Tech Mediums

A little bit ago, I wrote a blog on why video games are recession proof.  The theory is that people want a nice form of entertainment that, in a recession, is extremely low cost.  Think about it.  For about $50 for a brand new game, you get unlimited play for the LIFE of the game.  The means the cost/play or cost/hour of play is as close to zero as you can get.  Compare that to the movies.  That cost is $9/play or maybe $4.50/hour.  It’s off the chain for most popular concerts.

So why would movies do well in a recession?  I have a couple of thoughts…

1.      People like going out.  In a recession, this truth still holds.  And in an environment when there are so many reasons to stay home, it’s still true.  For example, the ungodly number of social networks, video chat, AIM and other ways (like the phone) to maintain contact with friends, in addition to movies on demand and the old tried and true, TV, are some of these reasons to stay home.  These should not be underestimated.

2.      Compared to other forms of entertainment, going to the movies is relatively cheap (assuming that you eat before/after the movies and avoid the concessions, which can eat a whole in your pocket).  It always gives you something to talk about afterwards too.

3.      The reason to go out to a movie is because something is good.  There were so many movies I wanted to see this summer it’s ridiculous (The Hulk and Batman being two of them).   This is very crucial.  If there were horrid movies at the box office, theatres would not be doing well at all.

What’s interesting is that some theatre chains (the industry is coming off of a period of consolidation) are doing okay.  Theoretically, consolidations should be good since you can squeeze synergies out of most of them.  With the theatre consolidations, initially, I was wondering whether it would good, since the industry wasn’t doing that well.  I kept myself in check, because you can never scold good companies in a bad industry (don’t throw the baby out with the bathwater – type of thing).

Here’s a wonderful blog from Wired.com that gives some stats on the matter.

EA is yet another company who continued to get spurned by a smaller, high-profile company.  The other, of course, being Microsoft.

It’s like the rich dude who keeps begging the cute chick to go out with him, thinking that with all his wealth and star-power, she should just say yes.  In this case, EA is the rich dude, and Take-Two Interactive (TTWO) is the cute chick. 

Well, she’s ridiculously hot because she’s got one of the best bodies - the enormously popular Grand Theft Auto franchise. 

But after extending its offer for Take-Two, again (4^th time), EA’s offer was rejected, again.  Still too low for Take-Two. 

Initially, Take-Two wanted to wait until GTA had been officially released to see if it could drive increased sales and value. 

So far, not-so-good.  Sales are high, but since the debut of GTA on April 29, Take-Two’s stock has actually gone slightly down -.5%.  In the last three months, Take-Two’s stock is only up 4%, having fallen off quite a bit in the last few weeks.

So maybe EA is saying, “Look babe, I know you’re hot.  You know you have a killer body.  But you can’t pull any other dudes with my looks, intelligence and wealth.  So I’ll wait, but let’s stop fooling around and make it happen.”

Take-Two is giving EA the “It’s not you.  It’s me.”, routine.

It’s actually kinda funny. 

Don’t know if this has been talked about a lot before, so here it goes.  There are flaws in the logic so hit me back if there’s a better way to think about this…koe@TechMediums.com.  

What if traditional media companies were able to use predictive models to lower their inherent risk profile?

 The Risk Profile

So, think of media companies (like Disney, EA, Bad Boy) as a series of formal start-up ventures, where the business model requires the constant formation of start-ups (e.g.., new artists, games, movies) to make money. 

However, unlike normal start-ups, each media start-up utilizes common administrative systems like legal, accounting, marketing, etc., and, for the most part, they are more efficient, since this is what they do day-in and day-out.

Some of these businesses already have a library of content (franchises like Madden, or Disney’s Classics) that they milk to lower the risk profile – making the business model more like software - build it once and charge “rents” and/or offer updated versions for a fee.

But unless you have people who consistently pick out winning “ventures” (Diddy, Clive Davis and DJ Drama come to mind), then you’re at a much higher risk.

 Predictive Models

So what if predictive models (PM) could be used to lower the risk profile by refining the kinds of potential audiences, venues, alternative media, (like video games for film or music), price points, additional merchandise that could be sold to fans? 

Predictive models use a series of data (like whether someone buys a product on sale, what day, what kinds of products, etc.) to anticipate future behavior, like other products they would buy or what day they’d buy in on.  It’s a way to drastically improve the click-through rates of customers.  Obviously, the most widely known models are the ones used by Netflix and Amazon.  Insurance companies have been doing this for years, though, in determining likelihood of getting into accidents or dieing.

  Application to Media?

So how can it be applied to media?

Example questions that can be answered:

·        Music -

o       What extras, if any, should be given away with the CDs?

o       Should CDs even be made?

o       Would demand increase by offering the music for free (then charge for concerts and merchandise) or charge for music, lower price for concerts or no change?

o       What kind of merchandise should be sold?

·        Movies –

o       Should advertising be 100% online? 

o       What other product tie-ins could be developed?

o       What products should be licensed?

·        TV -

o       Which shows or episodes should be broadcast on internet only?

o       What other product tie-ins could be developed?

o       What products should be licensed?

Notice that none of these deal with content.  Entertainment is such a different animal.  You can do all the right research - type of movie to produce, the actors and directors to hire, etc, - and still fall flat because the actor didn’t put in his/her best performance, etc., etc. 

Nonetheless, constant research, polling – on and offline, are critical to gaining as much detail as possible.

 While many of these questions have already been answered, to varying degrees of success, PM (like the one developed by Proclivity Systems) seeks to maximize the effectiveness of the marketing, product development, licensing, etc., and lower the risk profile of the business (not necessarily eliminate it).

Before we get into piracy, a word from McLovin (of SuperBad) on the topic.

Matt Mason, in his book “Pirate’s Dilemma: How Youth Culture is Reinventing Capitalism” discusses a fascinating look into what is very possible a mega trend…piracy in other forms – not just music but everything, how technology is making piracy easier and how, on some level, it should be embraced.

As far as the first two points, sure, there have been bootleg BMWs, watches, software, but Matt’s talking about a world where it’s becoming much easier.

An example, is the 3D printer, which has been talked about for a while (heard about this at about the same time I heard that someone built a PC accessory that could replicate smells over the internet).

As far as it being embraced, I remember an old professor of mine, Pete Fader, a marketing professor at Wharton who’s known for his patented rants, arguing that file sharing was actually good for copyright holders (primarily record labels and their artists). It created buzz. Matt also talks about this in that the demographic who would get pirated material is not the demographic who would actually buy the material. Fader argued that the labels were wrong when saying that they lost $X amount in revenues due to pirated materials. “That’s ridiculous!” Fader said. Just because you can’t get something for free, doesn’t mean you’ll buy it otherwise.

While thinking that copyright laws should be updated, Matt likes the idea of piracy (mentioning that he can’t wait for his book to be pirated).

I actually agree, in concept. I like the idea that new business models need to emerge. That’s why I like open markets. It forces companies, and thus, products, to evolve.

But if I spend a lot of money to make intellectual property, I deserve the right to protect it, regardless of borders.

That notwithstanding, I also think some forms of IP can be seen as marketing materials for a greater thing. Classic example is music. Because of the amount of music put out yearly and the lack of distinguishing characteristics of some tracks to others, music seems more like a commodity. As such, it could be effectively used to market the artist. Artists can let viral marketing take over, bootlegged or not. In fact, in this scenario, you want people to pirate it because it costs you nothing…free marketing to create demand.

The model that I favor is a controlled “open” IP.

Software companies have been doing things like this for a LONG time. Adobe let people get Reader (reads pdf documents) for free to help create demand for Acrobat (to make pdf), for which it charges.

This model might be able to be used consistently for all IP and is a direct link to revenue– that’s why I like it.

Here’s Matt’s video. Enjoy!

Thanks to ProHipHop.com for the video.

E3 (Electronic Entertainment Expo – run by the Entertainment Software Association, ESA) hasn’t been what it was.  I’ve been hearing that for since 2003 from hard-core gamers - it’s way too commercial and too large. 

Well, Gaming Nexus reported last week that Activision will not be at any official 2008 E3 activities.  The ESA confirmed to GameDaily that Activision and Vivendi Games (which Activision is merging with – see below) are no longer a member of the ESA as well.  That’s a major blow.  Major, major, major.

I can’t help but think that the gamers’ prediction 4-5 years ago is coming to pass…that E3 is not relevant.  One gamer said that new games are previewed over the net now anyway.  Outside of the “spectacle” of the large crowds, loud music and bright lights, why would any developer/publisher/relevant third party come?  Indeed, developers/publishers complained that the event had been getting expensive and not conducive to making business deals, since E3 was overly crowded and didn’t allow exhibitors the ability to properly get out their message. 

Well, E3 is making amends, having scaled back the number of participants and moved back to a single location, among other things.  However, other trade shows have been quickly taking E3’s dominance, like GDC (Game Developers Conference).

 Merger

Vivendi, the French conglomerate is acquiring a controlling stake, 52%, in Activision, to combine its Vivendi Games (which owns Blizzard Entertainment and its mega MMORPG game, World of Warcraft) into Activision to create Activision Blizzard. 

Also, here’s Jamie Kennedy’s performance at Activision’s press conference at 2007’s E3.  Not that good.  Thanks to Joystiq.com.

Release Dates
US: April 29, 2008
Europe: April 29, 2008
Japan: April 29, 2008
Australia: April 29, 2008

There’s so much buzz going around that it’s buzzonkers.  Announced a long time ago in a galaxy…(uh, yeah) - this one’s prolly gonna crush Halo 3’s records, which was $300 million and 5 million units in the FIRST week.

“I’m not a player, I just crush a lot” – rapper, Big Pun.  Fitting, given the expectations.

Expectations - $400 million in the first week. 

Unlike Halo 3, which was released on Xbox360 only, GTA is being released on multiple platforms, thereby expanding the potential overall sales.  Since EA is making a move to grab Take-Two, the maker of GTA under TTWO’s Rock-Star brand, there’s some need for TTWO to show such strong sales to entice EA to increase it’s offer or downright encourage stockholders to reject the tender offer (FTC also is a little skeptical).

Here’s an excerpt of the interview that IGN.com had with Rockstar’s VP of Creative, Dan Houser, and Rockstar North Art Director Aaron Garbut.  The interview is excellent, check out the rest here. 

 IGN: Do you think the heightened realism is going to make the anti-GTA politicians even more vocal?

Garbut: I think regardless of how the game looked or what it contained the politicians [would] be just as vocal. GTA is an easy target for politicians and journalists to pick on. It doesn’t really matter what we do or don’t do. It’s an open experience that allows players to do as they choose in a realistic environment. As these sorts of games become more and more sophisticated and the choices and abilities open to the players increases it will become easier and easier to sensationalize a particular aspect of it and at the same time become more and more ridiculous [about it].We’re seeing it already with the drinking in the game. There is no drunk driving minigame, there’s just drinking and getting drunk. Combine this with the ability to enter cars in the game and people are able to drive drunk, but that’s a choice they have made based on the abilities we have made available to them. It’s just as valid for them to walk home, but that doesn’t make for such interesting headlines.I seem to be ranting but my point is we don’t allow what…a politician might think to be an issue. We just make a game that is as good as we can make and as beautiful as we can make. I really loathe the idea of self censorship.

What’s fascinating is that I’ve had former 40+ year old co-workers talk about how they were playing GTA for hours after putting the kids to bed and picking fights with local gangs…and what it felt like being marked (one guy is from North Jersey, so that that into account J).  But it speaks to the wide following GTA has with hard core gamers and passive folk. 

IGN also did a good history expose too – pretty cool.