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A recent interview with Sony Motion Pictures Group chairman Tom Rothman generated buzz for his recommendation that movie exhibitors lower their post-COVID ticket price raises for younger consumers so they can “make it up in volume, and concessions.”
There was less buzz about Rothman’s mix of bullish and bearish predictions for intellectual property within Sony’s walled gardens. But, those were more significant than his demand to his exhibitors.
His bearish prediction was that “we’re exiting the era of the tyranny of IP." After “24 of the 25 top movies were all IP based movies” in 2023, that will not be true “three or four years from now.” He also revealed that both the next “Spider-Verse” movie from Phil Lord and Chris Miller and the next “Venom” movie will be the last in the trilogies of these hit movies.
He was bullish on Sony’s upcoming portfolio of “big IP solid sequels” balanced with “more adventurous stuff”. The former was new movies from the “28 Days” post-apocalyptic horror movie series, the “Karate Kid” and Nintendo’s game “The Legend of Zelda”. That said, he conceded: “The bar is higher to get young people to be excited to go out, to care.” So, Sony will produce less “big IP” movies and more movies for audiences who are “underserved for newness, they’re underserved for cultural urgency.”
Broadly speaking, Rothman is conceding that the definitions of “culturally relevant” and “aggressive marketing” are evolving away from wholesale models. In doing so, he is toeing the line of an argument I made in my recent essay, “How Valuable IP Will Succeed Beyond The Walled Gardens of Media Conglomerates”: “In retail-first, consumer-first models, consumers no longer need media companies to shape and dictate the storytelling of popular IP.”
Audiences still want "big IP" from Sony Motion Pictures. But, in a retail-first, consumer-first world where younger generations have less money to spend, they may not always want movies (and not only because they can no longer afford them).
Key Takeaway
Sony seems less inclined to be invested in "big IP" movies or pursue "back to the people" business models in the content business. It seems more inclined to be the omnipresent within the tools that produce the post-"big IP" world of content.
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Beyond the Walled Gardens
The argument in "How Valuable IP Will Succeed..." had two parts. The first was that “the media conglomerate model of the 20th century is no longer capable of generating the same value for shareholders and consumers in the 21st century.” Traditionally, media conglomerates aggregate valuable IP and leverage economies of scale to monetize that IP across multiple distribution channels (linear, theatrical, streaming) and business models (merchandise, theme parks). Sony's distribution business has global reach.
Now, with the growing popularity of gaming with Generation Alpha and Generation Z, consumers instead "seem increasingly more sentimental for the intellectual property of media companies more than they are the formats.” Reach matters less than format, and therefore movies are as important if not less important than games (a point Rothman tactfully avoids making).
Second, media conglomerates now must opt for or against business models that allow their walled gardens to become more permeable. If they do, they should opt for licensing business models that return characters and stories ‘back to the people’.”
Rothman’s interview treads carefully between both points, and there are good reasons why.
A Paradigm Shift
To date, Sony’s strategy with consumer-first, retail-first media business models has zigged where other legacy media companies have zagged. It mostly gave up on streaming in 2019 when it sold a majority stake in ad-supported streamer Crackle. In theatrical, it has focused on “turning movies into tangible culturally relevant entities through aggressive marketing.” Those have led to “big ancillary sales through Sony’s output deal with Netflix.”
Rothman acknowledged the generational shifts in media consumption: “The movie business has gone from number one to number five, in terms of what a young person might do on a weekend.” Past generations would say “let’s go to the movies this weekend” whereas current generations ask “what do you want to do this weekend, with our limited resources?”
Connecting the dots to his earlier point, the value of big IP has limited value in addressing the evolution of generational audience demand. Or, rather, big IP are more valuable to audiences that Sony Pictures Entertainment CEO Tony Vinciquerra has labeled “communities of interest” or “niche markets that lend themselves to fervent fan interest that itself can be monetized.”
But, Rothman did not go as far as saying that walled gardens should become more permeable. There is a good reason for this: Sony’s walled garden is already permeable: Its decision to license content to Netflix instead of competing with it was an early concession that walled gardens needed to become permeable in a retail-first, consumer-first marketplace.
Its business Crunchyroll—a niche service for fans of anime—also straddles that line, both keeping anime content exclusive to its streamer while also licensing library content to third parties (e.g., “Chainsaw Man” on Hulu) or releasing the movie “Demon Slayer: Kimetsu No Yaiba - To the Swordsmith Village”, a film using two episodes from a previous season of the TV series and one from the new season.
But, as I wrote two weeks ago, elsewhere in the Sony ecosystem the Playstation gaming platform continues to be a walled garden. It may have hit a wall in its Total Addressable Market, and now faces growing questions of whether it can continue to exclusively publish and monetize blockbuster games without distributing those games on Xbox and PC platforms.
Gaming sits in Sony Interactive Entertainment and not with Rothman’s motion pictures division with Sony Pictures Entertainment. Within a media conglomerate like Sony, two divisions facing the same questions about the ongoing value of a walled garden present a long-term strategic challenge for Sony.
But, Not “Back to the People” (...Yet?)
If Sony opts to open up its "walled garden", there are four broad buckets of “back to the people” models being funded by investors private and public:
Gaming (e.g., licensed third-party character “skins” in online games like Fortnite and Roblox)
Blockchain (e.g., non-fungible tokens (NFTs), memecoins)
Generative AI tools (e.g, learning language models that learn from data and produce content autonomously); and,
Creator economy (e.g., media companies partnering with influencers for promotion)
Rothman acknowledged that there is change with consumers afoot, but says its symptoms are tied to marketing:
The pivot to digital has allowed us to be far more efficient with our spending and far more targeted, so that you’re not having to carpet bomb the world just to get the people that you want. Kids are not watching television, they’re on their phones and you can reach them there.
He believes digital can deliver 30% less in spending with the caveat that “the right elements for it” are in place. He offered the example of the surprise hit “Anyone Buy You”:
...we had two rising stars, one of whom, Sydney, had a very strong social following to begin with Euphoria, and they were very game. You need to have talent that’s game and willing and smart about it. And then you can do a lot for a lot less. Like 30% less. But you have to be willing to take the leap and leave some of the old crutches behind.
But, outside of gaming, Sony has done very little to embrace more digital, "back-to-the-people" models. In the case of AI, Sony Music Group recently warned more than 700 companies against using its content to train AI. Its business objectives in engaging creators have focused primarily on “businesses related to creation”. This was outlined in a recently-released Sony corporate strategy, "'Creative Entertainment Vision,' Sony's long-term vision for the future beyond its 5th Mid-Range Plan (FY2024 - FY2026)".
Sony’s Long-Term Plan
Given that audiences have cultural urgency beyond , shouldn't Sony be heading down a path towards also pursuing "back to the people" models?
Rothman's interview implies that solving for marketing instead of "back to the people" models will solve the emerging generational divide. He has to tell that story because his model involves "aggressively marketing" movies that are "culturally relevant".
But, in Sony’s corporate strategy the audiences who are “underserved for cultural urgency” seem to be less important. Its only mention of movies are producing more anime for Crunchyroll and adapting game IP into live-action content.
Sony is positioned to still monetize "back to the people" models via Epic Games—in which Sony has $1.45 billion and owns 5.4% of the firm—and other businesses (e.g., photography and video equipment for creators). Notably, that investment is primarily for "utilizing their Unreal Engine in various creation processes" and not "back to the people" models of letting Fortnite users use Sony IP.
Sony is ultimately offering both bullish and bearish signals for "back to the people" models. Sony is willing to bet on investing in the tools for these models, but it is less inclined to invest in giving audiences control over their IP. That will inevitably have to change.