Summary
Technology is changing the entertainment industry and data is driving the decision-making. This is in stark contrast to previous decision-making that was based on “gut feel” and consolidated industry control.
Take the television series House of Cards, for example. Netflix had data showing a substantial audience for the original series, the main actor, and the director. Given this data they elected to forego a pilot and to release an entire season at once.
This, in turn, provided the writers and producer far more flexibility in the development of the series. It also generated considerable excitement for the audience and allowed that audience to watch the series as they chose: one episode at a time or by binge watching every episode.
Need to Know: The authors identify Netflix’s advantages over traditional film studios and television networks:
- Detailed information about audience behavior.
- Personalized channels for distribution.
- Personalized promotion.
- New ways of developing content (no commercials, as one example).
- Creative freedom without the restrictions of broadcast requirements.
- Delivering one-stop shopping convenience to address the potential of piracy.
- Monetizing the content through a bundled service rather than single sales.
They also point out that digital technologies are helping smaller organizations overcome the major producers’ economies of scale and market dominance. They see these key factors at play:
- Distribution channels with nearly unlimited capacity.
- Competition from digital piracy networks.
- Low-cost production technology.
- New distributors from Amazon to YouTube to Apple’s iTunes.
- Advanced computing techniques to gather and analyze consumer behavior data.
2. Back in Time
This chapter explores the historical development of the music industry. It begins with the publishing of sheet music, moves to the creation of the phonograph and gramophone, and ends with the development of recording artists.
The Depression saw record sales drop from 150 million to 10 million units. This started a wave of consolidation and, by the late 1940s and early ’50s, just six companies produced 158 of the 163 gold records over that time. There was a surge of growth in small independent producers in the ’50s when the large firms ignored rock and roll. But by the ’70s the larger firms had seen their error and had acquired most of the smaller firms.
Need to Know: The large music producers use their size and scale of operations to manage the cost and risk of finding new artists and bringing them to market. They also use their size to maintain control over those artists and over the downstream distribution of their music. This same pattern is found in the film industry with six major movie studios and in publishing with six major publishing houses. They exert the exact same control.
3. For a Few Dollars More
Publishers face three key challenges: extracting the maximum profit for each publication, generating consumer awareness of their publications, and competing with other publications in the market.
Traditionally, maximum profit was extracted by first publishing a hardcover book at a high price, extracting maximum profit from consumers who must read the book at any price. This was followed by publication of a paperback edition, lowering the price point to attract those who did not see the benefit of purchasing the hardcover book. Then ebooks arrived on the scene.
Smith and Telang conducted an experiment where 83 titles were released simultaneously with the ebook version and another 99 titles where the ebook was released up to eight weeks after the hardcover book. They found first that there was no impact on hardcover book sales regardless of when the ebook was released. Second, they discovered that ebook sales were 40% lower for those that were released after the hardcover book.
The authors touch on a similar approach in the music industry with the release of deluxe and regular editions of albums. They also address the much more complex motion picture industry, ...
