Content Creation in a Fractured Industry

Illustration by Ayo Arogunmati

In the 1990s, black filmmaking ascended with the rise in Hollywood’s takeover of independent cinema. Commencing in 1989, black films were top of mind for studio executives with releases such as Do the Right Thing (1989) and ending with Clockers (1995).  Other releases include the film Boyz N the Hood, directed by John Singleton, released in 1991, the same year as Jungle Fever and New Jack City. The creativity of this period, known as the golden age of black cinema, promoted the black actor and the black director. 

While there were continuous development and production of black films in the 1990s, the next two decades would cease to produce black films at the same pace. The latter part of the second decade of the 2000s led to ever more independent shows and filmmaking that forced Hollywood to crawl back to the black creators. Creators such as Issa Rae and Eva Duvernay are two of the leaders of this new era. However, this new dawn may not be sustainable unless creators have a thorough understanding of the industry structure to capitalize on the power imbalance that gives more leverage to the creators. 

There is a basic understanding by most people of the profitability model. The equation is a linear expression calculated as profit equals price less cost (“Profit= Price - Cost”) either at the aggregate or the unit level.  According to Michael Porter, there are five factors that influence the industry structure and profitability in every industry. These factors are -

• Substitutes

• Threat of entry

• Buyer power

• Supplier power

• Industry rivalry

The distribution changes happening in the contemporary film industry; it is important for the artist, including but not limited to actors and directors, to understand the industry structure that determines who or what extracts value from the structure.

Led by Netflix, the film industry is transitioning away from a B2B model, whereby the studio produces and then sells licensing rights to theaters to a direct to consumer model, causing streaming platforms to spend sizeable amounts on original content generation to maintain its growth prospects. What the film industry is experiencing is a battle between the incumbent studios that want to keep the status quo and the technologists such as Netflix. Because of Netflix’s leading platform, the terms of engagement with audiences are changing, resulting in new rules for movie deal-making, scheduling, and marketing campaigns.

Multiple streaming platforms will begin over the next few years, as more consumers shift their viewing behavior from linear to non-linear and non-appointment viewing. As the industry rivalry rises, consumers will enjoy the lower subscription cost. The additional substitutes of new shows on the different stream platforms will force these platforms to keep their prices low to attract subscribers. The low switching costs means buyers have more leverage because of the fragmentation.

Artist and content creators are the suppliers in the industry, so a fragmented industry structure means that there are more buyers of content, which results in increased supplier power in the structure. To stay ahead of the curve, content creators should pay attention to the amount spent on original content by these platforms. For example, Netflix spent $13 billion on content in 2018. Creators should know the subscriber base and the hours of engagement on these streaming platforms so that the work created by the artist can better align with the characteristics or habits of the users on the platforms.  According to a survey by Deloitte, 77% of Americans streamed television shows an average of 4 hours per sitting. Last, creators should stay informed of the addressable market regarding current and potential customers and how platforms measure healthy and less healthy customers. 

Healthy customers are described as broadcast generalists, and from a consumption perspective, they watch above an average amount of broadcast drama, comedies and value next-day television. A less healthy viewer would be a content miner who over-indexes in movie consumption, loves to browse and hunts for new shows without commitment. If an artist has this holistic perspective of the users on the platform, they can create content that fits that specific demographics and psychographics of the platform.

The leverage that the suppliers of content will have as the intensity of rivalry increases in the industry will not last into perpetuity, evidenced by the reduction in black cinema following the golden era of the late 80s and early 90s. Artists, therefore, have to project the next state of equilibrium for filmmaking and its distribution. As the competition among the streaming platforms for content increases, the costs of securing content will rise and the profits will decrease. Declining profits will cause cutbacks to original content expenditures that may drive consolidation among the different platforms. A change in industry structure from lower profitability will force another state of equilibrium whereby the supplier power decreases and the creator must wrestle with the tradeoff between their art and wider distribution.

To understand the profitability model is pivotal for an artist interested in the industry structure because it can inform the artist on what to make, how to make it and how to distribute it to maximize their power.