Strategy in Global Economy
Wen
MSC2019Topic5SlidesNewDynamicsofCirculationMarketingLongTailvs.Blockbusters.pptxStrategy in Global Workplace Topic 5
Winter Quarter, 2019
Saturday, 2-5pm.
Francis Searle Building, Room2-370
Instructor: Dilip Gaonkar
Email: [email protected]
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Topic 5: New Dynamics of Circulation & Marketing: Long Tail vs. Blockbuster
Economics of survival to abundance
What is required for reproduction of life?
Needs and Wants
Economy centered on:
Production:
Agriculture
Industry
Consumption and circulation
Products and Services
Knowledge based
Culturally coded
Dematerialized
Income and Consumption
New Cultural Economy
Affluent Society (John Kenneth Galbraith, 1958)
Economics of Abundance (Chris Anderson, 2006)
Income:
Discretionary Income
Difference between the Poor and the Rich countries and people
Percentage of income spent on Necessities
New Cultural Economy
Changing Shape of Consumer Culture
Mass Culture: Keeping up with Jones;
Man in Gray Flannel Suit (Sloan Wilson, 1955)
Niche Culture:
Do your own thing
The Digital World
What made the digital world possible?
NEW information & communication technologies
Dematerialization
Data storage
Virtual delivery
Amazon and Netflix
This why Amazon started with selling of books, CDs & DVDs
This is why Netflix began with mailing movies and later streaming them
Limits of dematerialization
What is or can be dematerialized?
Cultural impact of digital word;
what happened to letter and letter writing?
Main Characteristics
Digital products and services
Production and Replication
Up-front costs are high (of first copy)
Replication costs are very low
De-materialization
Costs are not high
Storage
Costs are low
Compression technology
Distribution and delivery
Costs are low for physical delivery
Costs are very low for virtual delivery
Instantaneous delivery
New Streaming technologies
Chris Anderson, The Long Tail (2006)
Subtitle:
Why the Future of Business is Selling Less of More
Made possible by combining technology and design
Two Rules:
80/20 percent Rule (brick-and-mortar retailing)
98 Percent Rule (online retailing
Two types of marketing:
Hit culture marketing
Niche culture marketing
Long Tail Companies
Amazon, Netflix, and Rhapsody
More books, more DVDS, more tracks
How much more?
No real limit
Impact of Long Tail companies:
Two of Anderson’s comparative measures have already disappeared: Borders and Blockbuster
Growing income from Long Tail
Fat Head vs. Long Tail Revenue
The Case of Digital Music Business:
Walmart carries less than 60,000 tracks of music
Rhapsody streams 60,000 tracks at least once each month
Rhapsody can go adding track to a million to ten million
Rhapsody is an old story; now it is Spotify, Pandora, Apple Music
Still 98% rule holds
Thus, long tail continues to generates revenue
In the future, will long tail generate more revenue than fat head?
New Generation of Consumers
New generation:
Grown up with broadband, smart phones, MPs, TiVo, on-line shopping
Broadcast to Internet
Accessing a seamless continuum of content
High culture, low culture, & popular culture
Commercial and amateur content
Target Audience
Males age 18 to 34, most coveted by advertisers
What are they watching and listening?
New Economics of Entertainment
Economics of abundance
Long Tail Marketing
Word of mouth:
consumers as promoters
Story of two books on mountain-climbing
Joe Simpson’s book, Touching the Void (1988)
Docudrama (2013)
Jon Krakauer’s book, Into Thin Air (1997)
Everest (movie, 2015)
What are the cultural implications of long tail?
Blockbusters
Anita Elberse’s Blockbusters: Hit-Making, Risk Taking, and the Big Business of Entertainment (2013)
Thesis: “Blockbuster Strategy” works and is crucial for success
Anderson vs. Elberse
Long Tail vs. Blockbusters
Tale of Two CEOs
Warner Bros:
1999: Alan Horn becomes president.
NBC Universal:
2007: Jeff Zucker becomes president
Two Different Strategies:
Horn embarks on “blockbuster strategy”(BS)
Zucker’s strategy: “managing for margins instead of ratings”(MM)
Practical Implications
Horn’s Blockbuster Strategy:
Place 4 or 5 Big bets on the so-called “event films” each year
Also known as “four-quadrant movies” in terms of audience
Warner Bros. produced 22 films in 2010 spending $1.5 billion in production costs and about 700 million in marketing and promotion
1/3 that budget went to producing 3 films: Harry Potter and the Deathly Hollows (part 1), Inception & Clash of the Titans
Practical Implicaions
Zucker’s “managing for margins” strategy:
Increase profits by reducing risks
Betting less on expensive dramatic content
Acquire intellectual property and formats at reasonable prices
Rely less on A-list actors
Cut back on pilots
Results
BS at Warner Bros. did spectacularly well:
Under Horn surpassed 1 billion at domestic box office for 11 years in a row.
Horn was hired as Chair of Walt Disney in 2012
MM strategy at NBC Universal failed miserably
In broadcasting it fell behind ABC, CBS, & Fox to 4th place
Zucker was fired in 2010
NBC Universal Reverts to BS
NBC reverts to BS under Jeff Gaspin:
An Example:
Taking cue from FOX and its hit American Idol, produced The Voice spending $2 million per episode
Marketed it by placing immediately after 2012 Super Bowl
Feb. 2012 The Voice displaced American Idol as the top-rated TV series
Reach of Blockbuster Strategy
Not confined films, but also
TV
Publishing
Music labels
Video game publishers
Sports
Elberse thesis
Blockbusters rule show/entertainment business:
“Although tail is very interesting,….the vast majority of revenue remains in the head”
Despite risk of huge failure as with Disney’s 250 million John Carter (2012)
Counter-intuitive claim:
“It’s probable that the Internet will lead to larger blockbusters, more concentration of brands”
Examples
Three extended examples in Ch.1
Warner Bros. film production under Horn
Further elaborated on what is already in Prologue
Grand Central Publishing
Big bet on Vicki Myron’s Dewey: The Small Town Library Cat Who Touched the World
Paid $1.25 million advance for 45 page proposal
Marvel Entertainment monetizing its comic books archive
superheroes like Spider-Man, The Avengers etc.
Sold to Disney for $4 billion in 2009
Reasons for Taking Big Risk
General Strategy:
Economics of attention: stand out from competition
Specific tactics and objectives:
To remain in the market for promising new projects from agents
Keep the creative talent committed
To get best effort from marketing and sales staff
To maintain leverage with distributors and exhibitors
80/20 Rule Holds
80/20 rule holds in showbiz production
Case of Grand Central Publishing
See detailed analysis on pp. 41-44
Case of Marvel Entertainments
See detailed account on pp. 48-55
Hybrid Strategy in Entertainment Industry (EI)
If 80/20 holds in EI, why waste time and money placing “smaller bets”?
Discover the next big-hit franchise
Discover mega stars who can “carry a film”
“Fill the pipeline” to maintain a steady relationship with exhibitors, distributors, retailers etc.
“broad portfolio” of properties makes it easier to attract financing and provides flexibility in dealing with industry partners
Opportunity to develop and maintain “critical reputation” as devoted to cultivating “fine arts”
Spread out the fixed costs of production and distribution infrastructures
Alternative Strategies
Pixar strategy:
“Rifle-shot” approach
One movie a year, literally hand-crafted, painstakingly detail oriented, and highly self-critical
Highly successful
Starting with Toy Story to Finding Nemo, to A Bug’s Life
New Blockbuster Strategy in Digital World
Features of new BS:
Make a big splash amidst small ripples
“Break the clutter” of ever growing internet content
Exploit American fascination with the celebrities: from sports, music, and movies
Netflix and Amazon, canonical LT companies resorting to BS
Why did Netflix decide to produce “House of Cards” and other expensive series
Amazon is also producing expensive mini-series
Both Netflix and Amazon are imitating HBO
Is Anderson Wrong?
What exactly is Anderson’s thesis?
He did not predict the demise of blockbusters, but its massive dominance, and
Possible slow decline in the future
End “water cooler era”
End of common culture?
Anderson: End of “water cooler era”
Elberse: Social media is the new water cooler
Being “hip” vs. being “sociable”
A New Hybrid Strategy?
What accounts for revived strength of BS?
Copyright protections, revised in 1998, partly sustain the blockbuster risk-taking
Is new BS mostly a defensive strategy?
Is there a new hybrid strategy emerging?
Fate of Mid-Level Artists
What happens to the “mid-level artist” in this battle between LT and BS?
Question: Does success of blockbusters mean “the winner-take-all” dynamics?
Negotiating power of stars: from Tom Cruise with MGM to LeBron James establishing his own firm
Anderson’s Egalitarian thesis valid?
For consumers but not necessarily for mid-level producers and small retailers
