Real Media Strikes Back

Much has been said about the demise of HMV and Blockbuster recently with the Internet front and centre as cause and motive due to the manner in which it allows digitisation and transportation of information which is what these two companies trade: information be that music or movies its all the same in the world of IT. Does this mean that any business that trades in physical products that store information (music, videos even print) is ultimately doomed and will be sucked into the Internet black hole with a brand left hang over the store door? Not necessarily but it is going to require strategic supply-chain cooperation (SSCC) and a new model to succeed with the current power brokers having to give a little ground to remain powerful, profitable and relevant.

Milk and Monopolies - power in the supply chain

HMV and Blockbuster were a bit like Tesco or Asda or Sainsbury's are today but for HMV and Blockbuster it was the 1980s early 1990s. Why? They both had massive buying power and with that negotiation and with this control on profit margins. Today the supermarkets have massive control of their supply chain dictating to producers the terms and conditions of sale (milk story part I: Price Fixing 1:http://www.theweek.co.uk/business/3185/oft-fines-supermarkets-£50m-milk-price-fixing). This power isn't reserved for the retailer at the end of chain. Wholesalers and other intermediates have also controlled pricing and access (milk story part II: milk monopolies: http://www.independent.co.uk/news/business/milk-monopoly-crumbles-1482028.html).

Power brokers and Barriers to Entry

So what has the price for a pint of milk have to do with restoring entertainment retailers back to some form of stability? The answer is in cooperation through the supply chain to protect all parties from exposure and its part of game theory used in negotiations: my enemy's enemy is my friend (http://www.gametheorystrategies.com/2011/08/23/my-enemys-enemy-is-my-friend/). By cooperating along up and down the supply chain businesses can protect themselves from being forced into competing on price. Once a business is competing on price its already dead - there is no competitive advantage its in strategic hell (http://highered.mcgraw-hill.com/sites/0077107063/student_view0/chapter5/) and ready to picked off by the lowest price which the Internet company model is designed to make the most of. SSCC is based on one the strategic gurus (he'll hate that description) Michael Porter's five forces model where 5 market forces act on a company: Vertically 1) threat of new entrants and 2) Product substitutions taking power away from the internal competition between current market players who are fighting amongst themselves (3) and horizontally 4 ) suppliers to the businesses and 5) customers who buy the products. The Internet acts primarily down the vertical - to succeed against it barriers to entry must be put up to stop this power of competition taking away from the horizontal.

Don't fear the Cannibals

When the Internet was first being mentioned as a new method for business it was ignored as another fab with a fear that if a company, like HMV, invested in an online offering it would decrease the turnover in store - cannibalising its own businesses. Here no barriers were setup until the Internet with fantastic distribution (Amazon) or complementary products (Apple iPod, Apple App Store) (6 Porter forces that gets forgotten as it was added later) were already in and where setting the agenda.

A firm that is having to adjust to cannibalisation is Love Film (Amazon firm). When it began it offered DVD to be posted to homes. Now it is having to adjust to offering a Internet streaming version to compete with BlinkBox (Tesco) and its old rival netflix and Sky Now TV with Virgin Media probably looking to add to the party.

Physical Fight with Virtual backup

Now its time for a fight back stores like HMV and even Blockbuster can offer better products than their competition today including the recent streaming film channels mentioned before - how? physical media (DVD and CDs etc) with online streaming access. Now this is not a new idea - BlinkBox already offer UltraViolet (Which? FAQs: http://www.which.co.uk/technology/tv-and-dvd/reviews-ns/what-is-ultraviolet/) which allows a physical DVD to be stored on the cloud (Internet for the layman) allowing the film to be shared. But its too timid. The offer is very limited and not bold enough - if music makers and film producers don't want to buying milk from Apple and Amazon in the next five years then they need to cooperate on this otherwise their will be no physical products which allow for greater profit margin. People like to have 'stuff' - they also want it on the Internet as a backup (Apple iCloud again) and to allow access not restricted to the one physical product.

To do this the horizontal supply chain film studios -> film distributors -> retailers has to offer, in store, a virtual copy - in perpetuity, an online version of the product which can be accessed via a web browser add is designed to be viewed on multiple devices - not just a hulking great file that would never stream. It should be possible for a customer to walk into HMV look at on a nice big screen the latest James Bond movie, pick it up, scan it, pay for it and walk out knowing that her online account now had the film safely stored. This could be done for music and even print - pick up your paper and its available in our print folder on your laptop/phone/tablet and can be shared with the family back home in near real time. Up and coming technology such as NFC where the phone can detect and connect products will further enhance the shopping experience allowing upsales - having bought SkyFall the customer can be offered GoldenEye of Austin Powers at a discount or an offer on cinema tickets; products that enhance the instore experience that the customer would get online (instore IT architecture required which I'll cover in another article focussing on the Apple Store).

Watch out for the Conglomerate

There are a few problems with SSCC and that's control. In an ideal world all players would be independent and largely they are. However 20th Century Fox is owned by News International who in turn own Sky and many publications. They may not want to play. However the human desire to read of paper, have a physical copy of a film or album is alive and kicking and if the players along the horizontal can create standard infrastructure it may be possible for the High Street music store to starting swinging at its Internet competitors before the 10 count.

John
BlueOak_