Thursday, September 29, 2005

Business Cycle Contraction

As you can imagine, with the fragmented attention span of the consumer, business cycles are contracting. This effect reveals itself spectacularly in the movie/DVD business, as the studios get to experience the same cycle twice.

DreamWorks' Shrek 2 experience details just that.
The DVD business is going the way of the movie business—the sales window is getting squeezed so that every bit of time after a movie opens or a DVD is released is more important then ever. We’ve seen this trend become more exaggerated over the past five years in the movie industry. People rush to see a movie in the first weekend after it’s released, then attendance drops off dramatically (unless it’s a sleeper, word-of-mouth hit). That drop-off makes it all the more important for movie studios to lure viewers that first weekend, which leads them to load up on advertising.
from Fortune Streetlife, July 12, 2005
Wait a minute. This trend points to two major things - those so-called "sleeper" movies are actually good. Most movies these days are not very good, unfortunately. When people see a movie that is truly inventive, interesting, funny, or just plain good, they tell other people. Memento and the 40-year-old Virgin were both movies that fit this mold. Quality generates word-of-mouth. Nothing else.

In the case of DreamWorks, they have to distribute the movies and DVDs ahead of time and advertise the hell out of them, so they have huge sunk costs.
But as DreamWorks found when it overestimated Shrek 2 DVD sales, DVD buyers have a super short attention span. The dilemma: If you flood the market with DVDs as soon as you release a movie (as DreamWorks does), and count that as revenue, then you’re stuck with lots of returns. That's why studios like DreamWorks are looking for other distribution channels.
from Fortune Streetlife, July 12, 2005
In this instance, now DreamWorks must take a big charge for returns. Thus, these cycles changes will demand different company planning and encourages them to explore things like on-demand distribution and whatnot.

As Seth Godin keeps repeating (and hopefully will until we get it), companies that focus on making truly remarkable products will be the ones that survive in our current over-saturated consumer culture.

I would add to that less reliance on mass marketing and big bang attempts to create a market for a product that people in which people may not be terribly interested. In the DreamWorks case, much of the problem is that they have to appeal to the parents, especially in the theater phase of distribution. The kids are the real consumers, but if parents aren't spreading the word-of-mouth, it's likely that the kids won't see the movies.

Part of me feels for companies like DreamWorks. I know people that do that kind of work - they are brilliant and creative people who do amazing work and don't want to see their companies lack of insight into their customers affect it.

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