The troubled sleep of Hollywood
It's not just the murky personality of Harvey Weinstein, his son with the greatest entrepreneurial flair, that keeps Hollywood from sleeping. It's also the future. The legitimacy of the postulate "Content is the king", at the basis of the raison d'être of the capital of cinema, is seriously questioned. For a long time, Hollywood felt safe behind the words of Jeff Bewkes, the handsome and assertive boss of Time Warner outgoing today, who had compared streaming services like Netflix to the Albanian army conquering the world; an army of pinafores that he saw as unarmed, because they lacked heavy weapons, the contents.
To get them, Netflix had to write large checks and pay them into the coffers of the large media conglomerates that controlled the film and television business. Today the situation has really changed. Netflix produces the contents and, since it knows what the public wants, it scores one hit after another. It is investing six billion dollars in the production of originals of all kinds, TV series, films, documentaries, videos. There is also Amazon which has begun to imitate Netflix, reaping accolades and appreciations including several Emmy awards and an Oscar. Apple has promised to do the same, even though Tim Cook swears that Apple is not a disruptor but an ally of traditional industry. Then there is Hulu, controlled by the big Hollywood groups, which in order to stay on the market has no choice but to throw itself into producing content and therefore ends up transforming itself into yet another competitor of Hollywood. There would also be Facebook, but never mind.
Two of the brightest minds in Hollywood, Bob Iger, CEO of Disney until 2019, and Jeffrey Katzenberg, one of the major content innovators of the entire entertainment industry, are now convinced that an abrupt course correction is needed by chasing a new postulate : “Platform is the king”. This means saying that the platform is more important than the content and that the content must be updated according to the new user environment created by platforms and technologies.
Disney at a turning point
Bob Iger, in announcing that Disney will remove all content from Netflix to offer them through two new proprietary streaming platforms (one for sports and the other for films and television), seems to have this reasoning in mind: just like Netflix has been able to produce quality content to compete with the mainstream of Hollywood and cable television, so Disney can build its own streaming service to compete with Netflix and technology. The bottom line is that Disney must transform its culture, mindset, and operations into a technology and software company. We need to turn the company around. However, the specific weight of Disney is substantial.
Despite the fact that Disney has been talking about streaming since 2006, so far it hasn't been able to do much because it hasn't wanted to embrace the new business model to the detriment of the existing one which has continued to prove vital and to grind profits. Now, according to Iger's rather peremptory statements, the tipping point seems to have arrived. The correction of the business model has so far not succeeded in any traditional media group. Their forays into the realm of technology have been pathetic and totally prone to traditional business.
A Disney-like dilemma faces the big automakers, with multi-billion dollar businesses, facing the challenge of the driverless car. The only one who thinks that the model T of the driverless car can only arise from the integration between a technological group and a traditional operator is our Marchionne, all the others are thrown into an autarkic enterprise that leaves rather perplexed about its outcome.
?Is Disney's metamorphosis possible?
Disney, however, seems to have really come to an irreversible decision. It wants to entrust its future in streaming to the same New York tech company that built HBO Now and has been in the video streaming business since 2002: Bam Tech. In 2016 it acquired 33% of Bam Tech for one billion dollars and in August 2017 it decided to go up to 75% by paying out another billion and a half dollars for 42%. He then brought in Michael Paull, 46, who comes from Amazon where he oversaw the launch of Prime Video and the Amazon channels, to direct it. Bam Tech was chosen after Disney's board abandoned plans to take over Twitter, which was too problematic for Disney's "clean" brand after too much politically incorrect content circulated on the microblogging site.
Analysts have welcomed Disney's turn towards streaming, but there is a common attitude of waiting, especially for the costs of the operation. Analysts estimate marketing expenditures alone at $150 million annually. Then there are the lost revenues resulting from the termination of content licensing to Netflix and third parties which are estimated at half a billion dollars a year.
Beyond the costs, the main doubts of analysts concern Disney's ability to change its culture focused on content and rather alien in relation to technology. Disney's journey into new media is littered with failures. Already at the time of the sale of Pixar, Steve Jobs sensed this weakness of the Disney team and demanded, obtaining it, from Bob Iger the complete autonomy for Pixar which continued to operate as a separate ship from the Disney spaceship. Furthermore, Bam Tech is more a technical data transmission service than a technological one; it has not yet developed the personalization, tracking and data analysis algorithms that have brought Netflix into orbit, making it the guardian of the public's tastes in terms of entertainment.
This time, however, it may be different because there is no alternative option for Disney, and this sentiment could be the propellant to change the corporate culture and the business model itself.
Jeffrey Katzenberg's new TV
Jeffrey Katzenberg needs little introduction. He was the architect of the renaissance of the Disney animation studios in the 90s and later, with Steven Spielberg and David Geffen, the founder of one of the most innovative and creative production companies in contemporary cinema, DreamWorks Animation KSG, which in 2016 was sold for $3,8 billion to Comcast.
Now he is working on an ambitious project for which he is looking for huge capital, rather unlikely to be found, as Andrew Ross Sorkin points out in the New York Times, for a first round of investments. Katzenberg needs $2 billion to launch his new TV start-up, called New TV. Despite the enormity of the financial commitment, many came to Katzenberg's appeal: Apple, CBS, Disney, Google, Spotify and Verizon said they were interested.
Katzenberg intends to produce specific television content for mobile devices. His idea is to create an HBO for the new generation of consumers of content on small smartphone screens. He intends to conceive, produce and distribute short-term, high-quality television content. A sort of Game of Thrones with episodes that have a 10-minute narrative arc. Producing a minute of these narratives will cost 100 dollars and will have to line up Hollywood heavyweights behind and in front of the camera.
Katzenberg starts by recognizing that the current format of television content is not suitable for consumption on mobile devices. A 60-minute content with 19 minutes of advertising is totally unsuitable for viewing on a smartphone or tablet in a mobile situation. The only possible format is the short narration which must be distributed through a platform owned by the manufacturer. It must be a complete service: content + platform, financed by advertising and above all by subscriptions.
Content is no longer the Holy Grail
In presenting his initiative Katzenberg said: “We all grew up with the idea that content is king and instead I realized that it is not. Content is the crowner, king is the platform. Netflix is king. Spotify is king."
Neither Apple nor Facebook nor YouTube will change the television industry. “The idea that Apple, Facebook and YouTube are going to Hollywood with their billions of dollars to change the television company is wrong – says Katzenberg -. They are not doing anything new or unique. They are simply expanding the existing offer and enlarging the recipients, but it will happen that this fragmentation will implode”.
However, this view is not unequivocally shared. There are those who think that the way of consuming video content on mobile devices is not yet determinable. Consumer behaviors are not one-way. Many use Netflix with satisfaction. They watch their favorite show, pause it when needed, then resume it when needed. It is said that a platform, designed to broadcast content to be seen in a single 10-minute viewing session, convinces them to subscribe to an additional subscription or to abandon one of the existing ones. This is a gamble and an expensive gamble.
Then there is another even more existential question. How many non-interoperable subscriptions can a consumer subscribe and manage without getting lost in a labyrinth of passwords and accounts. Any publisher or producer of media content knows full well that advertising cannot sustain business in the long run. By now it is clear that advertising tends to be intercepted by a few operators such as Google and Facebook and therefore there is a tendency to create a hybrid commercial solution with a free layer and a paid one via subscription. The reference model is Spotify. We are working to push the consumer towards some form of subscription which is always cheap (between 5 and 10 dollars/euro), but it is still, for the latter, a contribution that adds up to others. In the United States, 100 million consumers pay $100 a month for cable TV, and even if they convert that investment to streaming, they're unlikely to be able to handle more than five subscriptions at once.
The fragmentation of the offer does not help the consumer who would like a single hub to turn to for all the services he needs. The proliferation of a business model based on non-interoperability subscriptions will be discounted by this objective limit of receptivity.
Then there is another important question. Will the traditional media industry be able to compete, in terms of efficiency, reliability and capacity for innovation, with streaming services born on the Internet and developed furiously innovating on service and marketing?
The obsession with control
Almost all of the large media groups are obsessed with controlling the entire system of production and distribution of content, as actually happens in the market in which they are used to operating. A very difficult condition to replicate in the new economy.
Controlling the entire supply chain, as all traditional media companies are realizing, is almost impossible in the new digital scenario. In this environment there is a tendency to move towards a segmentation and specialization of roles due to the complexity of the scenario itself. Even positions that appear dominant actually tend to be transient and can be quickly replaced by the consequences of subsequent innovation. It is a very liquid environment.
This desire to control the entire business, powered by content, translates into the idea of large traditional groups of building their own digital platform in which to make this concept work. Native digital platforms, specializing in a specific service such as streaming, are ultimately seen as competitors.
The fact is, however, that all the slots capable of gathering a significant digital user, who adhere to certain consumption and purchase patterns, are already occupied and controlled by the large Internet organizations and media hubs such as Apple, Amazon, Google, Netflix and so on. These are organizations born, raised and developed in the new environment that constitutes their unique business scenario.
Is it possible to change this state of affairs by making users also start frequenting and investing time and money in online resources built by traditional media groups? Here is the big question mark. From what we have seen so far, these resources are small: they are very often built with logics far from those to which digital users are accustomed because their focal point is not the consumer but the preservation of the dominant position. as Katzenberg says, content design and architecture are built around the business, not the other way around. In general they are difficult to navigate, unnecessarily complex and lacking in innovation, there are many barriers and also the price is often not right.
Despite the fact that this state of affairs is there for all to see, media groups are not resigned to giving up the idea of controlling the business through expensive digital distribution hyper-structures with which to make their contents accessible to the public. Of course, these are contents of excellence, contents that no other entity possesses massively or is able to build overnight, from scratch. Looking closely, the strength of traditional groups lies precisely in the contents, the greatest legacy that they find themselves managing and perpetuating. It is precisely on the contents that they should invest, seeking the best alliances to disseminate them in new media. It is Marchionne's idea for the self-driving car. This idea, however, seems to have had its day.
But there's something even more basic to discuss: does the traditional media group have the tech culture, mindset, and knowledge of new media appropriate to build something that can attract millions of people and convince them to operate on their platform by abandoning the tech or reducing their commitment to them. For now the answer is no; not gonna happen. Sorry for Disney.
