THE NEW BUSINESS OF SHOW BUSINESS
After nearly a decade of protest, Show Business has discovered the web. Whether it is Disney selling episodes of Desperate Housewives on iPods, Fox screening prime time TV shows on the web or Hollywood Studios selling full versions of their movies online, this year has seen a major turning point for the titans of Tinseltown. Now everyone is scrambling to unlock new networks and future fortunes.
By Mike Walsh
Photography: Dimitri Goutnik
It’s easy to view the recent transformation as merely Hollywood getting it’s act together with new technology. Innovations in entertainment devices tend to be sold on being better rather than different. Colour TVs look better than black and white ones. CDs offer better sound than tapes, DVDs offer better pictures than videos, HDTV is clearer and more detailed than analogue TV. And so on.
Curiously, delivered on the web is rarely better. In fact, with low resolution, compression and smaller screens – it is generally worse. What it is, however, is very different. Unbundled from the limitations of physical form and analogue broadcast, web media has become a much more plastic concept – capable of being distributed across multiple platforms, added to, remixed and even exchanged between audience members themselves.
So if you really want to understand why entertainment media has fundamentally changed, the answer actually has nothing to do with technology and everything to do with the people using it. Audiences can no longer be viewed as passive couch potatoes holding people meters. Through the web, social networks and mobile phones – they are more interconnected than ever. And what’s more – their desire to personalise, remix and share media experiences will reshape the business of show business.
Forget entertainment. The next big thing is Futuretainment.
THE EXPLODING FACTORY
If you ever have the opportunity to visit a newspaper printing plant, do so. It’s a brilliant metaphor for the way media used to be – vast, loud and impossibly mechanical. Across printing webs, conveyor belts and hoppers, media is literally assembled right before your eyes like the product of some arcane Willy Wonka factory.
As strange as it may soon seem to future generations, the factory model of media has held us in thrall since Gutenburg. Editors and broadcasters make decisions on what people want to consume, journalists and producers create it, marketers convince people they do in fact want what executives predicted they would and audiences largely take what they are given.
The great thing about the factory model was its predictability. Warren Buffet loved buying newspapers because, with good management and a rising population, you could be sure circulation and profits would also increase with time. Television and radio stations had a captive population, safeguarded by regulation that kept new entrants out. Not everyone liked what was on all of the time, but for enough of the time they watched or read anyway.
And all was good. But then things changed.
Today’s entertainment world now resembles more of a network than a factory.
Networks are a pretty familiar concept in today’s world. They can apply to everything from a collection of affiliated television stations, to subscribers on a telephone system, office servers full of tangled blue leads or even something that business people do over lunch.
The new model of media also resembles a network. is created by consumers within a network of connections and exchanged seamlessly. Even traditional entertainment products like movies and music are annotated with user reviews, remixed or simply exchanged across peer to peer networks.
For all their investment in TV transmission towers and satellites, media companies are learning that in an online world the real distribution networks of the future are in fact the links between members of their audience. And they have a habit of doing whatever they want.
Music is a great example of how things can go horribly wrong, and how they can go insanely right. Record companies ignored for years the evidence that there was a massive change in consumer behaviour. People cared more about convenience and the ability to download music to portable devices than they did about sound quality and album art.
When they finally woke up and came to the party, they realised that they were sitting on a goldmine. According to IFPI’s Digital Music Report for 2006, digital downloads worldwide generated $1.1 billion for record companies last year, triple the revenue recorded in 2004. This accounts for about 6 percent of their revenues, 40 percent alone of which is mobile phone downloads.
CREATION IS THE NEW CONSUMPTION
The network model of media has bigger implications than the exchange of entertainment . It also impacts on what gets found and consumed.
In a sense, consumer generated is nothing new. People have always enjoyed producing their own – whether it be photos, diaries or home movies. What has changed in recent times is that it is much easer to share that material with a much larger audience, and even use it to connect with other like-minded people. It’s less about voyeurism and more about affinity.
A key metaphor in social media sites like Flickr (photos), YouTube (Videos), MySpace (teen lifestyle/music) is the ability to subscribe to someone. It’s a bit like subscribing to a magazine or a Pay TV channel, except what you are really doing is tracking created by a real person, who may in turn subscribe to you. In doing so – the clear lines between creator and consumer are blurred. Its just a network.
Interconnectivity is also the defining difference between the free web page networks in the late nineties (Geocities/Tripod) and the new social networks, such as MySpace. You could value News Corporation’s acquisition of MySpace as a pure eyeballs or traffic multiple. But the true value of social media, like a telephone network, is in the rapid spike in utility to the entire network for each new connected member that joins. And – like most ecologies that work on network effects – that means you either have an asset with 60 million users or your are sitting on a ghost town.
THE DEATH OF THE PROGRAMMER
If production is one side of the two-headed coin of media, programming is the other. Many of us would remember a time when all of our entertainment choices were mapped out for us in TV guides, Sunday night movies, cinema listings, commercial ad breaks and orderly release windows. Not for much longer.
Aggregation and selection may have been a corner concept in network media, but that is changing fast. The old model worked on intelligent guesswork. Editors choose the stories they think will best sell papers. Programmers choose their prime time line up to best secure ratings. And Pay TV networks aggregate a selection of channels that they think will draw the most paying subscribers.
The networked audience model makes programming obsolete. There is an entire generation of consumers being born who will live in a world without programmed media. Once every piece of entertainment is available online to anyone who wants it – the consumption trigger is your ability to convince someone to click on a link.
Under those circumstances, traditional marketing is actually not as powerful as buzz – as revealed through blog posts on MySpace, popularity on download charts, conversation on web forums and the results of Google searches on popular keywords.
Other people’s opinions are literally the DNA of most web consumption decisions today. Amazon’s book recommendation service is based on the consumption patterns of other like-minded book buyers, Google’s page rank algorithym works off the density of other people’s webpages linking to a particular piece of , bands on MySpace survive by the number of friends that they manage to sign-up and recruit to their webpage.
What does that mean for entertainment creators? If nothing else, take half of your marketing budget and spend it on PR. Buzz sells.
A similar shift is happening in Hollywood. The shift to secure web distribution of movies may begin to transform the blockbuster marketing machine to a more subtle model based around targeted merchandising.
When it comes to shaking the entertainment tree, the last few months have certainly been thick with Studio announcements. With so much of Hollywood’s bottom line tied up in home entertainment revenues – and DVD sales now starting to plateau – there has been growing pressure to take advantage of web distribution as a new avenue for commercialisation. Paramount, Universal, MGM, Sony Warner Bros and Fox are now selling permanent copies of their movies online simultaneous with home video release via Movieline, a broadband on-demand service they jointly own.
Movie marketing relies on heavy promotion a few weeks before box office release, five to six weeks of exhibition, and then as quickly as possible to DVD so that the momentum from the initial campaign can carry through to home entertainment sales. It is an expensive and high-risk model, which is why the Studios have been keenly observing the early experiments with the simultaneous release of movies to DVD, pay TV and theatrical.
As the music labels discovered when the CD was introduced, the real driver of long term profit margins is unlocking the value of back catalogue titles. To that point – Netflix is an interesting case study.
Innovative revenue sharing agreements pioneered by Blockbuster in the US pushed the traditional video rental market into a business heavily focused on new releases. Netflix offered an unlimited DVD rental by mail solution combined with a large online inventory of titles. Netflix’s secret was that its recommendation engine consistently offered customers personalised movie suggestions, often of movies years old, which they might nevertheless enjoy based on their previous and other users’ choices.
In a network media model, the availability of user data makes merchandising a science (where in the physical world it was, at best, artful voodoo). No wonder then that even the world’s biggest online seller of dead trees, Amazon, has announced that they, too, will move into selling movies.
Amazon’s plan on one view is a natural extension of their ownership of the Internet Movie Database (IMDB). In fact their real competitive advantage is their expertise in online retail merchandising and customer preference management. Almost no one understands better how to track customer purchases, make recommendations and visually merchandise on screen than Amazon, which started out selling books but now has thousands of product lines.
Having said that, don’t get too excited about movie cinemas disappearing any time soon. As long as people have parents and kids, going to the theatres is going to remain a popular way of escaping either or both. However, going to the movies will change as an experience. Given that even now exhibitors make their profits from popcorn and not tickets, it won’t be long before movie multiplexes become fully integrated entertainment retailers, expanding their offerings to include DVDs, mobile ringtones and related movie merchandise in order to grow their margins.
TERRORISING THE TV
Perhaps having learned a thing or two from the rough ride the music labels had with their slow embrace of consumer download behaviour, US television networks are now pushing aggressively into web distribution.
In the last few months, both Disney and Fox have announced plans to make episodes of their shows available online for free. The Disney programs can be paused or rewinded, and contain commercial breaks that viewers can’t skip. Although, interestingly, users will be able to choose which ads they want to watch. News Corp.’s Fox network has also signed a six-year agreement with its affiliates that will allow it to screen up to 60 percent of its programming online the morning after the shows air.
From one perspective, it is not much of a big deal. As audiences migrate from one medium to the other, parallel broadcasting makes sense because ultimately advertising dollars will also follow the eyeballs. However, the structure of US network television is based on economics that are in direct opposition to web broadcast. In the old days, the Disney and Fox deal would not have happened because of the risk of damaging relations with affiliates, cable networks or retailers. Now they don’t have much choice.
If creators don’t make their programs easily available to consumers in a network distributable form, they will do it for themselves and do so off the radar. The good news for now is that legitimate digital distribution has the potential to bring new audiences to a show, and therefore actually boost viewership on the air.
Longer term, however, you have to question the logic of the continued existence of networks. creators – whether they are still making episodes of the Simpsons or the next killer sexy urban drama series that replaces Lost or Desperate Housewives – will have to distribute direct to their audience as well as broadcast to networks. There will come a time when it will be possible to finance shows directly through audience payment or inserted advertising.
At the moment, networks make life easier for advertisers by aggregating enough eyeballs to make a campaign worthwhile and appropriately targeted. Ultimately, however, you can achieve a much better and more targeted audience base through technology. Why advertise in prime time with huge campaign wastage when you can directly insert your advertising into video streams watched by viewers in your target market. That is still a way off – but not far. No prizes for guessing that a similar Google-style treasure chest waits for the company that figures out how to invent for brand marketers what paid keyword advertising did for direct marketing.
THE BRAND DILEMMA
As the evidence mounts that young people are spending more of their precious media consumption time on the web or playing games, advertisers are being forced to reconsider their marketing strategies. Unlike more traditional media advertising options, coming up with a predictable model for engaging with social media is not easy.
After all, how do you serve ads in an chaotic user-generated environment where people are just as likely to attack your brand as rave about it? What kind of brands are best suited for placement in an online video game whose main premise is robbing, looting and pimping in an urban ghetto?
When reality television took over from drama as the dominant prime time programming formula in the late nineties, advertisers shifted their engagement model to product placement rather than formulaic commercials. The next evolutionary step is likely to be brand platforms – loosely structured environments in which users can engage with brand values and icons without strict controls or supervision.
One recent example of the emerging brand platform model is Joga – an invitation only social networking site for soccer fans created by Nike and Google. The network will allow members to create their own websites and upload pictures, blog posts and video clips, as well as access Nike relating to its sponsored athletes. In a sense, Joga is a parallel brand universe that allows its users to create about their passions and lives, while at the same time orbiting the advertisers’ core brand values.
THE FUTURE IS FUTURETAINMENT
We are accelerating to a point at which everything will be available to everyone at anytime. In that place, media becomes a signal bouncing around a network of users, rather than a series of satellites or transmission towers.
As long as people still enjoy being couch potatoes, linear entertainment is not going anywhere. However, the context in which major entertainment franchises are delivered will change. In the same way that today’s major motion picture releases are structured to take full advantage of merchandising and marketing opportunities, future entertainment blockbusters will more closely resemble platforms than products.
An entertainment platform is more than just a medley of different formats (DVD, Web, Cinema, Mobile) or a smattering of business models (pay per view, subscription, advertising). It is a consumer responsive structure that allows the audience to pick how, where, and what they want to consume – and even contribute to the creation process. If movies and television were really just radio with pictures, the best analogy for entertainment platforms is multiplayer gaming.
Ultimately, Hollywood today is not just about creating hit movies or TV series. It’s about creating brand franchises that can be leveraged in many forms. Entertainment platforms fit squarely into that brief – with an important caveat.
The Futuretainment revolution is less about new technology than a shift in the balance of power. It’s not just happening in media. The impact of the Internet is a story that is being played out in almost every sector from retail to finance and is best described as a shift in influence from producers to consumers.
Even Marshall Macluan would have been impressed. Today’s networked audience is not just the medium. They are also writing the message.
Mike Walsh is a leading authority on digital media. He writes regular newsletter and weblog called The Fourth Estate (www.TheFourthEstate.com). Find out how you can contribute to his upcoming book “Futuretainment” by visiting the website (www.futuretainment.com).