The Pegasus, The Blockbuster Effect and The Super User

It's more than about just big events. It's happening everywhere and The Stronach Group is right in the thick of it.

Back in 2009, Wired magazine's Chris Anderson wrote a book about something called the “long tail.” This thesis centered on the fact that the internet allowed massive amounts of information, copious products, and other content to be created at almost no cost. Much of this content would be niche in nature, and it would suddenly find itself with a paying audience.

Chris Anderson was mostly correct. If you've watched a viral video, listened to a song you haven't heard since high school, or downloaded an old obscure book, you're a part of the long tail. In the years since the book was published, though, something different has occurred: People are not consuming the long tail in anywhere near the volume that was predicted.

Why this appears to have happened is pretty interesting.

Back in 2005, Bob Iger took over at Disney and began purchasing big movie brands, like Pixar, and more recently, the Star Wars franchise. He believed that yes, content and competition for eyeballs would increase (and much of it would be low-cost or free), but this would clutter the market and the top content would be worth much more.

In 2016, thousands of movies were released world-wide, but the top 5 in terms of gross revenue (over 20% of the entire motion picture market) were all from Disney. Amazingly, Disney only produced 14 films in total, and this itself was a pretty big strategy shift–most big studios produce around 25 films, year in and year out.

For the music industry, the statistics are even more eye-opening.

The Economist reported that last year, 96% of all songs purchased online have fewer than 100 total downloads. In 2013, music streaming service Spotify noted that 20% of its songs (about 4 million of its 20 million song catalogue) had never been streamed, even once.

In movies and music, we've seen what Mr. Iger predicted. Some are calling it the “Blockbuster Effect”–return on investment is being maximized by a very few solid brands that consumers are purchasing (or listening to or watching) over and over again.

If you read a previous column of mine at the TDN about “Big Event Marketing,” you may be saying this phenomenon is nothing new. We all know big events are growing bigger, even for horse racing. However, in 2017, it's more than about driving more people and eyeballs to big events. This is about the 'Super User.'

Super users are highly engaged consumers of a product. They talk to each other frequently on social media; they spend thousands of dollars to meet each other at events; they may buy memorabilia on eBay. They are vitally important in the changing–and increasingly cluttered–digital landscape.

The movie industry is targeting super users (like Disney has) for their regular patronage, but they've now moved into new products and new discriminatory pricing to drive even more revenue. For example, Paramount has been offering $50 tickets to advanced screenings of new blockbusters. Ticket prices for touring bands have gone through the roof, and some, like Pearl Jam, are making $2.5 million per night. Sure you can watch a Pearl Jam concert online for free, or catch a new movie next week, but super users want extras, and they want it live.

This Economist study notes that “being there” means a lot in this day and age:

“There is still a huge market for experiencing something real in person. The few hits that have captured the public imagination command a hefty premium. From 'Hamilton' on Broadway to the mixed-martial arts combatants in the Ultimate Fighting Championship, people will pay thousands of dollars for the privilege of being there, even though they can experience the same thing or at least hear the same songs in digital form for a small fraction of the price.”

As this screenshot shows (with data from European horse racing), horse racing receives 20% of revenues from owners, 65% from bettors and 15% from raceday itself. The 15% live-event percentage is the lowest of any major-league sport listed. Racing, in Europe or here in North America, frankly has few options for revenue generation; bettors are being tapped out, foal crops are down, and the sport pays to be on television in most instances–not the other way around. But with only 15% of total revenue from live events, I believe the super users are there for the taking–if there's a blockbuster for them to patronize.

Enter The Stronach Group and the Pegasus World Cup.

Gulfstream advertised the event with extremely high ticket prices and (despite some in the industry who were horrified at the price level) found a super user market perfectly willing to pay that price. Since the inaugural event was sold out, we have to believe there was at the very least some success achieved.

In addition, because of the buzz–not unlike when Pearl Jam comes to town–casual customers who wanted something big to be a part of were leveraged; again with higher prices. The Stronach Group increased signal fees for the Pegasus World Cup itself, and yes, like with the live event super user, track and ADW partners were willing to pay that higher number. Gulfstream injected a scarcity into a January horse event and in the future (if the event is staged again), I suspect we'll see higher signal fees on the entire card.

The relationship between horse racing and big events in the 2000's is nothing new. With the Kentucky Derby, Churchill Downs Inc. proves you can shoe-horn massive amounts of people into a venue, have them spend money, and be very good for the bottom line. But The Stronach Group is not dealing with a slice of Americana like the Derby, and they aren't trying to attract two hundred thousand people.

What they've tried to do with the promotion (and the event itself) is to stick out in a cluttered horse racing market, while attracting a super user into a smaller venue for a compelling weekend. If they stick with it (I am not a fan of moving the event to a bigger venue, because it might turn-off the super user), I believe it fits perfectly well into the new world–a world that depends on blockbusters, and those willing to pay the price.

In Part II we'll examine what the non-blockbuster tracks can do to achieve some of their goals in an ever-changing gambling and technologically driven world.

Dean Towers is a board member of the Horseplayers Association of North America and a Toronto-based director of a digital marketing agency.