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15 April 2020 | Posted by Innova Institute

9 keys for the adaptation of business models on cultural companies in the midst of COVID-19

The cultural industry is putting creativity at the service of innovation, generating alternative business models to continue operating during the current situation.

Innovating and adapting a company's business model is not an easy task; however, it is necessary when some disruptive element transforms the market, either due to the intervention of another company - as would be the case with Amazon with local commerce - or due to an unimaginable external cause until a few months ago, such as COVID-19. The Innova Institute of La Salle-URL, specializing in technology research as a transformative method for companies' business models, has studied how the cultural industry has made an effort to adapt different components of its business models as a response to the market disruption caused by the pandemic.

 

A business model describes how a company creates value, delivers it to its customers, and how it captures that value in monetary form. In this sense, Alexander Osterwalder, Swiss consultant, and entrepreneur proposes a reference framework called “Business Model Canvas” (BMC) to graphically represent a business model. This BMC classifies the components of a business model into nine fundamental parts. The article by the Innova Institute de La Salle-URL analyzes, precisely, the changes that have occurred in each of the nine components of the business models of cultural companies since the start of the pandemic.

 

1. Changes in the value proposition

The value proposition is the set of benefits that the company brings to the customer through its products or services, and for which the company, in most cases, gets money from its customers. At the same time, the value proposition shows how the company is different and better than the competition. A company can have several value propositions for different market segments and different types of products or services.

Due to the COVID-19 crisis, many cultural spaces have had to close their doors. Some have been able to turn around the difficulties created by the circumstances and offer new products and services, such as live shows and online seminars about the production of plays. As much as in PostCOVID-19 the theater will be able to reopen its doors to offer its works live, surely, at the same time, it will be able to continue offering these new ways of transmitting its value to the public.

In addition, cultural businesses have assumed a new role in times of pandemic, being an escape route and accompaniment for society, favoring people's occupation and mental health, which requires them to adjust and mutate their model towards this new proposal of value. In this sense, the change in the value proposition developed by the Chinese film giant Huanxi Media Group and ByteDance, the Chinese company behind the successful Tik Tok, is a good example. ByteDance has, through Tik Tok, millions of daily active users who post videos that last no more than 15 seconds. However, this was not an impediment for them to reach an agreement with Huanxi to broadcast its television programs on the platform. Thus, Huanxi agreed to pay ByteDance $ 91 million and grant it a share of the advertising revenue. Two days after the deal, the first movie was streamed by ByteDance and garnered 600 million views.

 

2. Changes in the relationship with customers

COVID-19 has revolutionized how companies relate to their customers. The cultural sector, which is basically focused on the face-to-face relationship, has been affected by measures of social distancing. However, companies in the sector have strengthened the company-client relationship by conducting online gatherings with writers, opening and liberalizing digital content, publishing videos showing life in artist confinement, etc. With these actions, more personal relationships have been established, even more in keeping with the cultural experience. Communities have been created through virtual forums, through video conferencing platforms and users can disconnect from the daily monotony, enjoy and learn in another way during confinement. These types of strategies allow both companies in the sector and customers to better overcome this period and for relationships to be strengthened and lasting, focusing more on the additional value provided and less on price.

 

3. Changes in distribution

The means that allow users to deliver the value proposition have been among the most affected by a pandemic that limits the multiple forms of interaction with the world. For this reason, the main players in the sector have had to redirect an experience that was predominantly in-person to the online channel.

In this sense, museums and art galleries around the world are choosing to offer virtual alternatives through 360º videos, visits using Google Street View or guided experiences from their websites. On the other hand, many musicians decide to offer live sessions from their homes through Instagram, either individually or collaboratively with other colleagues in their sector. As for the literary world, although ebooks, audiobooks, and podcasts have been around for some years, these literary consumption channels have become popular and some publishers have launched a web initiative to download books from their online catalog, as well as the possibility of participating in digital activities with some authors.

 

4. New market segments

A market segment is a group of people or companies that have common characteristics and similar needs. With the COVID-19, the needs have changed and therefore, some of the companies have opened up to another type of client or have modified their value proposition to adapt it to the tastes of new groups of clients. The Innova Institute of La Salle-URL has observed a considerable number of initiatives to reach new markets in the publishing world, where magazines and book publishers have made their copies available to the public at no cost. Magazines like Esquire, Marie Claire, Cosmopolitan, Very Interesting or National Geographic are offering their content for free to reach a broader base of potential clients.

Faced with the crisis and the need to entertain and educate the children at home, many companies have targeted their offerings towards the child audience and other non-traditional users in the cultural sector. For example, under the hashtag #ColorOurCollections more than 100 museums have created coloring books from drawings of their works. Entertainment companies are also using online spaces to reach new markets and publicize their proposals.

 

5. New sources of income

Finding new and imaginative ways to monetize the value that has been offered to users is a great challenge for the culture sector. Following the COVID-19 crisis, there is a notable increase in crowdfunding campaigns and voluntary donations. For example, Musicasa enables musicians to gain more exposure, visibility, and monetization alternatives through a private video conferencing platform, where musicians perform and people enjoy a unique and exclusive concert. Users make donations (from $ 5) for this service, which during this period will go entirely to the musicians.

Youtube broadcasts live the performances of some musical groups, which obtain their income from the advertising of their channels and the donations that can be made through the platform's chat tool. In some countries, the Ministry of Culture has launched support programs for artists who offer their products and services free of charge. In Colombia, for example, the “Estímulos 2020” plan has developed more than 96 calls for economic benefits for upcoming artists, and some local administrations have contracted art academies to develop short videos that guide the community on how to exercise or learn crafts at home.

 

6. New cost structure

Migrating part of their activities to the digital channel is a challenge for all types of companies since it forces them to offer an experience similar to that of live streaming and this implies new costs of various types:

  1. Technological: development of web page, mobile applications, QR codes, ‘gamification’, touch screens, sensory technologies, geolocation or augmented reality, among others.

  2. Generation and edition of content: video, podcast, photos, blog, etc.

  3. Promotional (communication) through different social networks, specialized pages, and search engines, among others.

  4. Support and maintenance of the digital channel.

Regarding cost reduction, cultural companies have been forced to make great efforts to contain and reduce expenses. Fixed costs do not vary except if renegotiated with suppliers, workers, and financial entities. ERTEs and microloans play an essential role. Similarly, for the duration of the pandemic, companies are struggling to find ways to reduce variable costs. After COVID-19, it will be necessary to check that the cost structure is in accordance with the value proposition that is offered at that time.

 

7. Changes in the key activities of cultural companies

The key activities are those that are necessary to create and offer the company's value proposition. In cultural companies, they are usually related to the production of shows, books, songs, concerts, etc. That is, with the creation, design, recovery, and maintenance of products that will meet the needs of customers and the development of logistics work so that users can access physical facilities and enjoy exhibitions and shows.

The new challenges of the sector require activities such as the design and maintenance of digital channels, as well as the recording and editing of 360º videos for exhibitions, the design of audiovisual pieces, the digitization of classic material from libraries and cultural centers, the development of transmedia content and the adaptation of appropriate scenarios for streaming and for digital marketing for new clients.

In addition to virtualization, the crisis has generated social effects of collaboration that implies for companies to channel the initiatives of independent artists who upload their materials to the network and design forms for financing free accessible material. In addition to managing projects for models financing through crowdfunding or public resources, which are oriented towards transparency and accountability, and digital leadership in companies and control of channels to ensure easy and quality access to resources.

 

8. Changes in key resources

The key resources are those tangible or intangible assets, as well as the personnel necessary to carry out the key activities that will culminate in the product or service offered to the client. The cultural industries now need technological equipment with servers that support excess demand and allow the user experience to be of quality, as well as a subscription to digital communication platforms such as YouTube and social networks to reach users.

Regarding capabilities, the sector requires linking, in addition to its traditional staff, teachers who promote the interaction of art with the public. Also to engineers, designers, and graphic communicators, that allow them to fulfill the activities associated with virtualization previously described, and business managers with digital skills, and project management according to the new challenges of the sector.

 

9. Changes in key partners / Suppliers

The key partners are the network of suppliers and partners that enable the business model to work. Alliances respond to the need of companies to optimize their business models, reduce risks or acquire resources and capabilities.

In adapting their business models, following the crisis generated by COVID-19, companies in the cultural sector have had to adapt to new partners or key suppliers. The fact that the means to reach users is through the internet, places organizations in a position to seek alliances or contracts with providers of such professional online services, a situation that many of them had not previously considered.

To mention just a few examples: many bookstores must look for digital publishers to digitize content that previously had them on paper, and museums must look for augmented reality or virtual reality technology providers to offer a better experience to their users.

As in other aspects of the analysis of the effects of the COVID-19 pandemic, The Innova Institute of La Salle-URL has found that the cultural offer has undergone a transformative effect, that forced by the pandemic, will be able to persist as an innovation, in PostCOVID-19. This is manifested in new cultural experiences, new ways of living and appreciating cultural works, new ways of access and new balances in innovative combinations of cultural consumption satisfaction. All this leads to opportunities to adapt cultural business models, in each of its components, to offer specific responses to each type of cultural consumption.

 

This article was written collaboratively by:

Francesc Miralles, Fàtima Canseco, Montserrat Peñarroya, Alessandra Giglio Hirtenkauf, Juan Nihoul, John Sanabria, Carina Rapetti, Liliana López, Sergio Cuervo and Katalina Soto.

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