Last week, Starbucks announced its interest in a closer connection with Hollywood. For starters, it will promote a Lions Gate film called Akeelah and the Bee in return for an undisclosed portion of the box office proceeds.
Hollywood is thrilled, I’m sure, at the prospect of a new marketing vista and the opportunity to reach the consumer in the uncluttered space of the Starbucks.
But what’s in it for Starbucks?
Well, there are those dreams of empire. As Gray and Kelly of the WSJ put it,
Starbucks Corp., having conquered the coffee business and staked a claim in music, is setting its sights on Hollywood.
Starbucks is so very good at the coffee business that it must be getting restless. Plus, Schultz has always insisted that he is in the "lifestyle" business and he recognizes Hollywood as the most important lab benches for cultural (and lifestyle) innovation. This partnership is well advised.
And as the WSJ points out, with drive-through windows and breakfast sandwiches, Starbucks is now competing with McDonalds and Dunkin Donuts. The Hollywood connection might be a useful point of difference.
Fair enough. But I have a question. What does this do to Starbucks as a "third space." This was one of the great marketing accomplishments of our time: to see that there was the opportunity, the wish, for a space between work and home, and then to build it. In effect, Starbucks was doing a little cultural innovation of its own. North America has never been entirely comfortable with life in public. Unlike the European cultures from which it sprang, public space in the new world was an excluded middle, not quite informal enough to give the comforts of home, not quite formal enough to be governed by the rules of work. Hence, the drive through line…or, the restaurant in which we are aware of others only until conversation and the Bordeaux draws us into a world of our own.
Starbucks actually managed to build a third space, and then to monitize it. Bravo. How many of the success stories in American culture come from people who have the courage and smarts to give us cultural innovations of this kind? (I give you the iPod, the Blackberry, the Coca-Cola Company, Nike, Sony, to name a few.)
So what happens to the third space when Starbucks "goes Hollywood?" What happens when the third space fills us with DVDs and CDs, to say nothing of promotional messages on the sleeve of every coffee-cup.
The WSJ sees a danger: "Starbucks could risk alienating customers or diluting the value of its brand if its promotions come on too strong." And Ken Lombard, the man in charge of the Hollywood connection for Starbucks, does too: "Our customers aren’t going to walk into their favorite Starbucks and suddenly feel like we’ve commoditized music and CDs." Apparently, Starbucks will sell 20 or fewer titles at a time.
But frankly, I am not reassured that Starbucks has thought through the potential danger. (Just for starters, what the heck does Lombard think "commoditize" means?) If I were a Wall Street analyst, I want to hear that benefit (new revenue streams, new connections to the beating heart of contemporary culture, new sources of interest in a Starbucks store) actually outweighs risk. More precisely, I want to hear that the sacred ground of Starbucks retail is not going to be sacrificed in pursuit of a few extra bucks. As it stands, this space has an interesting "hard to put your finger on" quality which I personally I like lot. Shilling for Hollywood might give Starbucks a quality that’s really easy to put our finger on.
What are the fundaments of the Starbucks brand? It begins with the coffee. It continues with the creation of a coffee connoisseurship that comes to us out of Venice (via Seattle). But what is crucial here is what Starbucks managed to do with that retail space. They gave it something. And that something gives us something. And they did such a good job here that not even the ubiquity of the Starbucks outlet (there are now 5,500 of them) has really damaged the magic of this space. (In fact, it turns out that not even the now reliable truculence of the serving staff can damage the magic of this space.)
We are not good at thinking about how the Starbucks space creates value for the brand and adds value to the Starbucks proposition. So it’s difficult for The Street to factor this in. But when, as an investor, I pick up the Wall Street Journal, I want someone, preferably Lombard, to "run the numbers" here and reassure me that brand equity is in good hands.
As Katherine Stone put it rather nicely in a comment on this blog this morning, (referring to bad brand stewardship on the part of the Coca-Cola Company): "Here they go again siding with money over magic." This is the story of American capital: corporations that build brands and then destroy them. It is, to be sure, a death of a thousand cuts: a brand extension here, an ill advised partnership there. It all seems like a good idea at the time. But eventually the pursuit of minor profit sacrifices the real founts of value. As Katherine’s remark reminds us, we understand more and more these days that the money comes from the magic, and that we "commoditize" this magic at our peril.
What would it cost us in time, effort and investment to build a brand like Starbucks from scratch? Could we build it from scratch? Do we wish to put this accomplishment at risk? Or, more exactly, when, where and how can we leverage the brand without diminishing it.
For all I know, this Hollywood partnership may be exactly the right thing to do. I guess what I want is the due diligence of a real analysis.
Gray, Steven and Kate Kelly. 2006. Starbucks Plans to Make Debut in Movie Business. Wall Street Journal. January 12, 2006.