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Thursday, 31 October 2013

The evolution of tablet operating systems

This video by The Economist is a great summary of the evolution of tablet operating systems, showing how successful Android has been in this domain as well. Given the competitive dynamics, Android's share growth is likely to continue as it benefits from the cutthroat competition among tablet manufacturers. Moreover, it is built on the previous success of Android as a mobile operating system. The i-phone was launched in 2007 but even that year may not represent the beginning of the story. Rather, it is 2005, when Google purchased Android, a small mobile start-up at the time, with the goal to make search available on mobile devices. From the beginning, the idea was to make it an open system (even making the source code available), giving it away for free (with Google search embedded in it of course) and making it open for app developers. Even before the first Android phone appeared, there were already many apps available for Android. This strategy required quite some foresight from the Google founders on the evolution of the mobile Web.

Wednesday, 30 October 2013

Ad Agencies threatened?

With advertising dollars quickly migrating from traditional media to the digital world it is reasonable to expect that ad agencies will change as well. Digital marketing is all about measurement - goes the newly discovered 'big data wisdom' - so ad agencies need to adapt and acquire serious analytic and data-mining skills. To be fair, they all have been doing this in the last years, acquiring small boutiques or developing in-house digital analytic capabilities. For the industry it is more worrisome that, increasingly, large data-driven consulting firms seem to make a strong move in the digital advertising business. Deloitte, Accenture and Booz-Allen, the largest operations consultants have all developed capabilities in this area or picked up ad agencies specialized in digital marketing. The most recent such acquisitions are by Deloitte, which purchased a Seattle-based social media agency as well as another firm from Brisbane, specialized in Web development. Do consultants represent a threat to traditional ad agencies, given that they naturally have strength in data analysis? To some extent they always did. Professional services firms have invaded each others' territories before: accountants got into consulting, as did ad agencies themselves. Most consulting firms had marketing practices before and wouldn't shy away from 'strategic branding' projects. However, the current focus on data is missing the key issues in digital marketing: (i) creativity and (ii) integration. In a context when a large number of new tools are available for marketers, these aspects of value creation are far more important than analytics, much of which can be subcontracted to small data-mining boutiques. The point is not to say that "analytic capabilities do not matter" - they do - but that creativity and integration matter more than before with the proliferation of new media platforms and non-standard marketing vehicles. Do consulting firms have an advantage in these critical domains? Probably not.

Tuesday, 22 October 2013

Supply of movies - is there a threat to innovation?

Release data plotted over time (MPAA represents majors)
File sharing and piracy reduces studio revenues and prevents firms from recouping the ever larger investments needed for the production of new releases. As such, piracy is claimed to 'kill' innovation and creative production, which will ultimately hurt consumers. The industry has been heavily lobbying for stronger protection from piracy. In a new paper, Joel Waldfogel of the Carlson School of Management argues that technological development has massively declined the cost of producing new movies. Moreover, the same developments that allow massive file sharing also made the discovery of new movies much more effective, thereby substantially reducing the total cost of a new release. This effect counteracts the detrimental impact of piracy and may actually result in an increase of releases and innovation in general (similarly to what happened in other creative businesses, namely music and books). Using IMDb data, the paper shows that this indeed seems to be the case. Since 1990 the annual number of US features and documentaries produced has increased by more than five and ten times, respectively. Moreover, while the number of new releases from the major Hollywood studios hasn't really changed, independent movies make up a large and growing share of what succeeds in the market. The new vintages of movies are far from being of low quality and there is evidence that they are appealing to audiences and critics alike. The movie industry seems to be in better health than ever!

Thursday, 3 October 2013

Demand for Movies

This graph was the starting point of the presentation by Luis Cabral at the first meeting of the NYC Media seminar series (which I highly recommend to media-minded academics). The full paper can be seen here. The X axis measures the box office performance of each movie shown at its opening week compared to the second best performing movie that week. The graph clearly shows that being # 1 on the opening week has a disproportionate effect for the intake of the movie over its full life-cycle. Concretely, while the average box office revenue is about $22 million, the #1 movie takes in on average $93 million. This boost comes from two effects. One is the effect of 'surprise', i.e. the revealed information that the movie is good. More importantly, the much larger second effect (accounting for about $45 million on average) is an awareness effect, i.e. free advertising for the movie in the press and elsewhere. The data contains about 10 thousand feature films released in U.S. theaters between Jan 1, 1982 and Dec 31, 2009. It is important to realize that this advantage only counts the box office revenues. If we were to count all derivative revenues for the movie, the advantage of being # 1 is probably much higher.