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Media Trends 2016

the-empire-strikes-back-star-warsThe most enjoyable pieces we pen for this blog are our looks ahead to TMT trends in the next year (they also, coincidentally, happen to be our most popular articles). Do check out our 2015 and 2014 trends, too.

We’ll look at trends in the film industry, TV, telco and tech sector. These formerly discrete industries are now all blurring together. This should come as little surprise to most, after years of the word “convergence” being bandied about; AOL Time Warner was a misbegotten adventure on the back of this thesis. However, what is happening now is that these worlds are clashing. Techies push their platforms (e.g. the Amazons and Netflixs of the world), but increasingly follow in the footsteps of legacy media in creating a stable of content to offer viewers. But those legacy media players are fretting, according to the Financial Times,

According to cable industry die-hards who have the most to lose, the digital platforms have not done much to show they are appropriate guardians of media assets like these. According to cable pioneer John Malone, for instance, they do not do enough to differentiate media brands, they make it hard to get feedback about consumers (if the data are not passed on) and they are not conducive to the kind of advertising on which cable networks have long relied. The result is a giant searchable database, like Netflix.

Star Wars and the status quo

It would be difficult to write about the media sector currently without giving Star Wars: The Force Awakens at least a mention. The movie, which Zeitgeist saw last weekend, was huge fun, though we couldn’t help feeling like we were watching a re-imagining of the original, rather than a direct sequel. As fivethirtyeight notes, the prequels are out there now, and not going anywhere; this film faces a steep uphill battle if it is to redeem the franchise from the deficit of awfulness inflicted by the prequel triplets. The amount of money the film has made, and the critical caveats it has received, point to interesting trends in the film industry as a whole.

The Economist rightly points out how Bob Iger, since taking the reins of Disney from the erratic Michael Eisner in 2005, has made wise, savvy strategic moves, not least in content, through the purchases of Pixar, Marvel and Lucasfilm. But while most critics were pleased with the latest product to spring from this studio’s loins, there were some reservations. The FT, while largely positive about the film, lamented there was little in it to distinguish itself from the other tentpole films of the year:

What troubles most is that Star Wars is starting to look like every other franchise epic. Is that the cost of anything-is-possible stories set in elastic universes? I kept having flashes of The Hunger Games and The Lord of the Rings. The characters costumed in quasi-timeless garb (neo-Grecian the favourite). The PlayStation plots with their gauntlets of danger and games of survival.

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Recent releases are increasingly making their way onto the best-performing list, with increasing speed, too. Three films have crossed the $1bn barrier this year alone

There’s no doubt this is a problem. It’s not per se a new problem, as originality has always been something Hollywood has struggled with. Let’s be honest, art has struggled with originality too; Shakespeare’s MO was derivative, and has there been anything new to say in art since Duchamp? But the fact remains that when studios have the technical sophistication to produce any visual feat, and this is executed again and again in much the same mode, the effect on an audience begins to wane, and everything begins to look much of a muchness (if not outright neo-Grecian).

Also somewhat unsettling is the financial performance of these films. Not so much because of the people who will still turn out in droves to see recycled content, but more the pace at which records are now being broken. The new Star Wars made $100m in pre-sales – a record – and went on to make $248m in its opening weekend, beating the previous holder, all the way back in the summer, Jurassic World. The speedy gains of lucre for such fare are increasing. Titanic took three months to reach the $1bn mark at the global box office; Jurassic World took 13 days, beating the previous record holder, Fast and the Furious 7, which had opened only a few months earlier in April. In the ten years after Titanic, only three films crossed the zeitgeist-worthy Rubicon of $1 billion; since 2008, 17 films have done so (see above graphic).

Such potential return on investment ups the ante for ever bigger projects, something Zeitgeist has criticised several times in previous articles, wary of some of the huge, costly flops that have come and gone with little strategic reflection. The latest Bond incarnation, Spectre, was always going to be something of a safe bet. But with so much upfront investment, such vehicles now need to make all the more in order to recoup what has been spent. Or, as Vanity Fair puts it, “yes, 007 made obscene amounts of money. But were they obscene enough?“. Tentpoles have taken on new meaning in an era of Marvel heroes, and even Bond itself has set new benchmarks with Skyfall, which crossed the hallowed billion-dollar barrier referenced earlier. This quickly begins to seem less earth-shattering when you consider the all-in costs for Spectre have been conservatively estimated at $625m. Even with Skyfall, Sony itself made only $57m in return.

Trend implication: There is a glimmer of innovation in the Chinese film market, where blockbusters are being crowdfunded through WeChat. But in Hollywood, the focus of money on one type of film – and the attempt to capture only one type of audience – logically leads to a bifurcation in the market, with bigger hits, bigger misses, and a hole in the middle,which The New York Times points out is usually where Oscars are made. A large problem that will not be addressed in 2016 is the absence of solid research and strategic insight; studios don’t know when or whether they “have released too many movies that go after the same audience — ‘Steve Jobs’ ate into ‘The Walk’ ate into ‘Black Mass’, for example”. With Men in Black 4 on the way, Hunger Games prequels being mulled, another five years of Marvel movies already slated and dates booked in, look for such machinations to continue. Bigger budgets, more frequent records being broken and a stolid resistance to multi-platform releases. Even Star Wars couldn’t get a global release date, with those in China having to wait a month longer than those elsewhere to see it, more or less encouraging piracy. Let’s just pray that Independence Day 2 gets its right…

TV’s tribulations

Despite all our claims of problems with the film industry, we must concede its financial performance this year will be one for the record books (particularly with some added vim from Star Wars). The TV sector, on the other hand, has had a decidedly worse year. For while Hollywood’s problems may be existential and longer-term, television must really start fundamentally addressing existing business models, today.

The rise of OTTs such as Netflix – not to mention the recently launched premium content service from Google, YouTube Red – has no doubt contributed to a sudden hastening in young adults who have dropped (or simply never had) a cable subscription. In the US, latest data recently reported from Pew research show 19% of 18-29s in the US have dropped their TV / cable service to become cord-cutters (or cord-nevers). The pace of change is quickening, according to eMarketer, who recorded a 12.5% leap in cord-cutting activity YoY.

Print

Cognisant of such shifts, organisations have begun seeking remedy. In November, Fox became the first broadcast network to drop same-day ratings provided by Nielsen to the press, recognising that they “don’t reflect how we monetise our content,” and hoping to “move the ratings conversation into the future”. General Electric meanwhile, is stop advertising on prime-time television, instead keeping its budget for live events. This makes sense as it is this type of programming that typically lures large, diverse and timely audiences to content. Most interestingly, however, Disney, who seems to feature a lot in this post, is launching its own digital subscription service, aggregating its film, TV, books and music assets together. The FT notes it will be “the biggest media company yet to stream its content directly to consumers online”.

With the increasing popularity of OTT platforms, some are trying to get audiences to rediscover the joy of serendipity again. A new company, Molotov, aims to combine “the best elements of schedules, streaming and social media… Even if it does not take off, it neatly identifies the challenge facing broadcasters and technology companies: how can TV be better? And is there still life in the television schedule?“. Its UX has been compared to Spotify, allows a personalised programming guide, as well as bookmarking shows, actors and politicians. Moreover, Molotov also lets viewers know which shows are particularly popular on social media, as well as which of their Facebook friends like particular shows. “The idea”, written in the FT,  “is to be a one-stop shop for audiences by replacing dozens of apps on Apple TV, or indeed an entire cable box”. Indeed, China is struggling with the linear world of television and film, uncertain about how to regulate offensive or violent content in a world without watershed or clear boundaries for regulation beyond towing the political line. For its part, the BBC will be fervently hoping that there remains life in the television schedule. With its Charter up for review, the future of the organisation is currently in question, to the extent that anyone can try their hand at getting the appropriate funding for the Beeb, with this handy interactive graphic.

Trend implication: OTTs like Netflix will continue to gain ground as they publish more exclusive content, though there is a risk such actions lead to brand diffusion, and confusion over what audiences should expect from such properties. Business models for content are increasingly being rewritten; excited as we are that The X-Files is returning to Fox in January, the real benefactor is apparently Netflix. Like it or not (we happen to think it’s a savvy strategic move), Disney’s plan to launch a subscription service online is innovative in its ambition to combine multiple media under one roof, and illustrates the company has recognised it has a sufficiently coherent brand (unlike Netflix) that can make for competitive differentiation as it faces off against other walled gardens. Advertising revenues, like cable subscription revenues, will continue to slide; there’s not much anyone, even Disney can do about that. Such slides though are unlikelt to deter continued mergers on the part of telcos; one in five pay TV subscriptions now go to these companies. Molotov sounds like an intriguing approach to reinventing a product long overdue for a renaissance… will such a renaissance come too late for the BBC though?

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The X-Files returns to the Fox network in January, but it is Netflix that will really benefit

Tech opportunities and pitfalls

The tech sector as a whole, which continues to spit out unicorns, was deemed to be heading for a burst bubble, according to The Economist: “There are 144 unicorns valued at $505bn between them, about five times as many as three years ago. Most are unprofitable”. Equally disconcerting for the sector must have been Donald Trump, who has been consistently dismissed by mainstream media types since the summer but continues to roll on through the Republican presidential primaries. In his most recent itchy trigger-finger solution to the world’s woes, he suggested simply turning off the Internet in certain places. Apart from our understanding and appreciation of the Internet as one of the world’s liberating platforms that is one of the most tangible examples of man’s desire to communicate as one, this would apparently also be quite difficult.

Trend implication: Startup valuations do seem to be increasingly on the wild side, and there’s a good case to be made about the double-edged sword of such high valuations that dissuade companies from going public. There may possibly be a correction sometime next year; look for it to separate the wheat from the chaff. And while the idea of turning off the Internet is not without precedent, when did Iran last do something that the rest of the world thought was a good idea to emulate? Depriving people of the internet necessarily deprives people of information. On a macro level this can only be a bad thing. Its technical complexity and ethical murkiness make this an unlikely candidate for impact in 2016.

Amazon is having a rare sojourn in the black of late, with two consecutive quarters of profit. This is a rareity not because of any malpractice on Jeff Bezos’ part, rather because the mantra of the company has consistently been over the years to reinvest revenues into new development. Its brief profitability comes as the company’s cloud services, Amazon Web Services [AWS], become increasingly popular. As the Financial Times notes,

“In the latest quarter, [AWS profits] came to $521m on revenues of $2bn. That is roughly equivalent to the operating income of the entire core North American retail unit — a business with eight times the sales.”

Trend implication: Amazon’s growth may give some investors with a short-term eye succour for 2016 and a more profitable Amazon. But they should not be taken in so easily. Bezos’ long-term strategy remains investment for the future rather than a quick buck.

Facebook has been in the news for things positive and otherwise as it pushes the limits of innovation and unsurprisingly finds itself coming up against vested interests and the remits of regulatory bodies. It must also combat the same issues faced by other maturing companies, that of lower engagement and rising age groups. For example, 37% of users shared photos as of November, down from 59% a year earlier. In the meantime it is deploying some interesting tactical maneuvers, including more prominent featuring of events you are going to go, as well as ones you might be interested in attending. It also suggests events directly into status updates. Other timely reminders, reported in the WSJ, include “On Sept 27, it displayed an image of a crescent moon as a prompt about the supermoon lunar eclipse. In October, it worked with AMC Network Entertainment LLC to remind fans of “The Walking Dead” about the show’s season premiere”.

And while its partnership with Uber – embedding the service directly into its Messanger platform – is to be commended (WeChat’s ARPU by contrast is $7), it has struggled abroad. In India, one of several regions where it has agreed to zero-rated services with operators, net neutrality proponents are lobbying to have its Free Basic services shut down (while also raising noise about T-Mobile’s similar Binge On service in the US). Meanwhile, Whatsapp, the platform Facebook now owns, whose use has exploded in popularity in Jakarta, recently saw its service shut down for 12 hours in Brazil, affecting around 100 million people. Telco operators have been lobbying the government to label OTT services as illegal, but it seems that the government shut the service down in order to prevent gang members from communicating. This provoked much derision.

Trend implication: As Facebook’s audience continues to mature, macro engagement may continue to dip. Data on metrics such as average pieces of content shared by a user per month have not been updated since the company’s IPO. Facebook, as well as other OTT plaforms will continue to struggle in some respects in 2016, as both traditional players (e.g. telecom operators) and regulators seek to contain their plans. Operators in particular will have to increasingly lay ‘frenemies’ with OTTs that may offer value-add and competitive differentiation with the right partnership, yet at the same time eat away at their revenues. Continued security threats, whether cyber or physical terrorism, may mean, that, like Trump’s comments above, services continue to see brief disruption in 2016 in various regions. Net neutrality rulings in the US and Europe will also have an impact on the tech sector at large. It is likely to be laxer in Europe, which The Economist predicts will hurt startups.

Similarly impactful was the recent video of a drone crashing to the ground at a World Cup ski competition this week, which missed a competitor by what looked like a matter of feet and would have caused serious injury otherwise.

Trend implication: Despite such potential for grievous harm, there should generally be a quite liberalised framework for drone use. However, this needs to start with more prescriptive regulation that identifies the need for safety while recognising individual liberty

Oh, and Merry Christmas.

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What Creative Destruction means for Kodak, China and Romney

February 27, 2012 1 comment

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.