In ten years will Netflix be more like an HBO of the new Hollywood Ecosystem? Or will it be more like Napster? And, what does it mean to Hollywood?

It is almost mind-numbing to consider the changes in home entertainment happening today.  Every day there are more and more options for streaming content available to consumers.  Every day there are new deals between studios, content providers and digital distributors.  The landscape ahead is wrought with confusion and uncertainty.  No sooner have we settled on Blu-Ray than we are now confronted with the next technological chapter in home entertainment.  Even Apple, it is rumored, will soon change the way we watch TV.

What does it mean for consumers? What does it mean for studios and content providers?  And, is it really all that different when you get right down to it?  What does the future hold?

In ten years will Netflix be more like an HBO of the new Hollywood Ecosystem?  Or will it be more like Napster?

Many believe that distribution channels such as NetFlix, Hulu, Amazon and others are already beginning to become just that, distribution channels;  a far cry from the disruptive market innovators of a few short years ago. 

The crux of the problem may be in the licensing.  The license model for NetFlix’s DVD business was very straight-forward- they purchased every DVD they rented and stuffed them in little red envelopes.  Streaming is a different ball of wax entirely, and requires specific licensing for its use just as other ancillary markets such as PPV/ VOD and broadcast television require.  This understanding is still in-process.  The subscription-based nature of the business model was novel for the DVD business and remains so for the streaming business.  The question is: what happens when there are 10 businesses all asking for $10 / month?

As for the studios, as long as packaged media sales of DVDs and Blu-Ray remain steady, they may consider licensing to streaming outlets as found-money.  In the windowed release strategy of major studios, the packaged media window is generally where titles become profitable.  Box office revenues for studios all but disappear with the cost of promoting a title and distributing prints to theatres.  Recent studies show that adoption of streaming to be comparatively low to DVD and Blu-Ray, but on the rise.  Fast-forward 5 years however, and it’s easy to imagine how those scales will shift.  The same occurred when DVD replaced VHS years ago. 

The early eighties started a home-entertainment revolution with the growing popularity of the VCR.  The number of purchases has steadily increased year over year, while the composition of the formats slowly changes.  VHS purchased dropped off as DVD sales increased, DVD sales are dropping as Blu-Ray are increasing and both will drop soon as digital streaming increases.

Today market experts like to speak in terms of technologies being disruptive.  In the end it seems that content streaming will be more of a disruptive innovation for consumers than for anyone else.  Studios and content providers seem to be holding all the cards.  10 years down the road, digital streaming will likely be just another column on studios income statement- another outlet by which they will license content for the public to consume.  The only question that remains is: what will Wal-Mart do with all that extra space when the DVD goes the way of VHS?

I wise man once asked: “I know the price, but what is it going to cost me?”

In many ways it is much more difficult to evaluate a consulting partner for implementation than it is to choose the software which you will be implementing.   In my career, I have worked in all capacities: as a customer, as a software vendor and as an implementation partner.  With this perspective I found the implementation to be the biggest wildcard as it holds the largest number of unknowns. 

It is always amazing to me to see how easily very smart people can be swayed to focus on the wrong things like price.

My wife works in sales too, as a successful real estate agent.  It has been very interesting to see the parallels between the work that each of us do, the way in which we interact with our customers during the engagement process and how things shake up competitively.  In her world there is a tactic used by some agents known as “selling the listing”.  In the process of evaluating agents to represent a listing, the agent will ask the obvious question of what the customer believes the value of the property to be.   As you may expect, it is rare that a customer come back with a list price that falls in line with market values.  More commonly, the price they believe it is worth is significantly higher and based on comparable properties that are, in reality, not comparable. 

Most honest agents will propose a more realistic price with which the property will sell in a reasonable timeframe.  They will usually go so far as to perform a current market analysis for a more analytically focused view of the property’s value.  The unscrupulous agent (or savvy, depending on your perspective), knowing there is competition for the listing will then agree with the higher price, tell the owner how brilliant they are for choosing it and proceed to sign a listing agreement and put the house on the market.  Inevitably, the house will languish on the market for months with little action.  All the while, the agent keeps coming back to the seller with price reduction after price reduction.  After enough reductions, the property will eventually sell at something close to the market value originally cited by the other agents.   Knowing that most sellers have a specific price at which they need to sell the property, an agent can easily take advantage and lock the seller into a multi-month agreement. 

A similar disingenuous tactic is used in the management consulting business.  Despite what a perspective customer may admit, budget is always at the forefront of decision makers’ minds when evaluating a consulting partner.  Sensing tough competition, a consulting partner may choose to undercut their bid to appear less expensive.  Once they have secured the deal, have their people hard at work on the project they can safely come back to the customer with change-order after change-order.  When all is said and done, the total investment is likely to be similar to the other vendors. 

In both cases, the price was used to win the competition sometimes to the exclusion of more important factors such as project scope, talent and experience.  Specifically, consulting is so subjective that it isn’t possible to commoditize the functions enough to make an apples to apples comparison on price alone. 

When in doubt, keep it small.  Keep it simple and live to fight another day.  A smaller project that delivers on its promises is certain to help get the next project approved. 

Business Analytics: time to bust the gut?

There seems to be a lot of discussion lately about Business Analytics best practices, specifically the best way in which to use analytics to manage your business.  One popular opinion has been interpreted by many to mean eliminating entirely, the use of your “gut” or intuition and replacing it with finely honed analytics.  There are plenty of examples cited of how relying on your intuition and instincts to make decisions can take you down the wrong road that a statistical analysis would have avoided: risky mergers and acquisitions, war waged in error, products over or under stocked.  The premise is that simply looking at the facts, as brilliantly portrayed in a well-executed analytics environment, will spell out the correct path to follow. 

In reality, as Run DMC so accurately put in many years ago: It’s tricky. 

This trickiness came to light during a recent client engagement for a large, national restaurant company.   We demonstrated the advanced analytic capabilities of a software package by running several years of point-of-sale data through a market basket analysis.  The objective was to algorithmically determine the most likely pairing of menu items in an effort to guide the marketing department in deciding on the product mix of a value-pack type offering. 

The initial pass through seemed to suggest a particular product grouping that was sure to be popular and raise sales.  Certainly, the statistician at the helm of the data-mining tool made his determination that the answer had been discovered, and it was clear.   That was until those with the right industry experience on the team spoke up, correctly realizing that the grouping would actually lead to cannibalization and a decrease in margin.  Why discount a grouping of products that are already purchased together, was the question.  Instinct and experience prevailed to modify the original query from the company’s marketing group to ask for the most likely pairing of items that would maximize profit margin. 

One danger in developing analytical solutions is that when they are wrong, they don’t automatically sound off alarm bells or start blinking in bright red colors. 

In this case the analytics were correct- they did answer the first question correctly.  However it took instinct to realize that they were answering the wrong question.  Use of one’s gut is certainly still valid and is an absolute requirement.  I believe the correct interpretation of the original opinion isn’t that your gut should be eliminated- it’s very necessary in both designing the analytics and interpreting them.  In fact, it seems that when it comes to developing an advanced analytics environment, the goal is to mechanize that gut instinct in a way that is provable, repeatable and reliable.  

The key to managing your business analytically isn’t to replace your brain with a giant eight-ball that you shake for answers.  Analytics is a tool, but at its best it is also a culture that asks for more information on which to make important decisions—to ask “Why?” when given facts, figures and opinions.    Great instincts will make great decisions when supported by deep, accurate and insightful information on the topic at hand.    Instincts without facts to support them are often betrayed by ego, desperation or even wishful thinking. 

So, go ahead and use your gut and draw on all your experience.  Just make sure you have the facts to explain yourself.