20 Feb.
2020

How Hollywood will do business in the future

Hollywood stars sometimes give us not only powerful performances, but also classic lines, from Humphrey Bogart "Here"s looking at you, kid" in Casablanca, to Clint Eastwood "Go ahead, make my day" in Dirty Harry sequel Sudden Impact.

But one of the most famous lines about Hollywood comes from screenwriter William Goldman (Butch Cassidy and the Sundance Kid): "Nobody knows anything...Not one person in the entire motion picture field knows for a certainty what's going to work". The quote sums up the paradox of Hollywood filmmaking: nobody in Hollywood may know anything, but everybody keeps making movies, and they keep making money – at least until recently.

Nearly 40 years after Goldman wrote these lines, the industry is at a crossroads. A debate is raging on which business model is really going to work in years to come – and a new study co-authored by Joseph Lampel, Professor of Enterprise and Innovation Management at Alliance Manchester Business School uses "institutional logics" to make sense of what is fundamentally at stake.

"The identity crisis facing Hollywood is not simply one of an alternative technology eroding its dominance, as was the case in the 1950s when television broadcasting emerged," says the study just published in the Journal of Cultural Economics.

"Rather, a new set of players, online streaming services, are overtly challenging how Hollywood does business".

The study says that the traditional movie studio business model is based on "commitment logic" that bets on customers choosing to view a theatrical release on the big screen, while the new streaming models of Netflix and Amazon Prime instead rely on "convenience logic" in driving subscriptions by offering customers a big variety of films ATAWAD (AnyTime, AnyWhere, and on Any Device).

Even the terminology of the two logics is different: commitment logic through theatrical release by the Big 5 studios (Warner Bros. Entertainment, Paramount Pictures, Universal Pictures, Sony Pictures Entertainment, and Walt Disney Studios-21st Century Fox following their 2019 merger) revolves around the opening weekend of a film"s release, the studio"s "slate" of films in a given year, the "creative producer", and the "film release window". The convenience logic of streaming companies instead draws on terms such as "data analytics", "search", "recommender system", and "cross-selling" of films along with other items.

The study by academics in the UK, Canada and Switzerland focuses on four alternative scenarios as to how these two differing logics will play out in upcoming years: it argues that complementary logics scenarios would reduce the current threat to the traditional movie studios, while competing logics scenarios would increase the logic of one business model dominating the other.

Specifically:

  • In Scenario 1, the commitment and convenience logics still coexist, but commitment dominates convenience; this calls for a "significant" delay between theatrical release and online streaming, including on the studios" own streaming services.
  • In Scenario 2, there is a blending of the two logics into "committed convenience" in which the studios fully embrace the data analytics pioneered by the streaming services.
  • In Scenario 3, the two logics coexist but convenience dominates over commitment as the prominence of traditional studios wanes and streaming services integrate downstream into cinemas to reduce theatrical distribution costs.
  • In Scenario 4, both the commitment and convenience models are challenged to the degree that a novel and "radically different" institutional logic emerges to replace them.

While being careful not to make firm predictions in such a fast-evolving industry, the authors say that Scenario 4 could be fuelled by "contemporary mass viewing" through technological innovation and social media without requiring people to be co-present at a cinema. In this scenario, the study foresees "an evolution of viewer preferences for streamed content on hand-held screens as a plausible and acceptable substitute for theatrical viewing".

On the other hand, if national antitrust regulators seek to curtail the power of streaming services for the benefit of consumers and their own film industries, this would favour Scenario 2; and if governments citing privacy concerns place limits on the ability of streaming services to use recommender systems based on user-generated data, this would favour Scenario 1.

"The four scenarios developed in this article are intended to help all players delineate and inform their strategic moves," the study says. "Our hope is that industry experts find them useful standpoints for their analyses, at a time when the perception that "nobody knows anything" in the film business (Goldman 1983) may be stronger than ever."

The study – entitled "Hollywood studio filmmaking in the age of Netflix: a tale of two institutional logics" – is co-authored by Allègre Hadida of Cambridge Judge Business School; Joseph Lampel of Alliance Manchester Business School at the University of Manchester; W. David Walls of the Department of Economics at the University of Calgary; and Amit Joshi of IMD Switzerland in Lausanne.


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