Case Study: Atom Films
The Market for Short Films in the year 2000
Short films, or "shorts", are loosely-defined as films that are shorter than feature length movies - but generally range from one to twenty minutes. Wide spread in Europe, where they were typically shown before feature films in movie theaters or bundled together and broadcast in 30 minute or 1 hour time slots, short films occupied a different niche in the U.S. entertainment market in the year 2000. There, short films were generally produced to showcase the talent of an actor, director, or producer who was seeking support or funding for a feature film. As a result, the commercial U.S. short film industry was much smaller than its European counterpart.
Mika Salami's Idea
Mika Salami grew up in Finland watching innovative shorts on Finnish television and developed an early interest in creating, promoting and sharing entertainment. As a teen, he was a DJ, a rave promoter and the manager of a rock band. After completing his MBA degree at INSEAD in France, he moved to NYC to work for Sony International Music, and noticed the lack of short-form content in the U.S. entertainment industry. Mika thought there was an interesting market opportunity and put together a business plan for a short-film distribution company, modeled on an independent label in the music industry. While researching the short-film industry, he was amazed to find that there were hundreds of small distribution companies - yet the industry remained small and invisible to the general public.
The lack of general funding in the mid-nineties for film distribution companies led Mika to realize that in order to build a sustainable revenue stream, distribution of short-form content would need to span multiple distribution channels (e.g., theatre, TV, CD-rom). And so, still unsure about how to make the business plan a reality, Mika moved to Seattle to join Real Networks as Director of Business Development for their entertainment division.
After successfully launching RealAudio - a software "player" that enabled consumers to listen to digital music files on a PC - the company began to develop an audio-visual player. There was little web-friendly entertainment content available, so Real Networks commissioned Spike Lee to create four short films specifically for the launch. And Mika realized that his business plan could be adapted to satisfy the need for a central clearinghouse for Internet
-friendly entertainment content. He started AtomFilms in 1998.
Building a ?Business-to-Business? Company (B2B)
Mika quickly identified content acquisition and content distribution as two critical areas and he hired Jannat Gargi and Brian Burke to build those departments. Jannat Gargi?s approach to acquiring content was by building awareness at major film festivals by using a grassroots public relations: hosting parties, giving away free stuff...
One of the most memorable publicity stunts of the early days was at the 1998 Sundance Film Festival, when the team rented a bus and showed short films inside. Everybody - including the press - loved it, and the AtomFilms brand soon became synonymous with short, independent filmmaking. And submissions of short-film reels by amateur and
professional filmmakers started pouring in when Holiday Romance, the first film acquired by Atomfilms, was nominated for an Academy Award in 1999.
Content distribution was similarly built using grassroots tactics - calling every distribution channel possible to find someone who would buy the films. The first break came in December 1998, when Air Canada purchased five films for broadcast during their shorthaul flights. Shortly afterward, several other airlines and cable television stations, such
as the Sundance channel, also began to purchase content.
Adding an Online Consumer Component (B2C)
Mika hadn?t forgotten his original vision of creating a superior web entertainment experience, so in 1999, he built a consumer web site to showcase the company?s best short films, create a community for short-film makers, and generate more public interest in short films. The AtomFilms website was a huge hit from the day it launched. The
traffic and number of registered users on the website experienced exponential growth.
However, the advertising and merchandise revenue streams from the website were overshadowed by the licensing and syndication revenues generated from the offline distribution channels. In addition whereas the website?s revenues were small, the people and technology required to support site maintenance and development were substantial. Still, Mika viewed the AtomFilms wite as an important component of the company?s brand identity, marketing strategy, and consumer outreach. With many people visiting the site and sharing AtomFilms content with their friends, the intangible
impact of the site was significant.
The Growth of AtomFilms
As the confidence in Mika and his management team grew, so did the revenues and client base of AtomFilms. By the end of 2000, AtomFilms had generated almost $5.8 million in revenues, including approximately $3 million in licensing and syndication revenue, $1.7 million in advertising and sponsorship revenue, and an additional $.1 million in merchandise sold through the company?s website. By that time, the website had accumulated a total of 15.2 million unique visitors and 1.8 million registered users.
Users, who were spending an average of 15 minutes per session on the site, had viewed over 31 million films. Along the way, several major content acquisition and distribution deals or sponsorships contributed to the rapid growth of the firm:
A series of partnership deals enabled AtomFilms to acquire a bundle of short films at a low cost. Most notably, AtomFilms acquired the rights to 100 films from the University of Southern California?s film school, including shorts made by George Lucas and Robert Zemeckis when they were film students.
Another major deal brought Angry Kid, the first Internet
-only animated character, for exclusive viewing on the AtomFilms site. Within seven weeks, Angry Kid was watched by over one million people and set an Internet
record as one of the most popular characters in the history
of the Internet
Intel used AtomFilms content to stream audio-visual content over the web and demonstrate the power of its microprocessors to its customers.
For the first time in over 25 years, a short film preceded a feature length film in theaters when Century Theatres ??" which owned and operated over 700 screens in 11 Western states ??" featured AtomFilms short films for the launch of their CineArts 6 multiplex in Evanston, Illinois.
Volkswagen partnered with AtomFilms to showcase the carefree and fun lifestyle the company was promoting. VW sponsored a cross-country tour in a VW van that brought one of AtomFilms? short films entitled The Journey to major college campuses across the U.S., and VW mentioned the AtomFilms partnership in a national print and radio ads aimed at drawing traffic to the vw.com website.
The Challenge of Anticipating Future Growth
In the midst of this growth, Mika struggled to allocate financial and human resources between the B2C and the B2B sides of the business. The B2B licensing and syndication business generated sizeable revenues and profits from the company. Yet, Mika believed that the size of the overall B2B film distribution market was relatively small. On the other hand, the B2C side of the business generated significant traffic and public relations for the company, but web traffic was difficult to monetize. This raised the question of which side of the AtomFilms business model was most sustainable in
the long term. As the company expanded in size and scope, Mika needed to decide where to focus precious time and resources.
These questions also raised issues about the AtomFilms brand. So far, the company had built strong brand associations as “independent”, “hip”, and “short-film entertainment”, with a loyal following among young, college-age males and the
independent filmmaking community. However, the company now sought to broaden its viewer base in order to increase overall market demand for short-film entertainment.
Mika was unclear if the brand could appeal to a larger audience, if the B2B and B2C channels could continue growing under the same brand and what types of marketing campaigns were appropriate for a company of this size in each of these channels.
The Challenge of Adapting to New Technology
In addition to maximizing market opportunities, Mika was concerned about how quickly to react to new technology advances. He was convinced that emerging wireless platforms were the ideal conduit for AtomFilms content. The company?s vast library of short-form content was perfect for the new digital consumer. Telecom partners had
approached AtomFilms to license the content, but Mika was concerned that the technology was not quite ready and that potential consumers might be dissatisfied with the slow speed or inefficiency of wireless content transfer. In addition, the telecom partners would not allow Mika to decide how to market or deliver the content to consumers and he wondered how to mitigate the risk of a poorly executed deal that exposed AtomFilms content to millions of consumers.
Peer-to-peer networks were also growing and a successful audio-video peer-to-peer network could become the leading platform for entertainment content. If more intelligent applications were developed that enabled consumers to navigate vast arrays of content more efficiently, and if filmmakers chose to distribute content via these networks, AtomFilms would be redundant in the consumer content distribution space. Mika wondered if he should partner with one of these unproven networking companies before the old distribution model became obsolete.
Choosing a Path Forward
With daily announcement regarding failed online entertainment start-ups, Mika needed to act decisively and help the company move forward. During a recent senior management meeting, three models had been put on the table:
1. AtomFilms could forge ahead with its current business model but place more emphasis on seeking several core corporate sponsors for its website. So far, several consumer product companies, including Ford and VW, had expressed interest in paying to maintain a constant presence on the AtomFilms site.
2. AtomFilms could introduce a subscription or pay-per-use fee on the AtomFilms website, in order to monetize consumer traffic on the site. However, fears of turning away consumers upon the introduction of such a subscription fee had prevented the company from implementing this model in the past.
3. AtomFilms could leverage its relationships with filmmakers, talent agencies, production houses, and movie studios to gain a stronger foothold in the offline entertainment market. Under this scenario, AtomFilms would scan its thousands
of film submissions to identify talent or scripts that might be useful to a talent agency or production house. In exchange, AtomFilms might participate in future revenue streams if the talent or scripts were used to produce a major feature film.
Summarize AtomFilms? business model using the Who, What, How framework. Assess whether and why the elements of the business model are mutually consistent and reinforcing.
Identify which of the “strategies” from Chapter 5 each of Mika?s possible approaches corresponds to (see Chapter 5 in the Fred David book).
Using a framework of your choice (see Chapter 6), determine which of the strategic alternatives you would recommend that Mika adopt. Explain why.
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