The present and future of post production business and technology | Philip Hodgetts

Archive for September 7th, 2010

Why Waiting Until A New Business Model Is Proven Doesn’t Work

Technology changes business models. That’s a given. The problem is, the business models that are being disrupted are often very big businesses, with good profits and the company doesn’t want to disrupt those nice, regular, current revenue streams in order to accommodate a new one. The new revenue is (at least during these phases of disruption) very much below what they are now. No doubt you recall NBC CEO Jeff Zucker’s fear that that the Web will turn “analog dollars” into “digital pennies”.

The examples quoted include Netflix (who innovated and disrupted because they had no stores to protect) and Blockbuster (who had stores to protect; and Kodak who saw digital coming, new it was important but failed to act in time leading to massive layoff and factory closures.

The problem with waiting until you see a clear path forward to the sorts of profits that will be available in a disrupted industry, it’s almost always way too late for the disrupted to catch up. This is why disruption does not come from the major players in an industry, but rather from the small innovator who has no legacy to protect.

There are a few reasons for this:

  1. Companies always misjudge the speed of trends, especially the rate of change. Things like digital revolutions start out slowly, and the quality seems bad. So companies in legacy businesses figure they have a long time to make the change. But the rate of change increases rapidly, especially once it “tips” and reaches a critical threshold. At that point, if you’re not fully invested in the new business, you’re, way, way, way behind.
  2. It’s difficult to really understand the new technology/market unless you’re playing deeply in the space. This is the same thing we noted with people who claim that patents are necessary because once a good idea comes along others will just copy it. In many cases, that’s not possible. That’s because the truly innovative ideas require some real hands-on experience. Watching others do it is not the same thing.
  3. It’s very difficult, culturally, to build up businesses that cannibalize your existing cash cows. The skill sets may be different, and people begin to recognize that these “new” people may be working on projects that replace the “old” people. That leads to a lot of resentment and makes it really difficult to actually hire the good new people — since they recognize they’re going to face those kinds of institutional restrictions. For them, it’s just easier to go to a “native” company that has bet entirely on the new offering.

How Many Times Will Content Industries Claim The Sky Is Falling Before People Stop Believing Them?

I think we’re ready to stop believing them now. From Jack Valenti’s infamous comparison of Betamax/VHS to the Boston Strangler to today’s complaining about unauthorized distribution, the content production industries have fought every technological change. And every time that technological change has opened new markets for them. Instead of VHS/Betamax and DVD being the death of the MPAA studios it’s been the salvation.

It may, in fact, be the case that the sky is falling. But, if you claim that the sky is falling whenever a new technology threatens an existing business model, the rest of the world can be forgiven for not believing you when you claim that this time around it’s going to be different than all of the other times. Now, let’s be clear, each one of these technologies changed the business model of the industry. They caused certain revenue streams to decline. But they also opened up new ones.

September 2010
« Aug   Oct »