How Media and Entertainment Companies Can Thrive in a Direct … · 2019-12-12 · How Media and...
Transcript of How Media and Entertainment Companies Can Thrive in a Direct … · 2019-12-12 · How Media and...
L E K . C O ML.E.K. Consulting / Executive Insights
EXECUTIVE INSIGHTS VOLUME XV, ISSUE 15
INSIGHTS @ WORKTM
curiosity but a powerful commercial trend. Warner Bros, which
originally produced the “Veronica Mars” series, had been
unconvinced that it warranted a major movie. But the enthusi-
asm shown by fans on Kickstarter persuaded the company to
greenlight the film.
The dynamics of financing, sales, and distribution of media and
entertainment are changing in ways that savvy companies can
no longer afford to ignore. Once no more than an intriguing
Internet sideshow, direct-to-consumer campaigns are now going
mainstream and triggering concerns that traditional purveyors
of creative products will be threatened by disintermediation.
But we do not believe that the traditional players are trend-
ing toward irrelevance. Far from it. If they seize the moment,
traditional media and entertainment companies will find that the
direct-to-consumer revolution presents them with considerable
opportunities — including new and powerful ways to identify
talent, connect with customers, and unlock previously hidden
value in mass and niche markets alike.
Fan-Funding Takes Off
Websites like Kickstarter have, for the first time, made it feasible
for artists to reach out to fans on a massive scale to fund their
content creation. Indeed, “Veronica Mars” is just the tip of the
Who knew that big media companies could raise big bucks
direct from consumers while developing new launch platforms
for content? In March 2013, Rob Thomas, the creator of a
defunct TV series called “Veronica Mars,” launched a historic
funding campaign. His goal was to raise $2 million in 30 days
on Kickstarter, an increasingly popular online platform for
financing creative projects. Thomas hoped that fans of his
detective show might contribute enough money to help finance
a movie adaption. Potential donors were offered rewards that
included a limited edition T-shirt (for a $25 pledge), two tickets
to a “red carpet” movie premiere ($1,000), and even a one-line
speaking part in the film ($10,000). It took just 12 hours for
the online fundraising campaign to reach its $2 million target.
Within 30 days, 91,585 fans from 21 countries had pledged
more than $5.7 million.
Is this a one-off or part of an emerging pattern of success? We
show the pattern of emerging success and give nine rules for
winning the game.
Since its launch in 2009, Kickstarter says it has raised $650 mil-
lion to fund more than 43,000 creative projects ranging from
movies to music, dance to design. But the runaway success of
the “Veronica Mars” campaign was a watershed, demonstrat-
ing that the phenomenon of “crowd-funding” is not just a
The People Are Speaking with Millions of Dollars: How Media and Entertainment Companies Can Thrive in a Direct-to-Consumer Age
The People Are Speaking with Millions of Dollars: How Media and Entertainment Companies Can Thrive in a Direct-to-Consumer Age was written by Dan Schechter, Managing Director and Head of L.E.K.’s Global Media, Entertainment & Technology Practice.
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Even the Pulitzer Prize-winning writer David Mamet recently an-
nounced that he would self-publish his next book — a sign that
respected writers are increasingly willing to decamp from tradi-
tional publishing houses and take their loyal readers with them..
Even more striking, in 2011, it took just 12 days for Louis C.K.
to sell 200,000 downloads of his comedy performance “Live at
the Beacon Theater” for $5 apiece. He made almost a million
dollars for a single night of work. Then, in 2012, he cut out the
middleman again, bypassing ticket agencies to hawk $6 million
worth of tour tickets in one week directly to his fans.
Page 2 L.E.K. Consulting / Executive Insights Volume XV, Issue 15
EXECUTIVE INSIGHTS
fan-funding iceberg. In April, Zach Braff — star of the sitcom
“Scrubs” and director of “Garden State” — began a Kickstarter
campaign to fund a movie called “Wish I was Here.” He hit his
$2 million target in just four days. Charlie Kaufman, the writer
of “Being John Malkovich” and “Eternal Sunshine of the Spot-
less Mind,” raised $406,000 on Kickstarter for “Anomalisa,” an
animated featurette about “a man crippled by the mundanity of
his life.” In February, a documentary called “Inocente” became
the first Kickstarter-financed film to win an Oscar.
It isn’t just filmmakers who have benefited from this new source
of financing. Last year, Amanda Palmer spurned her record label
and set out instead to finance her new album, “Theatre is Evil,”
via Kickstarter; her fans ultimately pledged nearly $1.2 million.
Meanwhile, the developer of the video game “Wasteland 2”
bagged $2.93 million on Kickstarter from 61,290 backers. And
while Kickstarter leads the pack, it’s hardly alone. Crowd-fund-
ing platforms are proliferating, including industry-agnostic play-
ers such as Indiegogo and niche specialists like PledgeMusic.
Direct-to-Consumer Distribution From The Artists: Are Big Media Companies ‘Dead Men Walking’?
The Kickstarter effect has significant implications for traditional
middlemen, including media conglomerates, movie studios,
video game giants, record labels and book publishers. These
players are simultaneously witnessing a parallel trend in which
more and more creative artists are attempting to sell their own
wares directly to consumers. In 2007, Radiohead famously re-
leased the album “In Rainbows” on the Internet, allowing fans
to pay whatever price they chose. This proved a mixed success,
with about a third of their buyers apparently paying as little
as one cent. Times have changed, and new, more transparent
models are having better success. After her rejection by various
publishing houses, the novelist Amanda Hocking sold over two
million books via Amazon and other e-Book websites, generat-
ing more than $2.5 million in sales for her paranormal tales of
trolls and vampires.
Nine Rules for Successful Direct-to-Consumer Fundraising and Distribution
1. Be transparent with your customers in your
fundraising and self-distribution
• Customers appreciate a detailed breakdown of where funds are going and what they will be used for (including funds for self-distributed products)
2. Consider donating a percentage of raised funds to
charity
• This will increase the "feel good" concept and encourage more fans to fund
3. Work toward long-term relationships with your
customers, so that they will trust your brand as long as
high quality, content and products are delivered
• Louis C.K. did this by releasing a "heart-felt" thank you note to his fans after the wild success of ‘Live at the Beacon Theater’
4. Build relationships with customers using an approach
that is engaging, personal and honest
5. Release free content to convert casual browsers to
devoted fans
6. Provide DRM-free, easy-to-share material
• This creates openness and mutual trust and respect with fans
7. Create a reasonable price
• When the price point is attainable, both fans and people on the fence are willing to pay for the product rather than hunt for a pirated version
8. Offer value that cannot be found elsewhere
• "Veronica Mars" offered red-carpet party attendance
9. Have fun!
• Most successes are underpinned by a sense of humor, which does not always come naturally to big companies
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Making Direct-to-Consumer Work for You
How worried should traditional media and entertainment
companies be about these new models of funding, sales and
distribution? The first thing to remember is that the direct-to-
consumer boom offers as many opportunities as challenges.
One way for traditional businesses to capitalize on the trend is
to trawl through this non-traditional realm in search of fresh
talent to partner with, treating it in much the same way as a
baseball scout would treat a farm team. In most cases, artists
still prefer to follow the traditional path when given the option;
they still covet a shot at the major leagues. Indeed, Hocking,
the novelist, eventually decided that the direct-to-consumer
route was too arduous and distracting. In 2011, she signed a
$2.1 million deal with St. Martin’s Press to publish her next four
books. Defending her decision in a blog, she confessed to her
fans: “I want to be a writer. I do not want to spend 40 hours a
week handling emails, formatting covers, finding editors, etc.”
Likewise, record labels are also finding ways to profit by signing
musicians who have already attracted a devoted following on-
line, not least on Facebook, Twitter and crowd-funding sites. A
British band, Scars on 45, raised about $24,000 on Slicethepie,
another fan-funding platform, and then joined a major U.K.
label, Atlantic/Chop Shop Records. The band cited the benefits
of teaming up with a company that offered professional exper-
tise in promotion and marketing, along with industry contacts
that “Slicethepie cannot provide.” Sure enough, a 2011 survey
found that 75% of unsigned musicians still want to sign with a
label — another indication that the traditional model is far from
dead.1
The television industry is also embracing this possibility of dis-
covering new content online, then providing a more-prominent
launchpad for it. Lisa Kudrow (of “Friends” fame) created an
improvised online series, “Web Therapy,” which Showtime sub-
sequently took on, developing it as a TV series that premiered
in 2011. Other artists have found themselves mainstreamed in
similar ways: for example, after his successful adventures in the
world of self-distribution, Louis C.K. signed a deal with HBO to
air his concert special. This enabled him to access the money
and distribution might of a network that has about 30 million
U.S. subscribers. Most web-content remains too short, too
weird, or simply not good enough to go mainstream. But these
examples and others demonstrate that the boundaries between
the traditional and non-traditional sales routes are now begin-
ning to blur.
The New Rules for Success in Direct-to-Consumer
Despite all the buzz about the direct-to-consumer model, there
is little doubt that the traditional players retain a significant
competitive advantage, given their financial strength, status,
expertise and distribution reach. They also provide another
value-creating service: editorial oversight. While artists cher-
ish their creative freedom, many also recognize the benefit
of editors, record producers and other overseers who can help
separate the wheat from the chaff. The vast majority of con-
sumers also value some level of curation; without it, cyberspace
can feel like a casting room populated by hundreds of millions
of artistic hopefuls all auditioning at once.
In many ways, “Veronica Mars” offers a fine example of how
well this changing environment can work for successful, estab-
lished companies. Warner sat back and watched the crowd-
funding euphoria unfold on Kickstarter, then shrewdly recog-
nized that the fans’ enthusiasm offered commercial ratification
for its project. The company then stepped in to provide the
financial support required to make it a major movie, along with
expertise on everything from soundtrack clearances to market-
ing. Meanwhile, the company is well-positioned to benefit from
the seed capital and promotional buzz provided by the project’s
fan-funding success.
Traditional players can also benefit from the success of the
direct-to-consumer model by deconstructing how these en-
terprising artists have used the Internet to forge strong rela-
tionships with consumers. For example, Louis C.K. built trust
among his fans by providing them with a detailed breakdown
of how he would use the funds he was raising, charging them
a reasonable price, donating a substantial portion of his profits
1 Source: ReverbNation and Digital Music News
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L E K . C O MINSIGHTS @ WORKTMPage 4 L.E.K. Consulting / Executive Insights Volume XV, Issue 15
to charity, and writing them a heart-felt thank you note for their
support. His economic transparency, generosity and openness
deepened his bond with his fans in an era when many con-
sumers crave a more personal, value-driven touch. Similarly,
Amanda Palmer’s success stems largely from her gift for using
social media to strengthen her bond with her fans. Indeed, she
recently boasted having more than 187,000 Facebook "likes."
Companies would do well to deepen their understanding of
why such artists resonate so strongly with their followers, and
how innovatively they use social media to communicate directly
with them.
Seeing the success of trailblazers like Amanda Hocking, Louis
C.K. and Amanda Palmer, many other artists will undoubtedly
follow in this quest for direct-to-consumer riches. For artists
who are sufficiently well-known, it’s a particularly attractive
route, since they already have a sizable following with which
to connect. In the coming years, this direct-to-consumer model
promises to develop into a thriving ecosystem, especially in
sectors such as comedy and book publishing where the start-up
and marketing costs are not as prohibitive as in movies, video
games or music.
These trends will gather momentum, causing a measure of
disruption. But for companies that play their cards right and use
the nine rules (see sidebar), this rapidly changing environment
will be a great opportunity.
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© 2013 L.E.K. Consulting LLC
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