The list of businesses that barely survived the digital revolution is lengthy. Record stores and music companies, video stores, newspaper publishers, and others such as cable operators are increasingly threatened. These businesses have been forced to shutter or reinvent themselves in the new age of media. In many cases, their partners—even those that weren’t directly hit—were, at the very least, adversely affected. Case in point: The U.S. Postal Service.
The last 15 years have been challenging for many businesses, but they’ve been particularly brutal for media and entertainment companies. Sales for many reliably profitable services such as movie rentals (physical, that is) and album sales all but evaporated. An interesting crop of technologies and businesses have risen out of the ashes, but many media companies still cling to hopes that everything may go “back to normal,” or at least a more acceptable “new normal.”
It’s easy to see how a company could become paralyzed with indecision. The pace of change over the last decade has been breathtaking, and we’ve seen many spectacular business failures in the media sector. At the same time, the cost of inaction has also been colossal. Newspaper publishers, for example, stubbornly resisted change for years before they were willing to make the most basic adjustments to their formats, such as dropping stock quotes from their papers, creating flexible reading formats, aggregating content, or allowing readers to post comments online.
The oft-touted argument that analog dollars are worth “digital pennies” is flawed. Music is worth as much as it ever was, but the money is directed to different parts of the value chain. Music royalties may now come from increased sales of concert tickets or merchandise, subscriptions, music-playing devices and services, ringtone sales, or placements in movies, rather than just CD sales. To maintain profitability, entertainment providers need to come up with multiple, innovative ways to package, distribute, price, and sell content. These include direct payment models, third-party payer models, new packaging, or unbundling revenue models.
The convergence of digital and physical media represents a tremendous opportunity. In order to seize it, media companies must figure out what people want and how to give it to them. Movie studios, for example, need to do more than serve the same old movies at the same old prices on different screens. In order to succeed in the digital world, media companies must be willing to adapt, create a culture of change, and develop new skills (customer marketing, data analytics, and technology, for example) within their broader organizations.
Willingness to adapt
It has always been the case that most companies will only change under severe financial duress. Increasingly, consumers have more choice and control, which requires multiple and flexible business models to be successful. Today’s fastest-growing, most powerful companies are willing to turn their businesses upside down on a daily basis. Facebook (FB), for example, has morphed many times in its short life. It evolved from a website for Harvard students to a global communications platform in fewer than 10 years. After a majority of its users started going to the site via mobile phones, Facebook quickly rolled out a mobile app. Now the vast majority of its users—874 million of them—access the site over a mobile device every month, and the site boasts upwards of 1.1 billion registered users.
Create a culture of change
It’s not easy to work in a business that continually shifts from one hour to the next. Unfortunately, that’s the reality of business today. In order to excel in this environment, media executives need to do more than work on solving just one problem. They need to hit a constantly moving target. The reason why Netflix (NFLX) still exists today is that the company is in a perpetual state of motion. When consumers lost interest in renting DVDs, Netflix rolled out a streaming video service and migrated an impressive number of its customers to it. In an effort to grow that subscriber base, the company used the data from customers’ viewing habits to create compelling, original content. The strategy has worked so far: At last count, the company said its streaming subscriber base has grown to more than 31.1 million.
Foster new consumer, data analytics, and technology skills
It’s imperative that media companies either grow customer and tech skills in-house or partner with outside organizations to acquire those skills as part of their broader ecosystem. They need to understand the next technologies, consumer relationships, data analytics, and customer experiences. Hypothetically, if movie rentals and movie downloads were to migrate entirely to the cloud, studios would need to have people on hand who understand the technology and can develop innovative, cloud-based applications t0 improve service and/or profitability. Having good content is not enough; studios need to create positive and unique experiences around the content.
The media landscape has undergone radical changes over the last decade. Although the pace may slow at times, it could be years before the dust settles. In the meantime, content providers need to take a hard look at their internal organizations to determine what they can do to prepare for what’s ahead. The future can, after all, change at any given minute. It often does.
Article originally published in Businessweek.com