October 11, 2015

Opportunities and challenges in the new digital entertainment world

Every organization, industry and society is going through wrenching change right now. There will be no return to a “normal” state that resembles a prior period in world history. I am observing this first-hand in the health care and film industries, and as a well-informed observer in the industry I left 2 ½ years ago, the mailing industry.

The film industry is particularly going through wrenching change, but, as a recent entrant to the industry, I have seen both the challenges and the new opportunities that change has created. Clearly, the move to digital technology has effectively destroyed the traditional retail DVD rental market, with the limited exception of Red Box kiosks. It has also thrown into confusion the economic model for digital downloads, since Netflix has built an economic model based on fixed monthly rentals, although its founder Reed Hastings recently noted that the low monthly rentals may not work if subscribers want mostly new films, as opposed to a mix or new and old ones.

I experienced the consequence of this complexity with the difficulty my strategic consultant had in describing the new potential economic model for our film From the Rough in preparing our investor memorandum. He found the data and did the analyses we needed, but it took longer and was far more complicated, because any data that was more than a few years old on non-theatrical revenue streams was essentially obsolete.

However, there are many opportunities that this new world of entertainment provides for us:

Discovering new market opportunities

Marketing today is so much more sophisticated and targeted than it was a few years ago that it opens up huge new opportunities. There are two big changes:

  • We have far better ability to segment big markets into several smaller ones and to target these smaller segments far more efficiently; and
  • We have far better ability to predict future entertainment preferences based on a combination of demographic, behavioral, and attitudinal data.

The even better news is that anyone has the ability to tap these capabilities relatively inexpensively.

What makes this time exciting for us is that we have discovered that major segments of the potential film-going market, people of color, immigrants, adult women, and even sophisticated college students, have been left behind. The traditional film industry has developed and refined a very effective model targeted at a major slice of the global film audience, but, in so doing, it has narrowed its field of vision and left major opportunities for others.

What also has been an opportunity that new technologies make possible is the ability to level the playing field between very expensive and relatively low-budget film productions. We have been told that we have produced a beautiful film.

The marketplace will tell us whether we have produced a film that is worth seeing and is high quality. Whether we succeed or fail will not depend on having followed traditional formulas. Our success will come because we have created content matched to the needs and wants of our target audiences, and because we have given them something of enduring value. That has always been what makes film entertainment or any other works of art successful. Today, the ability to achieve that matching of content to audience needs and wants is more achievable than ever.