Strategies for a discontinuous future.

Friday, September 08, 2006
Industry Note: How Not to Think Strategically About the Edge, Special Disney Edition

Perhaps you've been amazed that ABC/Disney are willing to spend $40 million with the prospect of zero return (no ads) on a naked piece of propaganda - which will incur further massive costs in brand equity.

Let's not quibble about politics. I call this film propaganda, for the simple reason that even the 9/11 commissioners have admitted it's largely fictional - but Disney was very clearly attempting to sell it as factual (viz, the Scholastic deal to use it as teaching material).

You may disagree - it doesn't matter. The point I want to make is strategic, not ethical.

From a strategic pov, propaganda is fine; certainly businesses have the right to lobby regulators, directly, or indirectly. So let's treat Disney's agit-prop flick like we would any other investment. Although Disney thinks it's actually a pretty good investment, they're deeply mistaken.

We have to begin by noting that it's not an investment in production/attention/etc - because it's clearly not going to earn returns that way (ie, no ads). So why the $40 mil (+ brand equity lost, + opportunity cost) investment?

Disney's most valuable assets are, of course, it's characters/brands/stories/etc. Remember Eldred vs Ashcroft, and Disney's enormous pressure for more and more copyright extensions? From Disney's pov, this is the greatest investment in the world - a few million bucks on lawyers and $40 mil in propaganda earns them billions in future cashflows. These are mega-returns, Skype style returns.

Of course, neither move - coypright extensions or side payments to politicians in the form of propaganda - are in the least good for the economy, because they destroy more value than they create, through the stifling of potential innovation, competition, and new capital formation. This is crony capitalism at it's finest - we make your propaganda, you protect our assets; this is the kind of anti-capitalism that ends up destroying economies (hi Japan).

But, lucky for us, information is cheap and so returns to crony capitalism are dropping. Perhaps the most interesting bit of the story is simply that this is just another flawed tactic to protect a rotting core.

Remember, Disney has not exactly been going gangbusters lately. It has been thoroughly pwned by Pixar, the intarwebs - almost from every angle imaginable.

So I think a nice way to see this is as a nice mini-case study of why a single-minded focus on the core is leading so many incumbents deeper and deeper into competence traps and strategy decay.

Put more simply: Protecting brands and other key resources by draping iron curtains around them is the surest way to destroy their long-run value in the post-network economy.

Who's even gonna care about Mickey Mouse if he's not on YouTube/Myspace/Stardoll/etc in the next year or two? No one.

I would say shame on Disney - but instead, I'm a bit impressed with their obtuseness. It takes a special kind of genius to blow that much cash and brand equity on a move that only sinks you deeper into the hole you're fighting to get out of. Nice one, guys.

Let me summarize:

1) Disney is focusing resources at the core; a strategy which is yielding diminishing returns. This is strategy decay.

2) Disney makes propaganda in exchange for further protection of it's core focus.

2.5) Viz, effectively in exchange for propping up strategy decay.

3) Disney never learns edge leverage. Instead, it shields Mickey from YouTube, Myspace, Stardoll, etc.

3.5) ...A near perfect example of a competence trap.

4) Who cares about a Mouse trapped in a rotting core as value shifts to the edge? No one. Disney = game over, bye bye.

-- umair // 10:43 AM //

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