Sunday, January 8, 2012

Entertainment Industry and the Truth About Information: It's the Experience, Stupid

I’ve been stewing over a post by Steve Blank retweeted earlier today by director Peter Webber. Blank discusses the reason why the movie industry can’t innovate, pointing to the Stop Online Piracy Act (SOPA) as one of the firewalls the movie industry bought to prevent incursion on the industry’s intellectual property.
SOPA is a cheap method for the industry to avoid more expensive innovation and take a less risky action: sue the fuck out of anybody who might find a way to tweak their output and make yet another product, especially products from which they can’t reliably draw income. Bottom line, it’s not about creativity or protecting it; SOPA is about protecting monetary turf on the cheap while avoiding any expense-incurring risk.
But the movie industry will have to deal with reality sooner or later--better now, while the current business model still brings in tons of money as Steve Blank pointed out. They can afford the luxury of experimentation to the benefit of their shareholders, versus later when the truth becomes crystal clear to the public.
The truth, which all industries built on replicable human knowledge must face, is that information is a commodity in the age of the internet. It wants to move freely, and it will. For most of human history, information was corralled and controlled; money could be extracted by gatekeepers who controlled the medium. In the age of the internet, gatekeepers no longer have control. Networks attached to the internet are leaky--and information will take advantage of these leaks to move as it’s like air, hard to maintain in a vacuum of any scale. [cont'd.]
In a recent discussion with an educator, the similarities between the newspaper industry and the existing secondary education system were noted. The educator was extremely defensive, unable to see the parallels or the impending need for change in education’s business model. This is the same challenge for the movie industry and entertainment as a whole--these are businesses which are predicated on the transfer of information, and information is both replicable and wants to move.
What made the educator hot under the collar was this key question: if every secondary institution could offer the same curriculum as MIT, what differentiates any school from another one? If every school’s academics could be delivered over a network, what differentiates any school’s facilities from that of another school? Quite honestly, the educator stuttered and refused to consider let alone answer these questions, too utterly freaked out.
But these are the very questions newspapers have dealt with unsuccessfully. They’ve curled up and died, laying off printers, then journalists, then shutting their doors when not acquired by other larger outlets. If every newspaper can offer the same information, what makes any one paper better than another one, to the point where customers will pay for the information? If every paying customer can get exactly the same information over a network, what makes any one outlet superior to another one?  
In this situation, printing increasingly becomes a superfluous cost; only hyper-local news--so local it has immediate impact on the reader and the lives of others immediately around them--differentiates any outlet. The economics become challenging as the size of the audience decreases. At the other end of the scale, only mega-outlets which can realize economies of scale will survive. Hence USAToday and The New York Times, Washington Post and Los Angeles Times remaining while smaller papers like the Rocky Mountain News died.
Secondary schools will eventually deal with the same issues, though they will drag their feet all the way. In reality, all schools globally can access MIT curriculum through OpenCourseWare (; students can even audit MIT classes through the same initiative from anywhere with internet access. At some point, students will begin to ask why any particular school is better than another when they use the same narrow number of text books, and the same curriculum can be delivered anywhere via the internet. Lectures are already available via YouTube--why wouldn’t students demand more flexibility in course schedules when they can watch lectures anywhere, any time? It’s only a matter of time before these questions become a  conversation, which then becomes a movement.
Of course portions of the entertainment industry are already dealing with this issue--Netflix, for example, has disrupted cable movie channels’ lock on movie distribution, along with vendors like Blockbuster which specialized in physical delivery via DVD. Before Netflix it was Tivo, allowing viewers to determine not only when they wanted to view content, but whether they wanted to do so without advertising. Responses have been manifold, including co-option through acquisition and adverse contract terms for disruptive distributors.
Essentially, the entertainment industry relied on pricing through creation of scarcity through gatekeeping. Consumers could only consume through proscribed and limited venues, controlled by the industry. But the entertainment industry fails to recognize that its gatekeeper practices no longer work; their customers are now use to creating their own entertainment if they cannot get what they want, as so many blogs/micro-blogs and home videos on YouTube prove.
SOPA is yet another means of gatekeeping, this one intended to bottleneck the conveyance through which information flows. It won’t work; it not only can’t work on a pipe the size of the internet, it will only create bad will to the detriment of the industry and encourage more personal content creation at the ends of the network to avoid the gatekeeping.
What the entertainment industry has failed to realize is that consumers want their products. They’re obviously paying for them, even at premiums that assure the industry profits well above the cost of capital. That’s in spite of the leaky pipeline where so much content bypasses traditional gatekeeping, passing over the internet. But why are consumers still buying these products?
They want the experience the product provides. John Perry Barlow, co-founder of the Electronic Frontier Foundation, defined information as an activity, which dies if it does not move and cannot be possessed, only experienced. It is this experience that is the heart of the entertainment industry; consumers want to experience entertainment, and doing so is localized. Entire communities of fans self-establish and create events to sustain the entertainment they’ve experienced, creating new layers of value on top of the value received from entertainment industry products. Yet the industry is blind to this phenomenon, insisting on throttling down on the first layer of value instead of looking for opportunities to increase profit through the layers of prolonged experience generated after the primary experience.
In parallel, secondary schools will find their differentiation and sustain themselves through identifying the unique value their highly localized physical venue creates and then capitalize on the subsequent layers of value created after the primary experience. Some schools have long specialized based on their location--like those offering marine biology programs, located near the ocean--and have developed value-creating, value-sustaining programs on top of the ocean-based experience. But not all schools have done this and soon need to do so or face the fallout as education-as-information-distribution becomes commoditized.
It’s not going to be an easy path to the new reality and the business model changes required for the entertainment industry. There will be continued pressure to realize economies of scale (see the rumored merger talks between indie Summit Entertainment and Lionsgate Group as one example), and the loss of many creative opportunities as the industry continues to use old criteria for success. Boring sure-things like sequels will get funding, and cutting-edge movies and programs will die for lack of the same, all for the inability of the industry to come to grips with their future business model.
At some point, though, consumers vote with their feet. They will walk away to experience information the way they wish, and with the internet they will find that path in a hurry. Does the name mean anything at all to the movie and entertainment business?

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