Focus On: Jehoshua Eliashberg

Box Office Blues

Looking at the disappointing summer movie season that finally wrapped up Labor Day weekend, Timothy Corrigan, a University of Pennsylvania professor of English and cinema studies, sums it up: “There just aren’t that many good movies coming out now.”

The numbers support him. According to an article this week in The Wall Street Journal, attendance at movies declined 3.93% compared to last year, the lowest since 1993, and box office receipts were down 2.8%, from $4.4 billion in the summer of 2011 to $4.28 billion this year.

“The kinds of movies Hollywood is churning out now suggest that [studios] have surrendered to, and continue to exploit, the ‘high concept’ formula,” says Corrigan, referring to movies that are based on short and simple premises that “can be reduced to about three sentences.” Examples, he says, would be the remake of an earlier successful movie, or the adaptation of a successful book or the decision to produce yet another Batman or Bourne film. “It’s hooking the economic future of the movie on some notion of a quick hit that connects with lots of audiences.”

Compare a high concept film with “great movies from China, Iran, South Africa and Europe,” Corrigan says. “Technology today allows people to explore what else is out there. What’s good about films like A Separation [from Iran, which Corrigan recently saw on video on demand] and Moonrise Kingdom [from American director Wes Anderson] is the writing. Hollywood has never much cared about the writing, and it’s starting to show.”

Not that movie theaters are going to become obsolete, he notes. “You go to the movies to go out – on a date, to get out of the house,” to break up a routine, and so forth. “That’s why movie theaters will always stay alive and attract audiences — not as big as before, and not the same kinds of audiences. But we often go to the movies for reasons that have nothing to do” with what’s being shown.    

Wharton marketing professor Jehoshua Eliashberg explains the box office blues by noting that not very many movies are “aiming at broad audiences and have legs – i.e., manage to attract viewers’ attention for a long time period.” Nor are there very many good 3D movies, which can command higher ticket prices, he adds.

Both professors note that theatrical screenings are rapidly being undermined by the shift to numerous other platforms, “from Netflix to illegal downloads to iPads and so forth,” says Corrigan. “That’s been happening for a while and will continue to happen.”  According to Eliashberg, “faster spread of word of mouth — often not positive — on social networks also draws away consumers from the movie theatres. In addition, the unfortunate shooting event in Colorado [at the opening of The Dark Knight Rises] may have had some, albeit hard to measure, effect.”

Neither Corrigan nor Eliashberg think the struggling economy affected the lackluster summer season. “One of the boom decades for Hollywood movies was the 1930s,” says Corrigan. “And that was a much worse depression” than the current downturn. Eliashberg describes movies as “a recession-proof business. In fact, my hypothesis is that the hot weather has helped the industry. It could have been worse if the summer had been cooler.”

Eliashberg is “not terribly optimistic” about the fall lineup. “I have not heard about too many movies that have generated very positive ‘must see’ buzz, although some sequels – like Taken 2, Paranormal Activity 4 and Twilight: Breaking Dawn Part 2 — are likely to attract loyal fans.”

Wharton marketing professor Eric Bradlow adds one thought: “All media distribution channels, movies included, are fighting for customers’ attention.  At the end of the day, content will drive that attention, and in some ways big brands are more valuable than ever. Why would someone go to a movie starring the Avengers? Because there is brand value in the actors and in Marvel Studios.”

 

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What Can We Learn from Netflix?

There was a time when Netflix could seemingly do no wrong: Movie lovers would wait anxiously for their next iconic red envelope containing yet another DVD to enjoy. But times have certainly changed. Today, the reviews of Netflix’s services — both its DVD-by-mail and online streaming video — are mixed at best. The company became the subject of consumer ire after separating both services last year and raising subscription prices — and it has yet to recover from that. “Netflix lost a lot of momentum when it went to two-tiered pricing, and it did little to regain that momentum,” notes Wharton marketing professor Eric Bradlow.

Meanwhile, competition is intensifying as Hulu, DirecTV, Amazon and others are racing to offer exclusive content that Netflix subscribers don’t have access to. “There is tremendous competition out there for ‘digital eyes,’ and it really is about who has the best content,” Bradlow says. 

According to an article in The Wall Street Journal, the company’s DVD service — which is three times more profitable than its online subscriptions — has been losing close to one million subscribers per quarter. In the most recent quarter, the company lost 850,000 DVD subscribers, while only adding 530,000 to its online streaming service. Factor in the cost of acquiring new subscribers overseas (the company is focusing on expanding globally) and the need to source expensive new content to keep its online subscribers engaged, then it’s no surprise that the firm reported a 91% decline in net income in late July.

Many observers agree with Bradlow that if Netflix is to survive, content will be key. Wharton marketing professor Jehoshua (Josh) Eliashberg, for example, suggests that the firm could begin developing original content — similar to HBO — “based on its subscribers’ demonstrated preferences, which is a treasure.” (In fact, Netflix has already begun exploring this path: Its first original series, “Lilyhammer” — about a New York mob boss beginning a new life in Lillehammer, Norway — debuted in early 2012.) 

Wharton management professor David Hsu says that although bolstering its media offerings will be critical for Netflix, this will be difficult to do. While the cost of acquiring or developing new content is not fixed and will most likely increase, “consumers have become accustomed to the ‘all you can eat’ streaming video revenue model for a low fixed price each month.” One solution, he suggests, could be found in Netflix’s DVD-by-mail service, for which subscriptions are priced based on the number of DVDs out at a time. “I think the company should try to develop an analogous tiered pricing scheme on the streaming side of their business. This could involve rights to certain premium titles, or perhaps [be] segmented by … the number of watching hours, etc. This will not be easy, however, as we witnessed when Netflix moved to reform its pricing structure in the past.”

There is a critical lesson here for anyone looking to launch a new business, Hsu adds. “Entrepreneurs, particularly in new industries, should think carefully about the importance of getting the initial revenue model ‘right’ — versus to what extent the market will be more forgiving if the company pivots from its initial revenue model.”

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NBC’s Olympic Tape Delays: #Failing All the Way to the Top?

Yesterday, American gymnast Gabby Douglas won a gold medal around 1:30 in the afternoon in the Eastern time zone.

She won the women’s all-around title again about eight hours later.

Or so it seemed, thanks to one of the most talked — and tweeted — about topics of the London Games: NBC’s decision, due to the time difference between the U.S. and the U.K., to tape-delay many of the biggest-name events so they can air in prime time.

NBC has taken a lot of flack for making that call, along with other aspects of its coverage. The outcry has spawned the Twitter hashtag #nbcfail, which viewers have been appending to their complaints. The network has countered, however, with huge ratings for the prime-time broadcasts. Those ratings — more than the 2008 Beijing Games — seemingly support in-house research that those who have indulged in spoilers before the events are shown on television are actually more likely to watch them.

So, who’s right? The network or Twitter Nation? And how should it affect the future of Olympics coverage?

“New media platforms, from cable TV to the Internet and now mobile and online video, have made media planning much more challenging for media providers,” says Elea McDonnell Feit, a Wharton lecturer and executive director of the Wharton Customer Analytics Initiative (WCAI). “Media companies like NBC are now faced with the challenging problem of figuring out what content to put where and when. The best solution really depends on how viewers want to use media.”

Feit suggests that most prime time television viewers “have a fairly low level of involvement with the Olympics and just want to turn on the tube and be entertained by a few of the most interesting events from the day. They probably don’t even notice the tape delay, unless NBC really messes up and throws in a spoiler.”

In 2010, Feit, Wharton marketing professors Eric Bradlow and Peter Fader, and doctoral student Pengyuan Wang worked on a project looking at how users combined multiple media channels and platforms to follow the FIFA World Cup. Among their findings was that on days when there were several games scheduled, fans preferred to use a website because they could quickly scan game stats and watch short clips.

They also found no negative correlation between the different platforms that sports network ESPN used to cover the tournament, which was “consistent with ESPN’s belief that new platforms do not compete with the old, but allow users to consume media at times that they previously could not,” the researchers write.

Yet Wharton marketing professor Jehoshua Eliashberg calls NBC’s decision to tape delay many events a “big mistake,” noting that “NBC made many consumers angry. The financial advantage of airing programs on prime time is that consumers have more free time to watch TV, and that generates more revenues from advertisers.” He adds, however, that the logic doesn’t hold “for events such as the Olympics where in showing it live, the audience can experience the emotional intensity.”

A more creative approach to the prime time broadcasts, Eliashberg suggests, would have been to go beyond simply showing pre-taped footage of the events intercut with prepackaged features. “For example, [you could have] a live showing, along with a tape delay that provides additional analysis or insightful information — similar to showing movies in theaters and then showing them on DVD along with the director’s cut,” he notes.

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