Today in our eMarketing class, we discussed the concept of disintermediation and Justin Lew brought up the example of Netflix. The fact that Netflix completely revolutionized the way consumers consumed TV and other forms of digital media is not a new topic; the online model has been adopted by a wide range of industries, from books to groceries and everything in between, since the late 90’s/early 2000’s.
Business students often learn that disintermediation is efficient because it “gets rid of the middleman,” saving costs and streamlining the supply chain. But that middleman can also fight fire with fire and find that an online model can help their own business by offering more choices, bundles, or just general convenience (see: Expedia.ca). By reinventing themselves through disintermediated online models, existing firms and new entrants around the world continue to challenge the conventional model(s) of doing business.
Disintermediation through adopting an online business model can not only provide a firm with competitive advantage, but can make opportunities out of threats and give birth to a whole new niche to target.
Take the streaming Anime industry, for example.
Five years ago, Japanese animation (Anime) was rather hard to obtain in North America and catered to a niche market. Licensing companies made money primarily on the sale of DVD’s or expensive, new Blu-ray technology. This period of time was also in an era when piracy was at a high; consumers of Anime tended to illegally stream or download series because the pricing for a nice product was either too high or the licensing process took too long after a series was released for a fan to buy the official product. The piracy issue became so bad that Funimation and Bandai, two major licensing companies, issued a statement against Crunchyroll, a website which was, at the time, a source for illegal streams of Anime.
Funimation stated that:
“The battle against unauthorized distribution of anime is a battle that Funimation cannot fight on its own. Without proactive and effective copyright policing and enforcement by those that control anime content, sites like this will continue to gain a reputation as outlets for free anime”
Bandai supported the action with the statement:
“Bandai Entertainment Inc. will continue to work with other U.S. companies and Japanese licensors to fight against downloading and its negative impact on the US anime industry”
These two licensing giants acted swiftly in response to Crunchyroll as it secured a capital investment of $4.5 million USD from venture capital firm Venrock, publicly denouncing the act of supporting a site that streamed unauthorized anime. And for good reason! As owners of the licenses, Bandai and Funimation had good reason to be upset. The market had essentially become a war between the “expensive, slow, but official licensors” and the “quick to update, free, but illegal streamers.” It was a rough time for licensing companies.
Fast forward to 2012, three years into “the future.”
The rampant piracy of anime has hit Bandai Entertainment hard, and Bandai was forced to cease the distribution of new releases, essentially shutting down its future prospects in the Anime industry. And what of Crunchyroll? Crunchyroll became the only site that offered a unique value proposition: paid, online streaming Anime. Crunchyroll essentially became the Netflix of Anime when it hit 100,000 paid subscribers just over a year ago. Bandai, which relied on physical sales of its Anime, had opted out of the seemingly dead end business prospect. But Crunchyroll continued to support the idea of online Anime streaming by selling premium subscriptions that cost between $5-$12 a month. What irony! Not only did the once-illegal streaming company secure a solid stream of revenue, but it was finally able to do what Bandai and Funimation could not: cater to the needs of the casual Anime watcher.
Before Anime could be streamed legally, the only source of legal Anime was either shown rarely on TV or purchased for huge prices. There was a mismatch between Supply and Demand; physical Anime was much too expensive for the casual consumer and, even today, continues to cater to a niche market for a ridiculous price. With the introduction of online Anime streaming, casual Anime watchers finally have the ability to pay a fair amount ($5-$12 per month) to consume Anime with easy access (streaming). This opened up a completely new market to cater to, and Crunchyroll continues to expand its product offering by selling Anime-related merchandise.
Time and time again we marketers are shown that online business models can completely turn a conventional business model on its head. In this blog post I showed that not only can this result in competitive advantage, but can open up the potential to cater to a completely new market. A point I brought up earlier was regarding the mismatch between the Supply and Demand of a typical Anime viewer; I will probably expand on this point in a later blog post.
But, for now, I thank you for reading this post all the way to the end. I’ll see you next time!
Signing off,
Chris