Monday, March 28, 2011

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.

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