Content is King

When distribution barriers fall consumers migrate to quality.

I guess that when the very first movies were made someone exposed a few reels of film then got some friends around to view the blurry, staccato, and black and white images on a lumpy plaster wall in their back room. Things have come on a bit since then and for nearly a hundred years a lot more people have intervened between film-maker and audience, but film distribution is changing as we settle into the Networked Era.

As soon as moving pictures became popular as a form of entertainment, film companies, producers, distributors, and cinemas emerged to build the familiar value chain that still persists today, but it is now being challenged on many fronts. These various mediators separated artist and consumer because scale requires, and to a large extent often dictates (along with technology) market structure and they could see a way of making money out of it; this structure facilitated both growth and specialisation, which in turn allowed a degree of protection from competition. Technology has now given us more direct channels (in both senses of the word) to market and you don’t have to go to the cinema to see a film, the film will now come to you instead.  (Well, at least some of them will – see below.)

Television and video created alternative distribution channels for films and most recently we have online distribution from Sky, Lovefilm and Netflix as well. I signed up for Sky more than a decade ago, attracted by films and sport, but I was extremely disappointed by the quality of the films. Like TV rights, satellite and internet distribution rights are most expensive for the best and most recent films and so I couldn’t find any films I wanted to watch. So I feared the worse when I tried the new generation distributors, the modern channel mediators like Lovefilm and Netflix and, from my limited experience to date, I find the same thing; they just don’t have much I want to watch.  Not surprisingly perhaps owners of premium content guard it jealously, not just with films, I can’t get the books I want to read on Kindle either.

Netflix has just reported second-quarter revenues of $1.07bn with net income rising from $6.1m to $29.5m and they added 630,000 new customers in the same period.  Netflix now has 36m paying customer with 29.8m in the US and the 7.7m internationally. Interestingly though it hasn’t been subscriber growth alone that has driven its share price up by 230% over the past twelve months but rather it has been the success of the company’s critically acclaimed original series, like House of Cards, Arrested Development and Orange Is the New Black that has done it.

Mainstream film success is often based on very professional promotion. It is quite possible to “gross” a wad of cash in a few weeks with a well marketed film, with the right names in it, even if it really isn’t that good: fashion and hype can make you a lot of money in this business. (Have you noticed that they always show you the best bits in the trailers? It’s the same with most content marketing these days.) But whatever the genre quality dictates longer term financial success. Whilst we all have differing views of what “quality” means there is a lot of common ground and this overlapping sensibility is the target of the new content producers, who just happen to be the distribution channel owners. In a funny way technology is allowing the film industry to come full circle so that, as well as carrying a back catalogue of generally available content, it is the unique and often high quality content that is now differentiating competing distributors – if we want to watch it we have to go into their back rooms once again as no one else has it. The pioneer spirit has also returned to film making and now millions of us are out there making films and showing them to anyone who wants to watch on YouTube and the like; I’ve even made some myself.

It should come as no surprise to anyone who has read this blog before to hear me emphasise yet again how difference drives value and the online film distribution game has such relatively low barriers to entry that unique content, made in-house, is now driving value. Like so many markets mediators are losing some of their power and in the future we may well have a choice of completely vertically integrated film companies who do everything from making the film to delivering it to your door. The competition will be, as it always has been, for “talent”, because when distribution barriers fall consumers will migrate to quality every time.

Mark

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