THE BIRTH OF NEW HOLLYWOOD — Part 1: Niche Platforms, Brand Platforms, and the Ultimate Platform

In Part One of our Four-Part series on New Hollywood, we push past the recent headlines to unpack how platforms are reshaping the entertainment landscape.

Over the past few months an avalanche of headlines has rumbled its way through Tinseltown. Disney followed up October’s announcement of a complete reorganization of its media and entertainment divisions with the revelation that it would release 50+ new blockbuster properties on its streaming platform, Disney+, over the coming years.

Not to be eclipsed in the Hollywood firmament, Warner Bros. announced that its entire 2021 film slate will be released simultaneously on its subscription streaming platform, HBO Max, and in theaters. That move came only weeks after Warner’s earlier decision to release Wonder Woman 1984 on HBO Max on Christmas Day.

In fact, all across Hollywood a tectonic realignment is currently underway as the major studios, encouraged by both Covid and their media conglomerate parents, attempt to better compete with Netflix in the Streaming Wars. As a result, studios are laying off vast swaths of executives in the hunt for fresh perspectives in data, operations, programming, distribution, marketing, and sales.

It’s been a brutal year for legacy Hollywood. But through this upheaval a New Hollywood is emerging. One in which platforms not the box office rule the storytelling universe.

Niche Platforms: Netflix

Everyone in Hollywood is chasing Netflix. Covid accelerated that chase but the chase started before the pandemic and will continue long after.

Netflix disrupted distribution for one simple reason, it placed the consumer/audience at the center of its business model. Not stars. Not upfront fees. Not backend points. Not box office revenue. Not advertising revenue. Not carriage fees. And audiences, by and large, desire on-demand options that conform to their tastes, which is exactly what the algorithms that drive platforms like Netflix provide.

This means that as the Streaming Wars progress, the foundational incentive structures that built legacy Hollywood into the hit-driven industry we see today will begin to crumble. And in their place a less risky, more data-driven lean Hollywood will emerge.

Of course, a platform has to be a “hit” to gain subscribers (see Quibi) but once that platform matures it only really needs content engaging enough to retain subscribers. Therefore, as competition drives supply to meet demand, quantity of output becomes just as important as quality of output. Suddenly, key metrics such as throughput and cycle time become real KPIs for content creation companies. The trick is to avoid sacrificing quality in the pursuit of quantity.

Up to this point, Hollywood studios never cared all that much how the content cheese got made, they only really cared how it tasted. But to successfully compete in the more efficient platform world, where increased demand for high-quality/high-concept content means faster speed-to-market and turnaround time to supply that content, process is king.

What subscription platforms like Netflix provide consumers is on-demand content tailored to their individual preference, and that requires a steady stream of high-quality new content. As such, platforms that can generate/supply high-quality content efficiently to meet audience demand will gain a competitive advantage.

Brand Platforms: Disney

The one company entering the Streaming Wars that doesn’t flinch at the Netflix juggernaut is Disney.

This is because Disney isn’t really in the movie business at all (yes, you read correctly). Instead, it’s in the character and world-building monetization business. Movies are simply the delivery vehicles it uses to monetize those characters and worlds. It’s hard to sell tickets to the When Harry Met Sally ride but it’s a snap to sell tickets to Star Wars: Galaxy’s Edge.

In fact, the most valuable properties in media are expansive and immersive fantasy worlds. These are the worlds Disney has mastered. When it acquired Marvel, Lucasfilm, and Pixar, Disney didn’t simply acquire a slate of films it acquired libraries of characters and worlds that can be monetized ad infinitum.

The reason Disney is so successful at monetizing these fantasy worlds isn’t that it’s better at making movies (most of the greatest movies of all time came from the other major studios), it’s that it hyper-focuses on creating fantasy worlds for a single market: families. Few companies in Hollywood, from the biggest studios to the smallest production companies, have made it a strategic priority to focus squarely on supplying content to a clearly defined market/audience (Blumhouse is an example of one that has). Disney, on the other hand, is able to nurture a more valuable relationship with its core target audience precisely because it has one.

Media companies that successfully create storytelling franchises, especially in the immersive fantasy realm, like Disney, benefit from a novel kind of operating leverage that media strategist and venture capitalist, Matthew Ball, refers to as “returns to marginal affinity.” The basic idea is that once an audience falls in love with a franchise it doesn’t cost more to leverage that affinity. And Disney profits mightily from this “love”.

Disney’s laser-focus on creating immersive fantasy worlds for families makes it better able to build brand equity. And this competitive advantage stems from its laser-focus on serving families content in a manner they value (movies, TV shows, theme parks, cruise lines, etc.). Disney+ is an even more consumer-friendly extension of that already existing strategy.

This brings us to the difference between Netflix and Disney and why Disney is the outlier army fighting the Streaming Wars: mass selection platforms like Netflix are niche-centric, whereas IP (intellectual property) library platforms like Disney+ are brand-centric.

Disney doesn’t have a peer when it comes to brand and Netflix doesn’t have a peer when it comes to optionality. But both companies place the consumer and his or her experience at the heart of their businesses, which fosters advantage, scale and, yes, even love.

The Ultimate Platform: The Metaverse

In a quarterly earnings report released in early 2019, Netflix added a surprising new entrant to its growing list of rivals competing for audience attention in the Streaming Wars. One it viewed as an even greater strategic threat than HBO: Fortnite.

There is no larger immersive fantasy world in existence today than Epic’s Fortnite. In Fortnite, Star Wars, Marvel, DC, and John Wick IP can, and often do, crossover and inhabit the same shared universe. This crossover branding dynamic is almost unthinkable in legacy Hollywood (would DC’s Superman ever appear in a Marvel Ironman movie?) yet it’s the norm in Fortnite.

Fortnite and other gaming platforms, such as Roblox and Minecraft, represent the first iterations of what will eventually evolve into the Metaverse, the Ultimate Platform.

The Metaverse is the Ultimate Platform (assuming the word platform is sufficient to describe it) because companies such as Epic, Disney, and Netflix can exist inside it. They can even build digital theme parks that never close, never get affected by pandemics, never run out of real estate or attendance capacity, and are totally immersive.

At a base level, the Metaverse is an evolved decentralized 3D version of the internet where the real world and fictional worlds overlap. You’ve seen versions of it represented in movies like Ready Player One and The Matrix but the seeds of the Metaverse are already being planted and cultivated in gaming platform nurseries like Fortnite, Minecraft, and Roblox.

Just like the Metaverse, Fortnite is always on, always live, and always immersive. Where the two platforms diverge is in scale and scope. As Epic’s CEO, Tim Sweeney, envisions, a decentralized Metaverse will emerge incrementally as more standards are adopted and when companies such as Unity and Epic coexist in a transparent, open, and shared digital economy. In such an economy, consumers can then buy and sell digital goods and services while the data and assets that make up those goods and services can move seamlessly across platforms and protocols.

The sheer scale and scope of the Metaverse is mind boggling. It’s the ultimate immersive fantasy experience.

Now, at this point, you may be asking yourself “the Metaverse is years if not decades away, why should I care?” Well, beating deep in the heart of the gaming world lie game engines. Game engines create the 3D building blocks (digital assets) that form the DNA strands of the Metaverse itself. And powerhouse game engines like Unreal Engine and Unity are now making their way into Hollywood in new ways and revolutionizing how content is created.

In other words, the game and film worlds are already merging. And New Hollywood needs to be Metaverse-ready.

In Part Two of our Four-Part series on New Hollywood we’ll bridge the gap between the game and film worlds by showing how game engine-powered virtual production can do for New Hollywood audiences what SaaS did for enterprise software consumers: transform how value is delivered.