What do Movies and Junkyards Have in Common?

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by: John Sviokla

Strangely, the media businesses and industrial companies are both facing a similar challenge – the dead hand of the past is influencing today’s product/service strategy.  The article in this week’s WSJ on Schnitzer Steel Industries, Inc, and other junk yards is one example of a growing trend in the global economy – the merging of the new and the used market, or in media, the merger of the “now” and the “then” market. 

The free flow of information brought to us by the internet, and the cheap monitoring of assets, brought to us by information technology, enables used products to be traded much more efficiently.  In physical goods, this means that places like eBay can thrive, and junk yards are more valuable – if they can tag their assets.  Such capabilities lower the minimum efficient scale of buyers – as the article points out, many “shade tree mechanics” now have access to a vast parts pool, cheaply.

The implications for profitability of industrial companies can be great.  The big three automakers, and other industrials make significant profit from after market parts.  They need to think through the implications of such new facilitation mechanism on the provision of parts, for the individual stalking the junk yard, is the beginning of their demand chain – and the ability to achieve profit from after market sales will continue to be pressured as the global supply network of manufacturers, begins to plug into the global demand network. 

In the used market, the customer already knows what he or she wants, and if it is not available, then it is possible for the enterprising company to offer a new product – to meet the needs of the customer who first sought something used.  eBay does this when they offer new products, when an auction is sold out.  Over time, enterprising used merchants will realize that customer’s are revealing their demand to them, and when there is not a used product, they should supply a price efficient new product—probably created by low cost manufacturing sourced from the global supply network.  

Likewise, “used” media assets are some of the most profitable assets in the media landscape.  Turner Classic Movies, reruns movies time after time.  Likewise, ESPN’s Classic station is a gold mine.  Massive increase in distribution of media first brought to us by cable TV, and now in spades by the internet, means that there is a merging of “then” and “now”.  The audience’s attention is time independent. 

Put another way, time as a variable in distribution consideration is now collapsed.  This is why we see new experiments by companies like 2929, brainchild of Mark Cuban, distributing movies at cinema, on DVD, and on line – all at once.  The idea of time spacing the different steps of a movie release is inefficient (for a movie’s DVD release is an entirely new, and expensive, media campaign separate from the premiering), and makes customers wait – when they might have been willing to buy the DVD right away. 

Business who embrace how the new specificity and interactivity have put time in the hands of customers, and merged old and new markets – as ESPN did – have taken what was seen as dross, in their markets, and turned it into gold. 

The question for all businesses, is what does time shifting – of demand and supply – mean for my value system.  Are there jewels that simply need to be dusted off and redistributed?  Am I losing control of the used market in such a way that it will corrupt my margins in the new market?  Have I lost “control” of the time dimension?  If so, how can I adjust?  These are important questions to be asked by all companies – industrial to entertainment.

Original post: http://www.svioklascontext.com/2006/03/what_do_movies_.html