different levels of innovation in the same business – the movie industry challenge

Posted on January 5, 2012


Its been very interesting for me to see how the movie business (and music to some extent) has really struggled with two different innovation levels at the same time. On one hand, the products they make, content, is all about ideas, reinvention and small virtual teams that come together to do a project and then break apart again. On the other hand, they struggle to meet a rapidly changing technological environment and shift in distribution models and rather than try to embrace it, try to delay it through legislation.

In fact, throughout history they have dealt with the distribution threat in this way, never once seeing the opportunity:

  • 1920’s – the record business complained about radio. The argument was because radio is free, you can’t compete with free. No one was ever going to buy music again. WRONG – the music industry boomed!
  • 1940’s – movie studios had to divest their distribution channel – they owned over 50% of the movie theaters in the U.S. “It’s all over,” complained the studios. WRONG – the number of screens went from 17,000 in 1948 to 38,000 today.
  • 1950’s – broadcast television was free; the threat was cable television. Studios argued that their free TV content couldn’t compete with paid. WRONG – paid TV became a huge source of revenue
  • 1970’s – Video Cassette Recorders (VCR’s) were going to be the end of the movie business. The movie businesses and its lobbying arm MPAA fought it with “end of the world” hyperbole. WRONG –  After the VCR was introduced, studio revenues took off like a rocket.  With a new channel of distribution, home movie rentals surpassed movie theater tickets.
  • Today it’s the Internet that’s going to put the studios out of business. I dont think this time they will be right!

The reason for the dichotomy in the industry is that it is inherently not about making movies at the top, it is about controlling distribution. The creation of movies is a small part of the machine (and generally an uncontrolled part), the maximizing of profit off the movies they have funded/distributed is the major focus. In a previous blog post discussing how Disney invests more in protecting copyright on mickey muse versus looking for a new product is dangerous to the business as a whole (more lawyers fewer creatives). Interestingly enough, the initial Mickey Mouse character was apparently based on borderline piracy by Walt Disney and his team. According to legend, the early Disney animation team had been hired by looney tunes to design a character for a cartoon movie. Once delivered, a dispute regarding the value of the job and looney tunes hiring some of  Disney’s animators led Walt to change the character marginally and launch mickey mouse.

Its interesting to see how many businesses operate in this way, where the distribution model becomes more important than the product that is being made.