We are living in an era where information goods surround us in our everyday life. We wake up in the morning and scroll through news apps with our phones, we listen to music throughout the day, we read books on e-readers, and we watch tv shows on tablets. Information goods are goods that are valued for the information they contain rather than the material of which they are made(McGee, 2017). In our video we analyzed how the internet has changed information goods within the video industry.
One of the main characteristics of information goods is that they have high production and low reproduction cost. With the advent of the internet and more specifically streaming those cost became even lower. Additionally, it has become easier to make content globally available because of the growth of the internet and the role of cloud. With the increased global reach also comes higher differentiation. The Long Tail concept, which explains how low demand products can collectively make up a significant market share is clearly visible within the video industry. Furthermore, the information transparency has increased over the years. Social Media and recommendation algorithms help you with recommendations for movies and videos to watch. Lastly, information goods are non-excludable, meaning that non-paying users can access it illegally. With downloading and streaming this phenomenon has increased over the years.
Using Porter’s 5 forces model, we analyzed how new internet technologies have disrupted the video industry (Porter, 2008). Looking from the perspective of a content provider, the supplier power has decreased due to the fact that providers can be their own suppliers by creating their own content (Masters, 2016). Moreover, bargaining power of buyers is high, as the cost of switching to another provider is close to zero. Additionally, the number of substitutes increased as many information goods are easily accessible online. Competition and threat of new entrants are high, however established players possess a competitive advantage as huge investments are necessary to gain an edge.
Within the video industry, we see new interesting business models that have developed over time, such as those used by Netflix and YouTube. Netflix uses a monthly subscription model to generate revenue for their streaming service. Their costs are incurred by video licensing and own content production. YouTube, on the other hand, uses an advertisement based business model in which they use their immense user base to their advantage.
Lastly, we challenged ourselves to predict what the movie industry will look like in the future. Virtual Reality technology is already well-developed and in the upcoming 10 years it will probably become widely used for movies, allowing people to watch movies from their home, while still maintaining the cinema experience. This also applies as a warning for the cinema industry that has to act before their position and existence will be threatened by this disruptive technology. Lastly, the extinction of traditional cable TV seems inevitable. With the rise of streaming, their business model appears to be no longer sustainable.
References:
Masters, K. (2016). The Netflix Backlash: Why Hollywood Fears a Content Monopoly. The Hollywood Reporter, retrieved from: http://www.hollywoodreporter.com/features/netflix-backlash-why-hollywood-fears-928428 [Accessed: 28.09.2017]
McGee, M. (2017). What Is Information Good? WiseGeek, retrieved from: http://www.wisegeek.com/what-is-information-good.htm [Accessed:28.09.2017]
Porter, M. E. (2008). The five competitive forces that shape strategy. Harvard Business Review, 86(1), 25-40.
