Innovation in Media & Entertainment Industry

Innovation and its adoption is fairly complex in the M&E industry because of the need for different players in each part of the media value chain to be involved in the process. Many of the players do not have internal R&D capabilities and rely on external technology providers for innovation. Patent filing data shows that very few content creators and distributors have been creators of innovation (while patent data may not a very good indicator of innovation as some firms may choose to keep the innovations a trade secret, it does give a view of how M&E firms see innovation).In most cases they have either been users or "influencers" of innovation. Very few firms span the entire value chain, primarily due to the varied nature of the businesses. Each has different technological requirements and different cost structures (think Dreamworks vs. Comcast).

Technology Adoption Cycles

In the M&E industry the skew of the S-curve is large with much higher adoption time compared to, say the microprocessor technology. To demonstrate this point, the adoption of HDTV can be a helpful example. The process of HDTV standardization in the US was started with the formation of the “Grand Alliance” in 1993, with the standard being adopted by the FCC in 1996. Even today, 14+ years after the standard was ratified, HDTV penetration in the US is just close to 46%. On the other hand, adoption of VCR was fairly rapid because of lack of strong interdependencies among the players in the value chain. In general, the more complex the technology in terms of the need for involvement from multiple players, the slower its adoption technology by the industry and consumers. This can be attributed to the following key reasons:

a) Cyclic interdependencies
In the case of the M&E industry, players have strong dependency on each other and in many cases this creates a chicken-and-egg situation where no player wants to invest in new technology before others make a commitment. In the case of HDTV, content creators would not invest in new cameras and post-production equipment before they saw the CE industry pushing HDTV technology for in-home viewing. The CE industry, on the other, wanted the content creators to first create compelling HD content to spur interest and demand for in-home players. In the media industry, technology adoption by the players is required to be done in lock-step for it to be successful.

b) Mismatch in innovation cycles in sub-industries
Innovation cycles within the M&E industry are unique for each of the four main categories of players - content creators, distributors, CE firms, and technology providers, adding complexity. For HDTV, though the technology providers came together to create the required standard, the distribution networks (cable/satellite) did not have enough capacity to handle the HDTV bandwidth requirements economically. Efficient video compression technology that would reduce the bandwidth requirements for HDTV was still under development. And from a consumer device perspective, the HDTV technology was still expensive. Because of high costs for LCD and plasma display technology, the price of an HDTV was prohibitive to a common household 10 years ago. Thus timing of innovation cycles can be a limiting, or encouraging, factor in the adoption of new technologies.