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The Power of Disruption

30 May, 2016 By: Thomas K. Arnold


“Disruption” is one of those buzz words that everyone uses, but few really know what it means.

Like two earlier buzz phrases, “paradigm shift” and “out-of-the-box” thinking, it tends to get applied far too often to retain its inherent impact. A disruptive innovation is not simply a better product, or a more efficient way of doing something. It’s a new product, or a new way of doing something, that addresses an inherent problem with the old product or way of doing something.

Blu-ray Disc was not a disruptive innovation — it was merely a better disc, with a sharper picture and greater capacity. DVD, on the other hand, was a disruptive innovation — it allowed consumers to buy movies as soon as they hit home video, instead of having to wait six months, as they did in the VHS days, and watch them on a format with all the nifty digital advantages, like random access, they had come to know and love through the CD.

Capitalizing on these advantages, the DVD changed how we consume entertainment at home — as did the other big disruptor of our industry, Netflix. Reed Hastings took advantage of a major consumer frustration, having to make return trips to the video store or incur a late fee, and came up with the subscription model, first with discs delivered and sent back by mail and then with streaming. You might say with streaming, Reed disrupted his original disruption — in an even more pronounced way, shaking up not just how entertainment is delivered to consumers but how that content is made.

Netflix has gone from being just another window for studio content to a distributor of original content — much of it now custom-crafted and based on data analytics that provide insight on exactly what it is that consumers want to see. As Root, the data center company, noted in a recent blog post, “Data analytics throws the traditional process of scriptwriting, casting, production and marketing on its head. Using content intelligence, Netflix is able to create shows tailored to specific target markets. They found that Kevin Spacey and the films of David Fincher were popular among subscribers. Meanwhile, the classic but horribly outdated British ‘House of Cards’ had developed a cult following in North America. Their research gave them a certain level of confidence as they committed to the big-budget program. Instead of deciding how to market content after it’s completed, producers now use a business case to build a show from the ground up. The process continues right to marketing and distribution, with Netflix deploying trailers tailored to different sub segments of their target audience. Mr. Spacey fans will see him featured prominently, while anyone who has watched The Social Network and Fight Club will see more of Mr. Fincher’s dark style. … Where once executives tried to guess what people wanted, big data means they already know. ‘Narcos,’ about Pablo Escobar and the DEA agents hunting him, was released to coincide with Netflix’s major expansion into Latin America. …”

In our feature this month, we have come up with a subjective list of the top disruptors in home entertainment. Granted, none of them have had quite the impact of Netflix, which even outside of our business is an oft-cited example of disruption. But they have all, in one way or another, not just improved on something, but shaken up a business model — from Comcast’s digital movie store to 20th Century Fox’s brave new world of virtual reality.

According to Clay Christensen, the Harvard Business School professor credited with bringing the term “disruption” into the business world in his 1995 book The Innovator’s Dilemma, there are actually two types of disruption.

A new-market disruption addresses a market that previously couldn’t be served. DVD allowed consumers to build movie libraries, something they couldn’t do in the VHS days because cassettes were too big and clunky and cost too much out of the gate. A low-end disruption offers a simpler, cheaper or more convenient alternative to an existing product. Netflix, in its original form, was cheaper and more convenient than going to a brick-and-mortar video store, particularly if late fees were involved. Only later, with streaming, did it evolve into a new-market disruption.

But enough with the tech talk — follow this link to our list of top disruptors and let us know what you think.
 



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