Around 500 years ago Niccolo Machiavelli wrote ‘Whosoever desires constant success must change his conduct with the times’. The notion of ‘changing conduct’ to succeed is still true in the 21st Century. The rapid change that technology has created ensures that traditional market leaders who are unwilling to adapt become irrelevant to the customer. The most prominent example of this failure is in the entertainment industry. In the last 20 years, technology has rapidly redefined distribution, created new forms of competition and a ‘savvier’ customer. Yet, not a day goes bye without news of one of its traditional leaders (record label or movie studio) pursuing legal action because of their underlying unwillingness to adapt to the times. These companies continue to operate using a mantra of ‘what worked in the past will ensure our success in the future’. Evidently it will not. This issue of Spot is dedicated to proving that ‘tried and true’ methods do not work when the times change.
At the end of 2007 Madonna acknowledged the change in the music industry by leaving her record label and signing with content promoter ‘Live Nation’. She was quoted as saying: ‘The paradigm in the music business has shifted and as an artist and a business woman I have to move with that shift’. She was followed by Radiohead who in the same year decided not to renew their contract but rather DYI. Even 2 years later, record companies have done little to adapt or reinvent the way they go to market. In fact their increasingly litigious nature suggests they are hanging on to what they know for dear-life.
A more recent example has been with movie studios. Although these traditional market leaders haven’t been as newsworthy as record labels they are starting to act more and more alike. In the US, Universal, Warner and Fox have recently placed an embargo on distributor Redbox (similar to Australia’s Redroom DVD). This embargo prevents the Redbox from having access to new movies until a month after they are released. This is surprising given that kiosk DVD distribution is growing at around 30% p.a. and the overall DVD category has contracting by -14% 1st half 2009. Why? Because the studio’s want a high cut of the companies revenue. This move reeks of studios not understanding the changes in their category and trying to throw their weight around instead of adapting their offer. The need to change in order to maintain leadership will only increase if Redbox does what it did last time. In 2008, when Universal enforced a similar embargo on it, Redbox went over the studios head and bought the DVDs from other retailers continuing to rent them for $1.
The pace at which technology is changing holds many opportunities for business, but equally failure to acknowledge its affect on a category can result in a ‘slow-death’. If movie studios and record labels are anything to go by, attempting to change maybe a better option than enforcing ‘tried and true’ business measures. Basically, the risk in adapting is far less than that of doing nothing. So when change comes to a category market leaders should embrace it.
