Commentary
3/17/2010
08:45 PM
Bob Evans
Bob Evans
Commentary

Global CIO: Will Cisco's Revolutionary Router Torpedo Tinseltown?

Technology is roiling short-sighted Hollywood, and the business-model implications and opportunities for CIOs in every industry are enormous.



Throughout its brief but dazzling history, the video/movie/film industry has created a well-deserved reputation for exquisite creativity in its artistic expression, excruciating short-sightedness in its business models, and near-existential blindness to technological advancements. Two quick examples:

Exhibit A: in 1927, dismissing what some would call a rather obvious technology-driven opportunity for the business, legendary Hollywood pioneer Harry M. Warner of Warner Brothers squawked, "Who the hell wants to hear actors talk?"

Exhibit B: in 1946, another Hollywood kingpin, 20th Century Fox head Darryl F. Zanuck, dismissed a nascent competitor with this infamous brush-off: "Television won't be able to hold on to any market it captures after the first six months. People will soon get tired of staring at a plywood box every night."

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And comes now onto the scene an externally bland and low-brow chunk of metal, plastic, and silicon bearing not only the prodigiously unsexy moniker "CRS-3" but also and much more importantly the very real potential to demolish the film industry and the business models the big studios are clinging to so desperately.

So IT doesn't matter, huh? Try telling that to some studio big-shot who's just had his CIO verify what that geeky little CRS-3 router-thingy can do: in just 240 seconds, it can stream not just one movie, and not just a double feature. No, in 240 seconds, the CRS-3 can stream every single movie ever made. Every move ever made. In four minutes.

Think about what that almost-unfathomable performance boost will mean in terms of the film industry's traditional business models, under which the big studios controlled the making, packaging, and distribution of the overwhelming majority of films available to the public. Will the blazing speed of the CRS-3 and the new wave of ridiculously rapid routers to follow render the whole packaging and distribution side of the equation obsolete? (For additional technology and competitive insight, be sure to check out my colleague Alex Wolfe's excellent analyses on the CRS-3 announcement and the reaction from Juniper.)

What about DVDs? Why buy the chunk of plastic when it's much simpler for you to just zap the digital file into your home theater or laptop or smartphone or your car?

This tech innovation has the potential to be to stuffy business models what wrecking balls have long been to condemned buildings: the very last thing they see, hear, and feel before being transformed into rubble that might or might not ever be used again. Here's how an engaging article from time.com describes the industry's dilemma:

"The ability to download albums and films in a matter of seconds is a harbinger of deep trouble for the Motion Picture Association of America (MPAA) and the Recording Industry Association of America (RIAA), which would prefer to turn the clock back, way back," the article says.

"Consider that the MPAA, whose members include Disney and Universal, attacked the VCR in congressional hearings in the 1980s with a Darth Vader–like zeal, predicting box-office receipts would collapse if consumers were allowed to freely share and copy VHS tapes of Hollywood movies. A decade later, the MPAA fought to block the DVD revolution, mainly because digital media could be copied and distributed even more easily than videocassettes."

CIOs would be well-served to gather some brainy colleagues and knock around some ideas about whether or how this new bandwidth explosion can help you expand your competitive advantage. Training? Medical care? Education? Presentations? Collaborative design? Demonstrations? Virtual travel? These are the opportunities that CEOs are looking to CIOs to start delivering and modeling, not just enabling them after the fact.

And to help you consider those possibilities, as well as understand more fully the implications of what this will mean in the movie industry at every step of the supply and demand chain, I'd like to share some thoughts on this from a media executive who spent four years immersed in the movie industry as head of a company whose titles included The Hollywood Reporter, Back Stage, Hollywood Creative Directory, and a range of live events and related businesses.

It also happens that this media exec, Tony Uphoff, is the CEO of my company, UBM TechWeb, a position that's allowed Tony to immerse himself just as deeply in the IT business. His comments came via an email exchange as I was working on this column, and you can follow Tony at his Uphoff On Media blog or on Twitter.

The first point Uphoff made was the slightly paradoxical proposition that the very same film industry that scoffed at adding sound to video and dismissed television as a useless plywood box has also "long been steeped in technology, and Hollywood has led many transitions in new technology."

The problem, Uphoff said, is that Hollywood's zest for technological innovation has been almost entirely limited to its internal operations and to perpetuating its traditional needs of "capture, process, and storage" technology.

As a result, "Technology that disrupts distribution models isn't an area that the industry has focused on or even really understood," Uphoff said. "There is clear evidence that Hollywood openly fought the new technology until they realized that it opened up an entirely new revenue stream. Today, even in decline, DVDs represent a larger market than theatrical film.

"And so these new advances in bandwidth that allow for extraordinary amounts of video to be streamed live, downloaded, and distributed and viewed on devices of all sorts is both a threat and an opportunity for Hollywood," he said.

That razor's-edge dilemma—threat or opportunity?—is precisely the sort of issue of which strategically minded CIOs need to take ownership: how can technology disrupt how I conceive, design, build, market, sell and service products? How can it foster new and more-valuable relationships? How can it allow me to engage more intimately with my customers? How can it help me strip away excessive costs?

And most of all, how can I as CIO ensure we are managing this aggressively as an opportunity rather than allowing it to haunt us as a threat?

I'll let Tony run with that idea:

"The major film companies have historically controlled the market via their funding, packaging, and distribution power," Uphoff said. "As the potential for filmmakers to go 'direct' and create their own distribution by leveraging digital networks changes this dynamic dramatically.

"We've seen this play out in the music business as technology companies like Apple stepped in and actually organized the industry and market. Interesting to note that Steve Jobs is on the board of directors at Disney and is that company's largest individual shareholder. So then just consider iTunes with film-purchase capabilities and rental titles, and Apple TV, and then the iPad. Is all that a coincidence? No—it might be a lot of things, but it is not a coincidence.

"So what can we assume? My sense is that we will see 'studios' invest in and leverage some of this technology themselves. We are already seeing some examples like Hulu and others. Given their long tradition of a 'channel model,' the studios don’t think or act like a direct business. Some own theaters but most don’t.

"The challenge is most of these efforts are consortium-like, which are very hard to scale. On the other hand, for the first time in a very long time, we're seeing innovation in movie theaters: 3D is one step, and Imax is another. You're also seeing theater owners innovate with the experience—with food, drink and service options that are way outside the traditional movie-going experience.

"In other words, if you already have the option of getting first-run movies streamed to your home, then the motivation for getting you to go to a theater has to be a really cool experience, and that is something that the studios or theater owners or some combination will have to pay a whole lot more attention to than they have in the past."

Scary stuff in a lot of ways, but it's also where the real fun and innovation can come in, so it all boils down to this: do you define your job as helping your company preserve what it has, or as helping it transform itself into what it needs to become to continue exciting and delighting customers? Look at these ideas from Tony and see if some wouldn't translate to your business as well:

“ 'Downstream' revenues in Hollywood have historically worked in this order: Theatrical, Pay Per View, DVD, Commercial Television. Repeat. Managing those different 'windows' has been the main concern for the industry. As in, when do you light up the next window?

"Piracy has been a major concern here as well. One theory is that Disney will be the first company to go to a 'universal release,' which could be very cool. Universal release means they will hit all of the paid windows at once, with varied pricing.

"You want to see Avatar in your home theater the first week of release, you will pay $59.99, about the same as a pay-per-view prize fight. And if you want the DVD that early you will also pay a huge premium.

"For Disney, given their relationship with Apple, I would imagine they're thinking through some really interesting models. Connected to the challenge for Hollywood to change business models is that each of the windows has a different revenue- and profit-sharing structure. Each talent group is watching this carefully.

"Let’s say as a big-name, 'front-of-camera' star, you have a strong deal for theatrical release revenue participation. Accordingly, you'd then have a far smaller stake in 'downstream' revenue, and much less interest in it. Historically you and your agents didn’t really worry about that because, other than DVD sales, there really weren’t material revenues via digital.

"But there sure are now," Uphoff says, "and that's the huge opportunity."

And it's impossible to overstate the message that that same "huge opportunity" isn't limited to Hollywood.

Rather, it's limited only by your imagination.

RECOMMENDED READING:

Global CIO: Apple's Steve Jobs Torpedoes Another Stale Business Model

Global CIO: Apple, IBM, & Oracle Get Turbocharged By Cisco

Global CIO: An Open Letter To Microsoft CEO Steve Ballmer

Global CIO: The Top 10 CIO Issues For 2010

Global CIO: Why IBM CEO Palmisano Earned His $24.3 Million

Global CIO: Cisco TelePresence Shaping Next-Gen Hotels

Global CIO: BP's Extraordinary Transformation Led By CIO Dana Deasy

GlobalCIO Bob Evans is senior VP and director of InformationWeek's Global CIO unit.

To find out more about Bob Evans, please visit his page.

For more Global CIO perspectives, check out Global CIO,
or write to Bob at [email protected].

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