BLN

The BLN is now Business of Software

It isn’t the industry that cannot innovate, it is the companies operating in it. The ‘industry’ will be just fine.

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Powerful stuff from Steve Blank in a brilliant post – “Why the movie industry can’t innovate and the result is SOPA“. Read it, it is really good and really important though I do think this is about a collection of executives in individual companies in an industry that cannot innovate. Industries innovate all the time – the examples that Steve uses demonstrate clearly that the movie industry has evolved despite the reluctance of the largest businesses in it at any one point.

The principle doesn’t just apply to the movie industry. All established industries have similar issues as they mature.

“This year the movie industry made $30 billion (1/3 in the U.S.) from box-office revenue.

“But the total movie industry revenue was $87 billion. Where did the other $57 billion come from?

“From sources that the studios at one time claimed would put them out of business:Pay-per view TV, cable and satellite channels, video rentals, DVD sales, online subscriptions and digital downloads.”

Here are just some of the examples that he cites read the rest here  “Why the movie industry can’t innovate and the result is SOPA“…

  • 1920’s – the record business complained about radio. The argument was because radio is free, you can’t compete with free. No one was ever going to buy music again.
  • 1940’s – movie studios had to divest their distribution channel – they owned over 50% of the movie theaters in the U.S. “It’s all over,” complained the studios. In fact, the number of screens went from 17,000 in 1948 to 38,000today.
  • 1950’s – broadcast television was free; the threat was cable television. Studios argued that their free TV content couldn’t compete with paid.
  • 2000 – Digital Video Recorders (DVR) like TiVo allowing consumer to skip commercials was going to be the end of the TV business. DVR’s reignite interest in TV.
  • Today it’s the Internet that’s going to put the studios out of business. Sound familiar?

The same thing happens of course in other industries. The music, media and publishing industries are all changing rapidly because they are relatively mature industries dominated by large players where radical change is hard to achieve. In the long term, these industries will change beyond recognition but this does NOT always mean that smaller, more entrepreneurial businesses will end up as the winners, before being replaced by the next wave of nimble organisations. Large incumbents in industries exert huge power over consumers, both by controlling what they see, hear etc, but because they invest VAST amounts of money in lobbying governments to protect their franchises.

The winners will be the companies that bring real innovation in their BUSINESS MODELS so that their businesses can react to the changes in markets. Of course, the larger the business, the harder it is to be radical, one of the reasons that Clayton Christensen would suggest that disruptive businesses target small, relatively unprofitable market segments (talking about how Sony for example in the 1950s developed a portable transistor radio  that was viewed as a joke by the manufacturers of of valve radiogrammes which of course had a much better sound. The transistor radio became a toy for kids. Those kids grew up, and the transistor technology evolved and then it was too late).

Hermann Hauser gave an interesting talk about business models in the semiconductor industry. He looks at 5 waves of computing, the business models and the companies that have dominated each one.

Only one company, IBM, has been a market leader in more than one wave of computing.

While this is not about the movie industry, it is most definitely part of the same problem.

  • Technology is almost NEVER the reason a company fails. In all of Hermann’s investments, only one business failed because the technology didn’t work.
  • People and business models are the two most important factors in indicating whether a business will fail or fly.

The problem for large companies is in business model innovation and encouraging people, great managers, brilliant executives, to make decisions that are brave, long term and will probably feel dangerous or self-defeating in the short to medium term. Very few companies have been able to create long term cultures that encourage those behaviours. Perhaps this is not so surprising. It is not really in an individual’s best interests – economically or from a career perspective – to force through radical action that will probably reduce revenues and profits at a well managed business for a decade or so in order that a phoenix will rise from the flames.

Are there any companies that do this well?

Read the post. “Why the movie industry can’t innovate and the result is SOPA“.