Last week I had the opportunity to give a presentation at the Commsday Summit, an annual gathering of the Australian telecommunication community with a distinct business focus. Rather than talk about the typical challenges of cost reduction or improving service velocity, I chose to speak about a lesser-known problem, the distinct lack of dragons in telecoms.
Fire-breathing dragons might be somewhat of a niche service today, but they are an incredibly useful case study that helps us understand where the battles for future revenue streams are heading. By now you're probably wondering 'what do dragons have to do with networks?’ Well, it is precisely the ability to rapidly produce dragons that is reshaping the way that video content is created and distributed.
Game of Thrones, which features dragons, swords and sorcery, has been a worldwide hit for HBO. In February David Petrarca, one of the directors of GoT, spoke at the Perth Writers Festival and shared his insight into why GoT has been so popular.
He's argument is that the motion picture industry has shifted to an almost exclusive focus on blockbusters, vacating the 'middle-ground' and allowing the ‘golden age of premium television' to arrive. The shift in Hollywood's focus has freed up significant talent including actors, writers and directors that are able to build a quality product that speaks to a particular audience.
The evolution and rise of technology has continued to break down barriers in television production and Petrarca identified that technology has played a significant role in the development of premium television. These days it is possible to produce cinema-grade television with a number of digital effects per episode that would have not been possible even a decade ago. Clearly Petrarca also has dragons on his mind: "There's a kid in the back and a computer and you can say 'let's see would it would look like if these dragons move from here to there' and before that it would have cost you millions of dollars"
Petrarca also highlighted that the mass-market business models of cinema and network television has evolved to the point where they are unable to address the niche markets that premium television can successfully target. He mentioned one conversation with a Disney executive where he suggested that rather than a single $100M blockbuster he could produce ten $10M films. While only promising that three or four of the films would be successful he was confident that the approach would produce greater revenue than of a single blockbuster release. According to Petrarca, the Disney exec declined his offer indicating that they need to build blockbusters to 'feed the machine'. The global reach of their theme park business requires new blockbusters movies that can be merchandised and turned into rides.
That's not to say that Hollywood has it wrong, 2012 was a record year for international box office receipts. Rather, with the line between cinema and television are blurring - both in terms of content quality and consumption - the problem isn't how to get content in front of an audience, the problem is centered around the creation of the experience.
The long tail is a widely used concept to describe the shifting business models of the online world. Most discussion on the long tail seems to focus on the two ends of the power-law graph; the high end of the graph describes Hollywood blockbusters and the low end maps to the world of micro and pico services.
Game of Thrones reminds us that the middle ground in the long tail is worthy of much more focus. Not just as a source of revenue, but as a source of subscribers. GoT is an example of event television, it is a drawcard service that drives adoption of HBO. Networks like HBO and AMC use premium content to attract a middle ground audience and build a growing base of subscribers. GoT is an anchor product that keeps HBO as a 'must-have' service. Only ten hours of content can anchor customers for an entire year’s subscription.
Following the Game of Thrones example, service providers need to locate their middle ground. Focusing only on the blockbuster services of Voice, Video, Data and mobility has opened up the middle ground for a range of over the top providers such as Netflix to attract a significant following. Netflix’s most recent anchor product 'House of Cards' is a thirteen-part series featuring Hollywood heavyweight Kevin Spacey.
Amazon, who provide much of Netflix's infrastructure are also getting into the premium television model with Amazon Studios announcing they will be producing original content based on the 'Zombieland' film. In summary, infrastructure providers are making content, to compete with the content aggregators turned creators who are also pushing the boundaries of the 'traditional' online video delivery models. Confused yet? Still, these are early days and the battle for the middle ground is far from over. So what are the lessons that dragons can teach us?
1. Technology continues to break down barriers. Business models that were not viable in the past might well be successful today.
2. Blockbusters are significant sources of revenue, however the middle ground market of services has the ability to shift customers and create stickiness
3. Connecting with the middle ground requires the ability to support a wider range of services that might only be relevant to a subset of your subscriber base. If you’re looking for more blockbusters, you’ll miss an important market segment.
4. As demonstrated by Netflix, developing middle ground services does not always require significant capital investment. Technology choices should be evaluated for their suitability both today and into the future.
5. Finally, it is the focus on quality and speaking to an audience that matters.