The Irreversible Blockbuster Trend!

The digital world has created completely new laws when it comes to achieving success. Precisely because of digitisation, that which is valuable becomes even more valuable: “superstars are getting bigger and bigger”.

Author: Peter Sprenger

Back to school for four days. Not just any school, but Harvard Business School. After having the luxury of visiting IEG Chicago and MarTech San Francisco last week, I was able to attend a reunion of former Harvard BEMS students. This was a gathering for everyone who followed Anita Elberse’s BEMS programme. BEMS stands for the Business of Entertainment, Media & Sports, which clearly indicates that sports are now also part of the worldwide entertainment industry, sharing the same characteristics as the music, television and film sectors.

Anita Elberse is a top Harvard professor and her book “Blockbusters” has opened the eyes of many companies, leading executives, scientists, start-ups and superstars in the world of media and entertainment. She demonstrated something that no one had really seen before: the digital world has created completely new laws when it comes to achieving success. Precisely because of digitisation, that which is valuable becomes even more valuable: “superstars are getting bigger and bigger”. Conversely, “medium-sized” initiatives are getting caught in a downward spiral faster and faster. This is in direct contrast to what Chris Anderson propagated in 2006 with his “long tail theory”. The way he saw it, products were actually worth more because they were digitally available for longer and would thus have a longer lifecycle.

The blockbuster theory that Elberse has brought forth has huge ramifications for the choices that companies make. Big bets (large investments with conceivably high returns) are actually less risky than a series of small bets (spread investing). By nature, we humans tend to believe that we need to spread our risks. He who makes small bets in the digital world will soon fall short of reaching that minimal level of attention that is required to attract consumers. By maximising investments (big bets), the product will exceed that threshold and will be perceived as a premium product. This is why it will achieve an upward dynamic more quickly.

Hence, the “medium-sized” sized investment has become “middling” in an exploding digital world and is therefore less profitable. Look around and you will see that this blockbuster theory is correct. Over the past 10 years, we have all started to consume more premium content and the premium brands have enjoyed our preference. More Premier League football on Fox, more Lady Gaga, more Olympic Games, more Messi, more Netflix, more Ariana Grande, more Shawn Mendes, more Avengers and so on. This means we have less time for other matters. Premium wins and is crushing the rest. Only a big bet investment strategy will enhance the likelihood of success in this enormously intense field of competition. Elberse’s book explains this phenomenon in explicit detail and provides scientific evidence. It is a must-read for anyone who works in the media and marketing industries. The lesson you can take away from this book is that many organisations will need to test their marketing strategies against the blockbuster theory much more seriously. It also remarkable how well this theory can be applied in the marketing world. There too, you will see a daily spreading of investments or too many small investments in campaigns, resulting in a drop in value instead of an increase. Many organisations still continue to make this same mistake, while the lack of marketing successes can easily be explained by the blockbuster concept.

It is interesting to look at the four cases that were discussed at the Harvard reunion in Miami. The first may be familiar to many people in the Netherlands. It is the well-known ABN AMRO WTT tennis tournament in Rotterdam. This case was especially interesting because Ernst Boekhorst of ABN AMRO and Jolanda Jansen from Ahoy were also present and were able to provide more details. You might think that a tennis tournament is a relatively small case in the international entertainment world. But the dilemma that Jolanda Jansen and tournament director Richard Krajicek faced is a model example for thousands of other situations in and outside the world of sports. Anita Elberse found it so interesting that she developed it into a Dutch Harvard case study. The strategic question that the tournament has to deal with is compelling. Should they, as organisers, go along with the ever-increasing investment level to attract top players like Nadal and Federer to come to Rotterdam or should they spread their budget to include more young (unknown) talents? Which approach will ultimately create more value? A good analysis according to the blockbuster theory shows that the value of top players in tennis only continues to grow and that their agents and the ATP are highly aware of this. They have increasingly more clout during the negotiations. This is precisely why medium-sized and smaller tennis tournaments are struggling. A model that features the top players will require Krajicek and Jansen, however, to adopt a whole other level of investment. This will also be a high-risk strategy for the Ahoy venue and sponsor ABN AMRO. But a safe strategy actually doesn’t exist. As seen from the blockbuster theory, it seems more obvious that the tournament must choose to invest in the top players rather than devalue the event with less expensive players.

The second case concerned Blumhouse Productions. This is a relatively small film studio that has been able to produce massive box-office successes with extremely low budgets when compared to the larger Hollywood studios. Some examples of their hits include the films Get Out and Paranormal Activity. Now, here is where it gets really interesting, because, apparently, someone has figured out how to realise huge box-office success with small budgets. This does not coincide with the Blockbusters theory. What is really happening here? Anita Elberse thoroughly examined this case. It seems that if you have a good understanding of the big bets of the big players in your market (e.g. 20th Century Fox or Disney), you can tell that something of value is left that doesn’t interest them. Let’s call it the scraps from the table. And in a big market, there are lots of scraps left over. So this was an opportunity for Blumhouse. Founder Jason Blum, however, first managed to fulfil a few crucial conditions for success. He concluded distribution agreements for his films with a number of big players to ensure market access. Blum also made sure he built up a very close bond with the actors. In doing so, he made himself less dependent on directors and agents who usually tend to sway towards to the big movie producers. Blum fulfilled the conditions of being able to recognise talent, have discipline and build alliances, which resulted in blockbusters with only limited budgets. This construction can undoubtedly also be applied to other entertainment sectors. When Dutch people hear this story, they will quickly wonder if this can also be applied to secure the future for the Ajax and PSV football clubs. Could this be part of their future business plan in respect of such financial conglomerates as Juventus, PSG and Real Madrid?

The third case was about Netflix versus Disney. Over the past eight years, Netflix has grown to become the world’s largest provider of steaming services and has done so without any real competition. They received so much room to operate that they were even able to invest in their own productions, such as House of Cards and The Crown. Disney has now decided to go all-in on the same market with the name Disney+. One does wonder why Disney has waited so long to take this step. Can Disney, with all its muscle, still change the current market situation? The participants in the room were divided. Some students believed Netflix would get wiped out, and still others thought Disney didn’t stand a chance. It is doesn’t really matter who is right, but what is important is who is positioned best according to the blockbuster theory analysis. Netflix has a keen eye for talent, excels in the technological aspect and has by now amassed 140 million subscribers. Disney owns an incredible archive of content, is a phenomenal production house and can offer consumers of whole range of products. But Netflix will not go down without a fight. The company is creative when it comes to binding talent and CEO Reed Hastings prefers to focus on the long-term strategy instead of the quarterly results. Research has shown that focusing on quarterly results has been a real handicap for companies who want to innovate on a large scale. They did not have the appetite for investment and Netflix did. This also seems to be the reason why Disney has waited so long and allowed to Netflix to operate freely. Whether Disney succeeds in seriously competing with Netflix is not just a question of money but more a matter of mind-set. Will the top managers of Disney be given the freedom to be able to realise the long-term model?

And then the last case: Nike. The dream company of every marketer. Nike has always managed to find the right cultural fit with its fans. Within that, the top management people have always recognised the value of technology surrounding the product. On the sneaker market, Nike is now fully committed to the SNKRS app to change the buyer experience. With this app, the most fanatical sneaker fans can now greatly increase their odds of being the first to score a new product. So, no more fans with sleeping bags camped out in front of stores in an attempt to buy the latest model, but an app that enables you to be first in line. Is this the right strategy according to the blockbuster theory? Is it wise for a company that operates on such a large scale on the world market to create a digital elite? The answer appears to be yes. Nike has already demonstrated this with its Nike+ app for athletes. What they hope to do with the SNKRS app is to get even closer to their super fans before the sneaker is introduced on the market. It is a form of gamification that enables them to get to know their users much better. They nurture a relationship with fans without the intervention of the retailer. With this app, Nike not only changes the user experience, but also the sales channels. On top of that, the app also enhances the sense of scarcity. That really suits fashion brands well. The exclusivity of having unique sneakers enlarges the Nike brand experience. All signs seem to indicate that Nike, with its SNKRS app, has once again found that unique combination of art and science and has another blockbuster on its hands.

These were the four Harvard cases. After a month of travelling, the links between IEG Chicago, Martech San Fransisco and the Harvard BEMS sessions seem glaringly obvious. The findings in Chicago emphasised the importance of physical experiences combined with digital experiences. Brands that focus on this combination are trying to create the maximum experience. This bears close resemblance to the blockbuster theory. In Chicago, they were also convinced that you will only be able to really compete in the battle for attention if you are not afraid to fully stand behind your campaigns and your product. Companies are not afraid to take more extreme positions anymore. Even when it comes to controversial societal themes like Nike’s campaign with Colin Kaepernick. Martech in San Fransisco showed how digital technology can make an extreme contribution to the unique experiences of consumers and how this can be a game-changer. Those who find unique ways of applying technology will be able to create a blockbuster. The strategy behind the digital skin advisor of cosmetics brand Olay is similar to Nike’s SNKRS app strategy. San Francisco also showed that by applying Artificial Intelligence, our brand experiences can become even more intense. With AI, you can focus more on our emotions. And lastly, the Harvard sessions described here have demonstrated that the blockbuster theory is crucial in creating value in the long-term. And that success is not only created by chance but is derived from the level of investment that the organisation chooses. Understanding that will be critical for many organisations in the media and marketing worlds because, surely, the blockbuster trend is irreversible.