Movies: From Product to Platform Innovation

Good op ed piece by Edward Epstein in 12/29 Wall Street Journal explaining why box office receipts are no longer the keys to the moviemakers’ kingdom.  Makes all kinds of sense financially, but it could be misleading strategically.  Here’s why.

Epstein argues that only 15% of the revenues of major studios come from theater receipts, the vast majority coming from free TV, paid TV, DVD, and videos.  This is a great illustration of how movies have migrated their innovation strategy from product innovation to platform innovation.

Product innovation recaptures its investment primarily in the first sale of the product, secondarily in after-sales warranties and consumables.  This is how movies made money prior to the digital economy.

Platform innovation recaptures its investment by having other entities incorporate the platform offer into their product innovations, thereby leveraging the investment across many more markets.  This is how the great tech sector franchises of IBM, Oracle, Microsoft, and Intel have been built. 

The key thing to remember, however, is that an offer cannot present itself as a platform until it has achieved ubiquity of use as a product.  In the tech sector, many “superior” platforms never made it out of the chute because, although meeting every design spec requested, they could not achieve widespread ubiquity.  No one wants to help another company gain a monopoly for its proprietary technology.  So the only way platforms can happen is either “by accident” (the Trojan horse approach) or “for free” (the Netscape, Adobe, Linux approach).

Ubiquity for a movie means widespread audience engagement with the characters and costumes involved so that they have the drawing power desired by the downstream vendors who license them.  The early weeks of box office performance constitute the launch event for creating this drawing power.  The power of the platform—its ultimate reach—is set by the trajectory of this launch.  So it matters hugely whether we go out or stay home.

In a world where it is increasingly more comfortable to stay home, this poses a genuine challenge for the movie business. Winners in recent years have taken advantage of the Internet to create desired buzz, but that is now an increasingly over-exploited ploy.  What will be next?  Some form of marketing innovation, to be sure, but as to what kind, I leave to the creative types in Hollywood.

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[John Merle]

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