Hollywood Heads North

The highlight of the 2019 Oscar nominations announced a few days ago was the news of the movie Roma, an original production from Netflix, securing 10 Academy Award nominations, including one for Best Picture. As a true case of a company resisting labels, Netflix, founded just in 1997 for DVD distribution, is now a movie studio and a media company with a subscriber base of 130 million in 190 countries.

ROMA: A NETFLIX ORIGINAL (TRAILER)

By North in the title of this article, I refer to the San Francisco Bay Area aka Silicon Valley. Silicon Valley in Northern California and Hollywood in Southern California represent major and visible parts of the California economy (and by extension, the US and world economies as well). Like the now visible East-to-West trend noticeable in the automotive space as Silicon Valley emerges as the New Detroit with the market shift to autonomous cars and electric vehicles, this northward trend highlights the development of the New Hollywood with a digital edge in production, acquisition and distribution (the three key functions of studios). 

The implications of this northward shift are quite significant.

I was drawn into the analysis of these M&E trends for some engagements over the last year and found it surprising that a comprehensive vision of trends in media and entertainment was lacking. I don't mean coverage, there is plenty of coverage of media and entertainment from an industry point of view (analysts, industry bodies―like the IPFI for the global music industry, financial institutions/investment banks, and general commentary by experts). The nature of this shift also requires the awareness of technology shifts that are going to dramatically (pun intended) reshape this industry. So here's my view, an attempt to draw these scattered strands together to weave a strong enough cord:

Slide A: Trends in Media & Entertainment

(Slide A shows the "studio" perspective but this is intended to mean new media and entertainment producers and aggregators across the board, in all segments)

The highlights:

• The Shifting Consumer: Access (anytime, anywhere, on any device) + High Quality + Personalized + Sharing (????????????????????????????????...) + Instant Feedback (????...) + On the Couch (????????????...) + Global + Diverse + Private + Secure
• The Shifting Business: Cutting the Cord + Over the Top + Netflix + Entry of the Tech Titans + Industry Consolidation (the old consulting staple) + Hacking (e.g. the Sony hack)
• The Shifting Technology: ??Streaming! (DVDs??, downloads ??) + Mobile + Social + 4K + 5G + AR/VR (who cares for the real stuff anyway!) + AI (for deep fakery) + Drones for making films (lots of new angles) + Autonomous Cars (you've time on your hands, now that you don't need to drive) + Infotainment for regular cars (keeping the backseat occupied) + New Cameras (for film making ??)
• The New "Studio": Delivery (anytime, anywhere, on any device) + social media leverage (for the pulse of the consumer) + mass customization (sounds like an oxymoron but necessary, particularly in real time) + completely new pricing and monetization + the artist & repertoire (A+R) portfolio (for the Recording Studio)

Slide B: How Music is Changing (Facts and Statistics: IPFI)

The key point to note here is that the trend is screaming streaming. (And downloads are coming crashing down.)

Slide C: The Segments of the Music Business (Facts & Statistics: IPFI)

IPFI's statistics show that there is a willingness to pay for streaming and that there is clearly a merit to taking the lifecycle view of content that includes performance rights and new uses upstream. Content Creation (Production/Acquisition) + Distribution (Streaming + Performance + Synchronization) add up to the new lifecycle model.

How can M&E companies meet this challenge?

Media & Entertainment companies have to put together a technology framework that looks something like what's shown in Slide D. Without such a framework, the incumbents are not likely to survive the onslaught of the entrants streaming in (pun intended again). There's quite a bit of transformation needed by the incumbents to keep Hollywood from shifting north.

Slide D: A Target Technology Framework for the New Studio

The highlights:

• Consumer Engagement: devices + access + context (loyalty, location, age, preferences, availability, etc) + content
• Hyper-Connectivity: fast + ubiquitous (obviously 5G will make a big difference here!)
• The Cloud: scalable (e.g. Netflix has 130M subscribers) + content rich + secure (!)
• Digital Services: for production + acquisition + distribution
• The Operational Backbone: studio operations + content + royalty/rights management + monetization + financial planning & analysis + project systems + asset management + facilities management + etc.

This framework looks simple but it can help media companies think of the approaching storm in modular terms. This is particularly important for digital transformation, a phrase tossed around often in the enterprise world but a fundamental survival skill in M&E.

Hollywood has needed to change badly on the social front:

• The lack of diversity in the movie making business, in the movies made, and in the recognition received year after year is quite pathetic.
• The #MeToo movement highlighted a corrosive culture of sexual harassment and sexual assault in the industry, and it is a hope that this trend places the control of the business with more enlightened leadership.
• Thinking globally, and not offering worn cultural stereotypes and tropes.

And other changes needed in general:

• Quality not Quantity: Ad-driven revenues start to dry up and paywalls go up. Media layoff are making the news this week reflecting this new reality, as the audience drifts toward short form content (podcasts, video, etc).
• Real substance not Fake stuff: Audiences repulsed by disinformation multiplied virally are now seeking refuge in trustworthy sources, which is one trend in favor of established and trusted media companies.
• Enablers not Barriers: The individual paywall is increasingly beleaguered and may not last much longer (there's just not enough space in the consumer wallet and not enough differentiation in one source to sustain a large audience). Just as distribution of digital content offers power (as iTunes, Youtube, Netflix, Amazon Prime, Spotify, Tidal, etc), aggregators where consumers pay a single subscription and access content from a variety of sources (either in limited or all-you-can-eat forms)―news, journals, blogs, the podcasts, video shorts, etc―will end up being the norm. Putting up an individual paywall only makes the problem worse.
• Empowering the makers: The Music Modernization Act was passed in September last year to bring music copyright law up to date for the modern era. The Act addresses royalty recognition, and licensing rules in the world of streaming, with the net goal of putting more money in the hands of the creative content producers (in this case, music makers, but this is a broad trend for all digital content).

To sum up: The tidal pull of technology is far too strong for Hollywood to keep its current place.

Look forward to your comments.

―Suresh