Je voulais partager avec vous cet article que j'ai publié dans la revue Elenbi Strategic Review de janvier, dans le dossier To peer or not to peer : the economic revolution of cultural products (en anglais).
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« The illiterate of the future are not those that cannot read or write.
They are those that can not learn, unlearn, relearn. »
Alvin Toffler
Since Harry Potter 3 came out on DVD last December, chances are that you can’t possibly enter a store that carries videos without getting buried under the boxes of the three small wizards. Now I bet you a belly-dancing Nemo that you’ll have a hell of a time finding Luchino Visconti’s masterpiece “Death in Venice”, or “NBA Champions, The Odyssey of San Antonio Spurs”.
As a Disney’s top executive put it recently in a conference, “replenish the winners, kill the loosers”. That’s how traditional commerce works since our ancestors discovered that fashionable goat-skull lamps outsold cow-bones chairs. No matter if you are running Carrefour or Mike’s Super Video, your store has a limited surface and you have to maximize your profit per square meter, therefore picking only the top-selling products. Harry Potter: in, Visconti: out.
This has a direct impact on the upstream value chain. Only 10% of the 250 independent movies (click below to continue reading)
selected by Sundance Film Festival each year find distribution, and maybe 1% of those will reach the shelves of the large stores on DVD. The others are buried in the oblivion by an army of red-jacket workers fuelling the shelves at Carrefour or Fnac who rule what you can see or not.
Relearn: commerce rediscovered
The general argument is that there wouldn’t be any customers interested in those un- or under-distributed small titles anyway. But the online merchants are proving this assertion to be wrong. Amazon, or online DVD rental services like Netflix and Glowria are showing the way by carrying all the available catalogs, the opposite way of the traditional merchants. Just because they can, and they learned how to do it, relearning commerce. The figures are impressive: half of the revenues of Amazon come from outside the sales of its top 130.000 titles. Back catalog titles represent 75% of the DVDs rented at Netflix or Glowria, and 99% of the 20.000 available titles is rented every month.
Every single sale outside the Top 1000 carried by the traditional retailers generates new revenues that otherwise would have been lost. Each time someone finds that Greta Garbo movie that used to make his parents cry, or the Revenge of the Killer Spoons where his brother-in-law appears for 2 seconds, or that documentary about red frogs in Tanzania, you instantaneously create a huge customer enthusiasm, a rock-solid loyalty, and more revenues. And you can bet that if by any chance he wants to see Harry Potter, he’ll rent it or buy it from you rather than from that ignorant store down the street who doesn’t even care about red frogs.
Learn: the world is made of niches, so let it be
Open up your catalogs and your content. And you’ll see that all those titles that you think are worthless to be put on a disc or on a server over the Internet do interest someone, somewhere. MGM has 4000 titles in catalog, but only 400 on DVD in France. The cost of getting them to the right audience is today close to zero, so let those who have this expertise do it for you: you’ll make money where you didn’t expected and the customer will be incredibly happy to get that content. And don’t be so afraid of piracy, people will be happy to pay for that – as long as you don’t get greedy and accept a fair price established by the market and not only by your accountant. The market is made of real people, not Excel scenarios.
You’ll find yourself at the origin of a virtuous circle, and you’ll drag all the industries along: the more content you provide, the more audience and sales you’ll generate, which will in turn generate new revenues to produce more content.
Unlearn: open up those windows
It has always been that way: a movie is first released in theaters, then on video, then Pay Per View, and finally television (paid then free). In France you have to wait an inflexible legal period of 6 months before the DVD release, and 3 more months before the Video On Demand release. Why’s that? You’ll have all sorts of answers depending on whom you ask: a movie studio, a TV channel, a theater owner, or your brother-in-law.
But before you get an answer you’ll find the big movies on the Internet as soon as they are released in theaters, and all of them are downloadable after the DVD release. Studies in the UK showed that the primary motive to download a movie, for 74% of the people, is too see it as soon as it’s out.
What else can you decently expect when you inject 60 million dollars on marketing for a movie like The Incredibles? Suddenly the movie becomes a product of desire beyond itself, with such a marketing pressure that it’s unbearable not to “touch” the product before 6 months. Hey, let’s get real here: how many of you did the “not before marriage” thing? This desire (now I’m back to Mrs Incredible) has to be satisfied in a way or another, and no matter if you went to see it in a theater or not, you want to own that movie, you want to get some satisfaction. Downloading from Kazaa is like the Playboy under your bed.
Why not direct those desires towards revenue-based alternatives, and at the same time, maximize the marketing effort? What about allowing people to choose whether they want to see the movie in a theater, on a DVD, on their computer or on TV, and price each channel accordingly? An experiment held by Warner some years ago in the US showed that a simultaneous release of a title in theaters, video and pay-TV generated more consolidated revenues that the traditional windowed releases.
The figures are interesting: an average movie does 2/3 of its theatrical revenues in its first 6 weeks, and 80% of the DVD sales are generated in the first 30 days after the video release. So why wait so much before the next support takes over? Waiting so much between each release generates customer frustration, which means more downloads, and lost revenues.
Sounds like common market sense: steady marketing pressure and multiple channels. This is how a mass-market industry operates: when you launch a new candy bar, you try to make it available on all possible retail channels when you start the marketing campaign. But Hollywood is still using the paradigms of the luxury industry: exclusivity - products available only in specific stores, and scarcity – you can’t find the product all the time. A studio movie is such a popular and mass-market product today that it has to fit into more traditional distribution strategies – fully available on all the channels.
Small, independent or low-budget movies suffer the most from the windows. A tremendous effort is made to make some buzz with very little budgets at the theatrical release, but the effect fades away after a couple of days or weeks. Six months later, the movie is forgotten, and a new effort has to be done again for the DVD release. Exhausting and unrealistic! Since those movies don’t last in theaters more than 1 or 2 weeks, they will be benefit enormously from an almost simultaneous release on DVD. My bet? There will be more ticket sold once the DVD is released.
Learn #2 : don’t kill’em, understand them
Illegal downloads of music and video is the most frightening nightmare of any executive in those industries. Fear is worse when you don’t understand the phenomenon.
When 5000 criminals organize an industrial, worldwide distribution of pirated materials, they are in trouble because you’re going to go after them and put them all in jail. Now when tens of millions of couch potatoes around the planet suddenly get possessed by the evil, convert over night into “pirates” and start to download for free your movies and your music, then you are in trouble because there’s obviously something huge going on that you didn’t understood. But we talk about putting them all in prison – what the hell, they’re stealing from us after all! I let you imagine the size of the building you’ll have to construct. OK, jail is very impractical, so maybe it’s better to send them all to Siberia, the method proved to be efficient, and there’s no broadband access over there so they’ll have no other alternative than to buy their VHS’s like in the good ol’times. Or maybe let’s clean up this good Guillotine to get rid of those nasty families of pirates.
Do you remember what Mr. Jack Valenti, the former Motion Picture Association (MPAA) president who quit in 2004, was saying in 1982 when the VCRs appeared in the market? Here you are:
“Now we are facing a very new and a very troubling assault on our fiscal security, on our very economic life and we are facing it from a thing called the video cassette recorder and its necessary companion called the blank tape.”
“Now, these machines are advertised for one purpose in life. Their only single mission, their primary mission is to copy copyrighted material that belongs to other people.”
“I say to you that the VCR is to the American film producer and the American public as the Boston strangler is to the woman home alone.”
(blog update: you can access here the full transccript of Valenti's testimony)
Definitely there’s no understanding at all of the dramatic changes in the consumer demand and expectations, neither today nor 23 years ago. Hey, there’s nothing new about downloading, Napster showed the way 8 years ago. It just got bigger by now. Where is the legal alternative for Video On Demand? Where do I get the content I want in the moment I want it? I know that this content is available somewhere, and I’m willing to pay for it, as I always did. Just let me do it!
My guess is that the current media distribution became flawed in the last years but at the same time we have everything we need in hands to build a new way of doing business with media content while generating much more revenues than today. Why? Simple, there’s a huge unsatisfied demand. How? Learn, unlearn, relearn. I don’t want to become illiterate!
(Blog Update: if you haven't yet the chance to do so, you should definitelly read this already famous article from Wired, The Long Tail)
(Published in Elenbi Strategic Review, Jan. 05)
I stumbled across your blog while I was doing some online research. This was a great discussion. You made some excellent and truly thought provoking points. Loved the examples!
Rédigé par : panasianbiz | mercredi, 26 juillet 2006 à 23:27