P Ram Mohan

Evolution of Digital Technology & its impact on Consumer Preferences and Industry Value Chain: A Case of Film Business

It is said that Blockbuster Video in USA had an offer to acquire Netflix for 50 million USD many years back. The deal did not happen. Blockbuster Video is now down to just one store from the hundreds, we all know where Netflix is today. What has probably helped Netflix to grow and what is that Blockbuster was not able to foresee? We look at this specific situation and the recent evolution of film media business to gain insights about the impact of digital technology on consumer preferences and industry value chain.

Convenience becoming the Core of Consumer Choices

As we know, Netflix did not start as a digital technology company. It started, after about 3 years of Amazon’s founding, as a DVD sales and rental firm that wanted to make a consumer’s life easy. It discontinued its DVD sales business after about a year of starting. The consumer would receive the DVD of his or her choice and send it back through a courier service. The consumer did not have to go to the store anymore. The point here is, Netflix followed its consumers to their doorstep and made it convenient for them to watch DVDs of their choice. When technology happened, Netflix moved from physical DVD to streaming the video content right on the consumer’s computer screen.

Did the consumer prefer the DVD being delivered at home? Would it have shown up in any market research survey that Blockbuster video might have conducted? Or was it a brilliant idea by the Netflix founder that consumers will increasingly choose convenience that will save time and effort rather than be stuck in traffic and travel the distance to the rental store. Netflix chose to pursue the idea that consumers want convenience.

Expanding the Choice Set: Technology as an enable of Consumption – Anytime, Anywhere and of Any Kind

During the initial years, the digital platforms were built on the idea of convenience as the main source of value, where the consumer had to just walk to his or her door and products were available for consumption – be it a DVD, books, pizza, movie tickets, or any other item. We are in a world where we don’t even need to walk to open the door, products and services are all available on the digital platforms and can be delivered at a consumer’s screen. Today’s platforms combine the convenience of delivery and consumption. Content consumption, in particular, is anytime, anywhere. Choices don’t have to be driven by convenience alone.

In other words, digital technology has not only provided additional convenience, it has also enlarged the consumer’s choice of what to watch and when. Technology has killed the distance and provided a larger set of choices.

Evolving Value Chains: Digital is changing the Physical Too

Recent statistics tossed around social media, say that the bulk of the transactions in digital platforms are purchases of mobile phones and accessories. The rest of the product categories are still not significant enough. Overall, the extent of online purchases may still be in single digit of the overall purchases made even in the mobile phone category. The industry value chains in the traditional model continue to thrive. The added layer is now distribution warehouses and delivery service mechanisms.  This has increased investment and employment in physical delivery infrastructure.

Coming to infrastructure, poorly maintained screens in small towns are getting flushed out of business and only those who are willing to invest into refurbishing them with better seats and facilities are being preferred. Digital is changing the physical too.

Free Content, Increasing Consumption, hyphenated by Piracy

From a consumer’s point of view, the digital evolution and forms of digital media like audio and video files have led to multi-fold rise in consumption. Cheaper prices of broadband enabled the reach into smaller towns and villages. However, the consumer is still not willing to pay and subscribe. Consumer behaviour is such, that they are willing to pay for a movie in theatre but not when it is available digitally, pirated or otherwise. It could be stemming from the YouTube’s always-free proposition, as many movies are being hosted there. And also, from the addiction of downloading pirated content for over two generations now.

However, Indians still watch a lot of free content available as well as the content available through piracy. Their choice is to wait for the pirated copy rather than go to a digital platform which offers a legal way of watching a film.  Just as they use the e-commerce platforms mainly to compare prices, then go to the local vendors and nail down the price!

There is a rising uptrend in consumption of digital productions. But that is a given. Why say it? It is digital formats that always led to piracy and now it’s gotten worse because of this. But I am still talking like a producer.

Five years back, young consumers had hard disks filled with movies. Now with cheap broadband available on mobile networks, smart phones with large storage and Wi-Fi connectivity, the device is no longer a standalone computer. It is now on phones with streaming video.

Nature and Quality of Consumption

The nature of content for consumption has radically changed. Adult content dominates the consumption as per inside sources of mobile networks. The rise of adult content and action is altering how films are made for theatres also.   Given lack of censorship and certification or even a viewing guideline on anything on the internet, the Indian consumer’s entertainment needs could have a long term telling effect on social behaviour. It is probable that the sexual violence on women and children is a result of such rampant unbridled consumption.

On the positive side, digital media is bringing a lot of films and web series of varied taste and interest to the audiences. Something that was not possible before. One can clearly see that there is no longer one single audience for a film or a web series. Even in Hollywood, it is only the larger than life films that work in theatres. The rest are gravitating towards digital releases.

The physical consumer is now a person who goes to the theatre for an outing. He is not a movie consumer alone. He or she goes to a theatre because it is a wholesome package of hanging out, watching in a group, experiencing bigness on screen and consuming food and beverages at the screens. The digital consumer is an exclusive film watcher. There is clear evidence of fall in footfalls at the theatre screens. Rising real estate cost and the consequent increase in cost of theatre is also not helping their cause.

As content producers, ‘above-average content’ used to have a chance at the theatres. Now there is no chance for ‘above-average content’. In most situations, even at digital platforms, there is no chance for ‘above-average content’. To deliver content which is good always is something that is proving to be very difficult for both producers as well as digital platforms and physical distributors. Even Netflix originals are increasingly becoming average products and are not sensational as they used to be when they had only few productions. It goes on to show that content is still a creative time-consuming process with a low success rate.

Evolving Measures of Success

Going back to models like Netflix, Prime Video and others, they operate on a monthly subscription model and open their entire library to the consumer. A film’s success is no longer judged by its box office collections from brick and mortar structures alone, it is also being judged by its digital success.

Delivery Platforms turn Content Producers

Films are now being made exclusively for digital platforms. Netflix has turned a producer of films, a leap of faith from just being a platform.

Netflix getting into production is like Amazon deciding to get into its own product manufacturing and running its own courier service. Digital technologies get a company a lager consumer base and a steady revenue stream. The question, however, is do they enable a company to become a successful content maker or a product manufacturer?

Entertainment sector itself has seen a sudden rise of stand-up comedians and independent writers, directors and producers, thanks largely to digital platforms. We are now seeing a lot more talent come up in acting, writing, directing and many other creative areas.

Content Production: Traditional Producers Vs. the Platforms

As mentioned above, the companies (Netflix, Prime Video and YouTube) that started as platforms for content makers to put their videos, are now moving into content production in a big way. Which boils down to the question of “What business are they in?”. Content making, traditionally has been the forte of large studios and producers, who had the creative knack of spotting talent and scripts.  These studios have decades of experience that is documented and is passed on to younger professionals. Can these platforms become Content makers? Right now, Netflix is supposedly the largest direct producer of films and television content. However, Netflix’s hit ratio has been low during the last one year. They might be doing volumes but not getting winners in the same proportion.

The large studios are merging in the past decade. Disney, Pixar and Marvel is one single company now. The merger with Fox Studios is also on going. Each of these brands have their own style of content and their coming together, shows how the fight is likely to emerge against the platforms. HBO, the movie channel, was created by the four large studios in the 90s, to counter the threat of other channels picking up the large studio content and making more money. Will the big studios set up their own platform and put out their content? Will history repeat itself.

The young consumer is now watching content on the phone. He is used to watching the content for free and his broadband charges are also nearly free. Will he pay for content? It is most unlikely that he will pay for content. Mobile service providers like Jio will keep providing content free and the cost of content may be subsidised by increase in subscription base and resulting revenues. The question MSPs will face is “What business are they are in?”  They will attempt original production for some time and if they do not get traction like how Netflix originals may not be getting, the MSPs will fall back to sourcing from studios and producers. The costs may end up high and the gamble may fail.

The fear is that the young consumer may get soon disillusioned as the quality of content may slip with own productions being launched by platforms and mobile service providers. What will the consumer do then? The recent fall in numbers for Facebook, twitter and social media companies, shows that the young consumer is moving away from social media. They are getting more inward looking and this could result either in an explosion of real relationships and activities, OR an abnormal rise in behavioural disorders.

Digital Technologies may evolve into Virtual Reality, Artificial Intelligence, and even beam into human eyes and on command of consumer also. But technology and technology firms cannot drive content. The consumer will only watch what works for him or her. Media consumers thrive on emotions. With reclusiveness and lack of companionships already on the rise, one has to ponder about the future of media itself and how the emergence of digital technology may require the industry to evolve differently.

Future of Consumption: Will Choice go away?

How far will the evolution of digital technologies go? Will movies just start beaming into the human eyes at some point in time? Do we just think of a film and presto, it plays?! Will products just arrive at the door step predicting what we really desire and as and when our financial thresholds are met? The day may not be far as artificial intelligence technologies start taking over the decision making from humans. Probably when we reach that phase of evolution, the machines may decide that we do not have a choice about what to watch or there is no need to offer the choice of different forms of convenience, we all need to be dressed in one single code and watch only one kind of film!!

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