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Two years ago, while looking at the disruption underway in the entertainment industry, I invested in and joined The Coup Company (CineCoup) as chairman because I wanted to stay on the side of disruption. I felt comfortable joining an industry disruptor because I had spent my career dealing with disruption. The thought of any company operating, or better yet, succeeding today without encountering disruption is simply unfathomable. Whether internally or in the market as a whole, disruption is all around us and will challenge even the most staunch and experientially strong business leaders.
The simple truth is new technology, changes in public policy and audience tastes continually ebb to disrupt business of yesterday. This proven truth has always been with us – why some believe they are immune is unconscionable. That is why it is important to 'play the puck' where it will be three years from now, and never stop if you are to succeed in the long term. The frightening thing is that disruption is getting faster. Compare the speed/time it took radio, cinema, TV, Facebook, and Netflix to get to 50 million subscribers, and now Pokemon Go. Each grew exponentially faster than the last.
In terms of the entertainment industry, both Canadian and global, finding success is most often the result of navigating the array of disruption and volatility. Having been a serial entrepreneur throughout my career and having built internationally recognized companies leading in quality children's animation, entertainment and edutainment, I have withstood disruption and developed business strategies to help not only surmount these challenges, but also exploit them.
Some disruption did not have to occur, but resulted from success causing complacency and arrogance in a business that management sees as thriving, while willfully ignoring the changing landscape allowing the disruption to occur. An example could be Blockbuster not buying Netflix when it had the chance.
It can also be extremely sudden – like when Napster almost dismantled the record industry overnight with a clever bit of technology made available to the public. Often the industry being disrupted tries to fight the disruption rather than embrace it. It needs to look at identifying that this was going to happen anyway and how to change its model to leverage and profit from it while it is still sitting on successful businesses.
Nelvana Limited, Cookie Jar Entertainment and DHX Media are testaments to my career, as well as proof of the idea that disruption and volatility can not only be overcome, but molded into opportunity. When founding Nelvana Limited in 1971, we initially began with $10 between us, which was just enough to cover the business registration. Every few years, we would risk everything in innovation and, no matter what those risks brought us, we stayed the course and worked through problems. Over my 30 years at Nelvana, we had at least five major crises. At any one time, it would have been better to declare bankruptcy, but we continued through these challenges to find a solution. We lived on the edge and never stopped being risk takers. The end result was a successful company that is enjoying its 45th anniversary and, in fact, led the way for the creation of the Canadian animation industry. Today, the Canadian animation industry is the most successful in the world, second only to the United States major studios.
Going back to my Nelvana days in the 1990s, we had already become successful suppliers of cartoon to the U.S. networks. In the United States at that time, there was a change in the Financial Interest and Syndication Rules (Fin-Syn) law protecting independent producers by limiting the amount of programming a network could supply to itself. In the early 1990s, those rules were eliminated so that networks were then free to produce and own as much programming without limitation. The challenge for us was how we continue to prosper as a supplier in an industry where the networks before had been generous to independent producers, but were now our main competition. Taking lemons and making lemonade, we went on to become the largest supplier of cartoons to the U.S. networks because we used our strength as Canadian producers. We were securing Canadian broadcast license fees, co-producing with international partners and utilizing government incentives for Canadian content to compete more aggressively against our U.S. peers who couldn't move nimbly enough to change their production financing models. Many of those U.S. peers went out of business. By 1999, we were the number one supplier of Saturday morning content and we dominated that that business by a factor of 3 to 1.
When it comes to facing turmoil within your company or industry, it's always fight-or-flight. For any business leader striving for success, this decision should not be given a second thought. My personal mantra as an animation junky is to visualize Bugs Bunny or the Roadrunner crossing the canyon on a tightrope. Looking down results in the monumental fall to the canyon floor and explosion of dust as you hit the ground. The way to avoid that fate is to strap the Acme rocket to your back and blast yourself forward, maintaining focus and constantly envision the goals you originally set out for your company.
Today there are some significant disruptions our industry is facing. The most significant disruption is that the paradigm for television viewing is changing. The audience is migrating to on-demand through video streaming. That puts pressure on the traditional television networks' ability to finance program commissions. But an agile producer can work with this change and diversify their customer base to include these new on-demand customers. As media/entertainment leaders, we need to remain nimble and be prepared to reinvent how we make and finance our shows to reflect any changes that result.
Another disruption that currently is affecting most industries is the withdrawal of the United Kingdom from the European Union. With regards to the Canadian film and television industry, Great Britain is a co-production treaty country and has always been a natural partner because of its tremendous creative talent, production values, access to domestic financing, language and moral sensibilities. But with the volatility of the financial situation there, will the Canadian entertainment industry embrace this disruption and find ways to benefit from it, or play it safe and take losses without any attempted risk? I believe my business achievements are proof that fortune favours the bold. This is up to Canadian suppliers to seek opportunities in this disruptive phase as they begin to reveal themselves in the coming months.
Disruption has been welcomed in my career, and perhaps some of these ideas spur some thought in terms of structure and clearly defining the types of disruption that occur in entertainment and other businesses. Leaders must learn how to tackle them in terms of strategy, behaviour and preparedness to embrace the disruption or else be doomed to fall victim to it. It's all about survival of the fittest, you either evolve or die.
Michael Hirsh is chairman of The Entertainment and Media Finance Group (TEAM). He is also Chairman of CineCoup.