Peacock Nine Blog

Disney’s Moviebeam: A New Media Distribution Channel With Revolutionary Potential

This morning, Disney announced the launch of a particularly interesting new technology entitled Moviebeam. (Incidentally, when was the last time you heard the words “Disney” and “cool new technology” used in the same sentence? It's certainly been a long time since we have.) On one hand, Moviebeam represents a very interesting and inexpensive means for media firms to develop a direct content distribution channel without having to spend billions to acquire a cable network, a la Time Warner. Secondly, assuming that Moviebeam is able to find subscribers, it has the potential to revolutionize the way we think about the distribution of film and TV entertainment, and render video rental stores like Blockbuster, video on demand (VOD) services from cable companies like Comcast and subscription rental services like Netflix obsolete.

For the last few years, there’s been a growing belief in the media industry that the future of media depends on the ability to control the distribution channel to customers. For example, part of the rationale behind AOL’s merger with TimeWarner was that AOL would be able to use the web to pump Time Warner’s music, movies and TV programming direct to consumers. Similarly, News Corporation's (e.g. Fox) forays into satellite broadcasting, and Vivendi-Universal’s ownership of Canal+ (a French cable network) largely represent the desire of media firms to control a distribution network that they can use to resell content to consumers. Not only would such a distribution network potentially increase a media firm’s ability to create value (by eliminating the middlemen of theater distribution, video rentals, or simply by creating an additional distribution channel), it would also provide media firms with a more effective means of generating revenue from their older content, by inventing a means to sell this content direct to consumers. (Generally speaking, sales of older content—e.g. backlist, catalog, syndication—offer media firms the highest margins, since the marginal costs on such sales are extremely low.) Finally, being able to own a distribution channel that permitted sales of video-on-demand might also provide a means of getting around the challenge TiVo poses to advertising revenues in the TV industry: viewers who don’t want advertising can simply purchase a subscription to their favorite shows over a VOD network, giving the revenue directly to the media firm behind the content.

However, as attractive as developing a direct content pipeline to the customer has been for media firms, it’s been insanely hard to accomplish for a number of reasons. Thanks to the limited number of Americans with broadband connections (although, in fairness, it should be noted that this number is actually starting to increase fairly rapidly), and a lack of desire to watch films and TV programming on computer screens, the Internet hasn’t lived up to its potential as a distribution mechanism. Moreover, because of regulatory rules and costs driven by scarcity and competition, acquiring a cable or satellite network for distribution has been prohibitively expensive for most media firms. Building a satellite network of one’s own to act as a distribution content—which was Fox’s solution—has proven to be exceptionally expensive. And media firms have been less than eager to partner with existing cable firms to deliver content digitally (via VOD services), in part because cable firms can use the inability of media firms to forward integrate into distribution as a position of power in negotiations, and capture most of the revenues from VOD sales for themselves.

Moviebeam is a particularly elegant solution to the challenge media firms face with developing a VOD network. It’s essentially a set-top box with a 160GB hard drive inside that receives digital content the old-fashioned way—over the airwaves. This avoids the high costs of having to build out or buy a cable or satellite network to distribute content, while creating a direct pipe to the customer. Subscribers to the service—rather than selling the box outright, Disney plans to charge consumers a monthly fee of $6.99 for the box, plus a per movie charge—can select content from all the major Hollywood studios (with the current exception of Paramount) over the Moviebeam service. The starting menu of films offers a range of recent blockbusters like Lord of the Rings: The Towers, Bringing Down the House, Die Another Day, and some older movies--about 100 movies in total, each of which are priced at $3-$4, or roughly the same price as a rental. The Moviebeam hard-drive offers interesting revenue possibilities, too, as viewers can theoretically pay slightly more to buy movies outright from and store them digitally. It’s also hypothetically possible that over time, Disney—or Moviebeam—can use the data it collects on viewing habits to determine your interests, and recommend films to you accordingly, thereby increasing sales (and selling from its backlist of titles). Finally, because the costs of adding a market to the Moviebeam service are so low—Moviebeam uses local TV stations to broadcast a signal, at a cost of approximately $250K a market—it’s conceivable that Disney could use the Moviebeam network to sell additional content like TV programming, music, or events, and effectively become a cable distribution outlet on its own.

The two biggest challenges Disney faces with Moviebeam is marketing yet another set-top box/consumer peripheral to consumers. Although the fact that Moviebeam is a set-top box that is plug-and-play is a great thing from an ease-of-use perspective, the fact that it’s a set-top box still poses a problem. For example, do you really want another box connected to the TV, after having already wired the cable box, the DVD player, the VCR, the videogame console, and the TiVo, to it? We think that Moviebeam’s pricing will go along way to ensure its popularity with consumers—a $6.99 rental is a small price to pay for the convenience of not having to worry about rental fees, and being able to order up top-caliber content from your living rooms—but Disney needs to develop creative ways to increase the attach rate of Moviebeam to TV sets. (Thinking aloud, perhaps bundling the technology inside new TVs via a revenue-sharing deal with existing consumer electronics manufacturers might be a good idea…) Secondly, continuing to ensure that viewers have access to top-quality content is absolutely critical to Moviebeam’s success. While it’s encouraging that Disney’s been able to line-up the participation of virtually every other major studio (except Paramount), they’ll need to ensure that each is properly compensated for distributing their films and not try to charge exorbitant fees to their partners, lest other studios develop Moviebeams of their own. (We think that Paramount will quickly fall into place and participate, especially if the launch of the service goes well.)

In closing, we’ll be watching Disney’s launch of Moviebeam closely: after all, it’s not every day that a firm shakes up the media business, and creates compelling new business models for media conglomerates in the process…

Some additional notes: if you’d like a detailed visual explanation of how Moviebeam actually works, there are several flash demos detailing the intricacies of the product at the Moviebeam website.

File this under tangentially related, but this is the third favorable article we’ve written about Disney in less than a month (see our take on the Disney Channel’s strategy here; or read about how impressed we are with the passion of Disney’s employees here. This sudden interest in Disney is particularly surprising (to us, at least), since we’d hardly thought about the company at all for the last few years. Is Disney suddenly becoming a hotbed of innovation and a model for media companies around the world, or what?

The Hidden Persuaders of the Publishing World

Slate published an interesting piece a couple of weeks ago about the power a clutch of book industry trade publications—specifically, Publishers Weekly; Kirkus Reviews ; Library Journal and Booklist—have over what books ultimately find their way into the hands of consumers. As the article puts it (somewhat ominously):

You've probably never read these magazines, even if you've seen their names on book jackets. But they're helping determine what you read. Together, they make up the big four of book industry trade journals, aimed at publishing insiders: newspaper and magazine editors, bookstore and library book-buyers, literary agents, and film industry types scanning them for movie rights. Long important as behind-the-scenes power brokers, they became even more powerful in the 1990s, when online booksellers signed deals with them. (Barnes & Noble.com, like Amazon, has a deal with Publishers Weekly.) Their reviews—300 or so words of plot summary, context, and a quick verdict—influence which books get noticed, bought, and promoted in the media.

The easiest way to think of Publishers Weekly et al is that they’re effectively the reviewers the reviewers you’re likely to read (whether its Entertainment Weekly, the New York Times Book Review, O Magazine, pick your poison) read. Consequently, these industry magazines have a lot of power determining what books ultimately get favorable buzz, and which ones don’t, which in turn affects sales. For example, Slate’s article reports that an unnamed author claimed that O Magazine cancelled a planned feature on her (which would have likely increased sales) after her book received less than glowing advance praise in Kirkus Reviews.

Assuming that Slate is correct about the power these four industry journals wield over the printed word in America (incidentally, shouldn’t somebody alert scolds like Oliver Stone or Jonathan Rosenbaum about the possibility of a vast and overarching conspiracy in the publishing world?) led us to think about some interesting marketing possibilities. First, could it be possible for publishers to market directly to the tastes and whims of individuals reviewing for these publications in the hopes of “influencing the influencers” (e.g. the harder to reach mainstream publications that dictate what we read?). It should be relatively easy to compose a list of these reviewers—consider that Slate reports that reviewers in at least two of these publications (Booklist and Library Journal) are directly credited, while reviewers in another (Kirkus) are credited in the masthead. (Identifying the reviewers that work for the only publication that doesn’t credit reviewers (Publishers Weekly) would probably require some sleuth work, but this would be by no means impossible.) Given these facts, we’d be surprised if some publishers didn’t already court the reviewers for these magazines already: perhaps by asking them for feedback on a book ahead of time, or by inviting them to swank literary parties where the wine and bon mots flow liberally, all in the hopes of currying favor for an author’s or publisher’s next big book. (Although this seems like a fairly cynical practice, it already goes on to some degree throughout publishing and media—this is why film critics get invited to oh-so-fabulous launch parties in Cannes, for example.)

However, we’d argue that the real opportunity for publishers to reach out to the reviewers of these publications and treat them as partners. While anyone can throw a bacchanal to woo writers (if we remember correctly from our respective days in grad school in the humanities, all it takes to impress most writers is a few jugs of cheap wine and some overwrought allusions to the fall of whatever empire you feel most jaded with nowadays), not everybody can work well with writers. There’s a chance for publishers to work with these reviewers through every step of the publishing process—inviting them to key meetings, introducing them to authors, having them act as an informal advisory board and generally, treating them more as human beings and less as naïve hicks who can easily be wowed by fabulous parties and a few minutes of face time with the editor of a publishing house. Put another way, any two-bit publishing firm can identify a reviewer for one of these industry ‘zines and market to them with a sledgehammer; not every firm can turn an external reviewer into a trusted confidante and partner. Consequently, firms that could hypothetically develop partnerships and listen to the “influencers of the influencers” and involve them in their day-to-day activities would have the makings of a pretty powerful—and more importantly, inimitable—competitive advantage on their hands.

One other idea spurred by the Slate article…Slate mentions that although reviewers for each of these journals are usually correct in assessing the response that mainstream customers and editors will have to the books they’re advance reviewing. However, in some cases, the reviewers get it dramatically wrong—here’s a humorous outtake from Slate detailing how Kirkus was way off the mark with one of our favorite books, Dave Egger’s A Heartbreaking Work of Staggering Genius: “It isn’t.” According to Slate:

Though the review allowed that the book “is better than most novel-like objects created by our younger writers,” it nevertheless concluded: “Few readers will be satisfied…for their investment of time and good will.”

Given that we can track reviewers and book sales of each book, it would also be possible for publishers to establish a rating system that tracked how correct each reviewer was, and therefore, how tapped into the zeitgeist they are. Combining this data—sales and reviewer attitude—could provide publishers for a tool that could help them determine which reviewers at which publication to concentrate on most in their efforts to win sales.

Is There Something More To Yahoo Shopping's New Price Comparison Tool?

This morning’s Wall Street Journal has a brief but thought-provoking article about Yahoo’s plans to incorporate a shopping comparison service into its online mall, Yahoo! Shopping. This tool will allow shoppers to compare products on the basis of brand, price, merchant rating and so forth, and closely resembles comparison services like MySimon in terms of functionality. However, whereas the information on other comparison sites tends to be somewhat out-of-date—sites like MySimon or BizRate crawl the web at regular intervals to pull down price information, meaning that they don’t necessarily capture up-to-the-minute price information—Yahoo! promises to provide up to the minute comparison information. By paying a small fee, Yahoo! Shopping’s merchants can use the comparison tool to list their wares in real-time. Ideally, this new feature will help boost site traffic and increase sales at Yahoo! Shopping, and play an important component of Yahoo’s growth.

Although Yahoo! Shopping is currently the third-most visited online shopping site, boasting 15.1 m unique users, it trails the market leaders—Amazon and eBay by fairly significant amounts. (According to a handy Nielsen/NetRatings chart kindly provided in the Wall Street Journal, Amazon.com has 26.1m unique visitors and eBay has a hugely impressive 42.4m unique visitors.) Although the number of Yahoo shoppers is large, it’s imperative that Yahoo find a way to grow this figure for two reasons.

The first danger to Yahoo is that the success of online malls such as Yahoo! Shopping, Amazon.com’s Marketplace, and eBay to date has largely been dictated by what economists call network effects. Effectively, what this means is that the sites with the largest number of unique visitors (and even more importantly, the sites that have the proven ability to convert those visitors into actual buyers), attract the most merchants, which in turn attract more shoppers (since they offer more shopping choice) in what’s called a “virtuous cycle.” In Yahoo’s case, this means that for many smaller merchants, eBay offers a potentially more effective location for an online storefront, given the fact that eBay has nearly three times as many visitors as Yahoo! Shopping. Yahoo clearly hopes that providing shoppers with a useful comparison tool will help merchants increase sales, and thereby hopefully give it a way of catching up to eBay in the numbers game.

The second major threat to online malls is that improvements in search engine technology render the concept of an online mall that funnels traffic to virtual storefronts all but irrelevant. Effectively, as search engines like Google continue to refine their ability to find things online, it’s possible that they could theoretically own the online shopping experience. Google has already been heading this direction: last year, it launched Froogle, a souped-up search engine devoted to shopping that allows users to type in, say, “widgets” and receive a list of sites selling widgets and their pricing. In the future, Froogle will likely provide information regarding brand, quality, reviews, shipping and perhaps a merchant rating. Yahoo’s new online shopping comparison feature is designed to head this challenge off at the pass by offering merchants enhanced functionality—real-time pricing data, and an opportunity to provide greater information about brand and merchant reputation to customers—before an upstart like Google can offer similar functionality.

On the surface, Yahoo’s comparison tool seems like an example of what we call “so what?” functionality. The only truly unique feature that Yahoo’s tool offers shoppers and merchants is the ability to access real-time pricing data—everything else (merchant ratings, brand information, shipping data, etc) is already available at other comparison tools like MySimon. What’s even worse is that the only way Yahoo can provide the benefit of real-time price comparisons to customers is by convincing merchants to participate in the program. And this begs the question: what type of merchant would want to opt-in to—yet alone, pay for—a service that promotes destructive price competition by pushing consumers to the least expensive version of an item they’re shopping for?

However, what makes Yahoo’s online comparison tool worthy of analysis and discussion is this: one of the first merchants to opt-in to the service happens to be a biggy, the aforementioned Amazon.com. We suspect that Amazon is interested in this service for two reasons. First, Amazon’s cost structure is already significantly lower than the competition—thanks to the fact that it’s the largest online retailer, it’s able to spread the high fixed costs of online commerce (e.g. fulfillment centers and slick technology) much more than its smaller competitors can. This means that Amazon has little to lose from a service that promotes lowest prices—since it can still turn a profit at reduced prices, thanks to its lower costs—and much to gain in the form of increased traffic. Secondly, like Yahoo, Amazon also needs to find a way to reach the deal with the network effects that eBay is able to continue to accrue due to the size of eBay’s audience, if Amazon is to hope to lure in retailers to participate in its Marketplace program. From Yahoo’s perspective, landing a huge partner like Amazon is valuable (if not vital), since Amazon’s participation more or less provides merchants with a strong incentive to opt-in to the comparison shopping program—and pay Yahoo! money—or be undercut on price by Amazon.

Ultimately, the Amazon connection to Yahoo Shopping’s new comparison tool is particularly interesting because it potentially highlights future partnerships that could benefit both companies. We could possibly be witnessing the birth of a joint-venture between the two firms, in which Amazon provides its ability to generate sales and revenue to Yahoo in exchange for Yahoo’s ability to refer its audience and traffic to Amazon in exchange for transaction fees. If this is indeed the case, and such a hypothetical strategy works, Yahoo and Amazon’s position in the world of ecommerce will grow significantly.

Viva La Nueva Economy

In the halcyon days of the late 1990s, there was a great debate whether the boom-bust cycle that had characterized the economy for the previous 200 years still held true, and whether or not we had entered something called the “New Economy,” where we’d see growth on the horizon without threat of a recession for the foreseeable future.

The crux of the argument regarding the “New Economy” hinged on the fact that productivity—effectively, the amount produced by each worker—started to soar during the boom and bubble years of the late 1990s, averaging roughly 3% a year from 1995-2000, after having averaged a mere 1.5%-2% from 1950 to 1995. Those economists and pundits who disagreed with the proposition of the New Economy argued that the surge in productivity during the late 1990s was more cyclical than structural (e.g. temporary rather than permanent), and that boom periods have always characterized by growth in productivity rates. (During the booms in the mid-80s, or the mid-60s, for example, productivity had also spiked, only to decline and return to “normal” levels of 1.5% or so with the busts that inevitably followed.) In contrast, the pro-New Economy crowd argued that, thanks to the widespread adoption of IT, the internet, and other new technologies, the increase in productivity during the boom was structural, and therefore, its effect on the economy was permanent. While there were several persuasive arguments for the fact that the economy had truly changed (our personal favorite comes from James Surowiecki, in this Wired article published last summer ), the pro-new economy crowd was torpedoed by several incredibly weak arguments (anybody remember Dow 36,000, or the even more absurd Dow 100,000), and of course, the recession that we’ve been mired in for the last three years.

We’ve long believed that new technology, particularly when used correctly and efficiently, should have increased the overall productivity of the economy. (It’s difficult to imagine how it couldn’t—after all, think of how much more it’s possible to produce thanks to business software, and with the increased internal and external connectedness that technology and the internet provide a business of any size.) Although we’ve been quieter than usual on the subject for the last few years, we’re pleased to see that a number of a new economic studies published on the subject of the New Economy have emerged to validate at least our convictions.

This week’s Economist contains a terrific article (unfortunately, you’ll need a subscription to read the article online) describing how the expansion in productivity in the US during the late 1990s does indeed appear to have been more structural than cyclical. The US economy has actually experienced a surge in productivity this year—growing at an annual rate of about 4.1%, and leaping forward by a very impressive 6.8% over the last quarter. The Economist is quick to note that such increases in productivity almost always occur at the end of a recession (since businesses typically achieve the same level of production as they did with less workers and lower costs). Yet it argues that this surge is unique both in its size (4.1% is an unusually high rate of productivity growth when compared to the productivity numbers achieved at the end of other recessions), and is even more pronounced given the fact that this recession has been a lot more shallow than any other in the past (meaning that productivity should have grown less, since businesses have actually cut less than they have had to in other recessions). The most persuasive data for the existence of a new economy, however, lies with the fact that since 2000, productivity has actually increased from the already high rates of the late 1990s, climbing to 3.4% annually, from 2.5% during the boom years. As the Economist puts it: “[i]n other words, the latest figures suggest that the cyclical boost in the late 1990s was negligible: most of the spurt in productivity represented an increase in its long-term rate of growth.”

While it’s great to see the existence of the New Economy and the effects of technology adoption on overall productivity finally acknowledged—and acknowledged in a balanced, reasoned point-of-view—what we find really exciting is the following explanation for why productivity increased, rather than declining (as would ordinarily expected) during the bust of the last few years. Specifically, the Economist suggests that there’s actually a lag effect regarding technology’s impact on productivity. Making a comparison to Paul David, an Oxford economist who we’ll definitely be reading more of, the magazine suggests that the benefits of technology aren’t fully reaped until firms actually figure out how to use it. In short, as firms reorganize their organizations and business practices around technology, their productivity soars as they figure out how to use that technology more effectively. Whereas wireless technology or corporate intranets have existed for half-decade or more, for example, their impacts are only beginning to be felt now, as firms have figured out how to use them in truly effective ways (allowing real-time tracking of sales and inventories, for example, or sharing only relevant information internally).

To us, the most interesting aspect of the proposal that there’s an organizational component of technology-driven productivity growth is the fact that it suggests that an organization’s flexibility, adaptability, and its ability to learn are potentially powerful competitive advantages. For example, companies that are organized and built the right way can quickly maximize their return on investments in technology, and quickly develop a significant edge in productivity versus their competitors. This phenomenon might explain why no firm’s been able to come close to copying Amazon’s ability to utilize customer data and ecommerce effectively, for example, or alternatively, why no firm’s come anywhere close to rivaling Dell’s effectiveness in direct manufacturing. It may be that both Dell and Amazon’s internal structure and culture are designed and optimized in such a way that enables them to consistently stay at the front of the learning curve, and utilize technology more effectively than their rivals. In closing, if the hypothesis that there’s a “learning requirement” to productivity growth is true, the implication is that organizations must increasingly pay attention to their structure and culture if they are to generate rents over the long-term.

If The Are "Lovin It"...Will They Come?

Today we came across two articles that both speak to the power of internal branding. One, in the Wall Street Journal speaks to the value of Walmart's house band and the collective passion of its 4000 store managers. In short, Wallmart may be one of the most cost conscious companies in the world (ex. managers share hotel rooms) but when it comes to its customer-focused culture, it has realized that there is no better investement opportunity.
Additionally, an article in Advertising Age asks, "Are McDonald's Employees Really 'Lovin It'?". This brief article provdes great insight into the value of "internal branding". We believe it. Great companies are built form the inside out, not the outside in. And although the process isn't flashy, the likes of Fed Ex and UPS have proven that employees that "live the brand" are an invaluable source of sustainable competitive advantage.

Highlight: Share performance of companies with high employee trust levels outperformed companies with low trust levels by 186%.

The three key to success is (1.) determining a compelling focus for the company that MEANS something to both internal and external stakeholders (2.) aligning the employees attitudes and beliefs with this new focus first..and then manifesting this focus via external means (marketing, advertising, product development, services, policies) and (3.) MEASUREMENT putting internal and external measures in place that enable the leaders of a company to gauge whether or not they are "moving the needle". After all, nothing measured...nothing gained:

Highlight: Corporations on Fortune's Most Admired Companies list increased stock appreciation 50% over their peers after instituting employee measures.

Business leaders have to not only ask themselves if they understand where their external customers are "coming from" but they also must create a culture similarly values what their internal customers are "all about". And of course, these business leaders and their companies have to have the prescience to MEASURE their success via stakeholder-centric measures, rather than simple sales measures and employee retention rates.