By Amelia Brodka
Student Writer
How will creative products succeed in a changing marketplace? Anita Elberse examined the effects that digital media has had on the entertainment industry's distribution channels in order to answer the question: “Is the blockbuster strategy still effective in the digital era?”
Elberse, a Harvard Businesses School professor, visited USC Annenberg to discuss her topic: “Technology's Impact on the Entertainment Industry: Will Blockbuster Strategies Survive?” Her empirically grounded research analyzed the impact that digital technology is having on the business models of the entertainment industry.
The April 14 event concluded the M2{e} speaker series: a semester-long arch of conversation that analyzed the strategic implication of digital media and its disruption of traditional production, distribution and marketing practices in creative and media industries.
The “blockbuster strategy,” explained Elberse, is based on the idea that 20 percent of the content is responsible for 80 percent of the profit. The success of this model has encouraged media producers to consistently allocate a large percentage of their production budgets on a small percentage of their products, relying on the idea that “bigger bets generate bigger revenue and bigger profits,” explained Elberse.
The issue with the recycling of this “success breeds success” approach is that it “rewards for top performers follow from relative not absolute performance.” Which consistently rewards a few top performers and leaves little opportunity for struggling or up-coming artists to be acknowledged or rewarded for their work.
Elberse explained that the typical channel — talent to producer to distribution channel to audience — taken in the production of creative goods has been challenged by digital media. Access to technology has generated an increase in the amounts of talent as and producers with the capability to cut out the middle men and go directly to the consumers.
“Two forces are key,” said Elberse, discussing the specifics that have changed the distribution patterns, the reduction of transaction costs and the addition of a variety of communication choices and processes that have lowered search costs and increased consumers' accessibility to a wide range of products.
Although these changes make the blockbuster strategy harder to execute, its application is “much more valuable and relevant than ever before,” said Elberse. “Research shows that the producers should not change how they are allocating resources across their products.”
The first point of inquiry that lead Elberse to this conclusion was: “will digital technology undermine hit products and top brands?” Empirical data lead her to the conclusion that despite increased accessibility to the ever-growing amount of content, “consumers still appreciate hits more.”
Online channels have lowered the barriers of entry, allowing amateurs to create and distribute, increasing the availability of “long-tail,” or obscure, content. However, consumer demand remains in the “head,” the higher-ranking, “blockbuster” material.
“Each year,” said Elberse, “sales rise in the head and drop in the tail.” Out of the 6.4 million available songs in 2009, 93 percent of them sold less than 100 copies, said Elberse, meaning that the majority of revenue was generated by the top 7 percent of songs.
“Even consumers of the most obscure content are also consuming the hits,” said Elberse.
Elberse quoted Google's Eric Shmidt's agreement: “I'd love to tell you that the internet has made such a level playing field that the long tail is absolutely the place to be but the truth is that the vast majority of revenue remains in the head.”
Elberse furthered her argument by assessing the question: “Will digital technology fuel wide scale disintermediation?” Has digital technology eliminated the need for certain players to continue their involvement in the distribution of entertainment or will these changes cause them to drop out?
Despite successes such as Radiohead's 2007 self-produced, self-released, name-your-own-price album, Elberse argued that there has been a greater shift to reintermediation. Radiohead's success was based on the fact that they have already become well-known with the help of past producers, and dependence on DIY would not work as well for new artists without labels.
“Artists continue to have a need for labels and maybe more so to lower the barriers for entry,” said Elberse, “which may cause an even higher share of the total income to go to the top artists.”
Reintermediation has been common with new technology. Companies such as Apple have appropriated themselves into an extra role, managing distributed content between producers and new, popular distribution channels such as the iPad and iPhone.
The final layer of Elberse's research asked: “Will digital technology undermine current models?”
“Absolutely,” she said, discussing the way in which technology has emphasized the “unbundling” of media products such as albums.
“My research shows the negative effect on bundle-level sales,” said Elberse. “The shift to online consumption has led to a drop of 30 percent of the weekly sales per mixed bundle.”
“It doesn't matter how many songs are on the album,” she said, “people go for individual components more often.”
However, this is not too applicable to superstar artists, who have already attained the respect of the masses and therefore are more trusted to produce only quality, therefore people buy their bundled products, perpetuating the “blockbuster” concept.
“Consumers are rapidly migrating online where they find more choice and more flexible pricing schemes,” said Elberse. However, consumers remain hit-focused because “The massive assortment has created more clutter to break through,” creating “a greater role for superstars and other brands in attracting demand,” said Elberse.
“Blockbusters are here to stay,” concluded Elberse, “A content producer's task is to make big hits and capitalize on ones that need to succeed.”
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