the form of Skyfall. When Zeitgeist prodded Cameron Saunders, Managing Director of 20th Century Fox UK, about the news over Twitter, he was quick to leap to into the fray, noting that it was “still the second biggest box office year on record”. He also went on to concede though that “UK admissions however have flatlined, despite lots more films = fewer people seeing each movie”. The same scenario is happening in the US. China is one of the few bright spots in the world of film, and has seen an explosion in the number of physical screens installed in the country over recent years. But even the Chinese film industry has medium to long term challenges it will need to overcome, if, as some predict, it is to become the world’s largest film market – overtaking the US – by 2019. It is still at the mercy of a government with strict controls and vague whimsical notions about what makes for permissible content; the state is involved at almost every level of production and distribution. Moreover, though the quota on foreign releases in the market has been relaxed slightly, it is by no means open season for Hollywood. In much the same way as the banning in China of Google’s app service and videogames consoles led to poor knock-offs, so with film. The restrictions have spawned poor remakes of American films that didn’t see a release on China’s shores, which inspires little creativity or excitement.

It was not all doom and gloom in the cinema of late of course. Gravity continues to light up screens across the world, and seems poised to do well come Oscar night. Its only obstacles come in the form of other films that critics and audiences have been similarly impressed with this season, including 12 Years a Slave and Captain Phillips. But such artistic achievements can hardly make us forget what was a poor summer for the film industry. We have written before about how films in development are increasingly either mega-blockbusters or niche arthouse films. Producer Kevin Misher, talking to The Economist last month, echoed our thoughts; “Hollywood is like America: the middle class has been squeezed”. The article went on to lament the unique situation the film industry finds itself in, relying on outsiders for both ideas (“imagine if Apple or Toyota did this”) and funding.

Will more content producers partner up with those infringing intellectual property?

The challenges extend further. Though Kodak suffered from other problems too, one of the things that prevented it from ever laying down a long-term strategy to embrace digital photography was the revolving door of executives at the top. Hollywood is similarly afflicted. In the past 18 months, according to The Economist, four of the six main studios have seen change at the top. Perhaps some longevity in senior roles would have encouraged these companies to embrace new ways of delivering films to eager customers. Instead, most films, particularly the ones glutting the summer schedule, still cling to an outdated distribution strategy of staggering releases across platforms. Studios resist doing this – save for the odd arthouse release – because it risks the ire of exhibitors. We’ve written before about the antiquated nature of such thinking. Every delay in getting to a consumer increases the chances that customer will resort to piracy. Companies like Netflix are reporting that intellectual property rights infringement dips once legal alternatives are made available to people; there are signs of hope.

Piracy is of course playing a role in television, too. In Poland, consumers have to wait months after the US broadcast for their dose of Homeland. It is thus one of the more popular shows to be pirated. Making the most of this trend, a publishing company responsible for a new book detailing Carrie’s life before the start of the series has been inserting adverts into the subtitles for the show. The MD of the publishing company told TorrentFreak, “We decided to advertise via subtitles because we wanted to show the book to all the fans of the Homeland series in Poland, no matter where they watch the show”. You can’t argue with placing a promotion for where you know your likely customers are. It will be interesting to see if any other unlikely coupling between pirates and content producers emerge. For, as amusing as this news is, it does point to a fragmentation in audiences, and thus in places for advertisers to reach them. It should have come as little surprise then when, last month, the Financial Times reported that TV’s share of advertising spend will slip this year, after three decades of uninterrupted growth. Jonathan Barnard, ZenithOptimedia’s head of forecasting, warned, “After television ad spending has grown pretty consistently for at least the last 35 years… there will be quite a lot of disruption to come over the next 10 years.”

Of course, disruption will come to other sectors of the entertainment industry, too. This was apparent at the recent Consumer Electronics Show in Las Vegas, where Samsung and Sony, among others, held court. It wasn’t the best of showings for Samsung, where famed producer / director Michael Bay walked out seconds into a presentation on curved televisions after the autocue failed. Sony had its disruptor product to tout, a cloud TV service. Beyond the glitz and glam of such new product releases, a big question remains: Can Sony use what assets they have and combine them effectively? A great article in the FT probed deeper, asking whether all these new products and services – we would be remiss were we not to mention the PS4, currently outstripping the Xbox One in sales – can be successfully integrated into an ecosystem that Sony is desperately trying to create. The corporation dabbles in film distribution, film production, smartphones, music as well as videogames and is slowly trying to tie them all together. All this while seemingly trying to disrupt itself, with cloud gaming doing away with the need for a console and image projectors doing away with the need for physical screens (Sony loses about $80 on every set it sells currently). As the article concludes,

“[CEO] Mr Hirai is trying to pick up the pace as Sony searches for its digital destiny. But the familiar questions remain: can it execute on the plan, how fast can it move – and how much pain is it prepared to take along the way?”

Where next for Sony?

Certainly if companies like Samsung and Sony wish to succeed in the coming years, they will have to do away with the obsession of focusing on hardware. It is plain now that, in consumer’s eyes, technology has reached a tipping point where the specifications of an object are no longer a unique selling point; they are a redundancy. This became clear at the Mobile World Congress in 2012, when PC Magazine published its event wrap-up under the headline “The End of Specs?”.

There are some companies that are embracing disruption, or at least, trying to hire those who started it in the first place. Disney, which often seems to have a strong strategic head on its shoulders, recently made the eminently sensible move of hiring the chairman of Twitter Jack Dorsey to join the Walt Disney board. This was no isolated occurrence for Disney, who had previously had Steve Jobs on the board and who have also hired Facebook COO Sheryl Sandberg. Elsewhere, the canny Weinstein brothers, who rarely miss an opportunity to make impressive artistic works that turn a decent profit, reteamed with their old company Miramax to develop further iterations of their film library. Seeing the opportunity for increased creativity in television, as well as new channels like Netflix and Amazon, they will also be developing new television series. And while online takes away advertising spend from other channels under the promise of reaching the right people at the right time, new local television development in the UK promises to do similar as it targets localised areas. Still, the film industry as a whole seems to be outright resisting any changes to the calendar; schlock in the summer sun, followed by arty pretense come Oscar time. Repeat. A writer in the New York Times elaborates,

“And then, after the Oscars, the machine picks up speed and starts excreting ghastly product like Oz the Great and Powerful, one of the worst movies of 2013 and the eighth highest domestic grosser of the year. Then the fall hits, and we cling to movies like Gravity and insist that, really, it isn’t all bad. And it isn’t, of course, even if creating a Top 10 list is finally an exercise in exceptionalism.”

The worry is that any shift in the schizophrenic nature of film scheduling and creation will probably involve at least a short-term hit to the bottom line. And a recent dismissal hints that no such shift is underway at the moment. In October, the great James Schamus of Focus Features was let go by Universal. Schamus was instrumental in bringing director Ang Lee to the US, distributing his Crouching Tiger, Hidden Dragon before going on to make The Pianist, Far From Heaven and Brokeback Mountain, among many other extraordinary films. Doug Creutz, senior media and entertainment analyst for Cowen & Company, told the New York Times in December,

“The major media companies are so big that nothing but a blockbuster really makes sense. Say you make a low-budget comedy and it brings in $150 million. So what? That doesn’t move the needle. You make a blockbuster… You can do the sequel and the consumer products and a theme park attraction. The movie itself is almost beside the point. All Disney is going to be doing is Marvel, Star Wars and animation.”

That would be a great shame for those who like artistic diversity, as well as sensible financial returns, in their film studio output. Current business models seem to be producing diminishing returns. This is true for videogames, movies and music. Experimentation, such as that by Sony’s music division mentioned at the beginning of the article, must be more widespread to engage with new consumer habits and to rekindle jaded minds. Consumer engagement and feedback as a whole is largely missing from much of the strategy with which the entertainment industry steers itself. Shareholder returns and operational logistics occupy most of their time. A far more rigourous approach to data – collecting and analysing it – and a more open ear to one’s customer base, might prove beneficial.

PR own goals leave Germans feeling cold

As if their continued efforts to save the Euro weren’t giving them enough of a headache, recent German attempts to sell cars and excite football fans have also failed to hit the mark.

As any Englishman will tell you, the weather has a nasty habit of messing up the best laid plans. From BBQs to Wimbledon, the rain can be relied on to appear when it is least welcome. Similarly the winters of 2009 and 2010 were unusually harsh just when retailers most needed people to be able to get out and spend their money.

So while we applaud their innovative thinking we can also sympathise with German agency Sassenbach Advertising who have seen their clever weather themed idea turn into a icy nightmare.

Seeking a “wind and weatherproof idea” to support the launch of the new Mini Cooper Roadster, they took advantage of the “adopt-a-vortex” scheme run by Berlin’s Free University and named the current high pressure front sweeping across Europe ‘Cooper’.

All was going swimmingly until ‘Cooper‘ dropped to -33 Celsius, disrupted transport across the continent and claimed over 100 lives.

The campaign also involved buying a low front to be called ‘Minnie’ later in the year that one hopes will be less destructive.

A statement from BMW confirmed that while they had bought the names they didn’t have control over when they were used and that clearly, they regretted any loss of life.

While the whole episode has been highlighted as a bit of an gaffe, BMW and their agency haven’t done anything wrong and the €299 price tag for naming the weather seems cheap even though the publicity it has provoked isn’t what was planned.

The same can’t be said for German football giants Bayern Munich who upset their fans with an ill thought out launch of an app.

Last week, as the January transfer window was coming to a close, the club told their 2.7m Facebook fans that they had just signed a new striker who would be announced exclusively via a Facebook app in around an hour.

Naturally, the announcement set social networks alight. To set the scene, Bayern had recently lost to Borussia Mönchengladbach and seen target Marco Reus sign for rivals Borussia Dortmund.

As the clock ticked down, fans debated which star they’d be seeing at Allianz Arena with Manchester based duo Carlos Tevez and Dimitar Berbatov among the suggestions.

However when the announcement was made it became clear that the club had misjudged things enormously.

A live stream with Markus Hörwick (Comms Director),  Chrsitian Nerlinger (General Manager) and Philipp Lahm (Club Captain) announced that the new star player was actually the fan themselves, the 12th man of the squad.

The app then showed fake press announcements, mock interviews with star players welcoming the ‘new player’ and shirts with the users name.

What could have been a great value added experience resulted in a terrible user experience, compounded by the app crashing, with fans venting their anger on various social networks.

The press, who had also been kept in the dark showed great schadenfreude, gleefully spreading news of the failure which ended up trending worldwide on Twitter.

Within three hours the club had received over 5,000 complaints from angry fans and was forced to offer an apology.

Both brands will survive their difficult week. Mini because they didn’t do anything malicious and Bayern because disappointment is all part of being a football fan.

Let’s just hope their fiscal policies have better results.

Gambling with Engagement

Understanding + Innovation = Real Engagement

Though not yet quite falling into the category of a degenerate gambler, Zeitgeist regularly receives communications from various bookmakers keen to incentivise a bet or two. Indeed we’ve previously commented on the activities of bookmakers and the gambling industry both good and bad.

It is an unusual category, one where the consumer has a number of suppliers to choose from and the product is abstract.

Consquently the service is essentially the same across brands – anyone can take a bet – and punters can visit sites like oddschecker.com to find out the best odds on a given event.

In such a market, the equity each brand has, from a long heritage in a given sport to their brand attitude and from levels of innovation to ease of use, becomes ever more important as a means to differentiate them from their myriad competitors. Marketing activity becomes crucial as brands try to establish their territory in a cluttered category.

Event Based Promotions

Some activities are based around major sporting or cultural events such as the flyer below which was distributed in Paddington Station during the Cheltenham Festival a couple of months ago.

From the tone of the copy and the reference to a girlfriend rather than wife, one might infer that the target audience for this communication was a male up to the age of 40. However, this particular flyer was handed to a female colleague who indignantly passed it on in exasperation at such a poor piece of targeting.

While some media platforms don’t allow brands to ensure their message only reaches their target demographic, it is one of the benefits that handing out flyers does offer.

It’s simple really. If the message on the leaflet isn’t relevant to someone, don’t give it to them.

Given that there are more women than men in the UK it is entirely possible that some might like a wager or two.  Indeed the recipient of the flyer is a sports enthusiast who regularly places bets.

So why didn’t Boylesports produce a flyer that would appeal to women too? Or failing that, why didn’t they educate the people giving out the leaflets as to who they should be targeting?

They may only be leaflets handed out in a busy railway station, but just because an activity is intended to be quick and cheap doesn’t mean brands can be lazy and allow standards to slip.

In addition to short term tactical executions such as the poorly executed Boylesports example, some bookmakers also invest in attempting to build longer term engagement with initiatives that show an understanding of their target customer and the kinds of things that will appeal to them.

Trends

Since Conspicious Consumption and the Age of Bling disappeared along with our wealth, consumers have increasingly sought cool experiences that not only break the stress of daily life but also act as a form of social currency. By providing or enhancing such experiences, brands are able to create an emotional connection with consumers.

Whereas boasting about material wealth is seen as crass, sharing the fantastic things you’ve been up to with friends is perfectly fine.

As we live our lives ever more publicly, we can begin to experience a low level sense of peer pressure as we try to keep up with our more exciting friends. Tools such as Facebook, Twitter and Foursquare allow us to share what we are up to before we do it, while we are doing it and then upload photos after the event.

Another unsurprising consequence of the economic downturn is that people don’t have quite as much money to spend and as such want to get value out of any money they do spend.

For some, gambling might seem like a way out of financial strife but for the majority it is something that makes sporting events a bit more exciting and let’s us back up our hunches.

Innovative Engagement

For the past few weeks Zeitgeist recently been monitoring the development of a new initiative called BetDash which has been created by Paddy Power, a brand that is all too aware of the need to differentiate and maintain a high profile.

The site, currently in beta, claims to be Europe’s number one ‘Social Betting’ site and allows players to ‘buy’ a £100,000 bankroll to gamble on real events. The cost of the intial £100,000 is variable, ranging from free, then increasing by £5 to up to £50 and directly influences the potential winnings.

After 21 days the player wins cash depending on how well they have done – if they’ve been lucky enough to turn their money into a million pounds they win twenty times their original stake, otherwise they have to settle for smaller rewards, all the way down to nothing if they’ve blown the lot.

The site works because it simultaneously allows people to experience the thrill of making a bet worth tens of thousands of pounds with the safety blanket of not losing more than their initial stake. Importantly, it also allows people to compete with their friends and make the experience a shared one.

The site has a Twitter account which updates occassionally with news of new ‘millionaires’ and the odd retweet and a Facebook fan page, though they appear to be more of an exercise in getting ready for when the service is fully developed.

To that end, BetDash impressively crowdsources improvements via a page through which users can recommend improvements to the service.

With ‘gamification‘ a hot topic, Betdash taps into the trend and offers players rewards, such as free bets and badges for returning to the site on a daily basis and achieving feats, like winning three bets in a row. You can also challenge other players bets and laugh at their wagers.

And for those who still find it hard to pick a winner, there is a list of the trending bets so you can see what everyone else is betting on. If 96% of bettors think Watford will win and 94% have bet on a Federer victory then maybe you’ll feel safer putting money on a double.

With the curtain having just come down on the current football season players will have to try and make their fortune on summer sports, though with each round lasting 21 days that’s only three rounds until the 2011/2012 seasons kicks off.

In the meantime, the BetDash development team will be no doubt be busy implementing the ideas users recommend so that the site is ready for next season.

The site hopes to create a behaviour amongst users that gets them thinking and talking about bets they’ve placed socially. From gambling being something personal and secretive it will become something to be shared – there will be little stigma as you are gambling with imaginary money. The aim will be to make BetDash one of those handful of sites you visit with regularity.

And of course, if you see a bet that you think is too good to pass up, PaddyPower will no doubt be delighted to let you stake some real money.

Since we opened our account (for research purposes!), Zeitgeist has already bet on football matches from Poland, Russia, Japan and South America, not to mention Boxing, Tennis and Horse Racing with mixed success as we try to grow our bankroll.

We’ll be keeping an eye on BetDash to see how it evolves, but in a category where differentiation and staying front of mind are key, we’d bet that this type of innovative activity will prove more popular than poorly distributed flyers in train stations.