Please find our Key excerpts (Emphasis Ours) from a very relevant article in today’s world where on the name of disruption any valuations is being justified
Let us start with a question: In your opinion, when an industry undergoes seismic changes, do incumbents sense them and respond quickly? Or do things become clear only in hindsight?
In the mid-1800s- cameras were huge and not portable.
That was about to change by 1888. “You press the button; we do the rest” was the slogan with which Kodak’s first fully portable camera was launched. George Eastman’s (Kodak’s founder) guiding principles were simple–mass production at low cost, international distribution, extensive advertising and customer focus. Kodak single-handedly disrupted photography by transforming it from complex activity to a social practice that became part of everyone’s life.
Kodak had a good run until the 1970s, when Japanese film companies (Sony and Fuji) started aggressively pushing into the US market. Kodak lost market share in the run up through 1990s.
The sale of analogue camera and films still accounted for 64% of photographic products in 2002, but the world was changing. But by 2005, the consumer film business was disappearing 25% per annum.
For 120 years, Kodak had done everything by itself (at one time, it even raised its own cattle and used the bones for making photographic gelatine). In the new digital world, Kodak could no longer do that. By 2011, its stock price fell below USD2 per share and it filed for bankruptcy on 19th Jan 2012.
The funny part is, the first electronic camera was invented by Steve Sasson, an engineer with Eastman Kodak in 1975. But it was filmless photography and Kodak generated majority of its profits from selling films. Management’s reaction was “that’s cute, but don’t tell anyone about it.”
These days, cameras and music are no longer getting disrupted; instead, the movie exhibition business is. Pay per view and OTT services are trying their level best to change the way movies are viewed world-wide.
The country spent a large part of 1990s living borderline on the cusp of illegality with the movie business. Pirated compact disks were sold by the roadside or on peer-to-peer sites (like BitTorrent or Kazaa) without any part of that income accruing to the formal economy of India.
Towards the turn of the new millennium, Indian viewers were tired with this system and wanted better.
That’s when the current exhibition chains set up shops. They didn’t just exhibit a movie in high quality, they sold the entire ‘movie-going experience.’ Spend time with your family, enjoy the movie in good seats and air-conditioned halls, shop in the malls after the movie and end the day with dinner in the next-door restaurant.
In the year ended March 2020 (a year with marginal covid impact), over 100mn people saw movies at PVR, India’s largest movie exhibition company. An average visitor paid INR204 for a ticket, consumed food & beverage of INR108 and paid INR20 in convenience charges (the convenience to book tickets on internet). For a family of four, that amounts to INR1,325 per movie. That’s a sizeable amount considering India’s current average income, but nevertheless, it establishes the fact that in just over 2 decades, exhibition houses have managed to disrupt the way movies were traditionally watched in India.
The challenge now is at their doors. Since the onset of covid, in the seventeen odd months that the cinemas were shut, production houses and movie watchers have altered their habits. Traditionally, cinemas enjoyed a three-month window of exclusivity before films moved to other formats. But things are different now. Warner Bros released its entire 2021 slate of films, including Godzilla vs Kong, on its HBO Max streaming service the same day as theatrical release. Disney did the same with Black Widow.
Now that multiplexes are about to open, will viewers go to the cinemas to watch a movie? Well, you tell me. Now that Amazon prime and Netflix deliver the same content at a fraction of the cost to your houses, how valuable is the ‘movie watching experience’ for you?
Historically, whenever seismic changes have occurred in an industry, the incumbent player believed that the world is unlikely to change beyond a point. The fact that change was imminent became apparent only in hindsight.