The High-Low Effect Comes to Big Content

Joe Kennedy famously said that he knew it was time to get out of the stock market when he started getting stock tips from the shoeshine boy.  Eighty years later, I know that "cable cutting" (ditching your costly cable subscription for over the top video) is real because I just got suggestions on how to do it this week from a blue-collar, middle-aged New Jersey Transit bus driver.

My bus driver (Route 167, if you care) explained to me how he has his Netflix connected to this Toshiba plasma TV through his playstation.  And so cable cutting is as real as it gets and Comcast should be worried.  More importantly, Hollywood should be worried about the High-Low effect.

For many years now, Hollywood has worked hard to define a set of complex release windows where content gets progressively cheaper as time goes by.  If you step back from it, it's no so unlike the world of retail.  New products arrive first at top end boutiques and then through mid-range department stores and finally at Wal-Mart.

Over the last thirty years, high end boutiques and Wal-Mart have thrived.  Department stores have been slaughtered as consumers choose to go high or low depending on what they value and their mood.  And so we face the concept with entertainment.

People are still going to the movies in the theatre, indeed, theatre revenue has been remarkably robust given the rising prices.  And they are adding Netflix online services in droves.  What they are starting to abandon is the middle ground: pricey cable subscriptions that given them "inbetween" access to content.

The problem for Hollywood is that they are still largely depending on the "department store" of cable to provide the bulk of content revenue and have worked hard to slow the growth of discount online services like Netflix.  It's not working, but they are training a generation of users to not care anymore about release dates and just watch what Netflix recommends.   Great for Netflix, bad for movie studios.

Theatres are like boutiques for content - expensive and (they hope) worth-it.