Sunday 1 November 2009

Disney: Is It about Contents, Distribution, or Branding?

Way back, in the 17th century, when proto-copyright regimes were beginning to take shape, authors and publishers groped with finding models that could successfully marry the creation of contents with the means of distribution and sale of such contents. The struggle between contents and distribution remains unabated to this day.

I was reminded of this when I read a brief piece that appeared on October 25th in Entiltled "Disney boss tells Hollywood to rewrite script", the article summarized an interview conducted by the Financial Times with Bob Iger, the chief executive of Disney. Iger's message was stark: the film business, i.e., the business model on which the film business rests, is "changing right before our eyes". As a result, "if we don't adapt to the change there won't be a business." In particular, the sale of DVDs, the mainstay of the film business over the last decade, has been on a steady decline and no alternative platform, including digital distribution, has yet emerged to take its place.

That said, Iger listed the following measures that Disney was taking to steady the Disney film business. They include the following:

1. Cost-cutting--A the direct Disney level, a reexamination of costs at both the production and marketing level, with an emphasis on R&D and risk-taking, together with a cut-back at Miramax studio.

2,. Outsourcing--Entering into a distribution agreement with Steven Spielberg's DreamWork studo, whereby DreamWork would apply the content and internalize the costs of film production.

3. New technologies -- For instance, next month will launch Keychest, a technology that will enable a person to store digital copies of films in a remote location with the capability to move the digitized film across multiple platforms, such as smart phones and games consoles.

4. Acquisitions--In early September, Disney announced agreement to purchase Marvel Entertainment, including its successful stable superheros, for an amount of $4bn, thereby seeking to reach out a different type of film viewer than is currently likely to view at Disney film, as well to possibly to expand the themes offered at the Disney entertainment parks.

5. Cultivating non-American Tastes-- Next week will see the launch of the movie Book of Masters, a film made explicitly for Russian a audience. ("We would not be able to grow the Disney brand ... if we just created product in the US and exported it to the rest of the world", said Mr. Iger).

I think that I need to have a word with my MBA students about all of this, because I am having a bit of difficulty finding a coherent alternative business model in the steps that were described. The "cost-cutting", "outsourcing" and "acquisitions" activities suggest that Disney is viewing itself less as a home-grown content creation company and more of an aggregator of contents developed both in-house and increasingly by third parties.

Plenty of Room for Contents

"Cultivating non-US tastes" certainly seems sensible, since the consensus is that the major drivers of growth will be developing national markets, such as Russia. But cracking such markets will involve making the right choices of content about foreign tastes and finding the appropriate price points for the various overseas markets. Here, as well, it seems that these contents will not likely be home-grown, putting further pressure on Disney's ability as a content aggregator.

The development of "new technologies" seems interesting, but no more. Enabling remote access to a plurality of delivery platforms sounds like an effort to take advantage of the cloud computing model. Disney, however, does not seem to be a likely candidate to be a leader in the cloud environment, such that exactly how much the Keychest technology will mark a sea-change (or even a mild sea-ripple), remains uncertain.

When I think about all of this, it seems to me that in truth Disney is going back to its most basic strength--its brand. While the article focuses on the classic challenge of contents versus distribution in monetizing works of creation, what really lies behind the measures described in a strategy to find various ways to strengthen the overall Disney brand. After all, it is the Disney brand that gives the company its unique position in the entertainment world. And of course, it is the brand that is Disney's to lose, if they get it wrong.

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