Replacing old business models with digital

Replacing old business models can be cost-efficient, and grow the entertainment marketplace

People in the video entertainment business have known for some time that they’re about to be disrupted. They’re watching Hulu carefully, they’re whistling past the Netflix graveyard in hopes that nothing truly scary is lurking. All because they don’t want to be disrupted.

(From the pages of the April 9 issue of Variety.)

But what if disruption isn’t as bad as they instinctively think it will be?

It’s likely they think that disruption necessarily requires the replacement of an old way of doing business with a completely new, more effective way. They’re the old way, and that’s why they resist disruption. That helps explain why there has been fear and trembling among videobiz executives for years, going back to the fateful day when Viacom chose to sue YouTube.

It’s true that “old” disruption — and by old, we’re talking up until maybe a decade ago — actually does lead to the complete replacement of one solution with another. The railroads were disrupted by the highway system. Mainframe computers were disrupted by personal computers.

But all of those disruptions were incredibly expensive. Such replacement disruptions were gratefully rare events and could even have been avoided if managed properly.

But it turns out that the very concept of disruption has been digitally disrupted. Because digital tools and platforms reduce costs, disruptions can occur at any level, big or small.

For video, this will lead to one paradoxical reality : Instead of being replaced, the video business is about to get much, much bigger. That’s right, contrary to what you think the lesson of the music industry is, digital disruption expands industries, it doesn’t shrink them.

Yes, the music labels are now shadows of their former selves. But at the same time, more people listen to more music at more times on more devices than ever before. And more individuals are engaged in making music for those listeners than before — just a casual glance at the thousands of musicians on YouTube confirms this, even if only a few of them are any good.

Call it the Law of More. Simply stated: Digital creates more of everything in an industry. More value for more customers experienced in more ways, creating more opportunity.

The Law of More already applies to video. We already watch more video in a typical day than we did a decade ago. And now, thanks to the mobile devices expanding the number of minutes per day we spend with a moving image, the business is going to get even bigger.

When Netflix announced it would release an entire season of “House of Cards” in one fell swoop, people in the industry scrambled to say it wouldn’t work. Implicit in their prediction, however, was the claim that to succeed, the release would have to replace the existing way that serials are distributed.

As long as most shows continue being released on a weekly schedule, these individuals will feel vindicated. But they will have missed the point. Netflix’s action wasn’t intended to cause a change in the industry, it was a reaction to the fact that digital gives the company and its customers the opportunity to experience content in more ways.

When HBO recently suggested it might allow broadband providers to bundle HBO GO with broadband-only packages — a cable-cutting nightmare for video distributors if ever there was one — many people interpreted this as an attempt to replace the old way of reaching customers with a new one.

Wrong again. It’s about expanding the video business, not replacing it. The fact that an established firm like HBO is behind it only proves that incumbent players in an industry can disrupt.

When YouTuber Devin Super Tramp can achieve more than 185 million views of his expertly produced extreme action sports clips, it’s definitely not a replacement for ESPN or MTV. It’s an expansion to it.

In fact, it would be surprising if those companies didn’t hire him at some point soon to help them join in the expansion.

To beat back the instinctive assumption that digital disruption is only here to defeat you, approach every industry announcement by asking yourself how a move by Amazon or Discovery or some unknown app developer will expand your business rather than replace it. Then you’ll see it more clearly, and more importantly you’ll have a better sense of how to add to or compete with what they’re doing.

True, a few years from now, when digital disruption has so fully expanded the video business that it becomes clear that some of our old technologies, business models and customer experiences are no longer relevant, we will happily replace them. But at that point, we will be the disruptors, not the disrupted.

James McQuivey is the author of “Digital Disruption: Unleashing the Next Wave of Innovation.” He is a vice president and principal analyst at Forrester Research.

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