Hollywood and the Serendipity Economy-The Unexpected Chilly Reception to Warner Bros UltraViolet

Note: UltraViolet was shut down on July 31, 2019.

The Serendipity Economy is a superset of other economic models. Warner Bros recently discovered The Serendipity Economy’s effects as they rolled out their Digital Entertainment Content Ecosystem consortium developed UltraViolet “digital copy” product for entertainment titles.

As documented in this Associated Press story (Hollywood flubs movie system launch, miffs users), Warner Bros failed to offer full disclosure on what UltraViolet really was—and even if they had been upfront about the details, those details were unnecessarily complex and confusing.

Warner Bros dropped this product into a network—the entertainment consumer network. That network is well-connected and very active. Before releasing the product, there was no way to ascertain the response of that network to the product. If they conducted traditional panels, then those panels were ill-designed, perhaps skewed toward providing the kind of insight the studio was expecting. The real-world isn’t a panel, and the network went to 17 percent negative according to Fizziology, a company that tracks social sentiment about movie releases. That may not sound like a lot, but according to the AP writer, the profile for UltraViolet matched that of the worst received movies (3 percent positive and the remainder neutral).

From a strategy standpoint, Warner Bros. must learn quickly. Likely remove the product from the market or modify it or its business model extensively. Or they may be patient and keep watch—let the initial reaction subside and see if they have any takers, anywhere. If they had looked at the world through the Serendipity Economy lens, rather than the industrial lens, which focused on the efficiency of protecting their intellectual property while providing the illusion of digital copy ownership, they might have realized that the complex world of digital media consists of many complex issues and perceptions and that a Hollywood-style product launch may not have been the right approach. Perhaps they would have been better off dropping the technology into a few products to see if positive buzz emerged before launching the product. Perhaps viral marketing might have been the product launch.

To explore other issues, it will be useful to examine this event, as reported through The Serendipity Economic precepts. (Note, I don’t have first-hand knowledge of what is going on with Warner Bros or the Consortium, so this worked example is based on my speculation as a former advisor to various entertainment companies).

The process of creation is distinct from value realization

All of that “productive” work to generate the UltraViolet infrastructure, from delivery to DVD distribution, is completely lost if UltraViolet fails. Any application of methodology or databases or application development frameworks to make the developers productive is irrelevant and negative if the value realization is negative.

In the case of UltraViolet, this is a bit of a nested issue because not only was their productive work put into the creation of that technology, but the films themselves are also highly produced affairs full of technology. The efficiency with which special effects, for instance, can be placed into a movie has nothing to do with the ultimate perceived value of the entertainment asset. Great special effects in a poorly conceived movie don’t result in value. Ask the Happy Feet Two crew.

The bottom-line: investment in technology, no matter how well-considered, nor how professionally executed, can overcome a bad idea. All of that “productivity” is lost except as experience to those in development, and that creates its own serendipitous profile because if, as in this case, UltraViolet doesn’t succeed, those programmers have no idea, at this time, where or how this experience will inform their future value or opportunities.

Value realization is displaced in time from the act that initiated the value

With social media, there can be a delay between initiating an idea and the ultimate realization of value.  Any realization of UltraViolet’s value would be achieved by releasing the product and increases in sales or reduction in piracy, or both. When the coders delivered their system, it would be months before they knew if that effort paid off or not. In the meantime, some moved one, others went into maintenance mode, and perhaps most telling, some probably went into next release mode. An industrial age production line can be continuously improved–unfortunately, in the Serendipity Economy, we don’t even know if a new product will have any value in the market—so value realization may eventually prove negative. At this point, all we have are initial reactions. What Warner Bros and the consortium do next has a bearing on when the value may be realized.

The measure of value requires external validation

I am sure that somewhere in the financial records of Warner Bros., some technology advocate painted a strong financial case for UltraViolet as a differentiator in the market, and a way to decrease costs associated with piracy, at minimum, if not a way to increase sales of DVDs and Blu-Rays – but I’m guessing it was both. They didn’t admit the opacity of the technology’s value until it entered the market, leading to some external validation. Thus, with decades worth of financial projections and dozens-upon-dozens of spreadsheets and investments in other technologies, the verdict on UltraViolet is rendered not by internal processes but by a company called Fizziology. And that might not be the right external validation. Read on…

Value is not fixed, and cannot be forecasted

UltraViolet, in aggregate, may look like a failure. It may not be. The naysayers are as guilty as Warner Bros understanding the effects of serendipity. Countries, business situations, or some consumers may decide they like UltraViolet. It is probably too soon to know if UltraViolet is dead or not. It may appear so, but technology is not a movie. Microsoft has shown that time and again with technology that they doggedly stand behind against initial poor reception. Windows 7 wouldn’t be shipping if Microsoft hadn’t quickly adapted to issues with Windows 1.0 and 2.0-2.11 – leading eventually to the rather popular Windows 3.1, which gave them enough credibility in the market to create Windows NT, Windows 2000, and eventually Windows 98 and XP. So the jury is out on UltraViolet. Remember, Fizziology’s feedback was primarily neutral. A death knell to a movie, but perhaps not so bad for technology. If the market is about advocacy only, then this isn’t good. What do filmmakers want? Instant word-of-mouth advocates that drive viewers into theaters opening weekend. But technology usually has a much slower and more serendipitous adoption curve.

Despite all of those spreadsheets, or perhaps because of them, Warner Bros has no idea what UltraViolet ultimately means to them, so they need to spend time watching what is really going on from multiple perspectives and seeing if they can salvage something positive out of this experience.

Looking at a network in the present cannot anticipate either its potential for value or any actual value it may produce

The movie viewing public is vast and fickle. The advocates of digital media, the detractors, and the average disengaged movie viewer all buy movies. This technology is only out in a couple of titles. Sure, this could be a fail fast moment, and UltraViolet goes away quickly. But we network hasn’t been stressed yet. Those who will buy Green Lantern represent only a small fraction of the market. At this point, it is not possible to ascertain what the market may do in the future, any more than it was possible to determine how these initial few releases were received.

Serendipity may enter at any point in the value web, and it may change the configuration of the value web at any time

The movie-watching public has been introduced to new technology, they have reacted, and all of that activity has perturbed the network’s serendipity. That means we don’t know how the newly configured view will be.

Perhaps more importantly, Warner Bros went cowboy on the consortium, releasing movies without partners’ backing. So as those likely frantic negotiations go on behind the scenes, the network of support and the messaging that network eventually releases and technology feature changes will continue to reconfigure network members’ perceptions, and thus the network itself.

The Serendipity Economy idea essentially says that we have to look behind rather than forward to measure—and that what we see may be very different than what we anticipate. Measurement remains critical, but because much of our economic activity is now emergent vs. repetitive, we increasingly admit that we don’t know how our ideas will play out in markets. We don’t have exhaustive models that can offer insight, and despite the claims of big data, the economics of serendipity may be computationally too complex to chart. The Serendipity Economy framework, in the meantime, offers a way to think through what we don’t know, giving organizations and individuals the ability to put instruments in place to monitor what has happened and what is happening, rather than using old data to forecast emergent behavior.

To read more about the Serendipity Economy, click here.