Media Business Strategies

The Blog of David Polakoff

Rogue Wave

Posted by David Polakoff on April 6, 2011

The Windmills of My Immediate Mind

Media Business Strategies – David Polakoff

Rogue Wave”

Within the time span of about a week, there has been a wave of corporate rogue initiatives: four Hollywood movie studios announced plans for a premium video-on-demand service (60 days from theatrical release) on DirecTV, without notifying theatre owners; Amazon announced its Amazon Cloud service, with barely any notice to the four major record labels; and Time Warner Cable and Cablevision launched in-home, ipad streaming services of cable programming without (alleged) proper permissions to do so.  To be first to market, do entertainment industry corporations need to act more nimbly, entrepreneurially, and (Dick) Cheney-esque?

The entertainment industry is in its latest struggle between new content delivery technologies versus content providers, but now with the added element of unprecedented consumer empowerment.  As traditional content providers are slow to transform themselves to marketplace realities and slow to resolve engineering and rights issues related to the transformation, consumers are unwilling to wait to be served content as content providers would otherwise have it.  So in the wave of seemingly rogue behavior, it would appear that corporate entities are seeking to innovatively serve their customers, dealing with the content suppliers secondarily; a huge switch from the normal course of business.  These rogue acting companies want to be sure they please and retain their customer base, lest some competitor supplant their purpose in the marketplace; no one wants to be Blockbustered – by getting Netflixed or Redboxed.  Given the intricate effort to make content securely compatible for new technology formats, invest in the technological infrastructure to facilitate the content delivery, and get lawyers to agree on contract terms, plus deal with evolving consumer habits, do you blame companies wanting to be competitive by firing first; and getting permission to shoot, later?

As the movie studios realize the demise of DVD (despite the Blue-Ray introduction) sales and rentals (volume and dollars), they are hoping deals with Netflix (and similar streamed services) will offset the losses.  However, as the music business has not seen digital sales compensate for declining CD sales, the movie studios hope to assure (theatrical) ancillary sales continue at (least at) historical levels.  Thinking that inserting a premium video-on-demand window won’t cannibalize theatrical results, and subsequent window sales opportunities, the DirecTV deal was introduced.  By not clueing the theatrical exhibitors, the studios put the public relations burden to the exhibitors and are letting consumers’ demand for the early, in-home viewing opportunity, and the first premium video-on-demand financial results, do the convincing.  In all likelihood, the studios are right and there will not be audience cannibalization.

Amazon is likely in decent legal shape, as Amazon Cloud will store each users’ music files on servers (and not maintain one song copy for all users to access), which was approved by the United States Supreme Court when Cablevision offered its remote DVR service via a similar file access/storage strategy.  By relying on the Cablevision ruling, and by not dealing with potential record label wrangling, Amazon beat Apple, Google, and other music services to (cloud service) market. By launching the service, Amazon can always later adjust the most (record label) distasteful elements of its cloud service offering and/or go back and negotiate for any rights issues.  No matter how it is viewed, Amazon was first to market and has met consumer demand.  In all likelihood, record label attempts to put this Jeannie back in the bottle, will further deteriorate their public image.

I pay the cable company a lot of money for cable and internet service; I doubt if many buy cable television and internet separately, but some must do.  For the majority, like me, I am paying the cable company to pay network and cable channels for programming rights; I should be allowed to view the programming in my home on any device I please.  So, in another rare circumstance, I side with the cable company (see Cable Knit) on their efforts to allow me to view their delivered service on a television or (in-home) un-wired screen device.  The cable companies have to be worried about cord cutting (see Cut the Cake…I Mean Cord) and are thus being proactive in meeting consumers’ demand for in-home viewing choice and control (TV Everywhere has to be next on their list…but that achievement does have technological and rights issues that can’t be tip-toed around).  I salute the efforts of the cable companies to be first to market and agitate competitors from supplanting their traditional stranglehold.  As for the programmers, in the publicized concern about Nielsen measurement of ipad viewers, first, that is not the consumers’ problem, so their customers do not view that as a valid rationale to blocking a demanded service; second, since its inception, Nielsen has provided processes to measure new means of viewership and will so address this change, as well (besides are the ipad viewing numbers initially that statistically significant?).  If the programmers seek additional fees for me to watch their programming, further hiking up my cable bill, they will be driving me to drop my cable service and seek their programming, alternatively via less expensive means; and that deteriorates their legacy business model quicker than is coming (in the future).  The cease and desist letters that have warranted Time Warner Cable and Cablevision disconnect certain programmers from the ipad application have only made the cable companies look good (talk about a rogue wave!).

As an avid sailor, I am cognizant of the potential for a rogue wave.  I cannot stop a rogue wave; the best I can do is to utilize my skills to successfully navigate through it.  Those referenced in this article that have to navigate the rogue wave are advised to skillfully do so in a way that does not harm your brand and considers the cost/benefit of a long term relationship with your consumer.

Media Business Strategies is the blog/website of David Polakoff, a New York based, Media & Entertainment Industry Financial Executive.

David Polakoff’s media/entertainment industry experience and expertise results from his tenures in senior financial and development roles with Ernst & Young, HBO/Time Warner, Granada America/itv plc, and independent consulting.  Currently, David provides financial, operational, and strategic services to media/entertainment companies.  Read more in About.

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