Race to the bottom: how entertainment is becoming a (very cheap) commodity

Entertainment companies and movie studios are known for “creative bookkeeping” which allows them to claim that incredibly successful TV and movie properties never turn a profit. This rather unfair practice denies royalties to many of the creative people who worked on said properties. Well, these days another type of “creative bookkeeping” is taking place, and it is going to impact entertainment companies in ways they will not be very happy about.

This new accounting reality is all about value… That is, perceived value. Entertainment products – films, TV shows, and music – are becoming cheap commodities, and that is eating into “real” profits in potentially unrecoverable ways.  The old models are unsustainable and it will doom industry titans within the next two decades.

Course, don’t just take my word for it… A couple of guys named Spielberg and Lucas expressed the same sentiment a few months back. But what do they know about the entertainment business, anyway? And the stats support my claims: total “spend” on entertainment of the average U.S. household was only 4.11 percent of its income in 2012, down from 4.43 percent in 2007. While they are spending less, they are consuming MORE content: four hours a day, on average.

Here’s some of the things that I believe are pushing down the perceived value of entertainment:

The horrible theatre experience

I’ve written about how I’m no longer going to see movies in theatres now, because it’s an overpriced and an underwhelming experience. While I won’t restate all my arguments, I will emphasize that theatres are competing with a lot of different options, and in most instances the theatre-going experience isn’t providing impressive value to customers. People are foregoing the movie-going experience and spending their time and money elsewhere.

A recent Fast Company article that discussed diminishing ticket sales, and how theatre owners are looking at refactoring the moviegoing experience in response to these new realities and increased competition. Will it be enough? I don’t think so, especially when you have…

Cheap home video releases (and VERY cheap big televisions)

The cost of televisions have dropped like a stone over the past decade, and you can now ge a humongous flat-screen for less than $1000. When you can view movies at home on a bigger screen than you can get at your local multiplex, why leave the house? And now, you don’t even have to wait that long to do it.

I remember when you used to have to wait over a year after the theatrical release to buy a movie on home video. Then, these home video releases were an event, because you had to wait so long to own the movie you loved. Now, the average time to video release is four months, and I’m seeing a very interesting cycle developing:

  • Blockbuster movies are in theatres in the summer (May to July)
  • Blockbuster movies are then released to blu-ray and iTunes in the fall (August to October)
  • Blockbuster movies on blu-ray are sold at a 50% discount on their first week of release ($14.99 to $24.99) as “loss leaders”
  • Blockbuster movies on blu-ray are sold at an even DEEPER discount

So you can now get movies dirt cheap if you simply wait a while. “Catalog” titles are now in giant bins that retailers sell for $5, when they sold fo $25 just a few years earlier. A good thing for savvy consumers, but not so good for companies making these video releases. The proof, as they say, is in the pudding. Studios still get a lot of money from more video sales, but the past four years home video sales have not only plateaued, they are dropping. Because people no longer need to buy movies when they can use…

Netflix, Hulu Plus and Pandora

When you can stream the latest movies TV shows and songs to your computer for free or a low monthly fee, why spend more? More and more people are postponing the instant gratification of seeing new TV shows or movies immediately and “binge watching” them when it is convenient. And with the advent of internet-enabled televisions big and small, you don’t even need to sit at your compter to enjoy your selected content. And when everything is available online and streaming, you end up with…

The potential death of physical media

When you buy a blu-ray disc, a video game DVD, or a compact disc… you own a physical object, a thing that you can hold in your hand. This object is a manifestation of the content you purchased, and you can resell it or trade it to others. But what if you don’t ever have that physical object? Do people still assign the same value to the game that was downloaded as the one that was purchased at a retail store? I don’t think so.

There’s a whole generation that exists that grew up with digital downloads and many of them prefer that – less clutter, less things to keep track of. Hollywood and the tech giants have built out this ecosystem, and it was originally thought of as an additional revenue stream, above and beyond the sales of physical media. It hasn’t worked out that way, and you are now seeing consumers buying the bits instead of the physical media. Will physical media go away completely? Probably not, but you never know… especially when you start looking at:

The sharing culture

There is a large and growing culture of sharing instead of owning in America, and many millennial are eschewing possessions in order to have a simple life free from consumerism. They share and barter, and rarely buy things. They value experiences, not objects. To capitalist content creators like movie studios, this is a very bad thing. Less consumers and purchasers mean lower sales and… well, you can figure out the rest. And many of these people are not only sharing instead of buying, they are also creating their own content.

Everyone can be content creators now

We have seen an explosion of independent entertainment over the past decade, empowered by passion and technology. You can create your own web series, blog, movie, podcast… and the cost to do it is usually only the opportunity cost of your time. All this additional content (much of it crap, some of it brilliant) is competing for eyeballs and attention; competing with the traditional media produced by Hollywood.

Where this is all going

It’s a race to the bottom – Hollywood will continue to try to sell its content to the world, and people will continue to consume it… but will pay less and less for it over time. Entertainment has become a commodity, and the center will not hold. The business models that worked just a few years ago will stop working. Hollywood power-brokers have already started lobbying the government to “help” in various ways, and they will do everything they can to retain said power.

It won’t work.