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Apple and Hollywood – The Big Sony Danger

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There is an old saying about people that don’t learn from history being destined to repeat the mistakes of the past. That may play out here as Apple considers spending a billion dollars to create their own media content. You see back in the 1990s Sony came up with the idea that RCA had it right – that if you could blend content and hardware you could own the market. At the time, Sony was dominant in music players (Walkman), receivers, TVs and professional movie and TV recording gear, but on VCRs they were being overshadowed. So, they bought into movie, TV, and music production and the result was they nearly went out of business.

Let’s talk about why going into content could be a really bad thing for Apple.

It’s A Very Different Business

I grew up near Hollywood and spent about 4 years trying to be an actor and have known a lot of folks in the industry over the years. Entertainment is a very different business than high tech, it is heavily unionized, revenue and profits are widely shared, there are a lot of things done as a practice that would get you fired in other industries, and the creative types that define the industry are exceedingly hard to manage.

It also can consume stupid amounts of money. Projects that cost hundreds of millions of dollars aren’t unusual and there have been impressive successes on efforts costing thousands. This can lead to massive underspending and massive overspending. The first can create the impression that you only bring out crap doing significant damage to the brand, and the last crater the firm’s valuation particularly if the movie does poorly in the box office.

The industry is also made up of a lot of people good at presenting as something they aren’t. Just picking people that are truly competent over those that are posers can – in and of itself – be incredibly daunting. Finally, the unions in the industry are unusually strong and can easily shut down production not only at the firm but for the entire industry from time to time. Tech firms like Apple, which are largely union free, don’t have a great history with working with unions.

Sony’s Screw Up

At the heart of the Sony problem was a culture that distributed decision making. This made it hard to keep to the original concept, which was that content was going to be subordinate to hardware. Instead, for some screwy reason, hardware became subordinate to content. So, Sony hardware for music had massive Digital Rights Management (DRM) layers so they could play the content and no one could steal it, while that same content played just fine on the Apple iPod without all that crap. The result was that while the content business remained relatively strong, hardware – the whole Walkman effort – failed and Apple took over. On video content, there was no real advantage with Sony hardware so it just became a distraction and Sony TVs, VCRs, DVD players, and related efforts all suffered.

Amazon Counterpoint

Now Amazon has successfully done content and it hasn’t harmed their core business at all. In fact, it has enhanced it. But Amazon isn’t a hardware player, they are a retailer, and they are basically selling some things they create. The Echo line, Kindle line, and some accessories all move reasonably well, as does some Amazon core content though much of what they move is owned by other studios and third-party players. They aren’t really in the class of a full sized movie studio yet and the effort simply enhances the membership privileges with Prime. Finally, while they do pay to have content created, they mostly keep that effort separate from their main operations and so it hasn’t become, yet anyway, much of a distraction.

Apple

Sadly, Apple is structured and has a culture closer to Sony’s than Amazon’s. In fact when Steve Jobs rebuilt Apple last decade he used Sony as a template. The result is that while their retail effort is stronger than say HP’s, they aren’t in Amazon’s class and they have a tendency toward closed ecosystems. This means Apple content is likely only to play on Apple hardware. This means that, rather than being an iterative broad revenue add it will be limited to people who have Apple hardware who also want exclusive Apple content. A vastly smaller potential base to buy the content than Amazon or Netflix enjoy.

Wrapping Up: The Odds Aren’t Good For Apple

Given the Sony lesson, the odds aren’t good for Apple. Yes, they successfully brought out a smartphone when no one thought they could do that either, but that was with Steve Jobs leading and Tim Cook is no Steve Jobs. In fact, since Jobs died there hasn’t been another iPhone, iPod, or iPad success suggesting that creating a product that can spin a market is now beyond Apple’s capabilities. With Jobs, Apple did beat the odds regularly. With Cook, they really haven’t beaten the odds once.

Yes, with the Apple Watch they do have what is arguably the most successful smartwatch in the market but it is isn’t even a fraction of the success the iPod or iPhone were. And it is far closer to Apple’s device oriented strengths. I guess, what I’m saying is that if the firm can’t have a major success with a product and in an industry they know, the odds are they won’t have a success in an industry they don’t know. And they don’t yet know the movie and TV industry.

In the end, the best path for the firm might be to think about RCA and creating something new and interesting. Rather than entering an existing market late, enter an emerging market early and define it. That’s what RCA (once part of GE) did and until they were broken up they owned the then-emerging radio and TV markets. Virtual Reality is emerging and at least has the promise of being amazing. If Apple can create amazing first, the outcome might be far better. We’ll see.

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