Movie Theaters Will Have To Change

In past blog posts, I've written about the potential unbundling of cable television, as well as the challenges that the traditional broadcast networks face.   This week, Chris Gayomali has an interesting column at Fast Company about the future of the entertainment business.  He describes five potential developments in the upcoming years.   Naturally, he talks about issues such as the unbundling of cable.  His fifth point is quite interesting though.  Here it is:

MOVIE THEATERS WILL BE FORCED TO FOCUS ON UX

Meanwhile, movie theaters (remember those?) will need new ways to convince customers to change out of their PJs. While local IPAs and grilled asparagus and goat cheese pizza might not be lyrics in "Let’s All Go to the Lobby," they are offerings on the menu of Alamo Drafthouse, an Austin-based movie-theater chain that hopes to expand to 50 locations nationwide by the end of 2017. Goodbye, hermetically sealed nacho cheese!

I think Gayomali is absolutely right.  As content becomes available to us any time we want it, and as the in-home experience keeps getting better, movie theaters will face a tough competitive environment.  They will absolutely have to focus on the user experience.  Not unlike brick-and-mortar stores actually... the in-store experience can help retailers compete against e-commerce players.  Similary, the in-theater experience will be a key competitive weapon.   

Another Crack in the Cable Bundle: Streaming Showtime?

During CBS' earnings call yesterday, CBS CEO Les Moonves reported that "CBSN" - a streaming service launched in 2014 - had exceeded the firm's expectations.   He went one step further and suggested that the company would launch a streaming service for Showtime in 2015.  Of course, HBO announced a streaming service several months ago, but they indicated that the price would be equivalent to what customers pay when subscribing to HBO through their cable company.  Could Showtime move more aggressively and undercut the price available through the cable providers?   If so, it would represent the boldest step yet to undermine the cable bundle.   

The big question still remains: What will Disney do?   They own a huge amount of content that is very attractive to consumers  - all the Disney-related children's programming plus all the ESPN-related sports programming plus the ABC-related news and entertainment products.  If Disney follows Showtime and HBO, then cable providers will begin to feel a great deal of pressure.  Of course, the key question will still be:  When will someone offer streaming at a price BELOW the fees paid through the cable providers?  Each firm, of course, wants to be careful not to "kill the golden goose" i.e. to cannibalize their own profitable business in partnership with cable providers.  However, at some point, the market will tip. The opportunity available from "cord-cutters" will be attractive enough to convince some firms to move more aggressively.   Which firm will act like Apple did when it launched the iPad and the iPhone?  In those cases, Apple was willing to eat its own lunch rather than allow a rival to eat it (i.e. the iPhone cannibalized the iPod and the iPad cannibalized laptop sales).   Most firms in a wide range of industries resist cannibalization, and for that reason, are often late with regard to reacting to disruptive innovations.  Will entertainment companies be different in this case? 

News Corp Split

This week, we heard the news that Rupert Murdoch will be splitting News Corp. into two separate entities: a publishing company and an entertainment firm.   I have several reactions:

1.  The News Corp split follows a familiar pattern.  In the 1990s, we saw a number of media companies engaging a great deal of both horizontal and vertical integration (Viacom merges with CBS, AOL mergers with Time Warner, Disney buys ABC, etc)   Now, we have seen the reversal of many of these strategies.  I'm not surprised.   Disney always had the strongest case for horizontal integration, because they leverage a highly valuable resource (the characters) across many business units.   Other entertainment firms had far less synergy across their businesses. 

2.  One might argue that the media conglomerate phase of the past was a case of herd behavior.  They all imitated one another in strategies of horizontal and vertical integration, without necessarily questioning the merits closely enough.

3.  News Corp may not have a great deal of difficulty breaking up into two firms because of how they manage the business units.  Murdoch always ran the units in a fairly decentralized manner.  That always puzzled me, because it meant that they really weren't pursuing major synergies.  On the other hand, that unit autonomy makes breaking up much easier, given the lack of strong interconnections. 

4.  One wonders how much cross-subsidization occurred in the past, with cash flow from the profitable, but mature publishing businesses to the higher growth entertainment businesses that needed cash to grow.  If a great deal occurred, then it will be interesting to see how the entertainment business funds its growth moving forward.  Meanwhile, investors may be very happy to see the cash flow from the publishing business returned directly to them (perhaps via strong dividends), for people to invest as they choose.