(Lack of) Intelligent strategic thinking – the cinema industry

The New York Times columnist Brooks Barnes wrote an article on 27 September about how cinemas were battling studios about earlier home access to movies. The crux of the argument is that studios want to have earlier video on demand where they make 80% of the revenue instead of giving the majority of early revenue to the distributors, aka, movie theatres.

This is just the latest example in the movie industry’s “winner-take-all” economic model where in fact most lose. Studios always see loss of income from declining CD sales, illegal internet downloading an so forth while cinemas (the distributor) often chafes under what they see as an unfair revenue sharing arrangement (they make most of their money from concessions and premium offers). Consumers meanwhile see more and more of their money being spent on entertainment and have for quite some time added in their own internet distribution in order to make their entertainment money last further.

So the answer they are proposing to come up with is early release that one can see as video-on-demand at a very premium price (the number quoted was $24.99). One has to ask whether that is really value for money and a good overall strategy. Will consumers feel they get their money’s worth. Will cinemas feel left out when they lose the custom of these early VIP downloaders. In fact, they are not figuring out how to make the buy bigger for the longer term, but how they can keep more for themselves.

They need some more enlightened thinking, and what the music industry has done is a step in the right direction. Faced with the same issues, groups have gone to making money on tours and selling VIP packages that folks really value. Because the revenue is shifting from studios to live venues, industry players are shifting to this end of the business, i.e., Live Nation and Ticketmaster. And groups are releasing albums of live shows, much like Deadheads did for the Grateful Dead.

In other words, one industry has old ideas and static thinking while the other is evolving into something that can compete under a new paradigm. In other words, they are doing intelligent strategic thinking.