|Posted on January 17, 2013 at 2:15 PM|
How can you tell that a business model has gone from being the "goose that lays the golden egg" to a serious liability? This particular issue couldn't be more evident ever since streaming exploded on the scene. Hollywood is convinced that streaming will be the death of their profits - just like they thought physical copies of their content would seriously harm their profits when VHS came of age back in the day.
So why is it so hard to (legally) stream new releases? Hollywood is creating scarcity, which is an economic concept that means they are controlling who gets access to their content in order to drive up the profits. But some people are of the opinion that entertainment companies are giving themselves a nasty black eye, and they have also made piracy a multi-million dollar business.
Scarcity is created by restricting the flow of content. It looks something like this:
Lessons from the Prohibition Era
Perhaps pre-World War II history in the United States should be studied far more in-depth than the skimpy chapter we get in our history books in 8th grade. There is a wealth of information from that era that can be applied to a number of scenarios. For instance, prohibition birthed a whole new type of illegal activity centered around gangsters whose mission included getting alcohol into the hands of the masses to make a huge profit. Once prohibition was no longer the law of the land, the "Capone era" died out with it.
Now we can enjoy an alcoholic beverage in a number of venues. The cheapest place to have a drink is at home, but that doesn't discourage us from going out to clubs, lounges or restaurants for an evening out. In bullish economic times, we tend to go out a lot more, but during economic downturns like we've been experiencing that last several years, you might see some of these businesses closing down because we are forced to have a beer in the backyard to save money.
The More Things Change, the More They Remain the Same
So let's apply this application to the movie industry. I've taken my kids to probably 4 movies at the local theater in the last five years, and while there I swear it was like a ghost town. On the other hand, when I was a young adult during the 1980's, the theaters would generally be at a minimum ¾ full during a matinee, and "sold out" when a hot new film was released (and I won't even comment on how films seemed much more substantive and entertaining than they seem to be today). During the 1970's & early 1980's, Hollywood was terrified that VHS technology would cannibalize their profits. They eventually discovered, however, that it actually created an additional revenue source when people started building their video collections.
Hollywood now relies on to DVD sales to generate revenue. Trouble is, digital bootleggers have cropped up just like in Prohibition times to get movies and television shows into the hands of the masses through movie download sites. The contraband is smuggled over the internet utilizing peer to peer file sharing.
We as a family are purchasing far fewer DVDS and digital movies, and are not doing the download thing (except for a few "legitimate" sites, the chance for picking up a computer virus or Trojan just isn't worth it). We also opt to watch older content on Netflix and Hulu Plus. Tough economic times call for people to tighten their belts.
Hollywood + Google = Profits
Robert Simpson at the Huffington Post encouraged Hollywood to stop pointing the finger at Google, opting instead to build a partnership with the internet giant to provide an alternative service where movies are released at the same time as the cinema release. They could charge a premium for people to stream the new releases at home - e.g. higher than what is charged at venues like Amazon Instant Video, Vudu or iTunes after the release. They would probably create a brand new market for people like me who rarely go to the cinema because I have a large family.
While they're at it, how about if they make the content available to the international community. Other countries are sorely lacking in their ability to stream coveted content. Ridiculously restrictive licensing agreements have potential consumers in other countries scratching their heads, while often jumping through hoops trying to circumvent laws that companies like Netflix are bound to, trying to look like they are from the United States by obtaining a U.S. IP address.
Consumers will always continue going to movie theaters. You simply cannot recreate the experience at home . . . from the smell of popcorn permeating the atmosphere, to the multi-story big screen, to the booming stereo surround sound. Hollywood should take heed and stop hanging on to their business model with a maniacal death grip and learn valuable lessons from prohibition, as well as their own history 30+ years ago when they had to learn to embrace the VHS tape. Streaming movies can become an opportunity for them if they get creative.