Current Entertainment Strategy: Grabbing Real Estate

Before going to bed this evening, I briefly scanned the entertainment news of the past couple days.  A few things caught my eye, but this article really got me thinking.  It's a short report on the Weinstein Company's new video game venture.  That's right, Bob and Harvey are going into video games.

My first thought was the realization that gaming must truly be the new driving force of the the entertainment business.  The Weinsteins are very smart guys.  They would not be chasing the gaming business unless they knew they could build asset value and make a lot of money doing it. (I am thinking this on the day I woke up at 6:30 a.m. to go wait in line with my son to pick up his new Ninetendo 3DS gaming console.  Very nice piece of hardware, by the way.)

Oklahoma Land Rush - 1889

Ok, that may be a little bit of an eye-opener, but it's not really news.  I think all of us already knew that gaming was a good business, and we can't be too surprised that smart entertainment guys like the Weinsteins recognize that.  But I think this move is also part of a broader trend that is much more interesting.

From a strategic standpoint, companies often make the most money by dominating their little corner of an industry.  Focus is traditionally the best strategy for most companies.  Do what you do well, and make your money in that area. However, consider these developments (in addition to the Weinstein gaming venture):

• Netflix goes from online video store competing with Blockbuster, to streaming company competing with cable operators, to episodic producer competing with HBO, television networks and who knows what else.
• AMC and Regal go from theatrical exhibitors, to presenters of live events and distributors.
• Google goes from search engine, to dominant force in online marketing to distributor of a wide variety of content.
• Apple goes from computer company to content distributor to cell phone maker to creator of an entirely new hardware sector that will be worth billions of dollars. 
• Hasbro Toys is quickly becoming a major force in the entertainment business.
• Comcast goes from cable company to the "everything"  business.
• Sony is already in the "everything" business and may finally start effectively integrating its offerings.

The list goes on and on.  The lines between the various sectors are becoming increasingly blurry.  There are no longer many companies that are purely in hardware or software or distribution or production.  Everyone is in everything.  In fact, it's hard to tell where some of the lines are even drawn anymore.  Is YouTube in the television business?  Maybe.  It's hard to say.

Of course, many of these expansions into other industries are designed to simply leverage a company's existing assets and audiences.  However, that kind of strategy would traditionally involve license deals, where each participant remains within its area of expertise and they share money for the joint use of assets.

This is different.  Companies are no longer making strategic alliances with companies in other industries -- they are simply jumping into the new industry with both feet.

As technology drives constant change, companies are taking advantage of the highly dynamic environment to stake out new territories, and block competitors in the process.  They aren't just looking to make more money.  They see opportunities to expand into new, highly lucrative areas -- like gaming and mobile video, for instance.  They see opportunities to create vertical monopolies where they can control the factors which impact their business, and make additional profit at every step of the process.

This isn't just about making more money -- it is a total reshuffling of the deck and everyone is trying to improve their hands. It is fascinating to watch the game being played every day among these smart, aggressive executives.  It's business as a spectator sport.  I wake up every morning wondering who will make the next move and what it will be. It's great fun, and an exciting time to be an observer of the industry.

Now Is The Time To Create Quality Programming

An exciting trend is quickly developing in the entertainment business.  We are at the beginning of a new period of opportunity for creators of quality films and programming.

It seemed for the past several years, the quality of content was of marginal concern.  Certainly many good films and programs were getting made, but the business and technical aspects of the industry seemed to be more important.  As new companies used the Internet to create new doors into the business, the talk was about superior technology and innovative delivery and pricing strategies and convergence and brand integration and HD and 3D, and on and on.  Everyone still recognized the need for good content, but it wasn't viewed as a key differentiator between the various competitors.

While many of those "new media" conversations are still taking place, something else interesting has happened in the past couple of weeks.  Consider these developments:

As Amazon and Facebook joined Hulu, Vudu and others in attacking Netflix' growing dominance in home video, Netflix saw the writing on the wall.  Prices for existing films in the 3rd or 4th window will inevitably increase.  (That's certainly what the studios are planning.)  As a result, the quality of the Netflix streaming catalog would become more expensive to maintain, and consumers wouldn't care as much.  With more streaming options available, and the collective film library spread across so many companies, consumers would probably just start looking for the best deal.  That means Netflix would be spending more and making less while trying to hang on to its customers.  Not a pretty picture.

In response, Netflix recognized what HBO had seen years before.  The way to differentiate in a competitive market is to have something that no one else can offer.  That means original, exclusive, appealing programming.  So, last week Netflix made the House of Cards deal which will give it exclusive first window rights on the David Fincher/Kevin Spacey collaboration.  If anyone wants to see that program (and a lot of people will), they will have to subscribe to Netflix.  That's a competitive advantage that's based on quality, not price. A much better place to be.

Hulu figured out the same thing, and it has already started airing original programs of its own.

And Reelzchannel got the memo too.  When the controversial "The Kennedys" program was dropped by History Channel, Reelz recognized the opportunity.  By grabbing that show and advertising it, Reelz has already expanded into millions of more households and gained millions of viewers, and The Kennedys program doesn't even begin airing until April.

All of a sudden, as the playing field is leveling and the competition is fierce, quality original programming has become the key strategy of choice.

Of course, this is not a totally new concept.  As I mentioned, HBO has successfully pursued that strategy in the cable business for years.  And the prime time network TV business is still largely based on offering attractive original programming.  In fact, FX, TNT and other second-tier networks have been firmly rooted in the original programming business for several years. But now, with the key digital programming consolidators also adopting that approach, there is a vigorously growing market for quality productions.

In addition, sales at Sundance were the best in years, and even Berlin saw a lot of deals being made.  This resurgence in independent film is further supported by the recent formation of the Open Road distribution venture between AMC and Regal.  Apparently theaters also want to protect their businesses by gaining control over original programming.  Controlling the first window of a quality production appears to be the primary strategy across much of the entertainment business right now.

Obviously, this is good news for the creative community.  The bell has sounded, my friends.  Start creating.  There is a growing sellers' market, and that means that financing will not be far behind.  I am certain investors and lenders will be happy to back MG's from Netflix or Hulu or Open Road or even Reelzchannel.  And these are perhaps just the tip of the iceberg.  There will be more players entering the market for quality content.  In fact, I can't imagine that Walmart/Vudu is not already planning to control exclusive content which can drive sales through its streaming channel as well as its retail business, including related merchandise.  They are uniquely positioned to pursue such a strategy and they are too smart not to recognize the opportunity.

If you have a project to sell, now would be a good time to think about producing it.  This sellers' market for content will not last forever.  All of these companies need to spend money now in order to grab market share.  But when the dust clears, there will be consolidations, mergers and probably a closure or two.  Programming will remain important, but the number of buyers will once again shrink.  The market for programming will cool off a bit and the buyers will put their wallets back in their pockets.  So strike now while these companies need to spend money in order to compete.

The opportunity to create is right now.  I don't know how to say it more clearly than that.

HP CEO Lays Out New Strategy - I Hope He's Got Something Else Up His Sleeve

Hewlett-Packard's (Relatively) New CEO Has Some Ideas For The Company's Future -- Not Necessarily Great Ideas, But Ideas Nonetheless

In a 40-minute speech at an event in San Francisco yesterday, Hewlett-Packard CEO Leo Apotheker laid out his vision for the company's role in the new digital media universe.  This was Mr. Apotheker's first public address since taking over the HP reins from Mark Hurd last November.  It was his biggest opportunity to date to gain the confidence of the public and the investment community.  This is important for him as HP's performance has already slipped under his command.

Unfortunately, I don't think the plan Mr. Apotheker described is going to be a winning strategy for HP.  It seems the two major initiatives are:

• To build a comprehensive cloud-computing platform; and 
• To create a comprehensive application marketplace.  

Both of these are actually pretty good ideas -- but not for HP.

If HP is going to get into providing cloud storage and retrieval services, they are not going to be alone in that business.  In fact, it is likely to become a commodity business, with several players providing similar storage capacity and retrieval speed. Competition in commodity businesses, where the products or services of the various suppliers are essentially fungible, generally boils down to pricing.

Historically, HP has not done well where price is the primary differentiating factor.  HP has always been a high-end supplier of quality products (although in recent years, I'm less impressed by their computers).  The only way HP could dominate the cloud business is with really superior technology.

If "superior technology" in the cloud business means a better user interface, HP will likely struggle to stand out.  User interfaces aren't really their long suit either.  They don't generally supply the "must have" software for any market.  However, if they can use their superior technology to actually make cloud computing more seamless, secure and effective than any other company providing that service, and do it at a competitive price (not necessarily the lowest -- just competitive), they might do o.k.  But o.k. won't be good enough; they need to dominate the sector in order to call the strategy a "win," and I don't think they will be able to do that.

Leo Apotheker

The other strategic initiative of creating a comprehensive application marketplace is also a very good idea.  However, HP has no particular traction or expertise for that business plan.  That business will very much come down to the quality of the user experience, and as noted above, that's not necessarily a strong area for HP.  The HP technology won't really help, nor will branding it with the HP name.  I don't think consumers care who is selling them their apps.  I just don't see what HP will do to gain a competitive advantage in that line of business.

With that said, I hope both businesses go really well for HP.  I am very much a fan of the company, and I've always wanted to see it succeed -- even when Carly Fiorina was running it (although I was happy to see her go - she was simply  not a good fit).  I don't know that Leo Apotheker is of the same caliber as Mark Hurd, but I guess we'll find out.  I'm a little dubious after yesterday's speech.

"Anytime, Anywhere" - Cross-Platform Is A Critical Strategy For Game Companies

Ubisoft's "Companion Gaming" Strategy Is A Hint At How The Gaming Industry Is Getting On-Board With The Cross-Platform Experience


Every current strategy analysis in the content industry inevitably turns to the idea of migrating the content across different devices.  In truth, this is one of  the factors that is most important to a majority of consumers.  If they buy or rent a film, they want to be able to watch it on their television, their iPad, their game console, their smartphone or any other device in their electronics arsenal.

With the introduction of the iPad 2 and the large marketing efforts for the tablets from Motorola, Samsung and others, the concept of cross-platform content delivery is becoming even more important.  The primary feature of the new generation of mobile devices is the ability to deliver a superior audiovisual experience, and consumers want to be able to take full advantage of that ability.

Ironically, there is a concurrent movement towards hardware integration.  Manufacturers are expanding the capabilities of their devices until a Nook, an iPad, a netbook, and the multitude of Android devices all provide essentially competitive functionality.  Consumers really don't want to carry around a smartphone, tablet, eBook reader and a laptop.  (They would need to get a good-sized dog just to help them carry all of their electronics!)  Ultimately, they would prefer to have one device that does everything.

But even as consumers try to reduce the number of devices they own and use, they still want all of their entertainment and electronic diversions available all the time, through whatever device is convenient at the moment.  It is critical to recognize and respect that desire. Companies that provide strong cross-platform solutions will be rewarded.  Those that fail to create a fully-integrated consumer experience are likely to alienate their audiences.

This article about Ubisoft's expansion in the social gaming space is actually what got me thinking about this.  Ubisoft clearly recognizes what consumers want and they are working to bring that to the gaming space.  The timing couldn't be better.

• Game developers are viewing the iPad 2 as a legitimate gaming platform.  
• There is huge growth in the use of smartphones as a primary gaming device.  
• The Nintendo 3DS 3D gaming device has already released to huge success in Japan and should be equally hot when it hits the U.S. in a couple weeks. 
• Xbox 360 (with its new Kinect feature -- which is very cool, by the way) and Wii are still very popular.
• Call Of Duty - Black Ops has become the best-selling game ever, and the popularity of other MMO games is exploding.

These and other factors show that the game business is still very much a growth industry.  There are more choices than ever for platforms on which to play the large and growing range of games. The industry  is generating billions and billions of dollars every year, and getting bigger.  It spawns films, television series, merchandise.  It is perhaps the most important segment of the entertainment industry in the digital age.

In order to fully capitalize on the current opportunities in gaming, it is critical that the game companies give their customers what they want -- the ability to seamlessly move between their various devices while not losing any continuity in their gaming experience.  Consumers ideally want to be able to start a game on a home console, continue it in their cars or on the train on a mobile device, and then continue on someone else's computer when they get to their destination -- all without starting over or missing a beat.

This cross-platform concept is already clearly a part of the strategy for companies in the film, TV and music segments.  With the advanced technology of mobile devices now capable of delivering an acceptable gaming experience, the adoption of this strategy is a critical step for game companies, as well.  The ability to implement an effective cross-platform gaming experience is likely to be a key difference between industry leaders and also-ran competitors in the coming years.

iPad 2: Digital Media Becomes A Conversation

At first glance, the new iPad 2 appears to be a combination of already-existing technologies in a superior, user-friendly design - a fairly typical Apple product.  That may be an accurate description, but this particular package of features might also provide a new vision of what digital media can and will become.

If you want to get an orientation on Apple's new tablet, check out this video.  It's worth watching.  In the meantime, here's a quick summary of the new features:

• Two cameras, front and back, to give simultaneously looks at the user and the user's environment. 
• The ability to tether the tablet to a television to provide a 1080p view of whatever is on the iPad.
• Faster processor to provide smoother, higher quality video.
• Improved display.
• Removable "smart" cover that protects the display, turns the device on and off and folds up to hold the device in two different orientations.
• Great battery life.
• Flatter, smoother design.

Ok, all of that is great, but each of those features has appeared on various other devices.  So why do I think this is a landmark moment in the evolution of digital media?  Until now, the iPad has been used primarily as a means of accessing robust media without being anchored to a stationary screen.  It allowed you to take your media with you in a size and quality that didn't feel like a compromise.

Now, with the cameras and tethering capability, it is suddenly more of a fully interactive 1080p experience.  High definition, user-generated, real-time video going back and forth between the iPad and the TV.  It's morphed from a primarily passive device to a much more active device in one generation.

From here, it is only a small leap before the wired connection between the iPad and television becomes a wireless connection.  Then it will become an IP addressable connection and the distance between the iPad and the TV becomes irrelevant.  When that happens, whatever I'm doing can be captured from two angles and placed on any television in the world.  Or any ten televisions, or any million televisions.  It's just a question of speed and bandwidth.  Suddenly, I am broadcasting real time high definition images to the world.

In that environment, tablet users are no longer just watching; they are creating and participating and infinitely connected and engaged with one another.  That is a completely different paradigm than watching YouTube videos while taking a walk.

Are you seeing this vision of  the kind of access we'll have?  Instead of watching pictures of a young student facing down a tank in Tiananmen Square, we will see what he sees, and watch the expression on his face as it is happening. It becomes a first-person experience, not a second-person story.  And in more mundane applications, we will be able to share any moment of our lives simultaneously with relatives in different countries.  We will walk a group of shareholders through our new facility in Hong Kong while they each sit in their own living room.  We'll be at our kids' shows, events, games -- anything at all, and share it immediately with anyone and everyone who is interested in seeing it.

In that new paradigm, technology serves to connect us in ways that we could never be connected before.  It bridges gaps and brings us together instead of isolating us.

Am I naive or ridiculously over-optimistic?  Perhaps, but I don't think so.  When I look at the iPad 2, this is the future I see.  A day is coming when we will all be in a 24-7 conversation that covers the entire globe.  It makes me smile to think about it.