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Articles
Hollywood’s Unpredictable Future
Stanley Lam
Stanley Lam is the general manager of Teradata Hong Kong and South China. He is responsible for the continued growth of the Hong Kong business and the development of the enterprise data warehouse business in the Southern China market.
The media and entertainment industry is undergoing significant changes and is faced with challenges beyond the traditional erosion of prices and margins. It’s facing a shift in technology, consumer behaviour, and distribution resulting in an unstable and unpredictable environment with plenty of surprises ahead. Managing these challenges will require media and entertainment organisations to become forward thinking, proactive, efficient, and effective in their technology and business solutions.
Traditionally, the motion picture industry has concentrated its efforts on creativity and innovation, focusing on creating and distributing content through such channels as theatrical, TV broadcasting, and syndicated services. For years, these organisations have relied on retailers, such as Wal-Mart, Target, Net- Flix, and Blockbuster, to distribute their content. As a result, they never considered the ultimate customer as an asset. With the changing of the tide, these organisations are beginning to recognise that they must learn to court the consumer while managing their existing business-to-business relationships. The convergence of technology, broadband, and content is viewed simplistically by consumers today, but is causing heartburn and headaches for those executives who have survived mergers and acquisitions in the industry.
It’s important to clarify at the outset that convergence is not a new concept; it was first coined in the 1930s by a Dick Tracy cartoon with the concept of a wristwatch capable of two-way communications. However, only recently advances in technology allowed convergence to become a reality by integrating broadband, content, and devices.
Challenges Facing the Industry
The media and entertainment industry is on the threshold of a revolution with implications that reach to the core foundation of their traditional business model. The challenges facing this industry include:
Why the Changes and Choices?
During the past several years, studio executives have watched their margins erode as the life cycle of DVDs has continued to shrink. Compared to a decade ago, when decay curves were as long as sixteen weeks, today the decay curves are four to six weeks with more than 50 per cent of DVD sales taking place within the first week. By the sixth week of a new release, more than 80 per cent of the sales can be accounted for. Decline in revenues and margins, coupled with the shortening of windows and explosion of digital entertainment alternatives are forcing the studios to move toward new distribution channels. They are learning to work with consumers whose expectations and behaviour are constantly changing as they adopt new devices, and to compete against non-traditional competitors.
Today, in the majority of the studios, demand chain management and forecasting are the most important activities as they impact operations, production, and vendor management. Yet many studios have limited information. Forecasts are typically accurate in the 30 to 60 per cent range, impacting margins and resulting in high returns or lost sales.
In the past, variables, such as box office sales and past performance of similar genres, accounted for more than 90 per cent explanation weights in forecast models. However, today these variables are no longer sufficient predictors of content performance. In reality, without real-time data, such as downloads, sales at store level, inventory levels, units shipped and returned, most organisations cannot meet the analytical needs of multi-channel platforms.
With the explosion of channels, new technologies and devices, and more data, additional variables are playing a role in forecasting and demand planning of physical and digital assets. For example, customer data, on-line promotional effectiveness, and variable pricing will be required for the new distribution channels. For traditional channels, as well as new channels, celebrity popularity, release of sequels and other franchise items, packaging, formatting, multi-lingual and censored versioning, shelf space, kiosks, and timing of production will continue to play a key role in forecasting. However, access to these variables will not be sufficient with the advent of digitisation; the ability to conduct real-time analysis will be an important component of accurate forecast and success. Some studios are so focused on capturing customer behaviour because they believe one day their market intelligence will help drive the studios’ production lots.
With the penetration of broadband and new advances in technology, such as DVD downloads, video streaming, and the simultaneous introduction of movies on premium cable on the same day as DVD sales, decay curves will continue to shrink. To add to the confusion, the increased usage of High Definition TV may divert consumers from traditional mediums or multiplexes to home entertainment, which will impact the sales of DVDs. This will require knowledge of the movie performance on other mediums as an indicator for DVD sales. As an example, tracking online pre-release or advanced purchases of DVDs, or monitoring trailers and online promotional activities or PPV sales may increase forecasting accuracy and help reduce the burdens of over- or underproduction.
Until recently, the studios have pushed their content to consumers through third-party distributors, such as theatres and retailers. In fact, for many years, the home video entertainment divisions focused on capturing the much coveted and envied position of retail category captain. Discussions in the boardrooms were focused on increasing and maintaining margins and shelf space and providing differentiated services to retailers to maintain their position as category captains. The concern was not about the ultimate consumer, but on the retailer. As the digital transformation continues, studios are faced with the growing number of delivery channels and formats that go far beyond their traditional business providing opportunities and challenges. The unprecedented level of control, choice, convenience, and variable pricing has allowed consumers’ appetites for entertainment and information to grow. This phenomenon is exaggerated due to the proliferation of devices that allows consumers to demand content whenever, however, and from wherever they choose to absorb it. The mass offerings of yesterday are no longer acceptable to the savvy 'Millennials'. As such, the studios’ once predictable revenue streams are now in jeopardy, as market needs shift.
Although the media and entertainment industry faces many challenges and pressures, these changes can open up new markets, new ways of accessing the ultimate user, and, therefore, new revenue streams. Whether these organisations plan to distribute their content to the ultimate customer or not, they must focus on forecasting across all format and delivery types. The following sections address how entertainment companies can be successful in the coming months and years, as convergence and digitisation become a reality.
Is Your Organisation Ready to Face the Challenges of a Changing Market?
To survive the unstable and unpredictable future and to remain profitable, entertainment companies must look deep into their organisations and find efficient and effective ways to operate their businesses. They must recognise that their business models are in flux and will continue to change, and it’s unclear which of the models will survive. Changes in business models are a result of disruptive technologies, such as VOD, PVR, TiVO, IPTV, and video streaming. The more successful entertainment companies will recognise the need to change their organisations and evaluate their organisational processes and technological needs. They will integrate enterprise-wide operations to more effectively manage their costs and increase their ability to respond to changes at each stage of the value chain. Finally, they will evaluate their IT infrastructure ensuring flexibility and the ability to grow as the market continues to change and evolve.
Studios have been singing the category management mantra for some time, and they’ve been content with retailers who refused to provide consumer information.
However, with the digitisation of content, and more non-traditional competitors, such as online businesses, cable, broadcast, and wireless with direct access to subscribers, the media and entertainment landscape is blurring—requiring new forms of data and business analysis.
The challenge facing media and entertainment companies is to join this revolution by leading and paving the road or else to become a follower and lose market share. To respond to these changes, studios must have accurate, consistent, cross-organisational, and timely data with appropriate analytical capabilities providing a 360-degree view of customers. They must change from data marts, spreadsheets, access files, servers, and legacy systems and consolidate their enterprise data into a data warehouse.
In a recent conversation, an executive made the statement, “Overproduction of DVDs does not cost us anything as long as we meet our retailers’ demand.” A baffling, yet realistic statement faced by many who do not have a clear picture or understanding of losses incurred due to optimistic sales forecasts and overloaded warehouses full of returned DVDs. In fact, many media and entertainment companies have been focused on generating revenues while neglecting the cost of operations. To be successful in a converged and global market, media and entertainment companies must deliver accurate forecasts and planning with a more responsive supply chain and a cost-efficient operation.
Pushing content to the consumer through third parties and resellers, while neglecting the ultimate customer, isn’t in the cards for the future. Facing warehouses full of unsold DVDs will not be acceptable. In the future, studios must develop and manage processes that address speedy delivery mechanisms and robust business intelligence at every business-to-business and consumer touch point. They must also be able to deliver the promised content in a timely fashion to their customers, be it a retailer or an international consumer or a small, independent theatre. The digital supply chain will impact how companies distribute content to global and regional users with diverse cultural and geographical needs, as well as address piracy, and ensure payment of royalties and residuals to all parties. Not only will these changes require an integrated view of the customer, but also an integrated view of the business and organisational services and products offered. Consider a consumer who is purchasing PPV and a DVD, views trailers online, and downloads screen savers, ring tones, and video clips. Understanding customers’ behaviour will require a different level of information.
Approaching the Unpredictable Future
For strategic and tactical decisions to be useful, today’s data, this hour’s data, even this minute’s data must be close at hand, not only in accurate and real-time form but coupled with business intelligence to deliver timely analysis and decision-making capabilities. Since more than 80 per cent of sales in studios are based on business-to- business transactions, real-time capabilities should be applied to vendor and partner relationships as consumer services are becoming more direct.
The concern is not today’s data needs as much as what looms around the corner where more content will be available requiring more efficient ways of managing the storage and delivery of this information. Currently, media and entertainment companies can’t capitalise on the rich data available to them due to continued siloed operations resulting in compartmentalised data storage and lack of integrated business units and data. Most of these organisations are housing huge amounts of valuable data, which, only when integrated, can increase their knowledge of customers, enhance productivity, and reduce costs and response time.
In many traditional media and entertainment organisations, data reside on individual desktops, spreadsheets, and servers—they are rarely used efficiently due to lack of availability to the relevant users. As a senior executive recently stated, “More than eighty per cent of our promotional data resides on two desktops and hundreds of spreadsheets. We don’t know all the data that sits on these computers. If we ever lose these employees, we will have to spend a minimum of two months to discover what’s available.” This is not an unusual scenario, many companies can relate to this dilemma as they have managed to accumulate information on an as needed basis, but have not addressed the efficient use and integration of the data.
With the growing number of distribution channels and formats, and a consumer with access to unlimited content, successful media and entertainment companies are recognising, more than ever, that the future is data driven. Information will drive decision-making, based on fact rather than pure modelled data or anecdotal facts.
The current approach to enterprise data warehousing will move towards a tactical decision making environment, which means developing active enterprise intelligence where people throughout the organisation, who interact directly with consumers and suppliers, can be empowered with fact-based decision-making at their fingertips. Understanding available inventory, consumer demand, and price elasticity from an active data warehouse provides a framework for optimising profitability. For example, active enterprise intelligence will allow the studios to access the percentage of available property out of the total inventory at a specific store level or geography on a near-real-time basis. By being able to forecast consumer demand and understand price elasticity, studios can adjust pricing or promotion appropriately on a per channel, geography, or property basis in near real time. The degree to which prices are adjusted based on such attributes as title, episode, format, promotion, special edition, advertising performance, games, and channels will be determined by price elasticity and the variable cost structure of the specific property.
The goal is to maximise sales at the maximum price possible. This tiered pricing strategy whereby maximum dollars are obtained along each point in the demand curve based on price sensitivity of the channel or the consumer will depend on efficient use of data. The device or the consumer will allow differentiated pricing for the traveller at the airport who is purchasing a newly released DVD from a kiosk or the movie enthusiast who is willing to pay higher prices to download the most recent sequel of his favourite movie on the same day that it’s released to the street.
The key requirement for the future is to keep the data fresh and to ensure that the pricing models have the most accurate view possible of the current situation, as well as fast response time related to decision making for right pricing. Building an information-enabled business doesn’t happen overnight. Corporate culture processes and procedures must change to fully exploit information throughout the organisation. But all of this begins with getting information into the hands of decision-makers—at all levels in an organisation—a significant shift from the current environment in most media and entertainment companies.
Conclusion
Traditionally, the media and entertainment industry has competed on the basis of its creativity focusing on creating content for the ultimate consumer. Challenges facing the media and entertainment industry have historically been associated with consumer goods products, retailers, and manufacturers. However, with the decline of the double digit increase of DVD sales as the primary revenue source and shrinking margins, these organisations must recognise that successful business management will require them to evaluate their legacy systems and develop technology environments to address their supply and demand chain, operations, promotion, pricing, and forecasting capabilities.
Digitisation and convergence are being driven by new revenue opportunities. An increased number of distribution channels and the proliferation of devices is forcing media and entertainment companies to re-evaluate their business models to keep pace with consumers’ media choices and the additional data generated. It should be noted that the integration of technology and business are key drivers to success in IT investments.
Although challenges facing the media and entertainment industry will continue to increase as technological pressures increase, many of the challenges can provide opportunities and new revenue streams by extending the life cycle of the properties due to the new distribution channels. Of course, these challenges can also pose potentially major threats to the profitability and survival of the organisations. These new revenue streams can only be achieved by taking positive steps toward incorporating disparate data sources from cross organisational divisions into a data warehouse and increasing overall enterprise efficiency and accuracy of information.
Traditionally, the motion picture industry has concentrated its efforts on creativity and innovation, focusing on creating and distributing content through such channels as theatrical, TV broadcasting, and syndicated services. For years, these organisations have relied on retailers, such as Wal-Mart, Target, Net- Flix, and Blockbuster, to distribute their content. As a result, they never considered the ultimate customer as an asset. With the changing of the tide, these organisations are beginning to recognise that they must learn to court the consumer while managing their existing business-to-business relationships. The convergence of technology, broadband, and content is viewed simplistically by consumers today, but is causing heartburn and headaches for those executives who have survived mergers and acquisitions in the industry.
It’s important to clarify at the outset that convergence is not a new concept; it was first coined in the 1930s by a Dick Tracy cartoon with the concept of a wristwatch capable of two-way communications. However, only recently advances in technology allowed convergence to become a reality by integrating broadband, content, and devices.
Challenges Facing the Industry
The media and entertainment industry is on the threshold of a revolution with implications that reach to the core foundation of their traditional business model. The challenges facing this industry include:
- Declining video margins due to price erosions and increased costs
- Increased retailer bargaining power that uses DVDs as loss leader items, hence demanding lower prices while requiring higher services.
- Increased threats of cannibalisation and market fragmentation due to distribution channel proliferation, such as VOD, DVR, video pod casts, broadband; video streaming, and cable.
- The birth of Millennials, a technically savvy set of consumers, who are defining the future of media consumption and seeking technologies that will enable them to consume content on their own terms.
- Demographically heterogeneous consumers with changing habits, behaviours, and wants.
- Increased complexities in intellectual property rights.
- Increased global distribution forcing multiple versioning of content based on geographical preferences, cultural differences, and formatting, requiring re-evaluation of business models, IT capabilities, and organisational designs.
- Interoperability of devices and finding standards where content (for example, a movie) can be played on an iPod as easily as on a PSP or PC.
Why the Changes and Choices?
During the past several years, studio executives have watched their margins erode as the life cycle of DVDs has continued to shrink. Compared to a decade ago, when decay curves were as long as sixteen weeks, today the decay curves are four to six weeks with more than 50 per cent of DVD sales taking place within the first week. By the sixth week of a new release, more than 80 per cent of the sales can be accounted for. Decline in revenues and margins, coupled with the shortening of windows and explosion of digital entertainment alternatives are forcing the studios to move toward new distribution channels. They are learning to work with consumers whose expectations and behaviour are constantly changing as they adopt new devices, and to compete against non-traditional competitors.
Today, in the majority of the studios, demand chain management and forecasting are the most important activities as they impact operations, production, and vendor management. Yet many studios have limited information. Forecasts are typically accurate in the 30 to 60 per cent range, impacting margins and resulting in high returns or lost sales.
In the past, variables, such as box office sales and past performance of similar genres, accounted for more than 90 per cent explanation weights in forecast models. However, today these variables are no longer sufficient predictors of content performance. In reality, without real-time data, such as downloads, sales at store level, inventory levels, units shipped and returned, most organisations cannot meet the analytical needs of multi-channel platforms.
With the explosion of channels, new technologies and devices, and more data, additional variables are playing a role in forecasting and demand planning of physical and digital assets. For example, customer data, on-line promotional effectiveness, and variable pricing will be required for the new distribution channels. For traditional channels, as well as new channels, celebrity popularity, release of sequels and other franchise items, packaging, formatting, multi-lingual and censored versioning, shelf space, kiosks, and timing of production will continue to play a key role in forecasting. However, access to these variables will not be sufficient with the advent of digitisation; the ability to conduct real-time analysis will be an important component of accurate forecast and success. Some studios are so focused on capturing customer behaviour because they believe one day their market intelligence will help drive the studios’ production lots.
With the penetration of broadband and new advances in technology, such as DVD downloads, video streaming, and the simultaneous introduction of movies on premium cable on the same day as DVD sales, decay curves will continue to shrink. To add to the confusion, the increased usage of High Definition TV may divert consumers from traditional mediums or multiplexes to home entertainment, which will impact the sales of DVDs. This will require knowledge of the movie performance on other mediums as an indicator for DVD sales. As an example, tracking online pre-release or advanced purchases of DVDs, or monitoring trailers and online promotional activities or PPV sales may increase forecasting accuracy and help reduce the burdens of over- or underproduction.
Until recently, the studios have pushed their content to consumers through third-party distributors, such as theatres and retailers. In fact, for many years, the home video entertainment divisions focused on capturing the much coveted and envied position of retail category captain. Discussions in the boardrooms were focused on increasing and maintaining margins and shelf space and providing differentiated services to retailers to maintain their position as category captains. The concern was not about the ultimate consumer, but on the retailer. As the digital transformation continues, studios are faced with the growing number of delivery channels and formats that go far beyond their traditional business providing opportunities and challenges. The unprecedented level of control, choice, convenience, and variable pricing has allowed consumers’ appetites for entertainment and information to grow. This phenomenon is exaggerated due to the proliferation of devices that allows consumers to demand content whenever, however, and from wherever they choose to absorb it. The mass offerings of yesterday are no longer acceptable to the savvy 'Millennials'. As such, the studios’ once predictable revenue streams are now in jeopardy, as market needs shift.
Although the media and entertainment industry faces many challenges and pressures, these changes can open up new markets, new ways of accessing the ultimate user, and, therefore, new revenue streams. Whether these organisations plan to distribute their content to the ultimate customer or not, they must focus on forecasting across all format and delivery types. The following sections address how entertainment companies can be successful in the coming months and years, as convergence and digitisation become a reality.
Is Your Organisation Ready to Face the Challenges of a Changing Market?
To survive the unstable and unpredictable future and to remain profitable, entertainment companies must look deep into their organisations and find efficient and effective ways to operate their businesses. They must recognise that their business models are in flux and will continue to change, and it’s unclear which of the models will survive. Changes in business models are a result of disruptive technologies, such as VOD, PVR, TiVO, IPTV, and video streaming. The more successful entertainment companies will recognise the need to change their organisations and evaluate their organisational processes and technological needs. They will integrate enterprise-wide operations to more effectively manage their costs and increase their ability to respond to changes at each stage of the value chain. Finally, they will evaluate their IT infrastructure ensuring flexibility and the ability to grow as the market continues to change and evolve.
Studios have been singing the category management mantra for some time, and they’ve been content with retailers who refused to provide consumer information.
However, with the digitisation of content, and more non-traditional competitors, such as online businesses, cable, broadcast, and wireless with direct access to subscribers, the media and entertainment landscape is blurring—requiring new forms of data and business analysis.
The challenge facing media and entertainment companies is to join this revolution by leading and paving the road or else to become a follower and lose market share. To respond to these changes, studios must have accurate, consistent, cross-organisational, and timely data with appropriate analytical capabilities providing a 360-degree view of customers. They must change from data marts, spreadsheets, access files, servers, and legacy systems and consolidate their enterprise data into a data warehouse.
In a recent conversation, an executive made the statement, “Overproduction of DVDs does not cost us anything as long as we meet our retailers’ demand.” A baffling, yet realistic statement faced by many who do not have a clear picture or understanding of losses incurred due to optimistic sales forecasts and overloaded warehouses full of returned DVDs. In fact, many media and entertainment companies have been focused on generating revenues while neglecting the cost of operations. To be successful in a converged and global market, media and entertainment companies must deliver accurate forecasts and planning with a more responsive supply chain and a cost-efficient operation.
Pushing content to the consumer through third parties and resellers, while neglecting the ultimate customer, isn’t in the cards for the future. Facing warehouses full of unsold DVDs will not be acceptable. In the future, studios must develop and manage processes that address speedy delivery mechanisms and robust business intelligence at every business-to-business and consumer touch point. They must also be able to deliver the promised content in a timely fashion to their customers, be it a retailer or an international consumer or a small, independent theatre. The digital supply chain will impact how companies distribute content to global and regional users with diverse cultural and geographical needs, as well as address piracy, and ensure payment of royalties and residuals to all parties. Not only will these changes require an integrated view of the customer, but also an integrated view of the business and organisational services and products offered. Consider a consumer who is purchasing PPV and a DVD, views trailers online, and downloads screen savers, ring tones, and video clips. Understanding customers’ behaviour will require a different level of information.
Approaching the Unpredictable Future
For strategic and tactical decisions to be useful, today’s data, this hour’s data, even this minute’s data must be close at hand, not only in accurate and real-time form but coupled with business intelligence to deliver timely analysis and decision-making capabilities. Since more than 80 per cent of sales in studios are based on business-to- business transactions, real-time capabilities should be applied to vendor and partner relationships as consumer services are becoming more direct.
The concern is not today’s data needs as much as what looms around the corner where more content will be available requiring more efficient ways of managing the storage and delivery of this information. Currently, media and entertainment companies can’t capitalise on the rich data available to them due to continued siloed operations resulting in compartmentalised data storage and lack of integrated business units and data. Most of these organisations are housing huge amounts of valuable data, which, only when integrated, can increase their knowledge of customers, enhance productivity, and reduce costs and response time.
In many traditional media and entertainment organisations, data reside on individual desktops, spreadsheets, and servers—they are rarely used efficiently due to lack of availability to the relevant users. As a senior executive recently stated, “More than eighty per cent of our promotional data resides on two desktops and hundreds of spreadsheets. We don’t know all the data that sits on these computers. If we ever lose these employees, we will have to spend a minimum of two months to discover what’s available.” This is not an unusual scenario, many companies can relate to this dilemma as they have managed to accumulate information on an as needed basis, but have not addressed the efficient use and integration of the data.
With the growing number of distribution channels and formats, and a consumer with access to unlimited content, successful media and entertainment companies are recognising, more than ever, that the future is data driven. Information will drive decision-making, based on fact rather than pure modelled data or anecdotal facts.
The current approach to enterprise data warehousing will move towards a tactical decision making environment, which means developing active enterprise intelligence where people throughout the organisation, who interact directly with consumers and suppliers, can be empowered with fact-based decision-making at their fingertips. Understanding available inventory, consumer demand, and price elasticity from an active data warehouse provides a framework for optimising profitability. For example, active enterprise intelligence will allow the studios to access the percentage of available property out of the total inventory at a specific store level or geography on a near-real-time basis. By being able to forecast consumer demand and understand price elasticity, studios can adjust pricing or promotion appropriately on a per channel, geography, or property basis in near real time. The degree to which prices are adjusted based on such attributes as title, episode, format, promotion, special edition, advertising performance, games, and channels will be determined by price elasticity and the variable cost structure of the specific property.
The goal is to maximise sales at the maximum price possible. This tiered pricing strategy whereby maximum dollars are obtained along each point in the demand curve based on price sensitivity of the channel or the consumer will depend on efficient use of data. The device or the consumer will allow differentiated pricing for the traveller at the airport who is purchasing a newly released DVD from a kiosk or the movie enthusiast who is willing to pay higher prices to download the most recent sequel of his favourite movie on the same day that it’s released to the street.
The key requirement for the future is to keep the data fresh and to ensure that the pricing models have the most accurate view possible of the current situation, as well as fast response time related to decision making for right pricing. Building an information-enabled business doesn’t happen overnight. Corporate culture processes and procedures must change to fully exploit information throughout the organisation. But all of this begins with getting information into the hands of decision-makers—at all levels in an organisation—a significant shift from the current environment in most media and entertainment companies.
Conclusion
Traditionally, the media and entertainment industry has competed on the basis of its creativity focusing on creating content for the ultimate consumer. Challenges facing the media and entertainment industry have historically been associated with consumer goods products, retailers, and manufacturers. However, with the decline of the double digit increase of DVD sales as the primary revenue source and shrinking margins, these organisations must recognise that successful business management will require them to evaluate their legacy systems and develop technology environments to address their supply and demand chain, operations, promotion, pricing, and forecasting capabilities.
Digitisation and convergence are being driven by new revenue opportunities. An increased number of distribution channels and the proliferation of devices is forcing media and entertainment companies to re-evaluate their business models to keep pace with consumers’ media choices and the additional data generated. It should be noted that the integration of technology and business are key drivers to success in IT investments.
Although challenges facing the media and entertainment industry will continue to increase as technological pressures increase, many of the challenges can provide opportunities and new revenue streams by extending the life cycle of the properties due to the new distribution channels. Of course, these challenges can also pose potentially major threats to the profitability and survival of the organisations. These new revenue streams can only be achieved by taking positive steps toward incorporating disparate data sources from cross organisational divisions into a data warehouse and increasing overall enterprise efficiency and accuracy of information.
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