Peakiness

The release of ONS figures on the consumption of physical materials in the UK got some attention earlier this week. The statistics show that in both total and per capita terms, there has been a long term decline in the amount of stuff involved in economic activity, although it’s still just over 10 tonnes per person each year (down from 15 tonnes in 2000). The new figures take account of trade and the fact that the UK is a net importer, particularly of manufactures – figures for earlier years, which also suggested a decline in the ‘weight’ of the UK economy, did not adjust for trade. The ‘resource productivity’ of the economy is increasing so we now get nearly £3 worth of GDP for every kilo of materials, up from £1.87 in 2000. The one resource whose use is not trending down is fossil fuels.

What’s the explanation? The same ones as 20 years ago when I wrote (free pdf) The Weightless World: the switch toward services and intangibles, the miniaturisation and use of lighter materials in products such as fridges and cars, the combining of many products (phone, camera, tape recorder, map etc) into one (smartphone), the dematerialisation of goods and services (books to e-books, CDs to downloads). Much more recycling, too.

Weightless World: Strategies for Managing the Digital Economy (Obex Series)

Isn’t this good news? Tim Jackson (of Prosperity Without Growth fame) comments grumpily in this Guardian article that he doesn’t believe the figures: “You do see these micro trends of peak stuff, but the idea we’re living in a peak stuff world is nuts.” Not for a moment am I relaxed about the environmental impact of economic growth (and I just joined the Natural Capital Committee because of my belief that we need to do much better at stewardship of our natural assets – see Dieter Helm’s Natural Capital: Valuing the Planet). Yet I am, you know, pretty happy that this trend is repeated across the OECD and that the UK is doing particularly well in terms of reduced material consumption.

There has been much comment about the UK’s dismal labour productivity and multifactor productivity performance of late. There is probably some mismeasurement, but not enough to explain the flatlining. We ought though to recognize the improved productivity of some physical (buildings, sharing of assets) capital. And this trend in resource productivity, £ of GDP per kilo of materials used in creating it, is welcome:

Real output per kilo of material used, UK 2000-2013

Real output per kilo of material used, UK 2000-2013

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20 years of the weightless world

It’s 20 years since I started to write my first book, The Weightless World. As I plan for this year’s Festival of Economics (in Bristol, 17-19 November 2016), I picked the book up again (out of print but you can download it free from my website). We’ll be doing a session on the way digital and other innovations have been changing the economy, life, the universe and everything.

Weightless World: Strategies for Managing the Digital Economy (Obex Series)

It seems remarkably prescient, rather to my surprise, albeit more optimistic in tone than feels appropriate now. The rise of not just flexible but independent working. The growing importance of city economies. Private digital currencies. The tension between national politics and global problems. The mismatch between institutions of the 19th and 20th centuries and the way people will live and work in the 21st century.

On reflection, 20 years is just too prescient. If only I’d published it five years ago…

Here I am in 1996, writing The Weightless World too early

Here I am in 1996, writing The Weightless World too early

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How to create a blockbuster

Anita Elberse’s Blockbusters: Why Big Hits and Big Risks are the Future of the Entertainment Business is published in the UK in January (it was out in the US earlier in 2013). It’s a clear and well-written series of case studies in how various branches of the entertainment business – movies, pop music, TV shows, books, sport – rely on a ‘blockbuster’ strategy as a business model.

Blockbusters: Why Big Hits – and Big Risks – are the Future of the Entertainment Business

The economic analysis underlying the argument is not new. It can be traced back to Sherwin Rosen’s 1981 paper on the Economics of Superstars. I wrote about the way digital technologies were amplifying the superstar effect in my 1996 book, The Weightless World (pdf). However, Blockbusters provides plenty of examples of how the analysis translates to the real world. There are many interesting case studies in the book, albeit all American. Elberse also shows very convincingly how the blockbuster business model stacks up, based on her research experience talking to many of the firms she describes – she cites the revenue and cost data for specific movie releases, for example. A Harvard Business School professor, she clearly has terrific experience across a range of entertainment industries, and the details are fascinating. If you can afford to market a new release or title at scale, you’d be an idiot not too.

This means the Long Tail idea is largely wishful thinking. The profit margins from the handful of blockbusters might support the production of a long tail but it isn’t even the case that there will always be a long tail because producers don’t know which will become hits. For although there is indeed great risk involved in releasing a possible blockbuster, few films or books or albums become blockbusters without a deliberate marketing effort. And scale in marketing is almost always decisive; the book cites a few grassroots successes, such as Lady Gaga’s first album, but they are obviously exceptional. So this means there is little prospect of Hollywood moving away from the model of putting resource including marketing into successful franchises, and most of what will be on offer will be of the same ilk as Harry Potter I to VII, The Hunger Games I to N, etc. Celebrities will only grow larger and more monstrous.

The book ends on the suggestion that the blockbuster strategy is going to have to be adopted by a growing range of businesses. Elberse gives the examples of Apple and Victoria’s Secret for their successful deployment of spectacle around a few products. “Apple releases fewer products and product variations than virtually all its competitors in computer hardware,” she writes. It makes just a few bets, in both production and marketing, in contrast to its competitors.

If I were an executive in any of the entertainment businesses, I’d regard this book as a must-read and consider its lessons very seriously. As a citizen, and a non-American, I found it a bit depressing. As a non-American because the US economic advantage of the scale of the domestic market is becoming even more pronounced than ever; the benefits of that scale are often overlooked anyway. They are even greater in digital markets where fixed costs (including or especially marketing) are high, and marginal cost is low to zero. As a citizen because –  although it would be overstating things to say everything is becoming Hollywoodised and dominated by celebrity – there is something in this.

It is obviously possible to declare independence from popular US-originated or US-inflected celebrity culture, and graze around the vast steppes of the internet for other cultural products. Other countries do succeed in different ways in supporting their own culture. There are different kinds of celebrity – Professor Brian Cox as well as Lady Gaga. Still, it seems it will have to be an increasingly active decision to opt out of Celeb-land. Brave New World?

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