In my last post I talked about Anita Elberse's Blockbusters, and how companies like Netflix seem to be moving away from "long tail" niche strategies toward strategies that focus on the creation/acquisition of premium content that drives blockbuster sales in the "head." Blockbusters, by Anita Elberse (Henry Holt and Company, 2013); see post titled Heads, Long Tails, and Light Consumers.
A couple stories came out right after this post: (1) Netflix announced it was giving up movies distributed by Epix -- including a few blockbusters -- to produce more original content, with Hulu picking up the Epix catalog; and (2) a rumor has developed that Apple is considering producing its own video/media content, possibly for a future Apple TV service.
In Blockbusters Elberse talks about how premium content production can turn into a winner-take-all battle. As an example, she notes how major opera production outfits like the Met have started to dominate live-stream opera events, leading to an ever-growing, spiraling dominance. As the Met has expanded its live-stream efforts, its revenues and budget have grown larger, giving it the ability to sign better talent and create better productions than smaller opera houses trying to compete in the live-stream market. Smaller opera houses are being squeezed out of the market. Id.
Elberse says one of the ironies of the opera house example is that cheap digital reproduction, distribution, and consumption don't actually democratize the opera house market (or any other media market). Instead, digital technology allows large production outfits like the Met to cheaply distribute the best opera product to markets formally served by smaller, less polished local players (the smaller, more regional opera houses). Id. Cheap digital distribution makes blockbuster strategies even more appealing, amplifying winner-take-all effects and increasing the importance of superstars and premium, big budget productions. Id.
In light of this, it seems like Netflix is making a mistake in giving up the Epix relationship, unless Netflix lacks the budget to simultaneously (1) acquire blockbuster content from Epix and (2) produce premium content in-house.
If you accept Elberse's theories, it also seems to make sense for Apple to try producing blockbuster content in-house. Apple has resources far greater than the other over-the-top providers/distributors -- Netflix and Amazon -- currently trying to produce premium content in-house. If content/media production is a winner-take-all (or most) market, then Apple's ample resources/budget could be a big competitive advantage/differentiator relative to alternative offerings from Netflix and Amazon.
Because it has a thriving device business, Apple is also well-positioned to distribute this content cheaply and conveniently to end users. Apple could make any content produced in-house exclusive to iTunes, possibly for a limited term, and then license this content to other distributors like Netflix and Amazon. Apple could leverage in-house content in a flexible way, maximizing the content's value.
The idea of Apple producing in-house content makes me a little nervous -- I've always appreciated Apple's focus on making the best hardware. At the same time, however, Apple's services business -- which includes Apple Music -- has always seemed to operate as a unique, separate entity (as noted by Horace Dediu at asymco.com). I think Apple can produce content through Apple services without interfering with its hardware business. It also doesn't seem like much of a stretch to go from the curated/produced content in Apple Music (like the Beats Radio shows) to movies and miniseries videos produced in-house by Apple. Premium movies and video could enhance the Apple brand and give Apple a more unique, differentiated ecosystem, which is consistent with Michael Porter's definition of effective strategy. See Concepts page and discussion of Michael Porter.
It's interesting -- digital technology makes distribution cheap and easy, which opens movie and video production up to companies that formerly lacked the theaters or networks or other distribution vehicles needed to make content production financially appealing. Now that distribution is cheap, big budget, blockbuster productions are still strategically appropriate but are no longer the sole province of traditional content studios/networks like Disney or ABC.
Addendum (added 9/2/2015):
I should add that one other aspect I like about Apple producing movies and video is that art, whether it's a beautifully designed product, a movie, a miniseries video, or a piece of music, is always unique and differentiated and doesn't commoditize. And art doesn't have to improve over time the way most other products do -- it's timeless. As a result Christensen's concepts of overserving and "good enough" aren't really relevant. I like the idea of Apple adding ecosystem elements that are unique and don't commoditize. See post titled Art Doesn't Commoditize.
The author owns stock shares of Apple.