Drinking from the Firehose #133: 🎥 Box office blues. 🎥
Last week, I about Marvel's utter dominance of the movie industry and some concerns on the next iteration of the Marvel Cinematic Universe (MCU). This week, I was inspired by a post in REDEF by media blogger Matthew Ball. It extends my prior discussion to the movie industry at large.
Americans are seeing fewer movies in theaters each year. We're at the end of a nearly two decade, monotonic decline. Ball draws a parallel to a similar decline in cable TV viewership. The only group of Americans who are growing their time share of movies in theater or cable TV are senior citizens. Moreover, the decline in the former is driven by the loss of the frequent moviegoer (= 1 film/month on average). In 2002, these folks were 25% of all Americans. Today, only 10-12%.
Films compete in a market for attention like all other media. Not all attention is created equal. The market size of a form of media is proportional to its cultural appeal, and inversely proportional to the effort required to consume it. Both the numerator and denominator of this equation should be defined on a relative basis.
Viewed through this equation, the movie industry has grown the numerator, but not as fast as the denominator. The MCU has never been more culturally relevant, as evidenced by its dominant share of the total box office revenues. And, yet, the advent of social media, online gaming, and streaming video has contributed to a media ecosystem that highlights the extra effort required to leave one's home and go to a theater.
The result is that sequels, franchises, blockbusters, and IP (deemed SFBIPs by Ball) are going to be all that's left in movie theaters. The economics of SFBIPs also support this argument, per Ball:
"The economic imperative has become too strong. Why spend $50MM on a film that, at best, might return $25MM when you could spend $200MM and, if it works, build a franchise that might generate $100MM twice a year from spinoffs, derisk the launch of future sequels, and produce more ancillary profits with merchandise?"
Everything else will go to streaming first. Even Disney will use its own streaming service as a more effective distribution channel for its long tail of movies, in addition to a second window for its SFBIP properties.
Ball concludes with an assertion that "franchise fatigue isn't real." I disagree a bit in his framing. It is true that the box office has never been hotter for SFBIPs. But, the box office is a relatively small, shrinking part of the American consumer's media attention.
The long tail is where all the action is, and that long tail is going to be distributed directly to consumers over the internet. Because services like Netflix and Amazon have direct relationships with their users, their cost to market a new franchise is dramatically lower, which means they can turn smaller movies profitable. That means more, smaller experiments targeted at niche audiences. Some of these successful niche experiments will blow up into the next SFBIPs.
Streaming video services are becoming petri dishes for IP. With that demand, the creative class should rejoice. There has never been a better time to start a new franchise. And I do believe that the cohort of 2020-2025 franchises will outperform the 3rd reboot of Thor, or whatever else is on the MCU slate for the late 2020's.
Over the past 40 years, viewers have added more high-quality screens and sound systems in their homes, the quality of television content has improved, the ability to access this content (e.g. ad free and on demand) has improved, and bigger (and more social) alternative entertainment experiences have emerged, such as Call of Duty and Fortnite. This is similar to the first secular decline of theatrical attendance. Before household TVs emerged, audiences attended the theater 40-70 times per year – after all, it was the only way to watch video news (attendance peaked during World War II). As families added more TVs to their homes (thus allowing family members to individually watch), consumption dropped.
Etsy's turnaround story is a good reminder that focus on a few core metrics and shipping small, but compounding, incremental improvements can make a difference over time. It's also a good example of a marketplace justifying a higher take rate by creating more value for its participants with features like free shipping and semantic search.
"Mine Safety Disclosures" (weird name, but great blog) wrote one of the best strategy posts I've ever seen for a consumer business last year with The Resilience of Costco. The nameless author outdid him/herself with a recent post on the fascinating history of VISA.
I am also linking the author's overview of VISA, if you want some follow up reading.
If you're not a fan, you are probably unaware of how big the anime movement is globally. Anime streaming service Crunchyroll alone has 2 million paid subscribers and 50 million registered users. Netflix is investing ahead of the curve, betting big that this originally Japanese animation format will produce new hit franchises. And, maybe one day they'll make a live-action anime that doesn't suck!
Tencent and Baidu have released successful mobile-first, scripted dramas oriented vertically. While Snap* originated this format with its Originals, these Chinese internet giants are leaning heavily into this trend.
The episodes are typically short, between 2-5 minutes, built for a mobile sized attention span. They also emphasize certain comedic elements, which are more easily conveyed on a vertical screen. These videos take advantage of the vertical format to use split screens and other devices that pack more "info" into a small amount of mobile real estate.
Communicating the strategic advantages of a business can be challenging visually. That's why I am such a fan of the flywheel diagram. It can be used to illustrate network effects, economies of scale, or other concepts that are often referred to as "moats."
This post lays out several of the most common virtuous flywheels and even provides examples for companies like Wal-mart, Amazon, Microsoft, and Google.
The internet exploded over this equation:
8 ÷ 2(2+2) = ?
I immediately shouted "1" at my computer, but upon further research I was shocked to find that "16" is the conventional answer. While the difference lies in how order of operations works, no reasonable mathematician would write an equation so sloppily as to leave it ambiguous. I agree with this New York Times columnist's summation of the debate:
"Ultimately, 8 ÷ 2(2+2) is less a statement than a brickbat; it’s like writing the phrase “Eats shoots and leaves” and concluding that language is capricious. Well, yes, in the absence of punctuation, it is; that’s why we invented the stuff."
In the era of Spotify*, we're accustomed to typing a band's name into our favorite app and instantly streaming whatever song we choose.
Well, almost every song. Until this past Friday, Tool withheld its entire catalogue from all online channels. Why? I have no idea. You put up with this kind of weirdness if you're a Tool fan. That, and waiting a decade in between albums!
I've been streaming Tool non-stop this weekend. If you've never heard the band, check out this guide ranking its entire catalogue.