Increasingly, in the media business, innovation is about a race in which the winner takes all. Movie studios seek blockbuster hits, and run business models similar to VC’s – 9 losing movies are paid for by one ‘winner’ that strikes gold. 

Benny Meyer, chairman of the film studio Warner Brothers, has proved it. Warner Bros’ innovative Batman film The Dark Knight [See July 26 blog, “The Dark Knight”] just broke box office records for opening day, grossing $66 m. in receipts. The film may come close to Titanic for overall lifetime revenues. As Warner’s parent company Time-Warner downsizes, Warner Bros. films make big bucks for its struggling ‘mothership’. When new movies launch, there is ‘buzz’ – word of mouth quickly decides which picture is worth seeing, and then everyone has to see it, so they can talk about with their friends who have also seen it. Great movies that come second fare badly; it is winner take all. 

Not long ago, DVD sales were a key part of movie business models, often grossing more money than box office receipts. DVD sales often rescued movies that did badly at the box office. Now DVD sales have slowed to a crawl. The same thing has happened to movies as happened to music – pirated downloads. Moreover, this was predictable! But movie studios missed it, just as music companies missed it. 

Time-Warner CEO Jeffrey Bewkes notes (in an International Herald Tribune article), “Around the world the consumption of entertainment products is growing rapidly. The question is, how do you offer it? And how do you get paid for it?”  
 
This, of course, is the eternal key innovation question. How do you create value? And how do you capture it in revenue and profit?

A key principle of benchmarking is, you learn more outside your industry than within it. Music is a separate industry from film, but closely related – both generate ‘content’. Had movie studios tracked the music business, as Meyer clearly did, they may have better grasped the sweeping changes occurring in the industry, and may have adapted to the ‘winner take all’ blockbuster model, in which again, box office receipts drive profits, rather than DVD sales.

Time Warner now appears to be asking the right questions, and coming up with at least some of the right answers, led by its movie productions.

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