Disney (NYSE:DIS) is a beneficiary of a phenomenon related to how the demand for movies and product proliferation work together. There is actually a measurable reason why popular Marvel titles like "Captain America: The Winter Soldier" and "Thor: The Dark World" keep audiences coming back, besides their entertainment value. Some of the increasing attraction of hit movies boils partly down to interesting findings in new research. In an earlier article (linked below), research indicated how companies like Disney can more effectively manage movies' production stages, and in the process create a better bottom line. A shorter time-to-market was also a key source of strategic advantage. These cost-savings were particularly salient for blockbusters or hits, as a small number of movies involve the lion's share of revenues and costs. This new research shows how demand for movies tends to be driven toward popular titles or hits, and by extension, the value found in Disney and competitors that master "the popular."
Of interest, Information Technology Professor Tom Tan of Southern Methodist University Cox School of Business and co-authors show why popular movie titles keep getting more popular. The new findings run counter to the trendy "long tail" effect that captured the imaginations of researchers, product developers and marketers. The "long tail effect" predicted that, due to the introduction of the Internet, niche products would comprise increasing market share, while the demand for hit products would continue to decrease.
Increasing product variety diversifies demand for each movie title away from both popular movies or "hits" and niche products. However, the findings show that product variety nudged demand away less significantly so for hits than for niche products. Importantly, product variety actually increases the demand for hits and decreases the demand for niche movies in the aggregate.
"In the online world there are more advanced search engines and recommendation systems that help people find the products they want or were not aware of. Because of recommendations, they learn about products, and also consider the niche producers. At the same time, the number of products available, or variety, is much greater than before. Relative to these trends however, people still concentrate on popular products."
Additionally, search carries a cost of time as well, and often people gravitate toward products that are just good enough or perceived as higher quality.
Netflix (NASDAQ:NFLX), Amazon (NASDAQ:AMZN), Hulu and Vudu, which allow movies and content to be streamed, may increase the number of heavy users who discover niche products, Tan offers. The demand concentration would need to be re-examined in this context. Given the lower costs associated with streaming content, consumers may stream more frequently than the traditional DVD channel, what this study captured. In the streaming world, Tan anticipates that demand for niche products will increase but variety will also increase, which may possibly cancel each other out. "I cannot say which side wins or will dominate," he concludes.
These findings are relevant for Lionsgate (LGF), which produces popular book adaptations like the "Twilight" saga and "The Hunger Games", and Twentieth Century Fox (NASDAQ:FOXA) with its Marvel X-Men series, among others.
An earlier article parsed sources of value for Disney.
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