Strategic planning processes that do not match the pace of technological changes require a different approach....
Television, video, DVD ‒ the big screen giants have adapted and survived many times before, but the rapid rise of streaming combined with enforced closure of cinemas is posing the biggest threat yet. Collaboration may be the key to survival, writes Amit Joshi.
Adapt or perish is a mantra that Hollywood has become all too familiar with in recent decades. First it was TV and video that threatened to eat its lunch. Then along came DVDs, promisinga viewing experience that was capable of bringing the immersiveness of cinema into the home. To Hollywood’s credit (or perhaps good fortune) home viewing has never been able to quite replicate the appeal of the movies.
After all, its attraction cannot just be distilled into its constituent parts: the screen size, the sharpness of the image or the all-encompassing nature of the sound, where everything from a gentle murmur to a ferocious blast enlivens the senses. All play a significant role in the medium’s appeal, but cinemas are not just about technical sophistication, they are also part of our social fabric.
An ability to strengthen social ties and offer a means of escapism are two of the biggest reasons cinema has been so successful in etching itself into the fabric of popular culture over the decades. This cultural appeal has proved useful for Hollywood in the past, helping to cushion the industry against existential threats.
However, as with any business, survival is far from guaranteed. The rise in popularity of streaming platforms, Netflix chief among them, has put Hollywood on the back foot. Forced to change perspective, in recent years Hollywood executives have started to take the “adapt or perish” mantra more seriously than ever before. Then came the pandemic, and in the space of two months their world, and ours, changed.
As perverse as it may seem, the pandemic has proved to be a major boon for a company like Netflix, which until the beginning of last year fueled its expansion through debt. With so many of us confined to long periods indoors for the best part of a year, Netflix passed a milestone of 200m subscribers at the end of 2020. More importantly though, it reported that it was cash flow positive last year, for the first time since 2011.
It’s oddly grim to think that it took a pandemic for the company to be sustainable for the first time in close to a decade, but it is not the only one to have strengthened its position. Both Disney and Hulu have grown at a speed that has outpaced that of Netflix throughout the pandemic. Disney+ currently has 86m subscribers, up from 73.7m in October 2020 and 60.5m in August. It is targeting between 230m and 260m by 2024. Hulu, owned by Disney, has 32m subscribers, while Peacock, owned by NBC, has 22m.
Having unwittingly ceded momentum to streaming platforms, the movie industry must now ask itself some probing questions. Initially, one of the most pressing might be how movie distribution could change in light of this surge to streaming. However, it goes deeper than that; much deeper.
The issue for the movie industry is not only one of distribution but the entire strategy on which their business rests. Three fundamental questions therefore emerge. What can the movie industry do to survive? Can it stave off the threat from streaming and emerge victorious? And perhaps more pertinently for those of us outside the entertainment industry, are there implications from this contest that apply elsewhere?
One way to unpick such questions would be to consider that both the movie and streaming sectors are driven by a set of two contrasting and unique institutional logics, which are described in detail in “Hollywood studio filmmaking in the age of Netflix: a tale of two institutional logics (co authored by Allègre L. Hadida, Joseph Lampel, W. David Walls and Amit Joshi, first published in Journal of Cultural Economics). These logics are essentially the criteria traditional studios and online streaming services use to make strategic decisions on which films to produce and how to distribute them. The first is a commitment logic used by studio executives, in which strategy is centred on elements of the theatrical release and maximizing box-office revenue.
It was difficult to chart cinematic success in a year that movie theaters were shuttered, and screening services are typically tight-lipped about their viewing data.
ScreenEngine/ASI compiled these statistics on the most-viewed streaming video on demand releases in the US for Variety. While Netflix fails to rank among the top three, if the full list of the top 30 is looked at, it is clear that its massive investment in original films is paying off: it takes 12 out of the top 30 spots, Disney+ snags eight, Prime Video 4,HBO Max and Hulu get two apiece, and Apple TV+one.
The second is a convenience logic, employed by streaming sites. This is not concerned with one particular film, but amassing a whole range of content that sits within a broad portfolio. It is primarily concerned with getting a good spread of users and using data analytics to offer enough choice to keep punters happy. These logics constitute starkly different approaches; focusing resources on distinct offerings and different users. So far, both logics have served movie-makers and streaming platforms relatively well. Yet the pandemic has undoubtedly shifted the needle in the direction of streaming, putting the convenience logic at an advantage. For now, it is just that, an advantage.
It is possible that one of these two logics will offer a decisive victory for either the streaming sites or the movie industry. A dominant convenience logic would mark out the movie-making business and theaters as little more than fringe actors in the entertainment industry. Streaming would take up the slack, delivering highly personalized content in a sophisticated home-viewing environment that approximates a theater experience. Similarly, a dominant committed logic would hand Hollywood the spoils, relegating the streaming sector to the sidelines. But neither scenario is realistic.
Much more likely is that the effects of the pandemic will see an amalgamation of both logics emerge, absorbing elements of one another to create two further logics. One possible combination is committed convenience, whereby movie theaters remain dominant, but they learn from streaming by fully embracing analytics to produce a varied portfolio of content. Both streaming and theaters survive, but the former becomes a niche offering by having to diversify into the creation of blockbuster productions, episodic content and small to mid-budget films.
The other possible combination, conveniently committed, represents the most novel and transformational outcome of all four possible logics. It is also a logic that the movie industry has been slow to anticipate.
Under this scenario streaming becomes competitive, leading to a degree of churn among platforms that could make customer retention challenging. In normal circumstances that may be a cause for alarm among streaming services. But in this case, streaming at home becomes so prevalent and the content on offer so varied, that large numbers of people are happy to consume films at home, either alone or in small groups. While streaming fails to provide quite the same shared experience as the movie theater, technology steps in to try to plug the gap.
Online forums, new and existing forms of social media and augmented reality become the pillars of streaming companies’ social strategy. Hollywood, meanwhile, can do little more than stand back and watch as the world of content creation, production and distribution is re-shaped before their eyes. Theaters become a sideshow. The blockbuster strategy, once a lucrative and compelling proposition, becomes obsolete
Not only does Hollywood know how to stream, but it can rely on its star power to attract interest
This last scenario sounds good for streaming and bad for Hollywood. And it is. But neither of these logics, however likely or unlikely they are to transpire, will necessarily sound the death knell of either streaming or cinema. They are intended merely to illustrate the various ways in which competition, cooperation, or co-opetition dynamics between both camps can develop in the future.
As things stand, it’s tempting to think that because streaming is currently in the ascendancy, Hollywood has no say in its future. That would be wrong. But it does need to recognize that the pandemic has helped transform an emerging threat into a very real one.
Fortunately, Hollywood knows a thing or two about survival. Despite the deleterious effects of the pandemic, its theaters are surviving. In late January AMC managed to stave off bankruptcy, at least for another few months, after raising nearly US$1bn in funding since mid-December. And not only does Hollywood know how to stream, but it can rely on its star power to attract interest.
Disney+ signed up 10m users on the first day of its launch, rising to 26.5m subscribers in its first quarter of operation. It now needs to go further because platforms like Disney+ offer films and shows from their own catalogue, they lack the personalized content that makes the likes of Netflix, Amazon Prime and others so attractive. Even if it manages to diversify, and its recently announced move into foreign language content shows that it is willing to do so, Disney’s clean family brand may hinder it from branching out into more adventurous territory.
Disney’s clean family brand may hinder it from branching out into more adventurous territory
That may not prove to be such a problem if the streaming market becomes so fragmented that consumers become ill-disposed towards paying for multiple services. But it remains a limitation that should not go unaddressed. A focus on the use of analytics in the interest of personalization and customization is crucial. That capability does not yet exist in the movie industry but it can be bought; and it should be prepared to dig deep.
What money cannot buy, however, is a spirit of collaboration. This is equally, if not more, important than analytics to Hollywood’s survival. And for an industry that is so used to buying its way out of a hole, rising to this challenge could prove the hardest of all. Movie companies are notoriously fierce competitors and can be equally adversarial with theater businesses.
Surmounting that aversion to cooperation could be crucial; partnerships between movie companies to create a unified platform would be one way of mounting a serious challenge to the streaming giants. Burying the hatchet with theater companies would be another.
A more aggressive option still would be for movie companies to start pulling their content from streaming platforms to hobble the competition. Streaming giants should be alert to that threat.
Regardless of the outcome, there are lessons here for all of us in business. The pandemic has, in some ways, created disruption, but it has also accelerated it. In the context of omnichannel, the existing shift to ecommerce has noticeably gathered steam over the past year. That leaves a role for traditional bricks-and-mortar channels, especially when it comes to complex products.
But traditional companies will need to flex new, and perhaps unused, muscles in the interest of an improved customer experience. That transition will be far from easy. Shocks often force us to rethink business models faster than anticipated and can have a lasting effect on consumer habits, long beyond the duration of their initial impact. Being nimble enough to recognize those forces and adapt is pivotal to survival.
This pandemic, like many shocks, may yet turn out to be temporary. Even so, the lessons it leaves behind will endure.
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