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There are good reasons to be asking questions about the value of “big IP” in 2024. The most obvious is because Sony Motion Pictures Group chairman Tom Rothman recently declared in an interview that “we’re exiting the era of the tyranny of IP” at the box office. 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.”
The second reason is that the business models for "big IP" in theaters no longer map to consumer economics, as I wrote in “Back To The Future Of Pre-Paramount Decrees Studio Distribution.” Why spend $20 in a theater when you can wait for the movie on streaming? Or, with Premium Video on Demand (PVOD) models, why spend $48 for four tickets (and $68 more for concessions for four people ($17 per person)) when the entire family can pay $30 to watch in the living room?
Universal Filmed Entertainment Group saw last Spring’s hit movie “The Super Mario Bros. Movie” generate more than $75 million in PVOD revenue in an exclusive pay window starting 17 days after the film’s release. The PVOD gross was 13% of what the movie grossed domestically ($575 million) at the box office.
The point is not that “big IP” is less valuable than before, but rather its value within particular distribution channels like theatrical and linear has decreased. As I wrote last Thursday, Netflix has proven that “big IP” is less valuable to a streaming model than IP locally produced original content that an algorithm can take globally. There is an open question that my essay did not answer: If “big IP” is no longer a winning strategy in this increasingly consumer-first, retail-first media marketplace, then what is?
Key Takeaway
The key question now—one that looms large in the uncertain futures of Paramount Global and post-Robert Iger Disney—is whether the leadership of any media conglomerate will have the "resilience, stamina and capital to run a marathon" to prioritize investing in product development over “big IP”.
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Amazon & #Winning
A recent social media post (X/Twitter and LinkedIn) by Gokul Rajaram—an early-stage investor and board member of Coinbase, The Trade Desk and Pinterest—asked and answered the question of what it will take for a company to win in the Artificial Intelligence category.
This post is relevant for our purposes because Amazon is the archetypal direct-to-consumer retail business success story, and it highlights what Amazon did to “firmly establish itself as the leader in US e-commerce, despite early and strong competition. (And it still is not the leader in most countries around the world).”
Rajaram's post is also relevant because of its Amazon Prime Video business which reaches over 200 million customers worldwide. Even if it offers movies and TV series to help drive e-commerce sales—IAC Chairman Barry Diller once amusingly described the reaction of "people in the entertainment business" to Amazon's model as is "Oh my god, how did that happen?”—it is increasingly a media company as it expands its advertising business into video advertising.
Rajaram argued Amazon’s success was built upon “at least 5 major innovations: along with countless improvements to the underlying technology and infrastructure, including selection, inventory management, logistics, fulfillment and customer service.” The first of those innovations started with Books in 1994, and the last innovation—Amazon Prime—was the “hammer” that turned them into the “likely winner”.
He concluded that winning in a consumer-first, retail-first technology marketplace requires “the resilience, stamina and capital to run a marathon comprised of 5+ sprints, each over 1-2 years, before you can even think about winning your category.”
Rajaram adds that—in addition to the “multiple (4-5) major compounding innovations over a sustained time horizon (5-10 years)—there will need to be “[d]ozens (if not hundreds) of ‘minor’ but critical platform-level innovations which enable both the major innovations as well as collectively improve the customer experience in subtle but powerful ways.”
In short, “winning” a consumer-first, retail-first marketplace is as much aboutrd product development as it is about scale. But, not just the product development, a long-term capital commitment to a vision.
This mirrors the logic of something I wrote in “Back To The Future Of Pre-Paramount Decrees Studio Distribution”: “The next generation of consumers value the user experience (UX) as much as the content, enough to prefer free services to paid services with historically popular IP.” That essay concluded that the best model for media conglomerates was to build an Amazon-like model of a single consumer touchpoint across an entire ecosystem. Consumers’ relationship with “big IP” has evolved and branched beyond individual channels to be monetized across all of them. The best solution is not to bet on “big IP” in one channel alone—like theatrical—but to capture and monetize that interest across multiple channels.
Does “Big IP” Matter?
The logical question, then, is does “big IP” still matter?
One argument made recently by Dave Morgan—Executive Chairman of Simulmedia—is content does not matter. The business of media is “the provisioning of consumer contact”. It is not and never was “all about the content”. Without scarce, fixed distribution channels like broadcast, cable or theaters, the attention for content —and therefore“big IP”—is now scarce.
It is incumbent on media companies to expand into technology and data businesses by creating or buying companies like “ The Trade Desk, Roku, MediaMath, TransUnion, or Experian.”
But, back to Rajaram’s argument, those data and technology businesses will not “take” unless those media companies are focused on compounding major and platform-level innovations. Effectively, “big IP” can only be a winning strategy if the company’s existential mission is to be a leader in a retail-first, consumer-first business. But, “big IP” must be secondary to that corporate objective.
The “Big IP” Doom Loop
As I wrote in “Back To The Future Of Pre-Paramount Decrees Studio Distribution”, the problem is that none of the legacy media companies seem to have that mission. Without that mission, bets on “big IP” in across theatrical and streaming releases will have predictable futures. If Disney’s past is precedent, this should play out the following way:
The media conglomerate bets big on content budgets and promises fans will be hyper-served across streaming and theatrical,
The shows and movies perform poorly at the box office and/or on the streaming service,
Fans of the IP are left unhappy, less passionate fans lose interest
Fundamental questions are raised about the long-term value of the “big IP”,
The company cuts back on film and TV output around the “big IP”, but prioritizes “big IP” over product development.
[Repeat Step #2]
It is a doom loop, and one not that much different from last year’s “The Doom Loop of the Mogul”.
The key implication from both this doom loop and Netflix’s model—whose algorithm delivers “big IP” to the fans who want to watch it—is that fans of “big IP” need to be served in multiple ways, ideally with one consumer touchpoint. The key question now—one that looms large in the uncertain futures of Paramount Global and post-Robert Iger Disney—is whether the leadership of any media conglomerate will have the "resilience, stamina and capital to run a marathon" to prioritize investing in product development over “big IP”.
Because, all signs point to two likely outcomes:
The media conglomerate with a 10-year consumer-first, retail-first product vision may easily win the marketplace (and Netflix may have won already), and
A decade from now—if not sooner—everyone who fails will inevitably disrupted by the “Back to the People” models I outlined in April’s “How Valuable IP Will Succeed Beyond The Walled Gardens of Media Conglomerates”.