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.

Tony explains Social Media

“Marriage, or any relationship for that matter, is a give and a take”. Zeitgeist has been prone to quoting various great men in its articles, from Horace to Obama. Tony Soprano makes a good point however. The quotation applies to the world of social media too. In fact, late last year, eConsultancy posted ‘The Tony Soprano guide to social media’. Mr. Soprano has a number of pithy insights that can be applied to the management of the social media sphere as easily as to that of the criminal underworld. Not that Zeitgeist is making a comparison between the two.

As eConsultancy says, “social media is not about sales: it’s about service. The sales that arise from social optimisation are a tangible bonus.” This is why some brands have a hard time knowing how to engage with social media. Is it about a quick ROI or a more long-term brand-building exercise, or both? “A wrong decision is better than indecision” is one of Tony’s quotations. Is that always the case though? If you whack some guy who you think is a rat and then turns out not to be, surely that is a bad turn of events? Last year, Toyota ran a competition for their Yaris model to create a short film with Saatchi & Saatchi. The competition was not terribly popular. Faced with the prospect of no entries, the agency emailed a production house asking for submissions, which obviously skewed the results. The result was awful.

Honda also had a social media fail last year when it set up a page on Facebook for a new model. Users were not very impressed with the car but then one person commented that they would “get this car in a heartbeat”. Unfortunately, he turned out to be a manager of product planning for Toyota… More recently, Vodafone’s Twitter account suffered from an offensive post by an employee. Bad as this was, the company tried to make amends by replying publicly to every single one their followers. eConsultancy noted, “Hundreds of retweets ensured that the company’s speedy deletion of the tweet was a redundant exercise”. Yet, another article talks about the opportunities such a fracas might now present.

In some cases of course, social media can save a brand. As noted already by Zeitgeist, cult film director Kevin Smith recently clashed with Southwest Airlines. Mr. Smith had booked two seats on a flight, but his plans changed and he joined the standby list for another flight. With only one seat, Smith’s gourmand-like person was apparently enough of a problem / eyesore to warrant the captain of the flight to ask him to disembark. The director voiced his outrage on Twitter, and was promptly apologised to by the airline’s Twitter account, offering him $100. Smith continued to rant, asking the airline to provide a seat for him on a talk show, as clearly the man thought he had not yet lost enough pride. A high proportion of followers interestingly sided with the airline, evincing that singular advocacy, albeit powerful, will not always win. Southwest though they may now have set a precedent (financial at least), for complaints of a rotund nature.

“Do we need to talk in private?” Tony suggests. Not all conversations between company and consumer can be solved in the open forum of social media. It is not for every brand, and even if it is compatible, you might still get burned.

“If you can dream, and not make dreams your master…”

From the November Zeitgeist…

When we think of the depiction of a typical man, our mind tends to drift toward a suit, a dinner jacket, or something similarly familiar, stable and unchanging. In truth, menʼs fashion – moreover our interpretation of masculinity – is very fluid and varies wildly according to time and culture.

At the V&A museum in London currently, an exhibition on the Maharaja is a good example of just how open to interpretation are the symbols of masculinity and power. In this case, “teardrops of diamonds dangling from succulent pearls” represent the pinnacle of masculinity. The bygone days of a world that celebrated “the effervescent elegance of a male world” serve to illustrate that the definition of what makes a man manly is inherently arbitrary, and therefore malleable. In this case, power and divinity were symbolised by an extraordinary amount of jewellery that even MC Zeitgeist would have been jealous of. The New York Times review says that with the independence of India so ended an era “when the male peacock finally folded its wings”.

Did it though? Pages of editorial are still detailing the rise of the metrosexual, seemingly one of the slowest ʻrisesʼ of anything ever. While one might be inclined to think that a womanʼs ideal man as sporting some kind of ill-fitting firemanʼs ensemble, with over-developed muscles straining underneath, in truth women in the UK apparently find willingness to do housework a most attractive asset. Perhaps increasingly then, it is responsibility that takes precedence over a more base hunter-gatherer, physical appeal.

In Japan, news of Toyotaʼs withdrawal from Formula 1 and itʼs first earnings loss in fifty years caused Tadashi Yamashina to break down in tears at a public press conference, specifically apologising for the F1 teamʼs failure to win a single race in nine years. Business failure in Japan equates to personal shame for the heads of organisations, and such a display of emotion is presumably intended to illustrate a full mea culpa and to show they are affected by the decisions they make for their employees, rather than appearing stone-faced and passive. This latter description is something of a stereotype for men – oblivious to the more sensitive side of their personality – and in this case shows the public that they truly care about the institution they preside over. As The Mirror comments “if the bullet train is delayed, you will see the CEO on TV bowing as low as he can. It’s about honour and showing sincerity”. Thus, while crying may not be seen by some as sign of manliness, in this context it is a conduit for showing you are a man of principles and respect, both tenets traditionally associated with masculinity.

Perhaps in another hundred years, when the current V&A is underwater, a future exhibition will remind us that brute force and intimidation, even from beyond the grave, once represented manhood. In Russia, the tombstones of erstwhile Mafiosi stand proud and very tall; several are life size depictions of the eternal residents, gazing menacingly outwards. These grotesque images are reminders that not all markets approach the concept of masculinity in the same way.